-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ShaGaqYMuvFePcbPt4VeRe1mIjVVtHdDL8A1sOAn03JjgHb1iTld4RG9kRd/TgNW 4wWLXZ0IbALZIOmC7GQMvA== 0000899243-02-000910.txt : 20020415 0000899243-02-000910.hdr.sgml : 20020415 ACCESSION NUMBER: 0000899243-02-000910 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 25 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INDUSTRIAL DATA SYSTEMS CORP CENTRAL INDEX KEY: 0000933738 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 760157248 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-14217 FILM NUMBER: 02596638 BUSINESS ADDRESS: STREET 1: 600 CENTURY PLZ STREET 2: BLDG 140 CITY: HOUSTON STATE: TX ZIP: 77073-6016 BUSINESS PHONE: 2818213200 MAIL ADDRESS: STREET 1: 600 CENTURY PLAZA DR STREET 2: BLDG 140 CITY: HOUSTON STATE: TX ZIP: 77073-6016 10-K405 1 d10k405.txt ANNUAL REPORT ON FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 001-14217 INDUSTRIAL DATA SYSTEMS CORPORATION (Name of Small Business Issuer in its Charter) Nevada 88-0322261 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 600 Century Plaza Drive, Suite 140, 77073-6033 Houston, Texas (Zip code) (Address of principal executive offices) Issuer's telephone number (281) 821-3200 Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Name of each exchange each class on which registered ---------- --------------------- Common American Stock Exchange
Securities registered pursuant to Section 12(g) of the Exchange Act: Not applicable Check whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months or for such shortened period that the issuer was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The issuer's revenues for fiscal year ended December 31, 2001 were $22,053,738. The aggregate market value of the voting stock held by non-affiliates of the registrant on March 18, 2002 was $7,223,722. The issuer has no authorized non-voting stock. The number of shares outstanding of each of the registrant's classes of stock on March 18, 2002 is as follows: $0.001 Par Value Preferred Stock....................2,500,000 shares $0.001 Par Value Common Stock......................22,861,199 shares DOCUMENTS INCORPORATED BY REFERENCE Responses to Items 10, 11, 12, and 13 of Part III of this report are incorporated herein by reference to certain information contained in the Company's definitive proxy statement for its 2002 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or before April 30, 2002. Transitional Small Business Disclosure Format: Yes [_] No [X] - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- INDUSTRIAL DATA SYSTEMS CORPORATION 2001 FORM 10-K TABLE OF CONTENTS PART I Item 1. Business....................................................... 2 Item 2. Properties..................................................... 10 Item 3. Legal Proceedings.............................................. 11 Item 4. Submission of Matters to a Vote of Security Holders............ 11 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................................................ 13 Item 6. Selected Financial Data........................................ 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation........................................... 15 Item 7A. Quantitative and Qualitative Disclosures About Market Risk..... 22 Item 8. Financial Statements and Supplementary Data.................... 23 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure........................................... 46 PART III Item 10. Directors and Executive Officers of the Registrant............. 46 Item 11. Executive Compensation......................................... 46 Item 12. Security Ownership of Certain Beneficial Owners and Management..................................................... 46 Item 13. Certain Relationships and Related Transactions................. 46 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8- K.............................................................. 47 Signatures............................................................... 52
i PART I CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS Certain of the statements made in this Report including matters discussed under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as oral statements made by the Company and its officers, directors or employees, may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements are based on Management's beliefs, current expectations, estimates and projections about the industries which the Company and its subsidiaries serve, the economy and about the Company in general. The words "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate" and similar expressions are intended to identify such forward-looking statements; however, this Report also contains other forward-looking statements in addition to historical information. Although we believe that the expectations reflected in the forward-looking statements are reasonable, such forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to differ materially from historical results or from any results expressed or implied by such forward-looking statements. The Company cautions readers that the following important factors, among others, could cause the Company's actual results to differ materially from the forward-looking statements contained in this Report: (i) the effect of changes in laws and regulations, with which the Company must comply, and the associated costs of compliance with such laws and regulations either currently or in the future as applicable; (ii) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as by the Financial Accounting Standards Board, or of changes in the Company's organization, compensation and benefit plans; (iii) the effect on the Company's competitive position within its market area of the increasing consolidation within its services industries, including the increased competition from larger regional and out-of-state engineering services organizations; (iv) the effect of increases and decreases in oil prices, (v) the inability to get parts from vendors (vi) the inability to renew its line of credit; and (vii) the effect of changes in the business cycle and downturns in local, regional and national economies. The Company cautions that the foregoing list of important factors is not exclusive. We are under no duty to update any of the forward-looking statements after the date of this Report to conform such statements to actual results. The following summary is qualified in its entirety by, and should be read in connection with the more detailed information contained herein and in the Company's Consolidated Financial Statements, and the Notes thereto, included elsewhere in this Annual Report on Form 10-K. References to the "Company" or to "IDSC" refer to Industrial Data Systems Corporation. References to "IDS" refer to the Company's wholly owned subsidiary, Industrial Data Systems, Inc. References to "IED" refer to the Company's wholly owned subsidiary, IDS Engineering, Inc. References to "Thermal" refer to the Company's wholly owned subsidiary, Thermaire, Inc. dba Thermal Corp. References to "CPM" refer to the Company's wholly owned subsidiary, Constant Power Manufacturing, Inc. References to "PEI" refer to Petrocon Engineering, Inc., a subsidiary owned indirectly through IDS Engineering Management LC, of which all of the membership interests are owned by the Company. References to "PSI" refer to Petrocon's wholly owned subsidiary, Petrocon Systems, Inc. References to "PCR" refer to Petrocon's wholly owned subsidiary, Petrocon Construction Resources, Inc. References to "TE&C" refer to Petrocon's wholly owned subsidiary, Triangle Engineers and Constructors, Inc. References to "RPM" refer to Petrocon's wholly owned subsidiary, RPM Engineering, Inc. 1 Item 1. Business General Industrial Data Systems Corporation (IDSC or the Company) was incorporated in the State of Nevada in June 1994. The Company's common stock trades on the American Stock Exchange under the symbol "IDS." The Company has never filed for protection under the bankruptcy protection act, nor has the Company or any of its assets been in receivership or any other similar proceedings. IDSC entered into a letter of intent on April 3, 2001 to acquire, through merger with a wholly owned subsidiary, Petrocon Engineering, Inc., a Texas- based engineering support services company, in exchange for 9,800,000 shares of IDS, valued at $0.71 per share. The purchase price totaled approximately $23,806,000. The transaction was financed by issuance of common stock valued at $6,637,000, net of registration costs, issuance of preferred stock with a liquidation value of $2,500,000 and assumption of debt totaling approximately $13,737,000. The transaction was consummated on December 21, 2001 and was accounted for as a purchase with an effective date of December 31, 2001. Accordingly, the results of operations of Petrocon are not included in the consolidated results of operations for the year ended December 31, 2001, but will be included in the consolidated results of operations of IDSC prospectively from the date of acquisition. See additional details in the Selected Financial Data, Management Discussion and Analysis of Financial Condition and Results of Operation, and the Financial Statements sections of this Report on Form 10-K. Prior to the merger, the Company had three wholly owned operating subsidiaries, IDS Engineering, Inc., Constant Power Manufacturing, and Thermaire, Inc., dba Thermal, comprising the Company's three segments in 2001. The engineering services segment is IDSC's predominant business segment, providing 64.5% of the Company's revenue and 71.8% of its gross profits in 2001. IDS Engineering, Inc. (IED), which makes up the engineering segment, was incorporated in October 1997 in Texas and operates in Texas and Oklahoma. The engineering services segment generates revenues by providing engineering consulting services to the pipeline and process divisions of major integrated oil and gas companies. These services include the development, management and turnkey execution of engineering projects, including procurement, construction, and management (EPC) activities. The engineered systems segment is responsible for approximately 16.2% of the total revenue contributing to the gross profits 8.8%. Constant Power Manufacturing, Inc. (CPM), in the engineered systems segment, is a Texas corporation formed in June 1989, and was purchased in 1998. CPM fabricates industrial grade uninterruptible electrical power systems and battery chargers. The manufacturing segment consists of another wholly owned subsidiary, Thermaire, Inc. dba Thermal Corp. (Thermal) that provided approximately 19.3% of the Company's revenue and 19.4% of the gross profits for 2001. The Company acquired Thermal in 1997, which manufactures air handling equipment for commercial heating, ventilation, and cooling systems. Thermal is a Texas corporation formed in 1992. Petrocon, a Texas corporation was formed in 1988 and provides engineering services and engineered systems to a broad range of industrial, commercial and institutional clients throughout the United States and internationally. Petrocon is the parent of five wholly owned operating subsidiaries: RPM Engineering, Inc., incorporated in the state of Louisiana in 1980 and acquired by Petrocon in October 1996; Petrocon Construction Resources, Inc., a Texas corporation formed in 1994; Petrocon Systems, Inc., a Texas corporation formed in 1991; Triangle Engineers and Constructors, Inc., incorporated in Texas in 1980 and acquired by Petrocon in 1996; and Petrocon Engineering of Louisiana, Inc., a Louisiana corporation formed in 1998. Petrocon's multi-disciplined expertise enables it to offer its clients broad design and engineering solutions, extending from project inception through completion, including start-up and operation, within multiple industries and across diverse geographic markets. In 2001, Petrocon generated consolidated revenues of approximately $70,000,000. 2 Products and Services Engineering Services The engineering services segment has traditionally offered engineering consulting services primarily to the pipeline and process industries for the development, management and turnkey execution of engineering projects. As a result of the Petrocon merger, the Company will be able to offer its expertise to a broader range of industrial clients. The predominant type of contract is the blanket services contract which typically provides IDSC's clients with engineering, procurement and project management services on a time and materials basis. Capital projects are also executed for its clients on a full service, turnkey basis. The engineering staff has the capability of developing a project from the initial planning stages through the detailed design and construction management. In 2001, the Company was successful in procuring more contracts on a fixed price basis than in prior years. The services provided include conceptual studies, project definition, cost estimating, engineering design, and material procurement, in addition to project and construction management. These services are performed for major energy-related firms on facilities that include cross-country pipelines, pipeline pump stations, gas compressor facilities, chemical plants, crude oil refineries and electric power generation facilities. The engineering services segment offers its clients a wide range of services from a single source provider. Both modifications to existing facilities and new construction projects have been handled by the engineering services segment. Engineered Systems For the year 2001, IDSC's engineered systems segment is comprised solely of CPM, a thirteen year old company established in the industrial and commercial power backup and conditioned power systems marketplace. Both standard and custom-designed products and systems are fabricated and sold in a wide array of power ranges which include: battery chargers, battery monitoring systems, DC power supplies, DC/AC inverters, uninterruptible power systems (UPS), power distribution systems and solar photo-voltaic systems. CPM provides field service support for installation and maintenance of these products. Most of the products are made pursuant to specifications required for a particular order. A new product line of switch-mode battery chargers was introduced in mid-1999. These chargers have been readily accepted where physical size constraints and heat are design factors. During 2001, CPM began to provide explosive proof enclosures for hazardous area requirements. Refineries, petrochemical plants, utilities, offshore platforms and other commercial, industrial and governmental facilities utilize the products sold by CPM. CPM sells to industrial and commercial accounts across the United States. The Advanced Controls division of IED was established in 2000 for the purpose of providing specialized expertise to clients for the design and implementation of their automation and control system requirements. This division was combined with the engineered systems segment following the merger with Petrocon. Petrocon Systems, Inc., (PSI), a wholly owned subsidiary of Petrocon Engineering, Inc., designs, assembles, programs, installs, integrates and services control and instrumentation systems for specific applications, principally in various energy and related processing related industries. These engineering personnel offer comprehensive, turnkey services for automation and control of various industrial processes including but not limited to compressor stations, material handling, data acquisition, position measuring, environmental and safety monitoring and factory automation. Feasibility studies, engineering, design, estimating, configuration and programming, construction, commissioning, startup, troubleshooting, and operation of controls systems are provided by personnel experienced in field operations and maintenance. CPM has continued the manufacturing and service of IDS' specialized industrial microcomputer systems to existing IDS customers. This division of CPM also provides systems integration and resells industrial microcomputers and peripheral products. The microcomputer and peripheral products are designed to be utilized in industrial applications, which include manufacturing, process control, discrete manufacturing, data acquisition, telecommunications and man-machine interfaces. These systems are typically designed with enclosures that withstand tough environmental conditions or with enclosures that have a special form factor which are based on the customer's specific parameters. 3 Manufacturing The manufacturing segment, comprised solely of Thermal, has manufactured quality air handling equipment since 1945. Thermal also reserves production capacity to accomplish premium, expedited deliveries of two or four weeks, when necessary. Thermal is well known for its design and manufacturing expertise and flexibility, which is often required to meet the special needs for custom installations. Thermal's product lines consist of a variety of cooling, heating and ventilating equipment. The wide range of sizes and models in each product line coupled with Thermal's manufacturing adaptability provides flexibility in air handling equipment choice. Thermal's quality air handling products include central plant air conditioners, multi-zone air conditioners, high-pressure air conditioners, and air-cooled condensers. Thermal also manufactures fan coil units, cooling and heating coils, and roof top air handlers. Popular custom unit features include special modular construction, custom cabinet dimensions, special insulation type and thickness, gas and electric heaters, humidifiers, all types of fans, non-standard arrangements, motor and unit controls, unique customer requirements, exotic materials of construction and severe service applications, etc. Thermal distributes its products exclusively through its United States and international network of non-stocking sales representatives. Product Development Engineering Services Engineering services continues to provide consulting services primarily to the energy industry as its core business. There are approximately twenty-one blanket service contracts in place in which clients are furnished with service on a time and materials basis and eight fixed fee contracts for turnkey services. With the merger of Petrocon, an additional 168 blanket service agreements are in place for time and material service and 41 fixed fee contracts for turnkey services. The Company's Tulsa, Oklahoma office, which opened in February 1999, has facilitated the expansion of its market area. During 2000 and 2001, the engineering segment continued to grow geographically throughout the United States and into international markets. IED completed development of its standard meter skid package in 1999 and began to market this package, which is designed with modular, interchangeable components that help to reduce project cost and execution times. The initial revenue for this product was generated in the second half of the year 2001. As part of its implementation plan to increase its range of engineering capabilities and to market its services to downstream industries such as the refining, petrochemical and process industries, IDSC acquired Petrocon Engineering, Inc., headquartered in Beaumont, Texas effective as of December 21, 2001. (See further discussion in "Business Strategy") Engineered Systems In the engineered systems segment in 2000, CPM introduced its USGS Intellicharger(TM) product line of microprocessor controlled battery chargers that bring to the marketplace state-of-the-art flexibility and features for the end user. The Intellicharger is now included in the majority of battery charger units sold by CPM. The Company has seen substantial cost savings in the manufacturing process during the initial six months of production by reducing labor. This reduction in cost has provided CPM the opportunity to enter new markets that have historically been unavailable due to price competition. The Company does not intend to complete the battery-monitoring product, BMR-280, since most of its functionality is included in the Intellicharger. With the merger, PSI a subsidiary of Petrocon, will join CPM in the systems segment. PSI designs, assembles, programs, installs, integrates and services control and instrumentation systems for specific applications, principally in various energy and processing related industries. PSI's control and instrumentation systems are custom designed and include both conventional pneumatic and hydraulic control systems and 4 sophisticated electronic, microprocessor-based controls employing programmable logic. Typical applications for PSI's control and instrumentation systems include oil and gas production safety systems, refinery, petrochemical and chemical plant controls, analyzer packaging, fire and gas detection systems, pipeline compressor station controls, data acquisition systems, control systems for oil and gas wells, engine and gas turbine driven compressors, pumps boilers and heaters, and processing equipment. All facets of control and instrumentation system design, engineering, assembly and testing are performed in-house by PSI, and PSI's full service field installation and technical staff performs complete electrical and instrumentation installation projects, start- up and commissioning services, modifications to existing systems, on-site training and routine maintenance procedures for client operating personnel. PSI's control systems unit does not produce products for inventory and purchases components for its systems on an as-needed basis. Manufacturing In the manufacturing segment during 2000, Thermal installed the necessary equipment for the manufacturing of industry compliant, 5/89 plate-fin coils. The addition of this plate-fin coil production line has improved its competitive position in the marketplace by reducing product costs and production time. A majority of Thermal's coil requirements are now produced in-house. In 2001, the Company made additional capital commitments for the replacement of a variety of older equipment used on its production line. Competition Engineering services is in a highly competitive environment and competes with many other organizations that are substantially larger and have greater financial and other resources. The engineering services segment competes with a large number of other firms of all sizes, ranging from the industry's largest firms, which operate on a worldwide basis, to much smaller regional and local firms. Typical competitors include: S&B Engineering, Jacobs Engineering Group, CDI Engineering Group, Matrix Engineering, GDS Engineering and Mustang Engineering. Competition in the engineering services segment is primarily centered on performance and the ability to provide the engineering, planning, and project execution skills required to complete projects in a timely and cost efficient manner, as well as price. Larger projects, especially international work, appears to be trending toward pricing alternatives designed to shift to the service provider, or requiring the service provider to at least share in, the risks of cost overruns and inefficiencies in the delivery of services. These alternatives include fixed-price, guaranteed maximum price, incentive fee, competitive bidding, and other "value based" pricing arrangements. In its engineered systems segment, the emphasis that both clients and the Company place on pricing tends to vary with cyclical conditions in the oil and gas, petroleum and processing industries, with pricing becoming a more important factor during industry downturns. CPM's market is characterized by a small number of larger companies that dominate the bulk of the market, and a large number of similarly sized companies that compete for a limited share of the market. In the opinion of management, the competitive position of CPM has been greatly enhanced by the introduction of its microprocessor controlled battery charger product line, trademarked Intellicharger. The Intellicharger product contains battery- charging technology that Management believes is unique in the industry and has many advantages over existing battery charging methods. The new Intellicharger product has allowed CPM to enter markets that are more standardized in nature and volume oriented. Companies competing in the power systems arena include Custom Power, Inc., LaMarche Mfg., Inc., Goodall, Inc., and Powerware, Inc. PSI's control systems and modular facilities compete with similar systems built by other companies, both larger and smaller, some of which compete primarily on the basis of pricing. PSI's competitors include the following: PasTech, TAS, TAG, Contact Engineering, and Aspen Tech. Like engineering services and engineered systems, the manufacturing segment in which Thermal operates is highly competitive. Management believes that the principal competitive factors in its market include delivery 5 time, flexibility and product design, breadth of product features, product quality, customer service, and price. Thermal competes with other air handling equipment manufacturers on the basis of quality, quick delivery and capability to provide custom applications. Management believes that Thermal is cost competitive with many well-established manufacturers, such as Temtrol, Governaire, Mammoth and Pace, and others. Thermal has distinguished itself by being responsive to customer requests for custom products and is able to expedite delivery of units faster than many other commercial manufacturers due to the flexibility of its engineering and manufacturing facility capabilities. Business Strategy Engineering services' strategy is to increase revenues by developing and marketing the capability of performing full service turnkey or EPC (Engineering, Procurement and Construction) projects. IED has traditionally only been responsible for the engineering portion of its projects, which is normally between five to fifteen percent of the project's total installed cost. In the past, IED has invoiced for its services largely on a time and materials basis with billing rates that are specified in client generated blanket services contracts. During the year 2001, the Company saw a significant increase in the number of projects billed on a fixed price basis. In this regard, IED added staff with expertise in project proposals and bidding, and worked to diversify its client base. In 2001, the Company emphasized the services provided through its Advanced Controls division of IED. The Company believes that the Advanced Controls division allows its engineering services segment to leverage its existing sales and marketing effort. Additional revenues have occurred from projects that the Company would not otherwise have been involved in and larger revenue percentage of projects on which the Company is already performing the engineering and design function. The controls function of any engineering project is very critical and often determines project success or failure. The Advanced Controls capability facilitates the execution of the Company's plan to handle a larger portion of projects on a fixed price turnkey basis. Performing the controls function in-house will make the project interface easier, and should result in overall improved project performance by the Company. This division will be combined with the engineered systems segment in 2002. Management does not believe that CPM made significant progress in the signing of new sales representatives or in its marketing strategy in 2001. Management anticipated adding in-house personnel in 2001 whose primary responsibility was to increase quotation capabilities and work to expand the sales and marketing effort of CPM. Although the Company was successful in this effort in 2001 it did not occur soon enough to result in increased operating results. CPM has strategically placed advertising for its batteries, battery chargers, and UPS systems in a well-known product catalogue. The Company plans to continue these advertisements through the year 2002. Thermal continues to focus on establishing and supporting a qualified sales representative network within the U.S., and exploiting its niche for custom products. The addition of a plate-fin coil manufacturing line has helped reduce product costs and production time, and has also generated additional revenues from increased sales of replacement coils. The Company's plan to pursue potential acquisitions of complementary businesses was realized on December 21, 2001 through its merger with Petrocon. The initial business strategy of the combined company will focus primarily on cross-marketing its engineering capabilities and, following a reduction in its debt burden, completing mergers and acquisitions in its engineering business. Since there is little overlap in the engineering customer bases of the two companies, there is considerable potential to enhance the internal growth of the combined company through cross-marketing. An intense marketing effort focused on those customers who are identified as most likely to buy the additional services offered through the combined company will be the highest priority. Selling points will include: . More technical resources at our disposal to serve customers, with approximately 900 employees in the combined operations; 6 . Greater depth of capabilities that can service energy customers in the oil and gas industry from the well head through the finished petrochemical product; . Enhanced geographical coverage with offices in the primary U.S. energy markets of Houston, Tulsa, Baton Rouge, Beaumont, and Lake Charles; . Additional shop space and personnel available to handle larger, more diverse, instrumentation/systems packaging projects; . Construction management and inspection services previously not available to IDSC; and . The potential for enhancing the market coverage for Constant Power's UPS products through Petrocon Systems, Inc. and through over 440 personnel outsourced into plants in the Petrocon organization. Sales and Marketing The Company's various subsidiaries derive revenues primarily from in-house direct sales and from its network of sales representatives. Sales representatives are teamed with in-house sales managers and are assigned to territories within the United States. Management believes that this method of selling leads to increased account penetration, proper management of its products, and enhanced customer service, which creates and maintains the foundation for long-term relationships with its customers. The Company's in- house sales personnel are normally compensated utilizing incentive commissions, which are based on either a percentage of revenues or gross profitability which can be attributed to their efforts. Management believes that its past and future growth depends in large measure on its ability to attract and retain qualified sales representatives and sales management personnel. Management is of the opinion that its in-house marketing and selling of its products allows for more freedom and control, thus increasing profitability. The Company's subsidiaries promote their products and services through general and trade advertising, participation in trade shows, and through on- line Internet communication via IDSC's corporate home page that provides links to each of the subsidiaries' websites. The Company, through a service provider, makes an effort to maintain and update each of its subsidiaries' Internet web sites on an ongoing basis. It is the opinion of management that the Internet is a powerful marketing tool, and with the increasing e-commerce activity becoming evident, each subsidiary must be positioned to capitalize on this trend. The Company's sales personnel focus on building long-term relationships with customers and, through their product and industry expertise, providing customers with product application, engineering and after-the-sale services. Additionally, the sales personnel of IDSC subsidiaries seek to capitalize on customer relationships that have been developed by each subsidiary through cross-selling of the various products and services offered by each subsidiary. Sales leads developed through this effort are then jointly pursued. Much of the Company's business is repeat business, and the source of new customers has been largely through word-of-mouth referrals from existing customers and industry members, such as manufacturer's representatives. The merger with Petrocon expanded the Company's existing customer base and the potential for business development activities. Petrocon has traditionally believed that marketing and business development are company-wide responsibilities, and Petrocon's project and other managers are encouraged to be actively involved in business development efforts through the maintenance of professional and personal relationships and through the identification and pursuit of new business opportunities. Company managers closely monitor Petrocon's client list to ensure that existing clients are contacted on a regular basis in order for the Company to remain before the client and be aware of all current and proposed client projects. Additionally, eleven full-time professional marketers in-house are now employed by the Company as a result of the merger. Business development agents are retained in Mexico City, the Middle East, the United Kingdom and Norway, and alliances with other engineering and construction firms worldwide including Australia, Europe, Central and South America and Pacific Rim locations. 7 Customers IDSC's engineering services customer base consists primarily of Fortune 500 companies in numerous industry segments within the United States. Effective with the merger, the engineering services group added many clients representing a broader range of industries and institutions, most of whom have been repeat clients. With the Petrocon acquisition, the Company will not have continuing dependence on any single client or any limited group of clients, however, one or a few clients have in the past and may in the future contribute a substantial portion of the revenues in any one year or over a period of several consecutive years due to the size of major engineering projects. This segment is not necessarily dependent upon sustaining the level of revenues contributed by particular clients in any given year or period of consecutive years. Historically, the Company has not generated significant revenues from governmental clients. The Company has undertaken new projects for prior clients and has provided ongoing services to clients following the completion of their projects. Nonetheless, IDSC must continually obtain new engineering projects, whether from existing or new clients, in order to generate revenues in future years as existing projects are completed. In recent years, the continuing trend among engineering services clients and their industry counterparts has been toward outsourcing and sole sourcing, which has fostered the development of arrangements with clients which are less oriented toward specific projects and more focused on ongoing, longer term relationships. These arrangements, often referred to as partnering relationships or alliances, and, in some cases, sole source contracts, vary in their scope, duration and degree of commitment. Some provide a minimum number of work man-hours over specified periods; some assure at least a designated percentage of the client's requirements for engineering services at one or more locations; and some establish the Company as the client's sole source of engineering services at a specific location or locations. Other agreements express only a client's non-binding preference or intent, or establish a general contractual framework for what the parties expect will be an ongoing relationship. Despite their variety, the collective effect of these partnering relationships or alliances is to exert a stabilizing influence on the Company's engineering service revenues. At present, there is some form of partnering or alliance arrangement with approximately 13 major oil and chemical companies. In the engineered systems segment, clients include end users, such as oil and gas producers, compressor stations, refineries, chemical companies and processing plants, that own or operate the facilities for which the systems are designed. Other clients include equipment manufacturers, construction contractors and other engineering firms that incorporate control systems into facilities and products of their own design, construction and manufacture. As in the engineering services segment, in any given year, a small number of clients may account for a large percentage of the engineered systems revenues for that year, depending on the number of major projects undertaken. Though the engineered systems segment frequently receives work from repeat clients, its client list may vary greatly from year to year. Historically, the Company's largest ten customers (which varied from period to period) accounted in the aggregate for approximately 60% and 70% of the Company's total revenue during 2000 and 2001, respectively. Currently, the Company's major customers include: IED: Caspian Pipeline Consortium, EXXON Mobil Pipeline Co., Oneok Gas Transportation, LLC, Centennial Pipeline, LLC, TE Products Pipeline Co., Universal Compression, Inc., Marathon Pipeline Co. CPM: Parsons Power Group Thermal: South Texas Equipment, Hollingsworth Equipment, Inc., Conditioning Components Company There are no long-term commitments by such customers to purchase products or services from IDSC. Sales of products from the engineered systems segment and the manufacturing segment are typically made from the customer's specifications on a purchase order basis. The Company's potential revenues are, therefore, dependent on continuing relationships with these customers. 8 Customer Service and Support The Company provides service and technical support to its customers in varying degrees depending upon the product line and on customer contractual arrangements. The Company's support staff provides initial telephone troubleshooting services for end-user customers and distributors. These services include isolating and verifying reported product failures, authorizing product returns and tracking completion of repaired goods in support of customer requirements. Technical support also provides on-site engineering support in the event that a technical issue cannot be resolved over the telephone. The Company provides limited warranty coverage for its products for varying time periods depending on a variety of factors. On a routine basis, the Company provides worldwide start-up and commissioning services for projects in which it provides engineering services. Dependence upon Suppliers The Company's businesses depend upon the ability to obtain an adequate supply of products and parts at competitive prices and on reasonable terms. The Company's suppliers are not obligated to have products on hand for timely delivery to the Company nor can they guarantee product availability in sufficient quantities to meet the Company's demands. There can be no assurance that such products will be available as required by the Company at prices or on terms acceptable to the Company. The Company procures a majority of its components from distributors in order to obtain competitive pricing, maximize product availability and maintain quality control. All of CPM's products are manufactured using components and materials that are available from numerous domestic suppliers. CPM has approximately 10 principal suppliers of components and each of those could be replaced with several competitors; therefore, CPM anticipates little or no difficulty in obtaining components in sufficient quantities and in a timely manner to support its manufacturing and assembly operations. Units produced by the engineered systems segment are not produced for inventory and all component parts are purchased on an as needed basis that are readily available from numerous domestic suppliers. The Company anticipates little or no difficulty in obtaining components in sufficient quantities to support its operations. The manufacturing segment currently stocks key components due to long lead times. Specialty items are purchased as required for each job. Thermal has increased its stocking levels, in order to avoid of the potential delays in manufacturing that would be caused by its inability to procure critical components. There can be no assurance that IDSC's subsidiaries will be able to continue to obtain the necessary components from any of its single sources on terms acceptable to the Company, if at all. There can be no assurance that such relationships will continue or that, in the event of a termination of any relationship, it would be able to obtain alternative sources of supply without a material disruption in the Company's ability to provide products to its customers. Any material disruption in the Company's supply of products would have a material adverse effect on the Company's financial condition and results of operations. No one manufacturer or vendor provides products that account for 10% or more of the Company's revenues. Patents, Trademarks, Licenses The Company's success depends in part upon its proprietary technology, and it relies primarily on trade secrecy and confidentiality agreements to establish and protect its rights in its proprietary technology. The Company owns a U.S. patent on its hybrid low NOX technology and a trademark of Bernard and Burk Industries. There can be no assurance that the Company's present protective measures will be adequate to prevent unauthorized use or disclosure of its technology or independent third party development of the same or similar technology. Although the Company's competitive position could be affected by its ability to protect its proprietary and trade secret information, the Company believes other factors, such as the technical expertise and knowledge of the Company's management and technical personnel, and the timeliness and quality of support services provided by the Company, to be more significant in maintaining the Company's competitive position. 9 The Company has no franchises, concessions, royalty agreements, labor contracts, or licenses (other than for off-the shelf software). Government Regulations Certain of the Company's subsidiaries are subject to various foreign, federal, state, and local laws and regulations relating to its business and operations, and various health and safety regulations as established by the Occupational Safety and Health Administration. The Company and members of its professional staff are subject to a variety of state, local, and foreign licensing, registration and other regulatory requirements governing the practice of engineering. The Company's engineering professionals are licensed or registered in several states and foreign jurisdictions. The Company is not currently aware of any situation or condition that it believes is likely to have a material adverse effect on its results of operations or financial condition. Research and Development Research and development costs for 1999, 2000 and 2001, were approximately $79,000, $32,000 and $47,000, respectively. As of December 31, 2001, IDSC's subsidiaries were involved in the following active research and development activities: IED is expanding the capability of its standard meter skid product; IED is currently designing a standardized specification package for project related execution; CPM has evaluated the design of an uninterruptible power supply product; and Thermal is currently seeking industry certification for its in-house produced coils. Employees As of December 31, 2001, after the merger with Petrocon, the Company employed approximately 875 individuals within its eight operating subsidiaries; approximately eleven were employed in sales, marketing and customer services; approximately 600 were employed in engineering; approximately 80 were employed in technical production positions; approximately 50 were employed in administration, finance and management information systems and approximately 134 support staff. The Company believes that its ability to recruit and retain highly skilled and experienced technical, sales and management personnel has been, and will continue to be, critical to its ability to execute its business plan. None of the Company's employees are represented by a labor union or are subject to a collective bargaining agreement. The Company believes that relations with its employees are good. Item 2. Properties Facilities For its professional, technical, and administrative staff, IDSC leases nine offices in the U.S. totaling approximately 167,000 square feet, and owns two office buildings in Baton Rouge, Louisiana totaling 38,072 square feet and a manufacturing facility in Houston totaling 37,725 square feet. This includes the property acquired through the merger with Petrocon and property previously leased or owned by IDSC. The leases have remaining terms ranging from monthly to 10 years and are at what the Company considers to be commercially reasonable rental rates. The Company's principal office locations are in Houston and Beaumont, Texas; Baton Rouge and Lake Charles, Louisiana; and Tulsa, Oklahoma. The Company believes its office and other facilities are well maintained and adequate for existing and planned operations at each operating location. IDSC's engineered systems segment is performing fabrication assembly at three shop facilities totaling approximately 47,400 square feet in Beaumont and Houston, Texas. A property in Beaumont, Texas is currently leased on a month-to-month basis from a joint venture owned one-third by each: Petrocon, Michael L. Burrow (the Company's CEO), and a shareholder of the Company that owns less than 1% of the Company's stock. The Company believes that this lease is at a commercially reasonable rental rate. 10 Item 3. Legal Proceedings From time to time, the Company is involved in various legal proceedings arising in the ordinary course of business that are incidental to the Company's business. As of the date of this document, the Company is party to several legal proceedings that have been reserved for, are covered by insurance, or that, if determined adversely to us individually or in the aggregate, would not have a material adverse effect on the Company's results of operations or financial position, when taken as a whole. In May 2000, Petrocon terminated the employment of two of its officers who had guaranteed compensation and severance provisions under their employment agreements. Petrocon Engineering, Inc. vs. Gary J. Coury and Rick Berry, was filed in the 136th District Court of Jefferson County, Texas on March 17, 2000. Petrocon disputed the validity and enforceability of these two employment contracts and took legal action against the former officers alleging negligence in their fiduciary responsibilities as officers of Petrocon. During the fourth quarter 2001, concurrent with the merger, and as a result of mediation, a settlement agreement was reached. The settlement stipulates that the Company will pay $775 thousand. The Company has paid $325 thousand and will pay the remaining balance of $450 thousand in 24 equal monthly installments of approximately $12 thousand with the balance of $175 thousand paid in the 25th month. Petrocon was also a party to a lawsuit filed in the 805h District Court of Harris County, Texas in March 2001, wherein certain former employees asserted breach of contract, wrongful termination, and failure to pay commissions on sales. This claim was settled prior to the merger in the fourth quarter 2001. The Company has agreed to pay $453 thousand of which the Company has accrued $247 thousand in unpaid settlement costs related to this lawsuit as of December 31, 2001. Two other claims in the 60th District Court of Jefferson County, Texas and the 14th District Court of Parish of Calcasieu, Louisiana, respectively, that involve failure of contractual performance caused by faulty design have been identified by the management of the Company and are covered by errors and omissions insurance. The Company has accrued the costs subject to the insurance deductible of $100 thousand each. Both of these cases are in the discovery phase and pending. Item 4. Submission or Matters to a Vote of Security Holders A Special Meeting of the shareholders of the Company was held on December 20, 2001 at the Company's headquarters in Houston, Texas for the purpose of voting on the following matters: 1. To approve an amendment to IDS' articles of incorporation creating a class of preferred stock with 5,000,000 shares authorized for issuance; 2. To approve an amendment to the IDS 1998 Incentive Plan increasing the number of options which may be issued under the Plan from 1,200,000 to 1,400,000; 3. To approve and adopt the Agreement and Plan of Merger dated as of July 31, 2001, between IDS, IDS Engineering Management, LC, a Texas limited liability company and wholly owned subsidiary of IDS, PEI Acquisition, Inc., a Texas corporation and wholly owned subsidiary of IDS Engineering Management, LC, and Petrocon Engineering, Inc., a Texas corporation, relating to the merger of PEI Acquisition, Inc. into Petrocon, including without limitation the issuance of 9,800,000 shares of IDS common stock to Petrocon shareholders, 2,500,000 shares of IDS convertible preferred stock to Petrocon shareholders and lenders, and 100,500 shares of IDS common stock to IDS' financial advisor; 4. Contingent upon consummation of the merger, to elect four additional directors to the board of directors of IDS to serve until the next annual meeting of stockholders or until their respective successors are elected and qualified. The nominees for director are Michael L. Burrow, P.E., Jimmie N. Carpenter, P.E., Randall B. Hale, and David C. Roussel; 5. To grant authority to extend the solicitation period if the meeting is postponed or adjourned; and 11 6. To transact such other business as may properly come before the meeting or any adjournment thereof. Set forth below is a tabulation of the votes.
For Against Abstained ------------------ ----------------- ----------------- No. of No. of No. of Proposal No. shares voted % shares voted % shares voted % ------------ ------------ ----- ------------ ---- ------------ ---- 1--Amendment of Articles............... 10,326,548 98.51 0 .00 156,339 1.49 2--Amendment of 1998 Incentive Plan......... 10,326,548 98.51 0 .00 156,339 1.49 3--Agreement and Plan of Merger................. 10,358,738 98.82 0 .00 124,149 1.18 4--Election of No less than 98.51 No more than 1.43 No more than 1.49 Directors.............. 10,238,831 204,944 39,112 5--Extension of Solicitation Period.... 10,354,638 98.07 107,889 1.96 20,360 .51 Total shares voted...... 10,482,887 Total shares not voted.. 2,482,031
- -------- ** Votes "FOR" Proposal 4--Agreement and Plan of Merger, with Alliance voted shares removed, totaled 858,738 or 87.36% of total shares voted. With the above-mentioned votes representing more than a majority of the outstanding voting stock of the Company, all of the matters presented to the shareholders for vote passed. 12 PART II Item 5. Market For Registrant's Common Equity and Related Stockholder Matters The Company's Common Stock, $.001 par value per share, has been quoted on the American Stock Exchange since June 16, 1998, under the symbol "IDS".
High Low ------ ----- Year Ended December 31, 1999 First Quarter................................................... 9.250 7.250 Second Quarter.................................................. 10.750 1.750 Third Quarter................................................... 2.688 1.000 Fourth Quarter.................................................. 1.188 0.750 Year Ended December 31, 2000 First Quarter................................................... 5.125 0.750 Second Quarter.................................................. 2.063 0.938 Third Quarter................................................... 1.125 0.813 Fourth Quarter.................................................. 1.000 0.438 Year Ended December 31, 2001 First Quarter................................................... 0.920 0.500 Second Quarter.................................................. 1.290 0.520 Third Quarter................................................... 1.150 0.770 Fourth Quarter.................................................. 0.920 0.650
The foregoing figures are based on information published by AMEX, do not reflect retail markups or markdowns and may not represent actual trades. The Company's Series A Preferred Stock, $0.001 par value per share, is held by one shareholder, Equus. In connection with the Company's merger with Petrocon, 2,500,000 shares of such preferred stock were issued on December 21, 2001. As of December 31, 2001, the Common Stock was held by approximately 342 shareholders of record and approximately 1,600 non-objecting beneficial shareholders. Dividend Policy The Company has never declared or paid a cash dividend on the Common Stock. The payment of dividends in the future will depend on the Company's earnings, capital requirements, operating and financial position and general business conditions. The Company intends to retain any future earnings for reinvestment in its business and does not intend to pay cash dividends in the foreseeable future other than the dividends payable to the preferred stockholder. In addition, the Company's agreement with Fleet precludes IDSC from paying any dividends on its Common Stock. The restrictions arise from the covenants on the Fleet Credit Facility. Dividends on outstanding shares of Series A Preferred Stock are payable annually on the last day of May beginning in 2002 at a rate of 8% of the liquidation amount which is $1.00 per share plus accrued and unpaid dividends. Dividends may be paid in cash or at the option of the Company, in shares of stock of Series A Preferred Stock at a rate of 0.08 shares for each outstanding share of Series A Preferred Stock. See "Management's Discussion and Analysis of Condition and Results of Operation." 13 Item 6. Selected Financial Data Summary Selected Historical Consolidated Financial Data For IDS The following table sets forth selected financial information for IDSC for the years ended December 31, 1997, 1998, 1999, 2000 and 2001. This financial information was derived from the consolidated financial statements of IDSC. This data should be read in conjunction with the consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. The following selected financial information for IDSC for the years ended December 31, 1997, 1998, and 1999 was derived from consolidated financial statements and the related notes of IDS that are not included herein.
Years Ended December 31, ------------------------------------------- 1997 1998 1999 2000 2001 ------- ------- ------- ------- ------- (In thousands, except per share amounts) Statement of Operations: Revenues: Engineering services........... $ 4,265 $ 4,407 $ 5,978 $10,740 $14,235 Engineered systems............. -- -- -- 2,815 3,575 Manufacturing.................. 6,259 8,260 6,260 3,421 4,244 ------- ------- ------- ------- ------- Total revenues............... 10,524 12,667 12,238 16,976 22,054 ------- ------- ------- ------- ------- Costs and expenses: Cost of engineering services... 3,219 3,143 4,378 8,175 10,433 Cost of engineered systems..... -- -- -- 2,156 3,107 Cost of manufacturing.......... 4,699 6,308 5,012 2,696 3,219 Selling, general and administrative................ 2,012 2,278 2,616 3,428 3,583 ------- ------- ------- ------- ------- Total costs and expenses..... 9,930 11,729 12,006 16,455 20,342 ------- ------- ------- ------- ------- Operating income................. 594 938 232 521 1,712 Gains (realized and unrealized) on marketable securities ....... 26 18 51 -- 64 Interest expense, net............ (28) (29) (21) (40) (70) Other income, net................ (1) -- 49 23 (50) ------- ------- ------- ------- ------- Income before taxes.............. 591 927 311 504 1,656 Provision for taxes.............. 208 357 151 123 674 ------- ------- ------- ------- ------- Income from continuing operations...................... 383 570 160 381 982 Loss from discontinued operations, net of taxes........ -- (149) (2) -- -- Loss on disposal of discontinued operations...................... -- -- (481) -- -- ------- ------- ------- ------- ------- Net income (loss)............ $ 383 $ 421 $ (323) $ 381 $ 982 ======= ======= ======= ======= ======= Per Share Data: Basic earnings (loss) per share: Continuing operations.......... $ 0.03 $ 0.04 $ 0.01 $ 0.03 $ 0.07 Discontinued operations........ -- (0.01) (0.03) -- -- Net income (loss) per share.... 0.03 0.03 (0.02) 0.03 0.07 Weighted average common shares outstanding..................... 12,757 12,947 13,056 12,965 13,236 Diluted earnings (loss) per share: Continuing operations.......... $ 0.03 $ 0.04 $ 0.01 $ 0.03 $ 0.07 Discontinued operations........ -- (0.01) (0.03) -- -- Net income (loss) per share.... 0.03 0.03 (0.02) 0.03 0.07 Weighted average common shares outstanding..................... 12,757 12,947 13,056 12,965 13,236 Cash Flow Data: Operating activities, net...... $ (818) $ 773 $ 94 $ 27 $ 744 Investing activities, net...... (1,067) 209 (209) (468) 5 Financing activities, net...... 1,368 8 (197) 19 253 Discontinued operations, net of tax........................... -- (221) (250) -- -- ------- ------- ------- ------- ------- Net change in cash and cash equivalents................. $ (517) $ 769 $ (562) $ (422) $ 1,002 ======= ======= ======= ======= =======
14 Balance Sheet Data (at the end of period, includes acquisition of Petrocon in 2001): Working capital....................... $ 1,958 $ 3,047 $ 3,306 $ 3,187 $ 6,657 Property, plant, and equipment, net... 1,044 1,051 1,070 1,404 5,123 Total assets.......................... 5,368 7,929 5,914 7,052 38,286 Long-term debt........................ 421 422 385 386 13,489 Capital Leases........................ -- -- -- 144 198 Shareholders' equity.................. 3,439 4,409 3,975 4,159 14,346
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation The following discussion is qualified in its entirety by, and should be read in conjunction with, the Company's Consolidated Financial Statements including the Notes thereto, included elsewhere in this Annual Report on Form 10-K. Footnote 16 to the Financial Statements contains segment information. Overview The major source of revenues for the Company is from the engineering services segment, which furnishes engineering consulting services to the pipeline divisions of major integrated oil and gas companies. In 2001, the engineering segment accounted for 64.5% of total revenues for the year. This segment has been successful in obtaining more turnkey projects providing expanded services in the engineering, procurement and construction phases of major projects. The manufacturing segment revenue was 19.3% of the total revenues for the 2001 year. The engineered systems segment accounted for 16.2% of the total revenues. The Company generated a consolidated gross profit in 2001 of $5.3 million or 24.0%, which is greater than the 23.3% margin in 2000. In 2001, consolidated gross margin increased by $1.3 million from 2000. This increase was attributable to the increased revenues in 2001. Forward-Looking Statements Certain information contained in this Form 10-K Annual Report, the Company's Annual Report to Shareholders, as well as other written and oral statements made or incorporated by reference from time to time by the Company and its representatives in other reports, filings with the Securities and Exchange Commission, press releases, conferences, or otherwise, may be deemed to be forward-looking statements with the meaning of Section 21E of the Securities Exchange Act of 1934. This information includes, with limitation, statements concerning the Company's future financial position and results of operations; planned capital expenditures; business strategy and other plans for future operations; the future mix of revenues and business; commitments and contingent liabilities; and future demand and industry conditions. Although the Company believes that the expectations reflected in such forward- looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. When used in this report, the words "anticipate," "believe," "estimate," "expect," "may," and similar expressions, as they relate to the Company and its management, identify forward-looking statements could differ materially from the results described in the forward-looking statements due to the risks and uncertainties set forth with this Annual Report on Form 10-K generally. 15 Results of Operations The following table sets forth, for the periods indicated, certain financial data derived from the Company's consolidated statements of operations and indicates percentage of total revenue for each item (in thousands):
Years ended December 31, --------------------------------------------- 1999 2000 2001 ------------- -------------- -------------- Amount % Amount % Amount % ------ ----- ------- ----- ------- ----- Revenue: Engineering services......... $5,978 48.8 $10,740 63.3 $14,235 64.5 Engineered systems........... 3,109 25.5 2,815 16.5 3,575 16.2 Manufacturing................ 3,151 25.7 3,421 20.2 4,244 19.3 ------ ----- ------- ----- ------- ----- Total revenue.............. 12,238 100.0 16,976 100.0 22,054 100.0 Gross profit: Engineering services......... 1,600 26.8 2,565 23.9 3,803 26.7 Engineered systems........... 650 20.9 659 23.4 468 13.1 Manufacturing................ 599 19.0 725 21.2 1,025 24.1 ------ ----- ------- ----- ------- ----- Total gross profit......... 2,849 23.3 3,949 23.3 5,296 24.0 Selling, general and administrative expenses....... 2,616 21.4 3,428 20.2 3,584 16.2 ------ ----- ------- ----- ------- ----- Operating profit............... 233 1.9 521 3.1 1,712 7.8 Other income (expense)......... 78 0.6 (17) (0.1) (56) (0.3) ------ ----- ------- ----- ------- ----- Income before provision for income taxes......................... 311 2.5 504 3.0 1,656 7.5 Provision for income taxes..... 151 1.2 123 0.8 674 3.1 ------ ----- ------- ----- ------- ----- Income from continuing operations.................... 160 1.3 -- -- -- -- Loss from discontinuing operations.................... (2) -- -- -- -- -- Loss on disposal of discontinued operations, net of $146 tax in 1999.......................... (481) (3.9) -- -- -- -- ------ ----- ------- ----- ------- ----- Net income (loss).............. $ (323) (2.6) $ 381 2.2 $ 982 4.4 ====== ===== ======= ===== ======= =====
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000 Total Revenue. Total revenue increased by $5.1 million or 29.9% from $17.0 million in 2000 to $22.1 million in 2001. Revenue from the engineering services segment, which comprised 63.3% and 64.5% of total revenue in 2000 and 2001, respectively, increased by $3.5 million or 32.5%. This increase was due to the award of several large fixed fee turnkey contracts, primarily one from Russia during 2001 and additional revenue generated by the Tulsa operation. The engineered systems segment contributed 16.2% of total revenues in 2001. Revenues increased from $2.8 million to $3.6 million in 2000 and 2001, respectively. The increase in sales experienced earlier in the year due to improved market conditions in the oil and gas markets somewhat slowed during the fourth quarter. Revenue from the manufacturing segment comprised 20.2% and 19.3% of total revenue in 2000 and 2001, respectively, increased by $0.8 million or 24.1%. This increase is primarily attributable to orders from municipal customers for the replacement of equipment damaged by Tropical Storm Allison earlier in 2001. Gross Profit. Gross profit increased by $1.3 million or 34.1% from $3.9 million in 2000 to $5.3 million in 2001. The gross margin for the engineering services segment increased by $1.2 million or 48.2% from 2000 to 2001. The engineering services segment's 2001 gross profit as a percentage of revenue increased from 23.9% in 2000 to 26.7%. This was attributable to increased margins on higher risk fixed fee projects begun during the 2001 period and to rate increases on blanket contracts. Engineering services contributed 71.8% of the total gross profits in 2001. 16 The engineered systems segment gross margin as a percentage of sales decreased from 23.4% in 2000 to 13.1% in 2001. This decrease was attributable to increases in direct labor costs, other production costs, and adjustments to raw material and work-in-process inventory that effect material costs. In addition, write-offs of obsolete inventory contributed to lower gross profits. Management believes the adjustments and write-offs will have a one-time effect and will not occur in future periods. The manufacturing segment's gross profit increased by $0.3 million from $0.7 million to $1.0 million or 21.2% to 24.1% from 2000 to 2001, respectively. This increase is attributable to the manufacturing segment bidding jobs with higher margins and to a substantial number of orders at premium margins with expedited shipping dates during the 2001 period. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $0.2 million or 4.5% from $3.4 million in 2000 to $3.6 million in 2001. However, due to the increase in revenues, as a percentage of total revenue, selling, general and administrative expenses decreased from 20.2% in 2000 to 16.2% in 2001. Operating Profit. Operating profit increased by $1.2 million or 228% from $0.5 million in 2000 to $1.7 million in 2001. Operating profit increased as a percentage of total revenue from 3.1% in 2000 to 7.8% in 2001. This increase was brought about by the overall higher revenues and to a lower percentage of selling, general and administrative expenses. Other Income and (Expense). Other expense increased from $17 thousand to $56 thousand from 2000 to 2001, respectively. This increase in expense from (0.1)% of revenues to (0.3)% of revenues was the result of increased borrowings on the line of credit and related interest expense. Net Income. Income before provision for income taxes increased $1.2 million or 228% from $0.5 million to $1.7 million from 2000 to 2001. This increase is due to the substantial increase in revenues, increased gross margins, and lower selling, general and administrative expenses. Net income after taxes increased by $0.6 million or 158% from $0.4 million to $982 million from 2000 to 2001. Year Ended December 31, 2000 Compared to Year Ended December 31, 1999 In October 1999, the acquisition of IDS FAB, which took place in November 1998 was rescinded. As a result of this, the operating results of IDS FAB were reclassified as discontinued operations for 1998 and 1999. During the Fourth Quarter of 2000, the Company combined the power systems and the product segments into the engineered systems segment. The following comparisons reflect these reclassifications and combinations. Total Revenue. Total revenue increased by $4.7 million or 38.7% from $12.2 million in 1999 to $17.0 million in 2000. Revenue from the engineering segment, which comprised 48.8% and 63.3% of total revenue in 1999 and 2000, respectively, increased by $4.8 million or 79.7%. This increase was due to the award of several substantial fixed fee projects and to revenues generated by additional projects secured by its Tulsa operation. The engineered systems segment contributed 25.5% of total revenues for the year ended December 31, 1999 and 16.5% of total revenues in 2000. Revenue from the manufacturing segment comprised 25.7% and 20.2% of total revenue in 1999 and 2000, respectively, increased by $0.3 million or 8.6%. Gross Profit. Gross profit increased by $1.1 million or 38.6% from $2.8 million in 1999 to $3.9 million in 2000. The gross margin for the engineering segment increased by $1.0 million or 60.3% from 1999 to 2000. This increase was attributable to the substantial increase in revenues in 2000. The engineering segment's 2000 gross profit as a percentage of revenue decreased from 26.8% in 1999 to 23.9%. This was attributable to higher material costs related to sizeable fixed fee projects completed during the 2000 period. The engineered systems segment gross margin as a percentage of sales increased from 20.9% in 1999 to 23.4% in 2000. The Company believes this was a result of the combination of the power systems and product segments and the benefits derived from this combination, such as reduced labor costs and improved efficiencies. The gross margin for the 17 manufacturing segment increased by $0.1 million or 21.2% from 1999 to 2000. This increase was due to the increase in 2000 revenues and to higher margins during the last two quarters of the year brought about by improvements in quoting jobs. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $0.8 million or 31.0% from $2.6 million in 1999 to $3.4 million in 2000. However, as a percentage of total revenue, selling, general and administrative expenses decreased from 21.4% in 1999 to 20.2% in 2000. Operating Profit. Operating profit increased by $0.3 million or 124.3% from $0.2 million in 1999 to $0.5 million in 2000. Operating profit increased as a percentage of total revenue from 1.9% in 1999 to 3.1% in 2000. This increase was brought about by the overall higher revenues and to a lower percentage of selling, general and administrative expenses. Income from Continuing Operations. Income from continuing operations increased by $221 thousand or 138.4% from $160 thousand in 1999 to $381 thousand in 2000. This was attributable to the overall increase in revenues accompanied by a decrease in selling, general and administrative costs as a percentage of revenue and to a lower provision for income taxes. Discontinued Operations. Discontinued operations contributed a loss of $2 thousand in 1999. In 2000, there was no loss from discontinued operations generated. The loss on disposal of discontinued operations, as a result of the rescission of the IDS FAB acquisition generated a one-time loss of $481 thousand in 1999. Liquidity and Capital Resources Historically, the Company has satisfied its cash requirements principally through operations and, as needed, by borrowings under its line of credit. Any future decrease in demand for the Company's services or products would reduce the availability of funds through operations. (See "Customers") With the merger, the Company assumed $13.7 million of Petrocon's debt. As of December 31, 2001, IDSC had working capital of $6.7 million. In addition, IDSC had long-term debt outstanding of $13.5 million. The long-term debt includes the line of credit due in 2003 of $8.9 million, other long-term debt of $4.6 million and long-term capital leases of $0.2 million. Under the terms and conditions of its senior credit facility, IDSC had a borrowing capacity of approximately $3.4 million after consideration of the borrowing base limitations. There are no other standby letters of credit, guarantee, repurchase obligations, or other commitments. Listed below is a maturity schedule. Maturities of long-term debt and leases (in thousands) are as follows:
Capital Debt Leases ------- ------- 2002......................................................... $ 1,357 $ 48 2003......................................................... 9,631 53 2004......................................................... 601 59 2005......................................................... 1,900 33 2006 and thereafter.......................................... -- 5 ------- ---- Total long-term obligations................................ $13,489 $198 ======= ====
IDSC has obligations under non-cancelable operating leases for certain equipment and office space expiring in various years through 2011. Minimum annual rental commitments at December 31, 2001 (in thousands) are: 2002................................................................. $1,147 2003................................................................. 711 2004................................................................. 645 2005................................................................. 464 2006 and thereafter.................................................. 1,877 ------ Total operating expenses........................................... $4,844 ======
18 IDSC has entered into a revolving credit facility with Fleet Capital Corporation as part of the merger transaction with Petrocon. This credit facility replaced a revolving credit note with Frost Bank and is senior to all other debt and includes a line of credit that is limited to $15 million, subject to borrowing base restrictions. This agreement also includes continuance of the existing term loan in the amount of $0.5 million. The line of credit is collateralized by eligible trade accounts receivable and substantially all of the other assets of the Company and its subsidiaries. Eligible accounts are any account arising in the ordinary course of IDSC or subsidiary company's business which are due and unpaid no more than 90 days after the original invoice date. IDSC's financial covenants under the senior credit facility are based on monthly senior debt to EBITDA, cumulative fixed charge ratio and cost in excess of billings maximum amount. Negative covenants in the agreement require IDSC to have Fleet's written consent before making capital expenditures which in the aggregate exceed $600,000, making sales during any calendar year on a bill-and-hold basis in excess of $5,000,000, and becoming a lessee under any operating lease of property if the aggregate rentals payable during any current or future period of twelve consecutive months would exceed $3,500,000. The agreement also limits collateral eligibility on accounts arising out of fixed cost contracts to total unpaid amount to $2,352,941 and on performance accounts with respect to accrued time on cost reimbursable contracts to $3,500,000. At December 31, 2001, $8.9 million was outstanding on the line of credit and $0.5 million was outstanding on the term loan. Both the line of credit and the term loan mature on June 14, 2003. The interest rate on the line of credit is one-quarter of one percent plus prime (5.0 percent at December 31, 2001), and the commitment fee on the unused line of credit is 0.375 percent. The interest rate on the term loan is one-half of one percent plus prime. Monthly principal payments on the term loan plus interest commenced January 1, 2002 and continue until maturity. The remaining borrowings available under the line of credit as of December 31, 2001 were $3.4 million after consideration of the borrowing base limitations. The IDSC credit facility with Fleet Capital Corporation contains covenants which require the maintenance of certain ratios, including cumulative fixed charge coverage and various other covenants. The status of the covenants is reported to Fleet monthly beginning with December 31, 2001 at which time, there was no violation of the covenants. The breach of specific covenants or other events shall constitute an "Event of Default" under the terms of the agreement. Upon or at anytime after the occurrence and during the continuance of an Event of Default, all or any portion of the obligations under the agreement shall, at the option of Fleet, become at once due and payable. Also, while an Event of Default exists, the principal amount of all loans shall bear interest at a rate per annum equal to two percent (2.0%) above the current rate. Prior to the merger, Petrocon had a promissory note with Equus II Incorporated (Equus) with a balance of $6.5 million and a Series B junior subordinated promissory note with Equus with a balance of $3.2 million. As part of the merger, the Equus notes were restructured, reorganized, and reduced through the payment of $2.0 million in cash, the issuance of $2.5 million in preferred stock and a new note issued for $3.0 million. The remaining balance of $2.2 million was forgiven. This note is subordinate to the Fleet credit facility. On December 20, 2001, at a special meeting of the shareholders of IDSC 5,000,000 shares of preferred stock were authorized for issuance. In addition the shareholders approved the issuance of 2,500,000 shares of IDSC convertible preferred stock to Equus entitled to receive cumulative dividends at an annual rate of 8.0% payable in cash or in kind. The rights, preferences and limitations of the convertible preferred stock are as follows: . holders of the convertible preferred stock are entitled to receive a liquidation preference of $1.00 per share, subject to adjustments relating to future issuances of common stock or recapitalizations, if the Company liquidates, dissolves or winds up before any distribution or if payment is made for the benefit of the holders of our common stock; . at any time, IDSC is entitled to redeem all or part of (but not less than 25% of the shares of convertible preferred stock then outstanding) of the convertible preferred stock outstanding at a price equal to the then effective liquidation preference plus accrued and unpaid dividends; 19 . at any time after the seventh anniversary date of the issuance of the convertible preferred stock, the holders of not less than two-thirds of the then outstanding convertible preferred stock may demand mandatory redemption of all (but not less than all) of the convertible preferred stock then outstanding at a price equal to the then effective liquidation preference plus accrued but unpaid dividends; . holders of the convertible preferred stock have the right to vote on changes to the Articles of Incorporation that adversely effect them, and, as long as 750,000 shares of Series A Preferred Stock are outstanding, they also have the right to approve issuances of any senior shares; . holders of the convertible preferred stock have the right, at such holders' option, to convert all or a portion of their convertible preferred stock into shares of our common stock at the rate of one share of common stock for each 2.38 shares of preferred stock. If all shares are converted, this would result in the issuance of 1,050,420, or approximately 4.41%, of our outstanding common stock after giving effect to the merger; and . the shares of convertible preferred stock are subject to mandatory conversion at the option of IDSC if the closing price of IDSC common stock for 20 consecutive AMEX trading days exceeds a price of $3.00, with such price to be adjusted to reflect future issuances of common stock or re-capitalizations. The Company does not engage in trading in commodity contracts. Nor does it have any foreign currency exposure. Cash Flow Operating activities provided net cash totaling $27 thousand and $744 thousand during 2000 and 2001, respectively. The Company's significant cash flow from operating activities has increased significantly due to the growth in the engineering segment. Investing activities used cash totaling $468 thousand in 2000 as compared to $5 thousand being generated in 2001. In 2001, the Company's investing activities consisted of redemption of municipal bonds net of purchasing capital assets. Financing activities provided cash totaling $19 thousand and $253 thousand during 2000 and 2001, respectively. The Company has additional financing amounts available on its line of credit. The line of credit has been used principally to finance accounts receivable and inventory purchases. The merger with Petrocon was a $23.8 million non-cash purchase transaction made through the issuance of common and preferred stock and assumption of debt. The Company believes that it has available necessary cash for the next 12 months. Cash and the availability of cash, could be materially restricted if circumstances prevent the timely internal processing of invoices into receivable accounts, if such accounts are not collected within 90 days of the original invoice date, or if project mix shifts from cost reimbursable to fixed costs contracts during significant periods of growth. If losses occur, IDSC may not be able to meet the monthly fixed charge ratio covenant. In that event, if IDSC is unable to obtain a waiver or amendment of the covenant, IDSC may be unable to borrow under the credit facility and may have to repay all loans then outstanding under the credit facility. Asset Management The Company's cash flow from operations has been affected primarily by the timing of its collection of trade accounts receivable. The Company typically sells its products and services on short-term credit terms and seeks to minimize its credit risk by performing credit checks and conducting its own collection efforts. The Company had trade accounts receivable increase from $3.6 million to $14.9 million as of December 31, 2000 20 and 2001, respectively, primarily due to the acquisition of Petrocon. The number of days' sales outstanding in trade accounts receivable was 76 days at December 31, 2000 and December 31, 2001. Bad debt expenses have been insignificant (approximately .01%) for each of these periods. Related Party Transactions Petrocon leases office space from PEI Investments, a joint venture in which Petrocon has a one-third interest, Mike Burrow (the Company's CEO) has a one- third interest, and a shareholder who owns less than 1% of the Company's common stock has a one-third interest. Rentals paid under these leases were $0.1 million for 1999, 2000 and 2001. These leases expired in 2001 and have a present annual rental rate of $0.1 million. Petrocon expects to renegotiate the leases during 2002. The Company believes that this lease is at a commercially reasonable rental rate. Risk Management In performing services for its clients, the Company could potentially be liable for breach of contract, personal injury, property damage, or negligence, including professional errors and omissions. IDSC often agrees to indemnify its clients for losses and expenses incurred by them as a result of the Company's negligence and, in certain cases, the concurrent negligence of the clients. The Company's quality control and assurance program includes a control function to establish standards and procedures for performance and for documentation of project tasks, and an assurance function to audit the control function and to monitor compliance with procedures and quality standards. IDSC maintains liability insurance for bodily injury and third-party property damage, professional errors and omissions, and workers compensation coverage which it considers sufficient to insure against these risks, subject to self- insured amounts. Critical Accounting Policies Revenue Recognition--The Company's revenues are composed of product sales and engineering service revenue. The Company recognizes service revenue as soon as such services are performed and product sales upon shipment to the customer. The majority of its services are provided through cost-plus contracts. Profits and losses on fixed-fee contracts are recorded on the percentage- of-completion method of accounting, measured by the percentage-of-contract costs incurred to date to estimated total contract costs for each contract. Contract costs include amounts paid to subcontractors. Anticipated losses on uncompleted construction contracts are charged to operations as soon as such losses can be estimated. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. The asset, "costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues recognized in excess of amounts billed. The liability "billings in excess of costs and estimated profits on uncompleted contracts" represents amounts billed in excess of revenues recognized. Use of Estimates--The preparation of the Company's consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company's management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying results. Actual results could differ from these estimates. Examples include the estimates of uncollectability of our accounts receivable. Management specifically analyzes the accounts receivable balances, historical bad debts, customer credit-worthiness, and changes in our customers' payment trends when evaluating the provisions for bad debts. Litigation--The Company is subject to legal proceedings and claims that have arisen in the ordinary course of its business. Based on legal analysis and advise from its attorneys, allowances have been made for any litigation that Management of the Company believes could have a material adverse effect on its financial condition or results of operations. 21 Principles of Consolidation--The consolidated financial statements include the accounts of Industrial Data Systems Corporation and all wholly owned subsidiaries. Industrial Data Systems Corporation has no affiliates whose ownership is less than 100%. All intercompany transactions and accounts are eliminated in the consolidation. Item 7A. Quantitative and Qualitative Disclosures About Market Risk As of December 31, 2000 and 2001, the Company did not participate in any derivative financial instruments or other financial and commodity instruments for which fair value disclosure would be required under SFAS No. 107. The Company's investments at December 31, 2000 are carried on the Company's books at amortized cost, which approximates fair market value. There are no investments at December 31, 2001. Accordingly, the Company has no quantitative information concerning the market risk of participating in such investments. As of December 31, 2000 and 2001, the Company did not participate in any derivative financial instruments or other financial and commodity instruments for which fair value disclosure would be required under SFAS No. 133. The Company has no market risk exposure in the areas of interest rate risk because there is no investment portfolio as of December 31, 2001. Currently the Company does not engage in foreign currency hedging activities nor is the Company exposed to currency exchange rate fluctuation. 22 Item 8. Financial Statements and Supplementary Data The audited consolidated financial statements for Industrial Data Systems Corporation, as of December 31, 1999, 2000 and 2001 are attached hereto and made part hereof. INDEX
Page ---- INDEPENDENT AUDITOR'S REPORT............................................... 24 CONSOLIDATED BALANCE SHEETS December 31, 2000 and 2001................................................ 25 CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 1999, 2000 and 2001.............................. 26 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended December 31, 1999, 2000 and 2001.............................. 27 CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1999, 2000 and 2001.............................. 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................. 29
23 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Shareholders Industrial Data Systems Corporation We have audited the accompanying consolidated balance sheets of Industrial Data Systems Corporation as of December 31, 2000 and 2001, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ending December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Industrial Data Systems Corporation and Subsidiaries as of December 31, 2000 and 2001, and the results of their operations and their cash flows for each of the three years in the period ending December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. /s/ Hein + Associates llp - ------------------------------------- Hein + Associates LLP Houston, Texas March 7, 2002 24 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2000 and 2001
2000 2001 ASSETS ---------- ----------- Current Assets: Cash................................................. $ 242,592 $ 1,244,907 Municipal bonds, at cost............................. 400,000 -- Trade receivables, net............................... 3,555,933 14,908,069 Inventory............................................ 865,341 691,048 Cost and estimated earnings in excess of billings on uncompleted contracts............................... 330,000 730,507 Prepaid expenses and other........................... 190,369 740,670 ---------- ----------- Total current assets............................... 5,584,235 18,315,201 Property and Equipment, net............................ 1,404,017 5,123,115 Goodwill............................................... 18,450 14,513,806 Other Assets........................................... 45,563 333,567 ---------- ----------- Total assets....................................... $7,052,265 $38,285,689 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses................ $1,720,683 $ 9,076,520 Current portion of long-term debt.................... 21,238 1,357,228 Notes payable........................................ 433,729 398,974 Billings and estimated earnings in excess of costs on uncompleted contracts............................... -- 777,712 Current portion of long-term leases.................. 24,118 48,058 Deferred income taxes................................ 37,000 -- Income taxes payable................................. 160,013 -- ---------- ----------- Total current liabilities.......................... 2,396,781 11,658,492 Long-term debt, net of current portion................. 365,368 12,131,582 Long-term leases, net of current portion............... 120,212 149,665 Non-current deferred tax liability..................... 11,000 -- ---------- ----------- Total liabilities.................................. 2,893,361 23,939,739 Commitments And Contingencies (Notes 9 and 18) Shareholders' Equity: Preferred stock; $0.001 par value; 5,000,000 shares authorized; 0 and 2,500,000 issued and outstanding, respectively........................................ -- 2,500 Common stock; $0.001 par value; 75,000,000 shares authorized; 12,964,918 and 22,861,199 shares issued and outstanding, respectively....................... 12,965 22,862 Notes receivable from shareholders................... (196,500) -- Paid-in capital...................................... 2,640,154 11,832,971 Retained earnings.................................... 1,702,285 2,487,617 ---------- ----------- Total shareholders' equity......................... 4,158,904 14,345,950 ---------- ----------- Total liabilities and shareholders' equity......... $7,052,265 $38,285,689 ========== ===========
See accompanying notes to these consolidated financial statements. 25 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, ------------------------------------- 1999 2000 2001 ----------- ----------- ----------- Operating Revenues Engineering services................. $ 5,978,180 $10,739,874 $14,235,042 Engineered systems................... 3,108,973 2,814,965 3,574,591 Manufacturing........................ 3,151,296 3,421,184 4,244,105 ----------- ----------- ----------- Total revenue...................... 12,238,449 16,976,023 22,053,738 Direct Costs Engineering services................. 4,378,459 8,174,972 10,432,512 Engineered systems................... 2,465,195 2,156,094 3,107,085 Manufacturing........................ 2,546,355 2,695,688 3,219,432 ----------- ----------- ----------- Total direct costs................. 9,390,009 13,026,754 16,759,029 ----------- ----------- ----------- Gross Profit........................... 2,848,440 3,949,269 5,294,709 Selling, General, and Administrative Expenses.............................. 2,615,922 3,427,778 3,583,032 ----------- ----------- ----------- Operating Income....................... 232,518 521,491 1,711,677 Interest expense..................... (21,104) (39,928) (69,910) Other income and expenses............ 99,540 22,083 13,695 ----------- ----------- ----------- Income from Continuing Operations Before Provisions for Income Taxes.... 310,954 503,646 1,655,462 Provision for Income Taxes............. 151,212 122,768 673,630 ----------- ----------- ----------- Income from continuing operations.... 159,742 380,878 981,832 Loss from Discontinued Operations, net of tax................................ (1,972) -- -- Loss on Disposal of Discontinued Operations............................ (481,085) -- -- ----------- ----------- ----------- Net income (loss)...................... $ (323,315) $ 380,878 $ 981,832 =========== =========== =========== Basic and Diluted Earnings Per Common Share Continuing operations................ $ 0.01 $ 0.03 $ 0.07 Discontinued operations.............. (0.03) -- -- Net income (loss).................... (0.02) 0.03 0.07 Weighted Average Common Shares Outstanding........................... 13,055,535 12,964,918 13,236,049
See accompanying notes to these consolidated financial statements. 26 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended December 31, 1999, 2000 and 2001
Preferred Stock Common Stock Additional Note Total ---------------- ------------------- Paid-in Retained Receivable Shareholders' Shares Amount Shares Amount Capital Earnings Stockholder Equity --------- ------ ---------- ------- ----------- ---------- ----------- ------------- Balances, January 1, 1999................... -- $ -- 13,073,718 $13,074 $ 2,766,163 $1,644,722 $ (15,323) $ 4,408,636 Treasury stock Acquisition: Received 50,000 shares in rescission agreement............ -- -- -- -- -- -- (43,750) (43,750) Purchase 40,000 shares............... -- -- -- -- -- -- (67,045) (67,045) Retirement............. (108,800) (109) (126,009) -- 126,118 -- Net loss............... -- -- -- -- -- (323,315) -- (323,315) --------- ------ ---------- ------- ----------- ---------- --------- ----------- Balances, December 31, 1999................... -- -- 12,964,918 12,965 2,640,154 1,321,407 -- 3,974,526 Reclassification of note receivable from stockholder........... -- -- -- -- -- -- (196,500) (196,500) Net income............. -- -- -- -- -- 380,878 -- 380,878 --------- ------ ---------- ------- ----------- ---------- --------- ----------- Balances, December 31, 2000................... -- -- 12,964,918 12,965 2,640,154 1,702,285 (196,500) 4,158,904 Acquisition: Issued stock for purchase of Petrocon Engineering, Inc., net of registration costs.... -- -- 9,800,000 9,800 6,627,054 -- -- 6,636,854 Acquisition: Issued stock for investment advisor............... -- -- 96,281 97 68,263 -- -- 68,360 Acquisition: 8% Preferred stock issued for forgiveness of debt.................. 2,500,000 2,500 -- -- 2,497,500 -- -- 2,500,000 Forgiveness of note receivable for purchase of option to acquire Company stock................. -- -- -- -- -- (196,500) 196,500 -- Net income............. -- -- -- -- -- 981,832 -- 981,832 --------- ------ ---------- ------- ----------- ---------- --------- ----------- Balances, December 31, 2001................... 2,500,000 $2,500 22,861,199 $22,862 $11,832,971 $2,487,617 $ -- $14,345,950 ========= ====== ========== ======= =========== ========== ========= ===========
See accompanying notes to these consolidated financial statements. 27 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, ------------------------------------ 1999 2000 2001 ---------- ----------- ----------- Cash Flows from Operating Activities: Net income (loss)....................... $ (323,315) $ 380,878 $ 981,832 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.......... 144,304 216,237 265,758 Deferred income tax expense (benefit) from continuing operations............ (5,000) (49,000) 319,154 (Gain) on sale of investments.......... (50,909) -- (64,223) Loss from discontinued operations...... 483,057 -- -- Changes in current assets and liabilities, net of acquisitions: Trade receivables...................... (583,747) (1,345,098) (1,010,414) Inventory.............................. 91,289 (93,533) 174,292 Trading securities..................... 427,556 -- -- Costs and estimated earnings in excess of billings........................... -- -- 71,472 Prepaid expenses and other............. -- 139,072 402,454 Accounts payable....................... 436,699 553,986 (533,121) Other liabilities...................... (316,231) 11,663 240,656 Income taxes receivable (payable)...... (210,000) 213,013 (104,151) ---------- ----------- ----------- Net cash provided by operating activities........................... 93,703 27,218 743,709 ---------- ----------- ----------- Cash Flows from Investing Activities: Purchase of property and equipment...... (208,923) (367,753) (459,068) Purchase of bonds....................... -- (100,000) -- Redemption of bonds..................... -- -- 464,223 ---------- ----------- ----------- Net cash provided by (used in) investing activities................. (208,923) (467,753) 5,155 ---------- ----------- ----------- Cash Flows from Financing Activities: Borrowings on line of credit............ -- 384,831 1,114,300 Payments on line of credit.............. -- (315,000) (361,617) Notes receivable from shareholder....... -- (13,500) -- Short-term borrowings (repayments)...... (146,014) -- -- Capital lease borrowings (repayments)... -- (19,684) (40,514) Long-term borrowings (repayments)....... 16,545 (17,492) (458,718) Purchase of treasury stock.............. (67,045) -- -- ---------- ----------- ----------- Net cash provided by (used in) financing activities................. (196,514) 19,155 253,451 ---------- ----------- ----------- Net cash used in discontinued operations........................... (250,115) -- -- ---------- ----------- ----------- Net Change in Cash and Cash Equivalents.. (561,849) (421,380) 1,002,315 Cash and Cash Equivalents, at beginning of year................................. 1,225,821 663,972 242,592 ---------- ----------- ----------- Cash and Cash Equivalents, at end of year.................................... $ 663,972 $ 242,592 $ 1,244,907 ---------- ----------- ----------- Non-Cash Transactions: Acquisition of Petrocon Engineering with issuance of common and preferred stock and assumption of debt................. $ -- $ -- $23,805,675 Purchase price adjustment--adjustment to liabilities and goodwill............... 121,649 -- -- Treasury stock received in rescission transaction............................ 43,750 -- -- Insurance acquired with notes payable... -- 133,493 228,254 Property and equipment acquired under capital lease.......................... -- 166,083 53,393 Supplemental Cash Flow Information Cash paid during the year for-- Interest............................... 68,709 92,296 83,213 Income taxes........................... 415,580 220,000 263,780
See accompanying notes to these consolidated financial statements. 28 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Background and Basis of Presentation Acquisition Effective December 31, 2001, Industrial Data Systems Corporation (IDSC or the Company) completed the purchase of all outstanding stock of Petrocon Engineering, Inc. (Petrocon), a Texas-based engineering support services company, for an aggregate price of approximately $23,806,000. As a result of the acquisition, IDSC is expected to have greater depth of capabilities that can serve a broader range of clients, provide the ability to handle larger, more diverse projects, and construction management and inspection services not previously available to IDSC. IDSC paid for the transaction through the issuance of 9,800,000 shares of common stock, issuance of preferred stock and the assumption of long-term debt of Petrocon. The acquisition was accounted for using the purchase method of accounting. The fair market value of Petrocon's assets and liabilities has been included in the balance sheet as of December 31, 2001. The purchase price and allocation are as follows (in thousands): Debt assumed...................................................... $13,737 Fair value of common stock issued................................. 6,637 Fair value of preferred stock issued.............................. 2,500 IDSC transaction costs (including 96,281 shares of common stock issued to financial advisor)..................................... 932 ------- Total purchase price............................................ $23,806 Fair value of assets acquired..................................... $17,662 Fair value of liabilities assumed................................. (8,370) ------- Net assets acquired............................................... 9,292 Total purchase price.............................................. 23,806 ------- Purchase price over net assets--goodwill........................ $14,514 =======
Goodwill will not be deductible for tax purposes. As part of the merger transaction, Petrocon entered into an agreement and plan of reorganization with Equus II Incorporated (Equus). Certain indebtedness owed by Petrocon to Equus was renewed, restructured, reduced, and extended. Equus agreed to exchange notes worth $9.7 million including accrued interest, for $2.5 million in preferred stock, a new note for $3.0 million, receive a payment of $2.0 million, and forgive $2.2 million of the outstanding balance. This new note is subordinated to the Company's term loan with Fleet. (See Note 8) The unaudited proforma combined historical results, as if Petrocon had been acquired at the beginning of fiscal 1999, 2000 and 2001, respectively, are estimated to be:
1999 2000 2001 --------- ------- ------- (In thousands, except per share data) Net sales....................................... $ 93,233 $85,320 $91,725 Net income (loss) from continuing operations.... (14,698) 1,260 2,991 Net earnings (loss) per share from continuing operations--basic and diluted.................. (0.40) 0.03 0.07
The proforma results include amortization of the intangibles presented above and reduction of forgiven and restructured interest expense on debt. The proforma results does not purport to be indicative of what actually would have occurred if the acquisition had been completed as of the beginning of each fiscal period presented, nor are they necessarily indicative of future consolidated results. 29 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Basis of Presentation The consolidated results of operations and the cash flows for the years ended December 31, 1999, 2000 and 2001 reflect IDSC pre-merger operations. Since purchase transactions are accounted for prospectively and the acquisition occurred effective December 31, 2001, Petrocon's operations are not reflected in the results of operations for the year ended December 31, 2001. The balance sheet as of December 31, 2001 and the changes in shareholders' equity do reflect the acquisition of Petrocon. All significant intercompany balances and transactions have been eliminated. 2. Summary of Significant Accounting Policies Organization--Brief descriptions of the active companies included in the consolidated group follow: Industrial Data Systems Corporation (IDSC)--a Nevada holding company. IDS Engineering, Inc. (IED)--a Texas corporation that provides general engineering services for industrial customers in the pipeline industry. Thermaire, Inc. dba Thermal Corporation--manufactures and fabricates air handling equipment for commercial heating, ventilation, and cooling systems. Constant Power Manufacturing, Inc. (CPM)--fabricates industrial grade uninterruptible electrical power systems and battery chargers and microprocessor systems to be sold to the high-end industrial market. Industrial Data Systems, Inc. (IDS)--provides the corporate oversight function. Petrocon Engineering, Inc. (PEI)--provides general engineering services for industrial customers primarily along the Texas Gulf Coast with specialties in the areas of distributive control systems, power distribution, process design and process safety management. Petrocon Engineering of Louisiana, Inc. (PEI-LA)--extends PEI's service area into southwest Louisiana. Petrocon Systems, Inc. (PSI)--provides design, fabrication, installation, start-up, checkout and maintenance of analyzers and PLC systems. Petrocon Technologies, Inc. (PTI)--inactivated in 1999, provided development, sales and marketing focused on Petrocon's licensed hybrid low NOX process. Petrocon Construction Resources, Inc. (PCR)--provides technical, inspection and operator personnel within client facilities. Triangle Engineers and Constructors, Inc. (TE&C)--provided engineering services and construction management services, inactivated in 2002. RPM Engineering, Inc. (RPM)--provides engineering services in southeast Louisiana. Cash and Cash Equivalents--Cash and cash equivalents include cash in bank and investments in highly liquid money market mutual funds with maturity of three months or less at December 31, 2001. Also included are certain restricted funds in the amount of less than $0.1 million invested in Rabbi trusts as of December 31, 2001. The Company's banking system provides for daily replenishment of major bank accounts for check-clearing requirements. Accordingly, there were negative book balances of $1.5 million December 31, 2001. Such balances result from outstanding checks that have not yet been paid by the bank and are reclassified to accounts payable and accrued expenses in the accompanying consolidated balance sheets. 30 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Inventory--Inventory is composed primarily of raw materials and component parts (computer components, sheet metal, copper tubing, blower fans and fan motors) and is carried at the lower of cost or market value, with cost determined on the first-in, first-out ("FIFO") method of accounting. Revenue Recognition--The Company's revenues are composed of product sales and engineering service revenue. The Company recognizes service revenue as soon as such services are performed and product sales upon shipment to the customer. The majority of its services are provided through cost-plus contracts. Profits and losses on fixed-fee contracts are recorded on the percentage- of-completion method of accounting, measured by the percentage-of-contract costs incurred to date to estimated total contract costs for each contract. Contract costs include amounts paid to subcontractors. Anticipated losses on uncompleted construction contracts are charged to operations as soon as such losses can be estimated. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. The asset, "costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues recognized in excess of amounts billed. The liability "billings in excess of costs and estimated profits on uncompleted contracts" represents amounts billed in excess of revenues recognized. Marketable Securities--Marketable securities to be held to maturity are stated at amortized cost. Marketable securities classified as available-for- sale are stated at market value, with unrealized gains and losses reported as a separate component of shareholders' equity, net of deferred income taxes. If a decline in market value is determined to be other than temporary, any such loss is charged to earnings. Trading securities are stated at fair value, with unrealized gains and losses recognized in earnings. The Company records the purchases and sales of marketable securities and records realized gains and losses on the trade date. Realized gains or losses on the sale of securities are recognized on the specific identification method. As of 2001, the Company no longer holds or issues financial instruments for trading purposes nor does it hold interest rate, leveraged, or other type derivative instruments. Property and Equipment--All property and equipment is stated at cost, adjusted for accumulated depreciation. Depreciation on most property and equipment, other than land, building and improvements, is calculated using a straight-line method over the estimated useful lives of the related assets. Depreciation on buildings is calculated using a straight-line method over the useful life, which is 40 years. Leasehold improvements are amortized over the term of the related lease. Goodwill--For acquisitions prior to June 30, 2001, the Company capitalized the excess purchase price over the fair value of net assets acquired (goodwill) and amortized this intangible asset on a straight-line basis over 5-10 years. Since the acquisition occurred after June 30, 2001, the Company will follow the newly released Statement of Financial Accounting Standards (SFAS) No. 141 and SFAS No. 142, Business Combinations and Goodwill and Other Intangible Assets. These pronouncements cease amortization of goodwill and provide for annual testing of impairment. (See Note 4). Long-lived Assets--The Company reviews for the impairment of long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. The Company has not identified any such impairment losses. Income Taxes--The Company accounts for deferred income taxes in accordance with the asset and liability method, as prescribed in SFAS No. 109, Accounting for Income Taxes, whereby deferred income taxes are 31 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement and tax bases of its existing assets and liabilities. The provision for income taxes represents the current tax payable or refundable for the period plus or minus the tax effect of the net change in the deferred tax assets and liabilities during the period. Stock Based Compensation--The Company applies SFAS No.123, Accounting for Stock-Based Compensation, which encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options, and other equity instruments to employees based on fair value. The Company has elected to record compensation expense in accordance with Accounting Principles Board (APB) Opinion No. 25, which calculates compensation as the difference between an option's exercise price and the current price of the underlying stock. (For equity instruments issued to employees, see Note 11 which contains required pro forma disclosure of the impact of adopting SFAS No. 123) Earnings Per Share--Basic earnings per share was computed by dividing net income by the weighted average common shares outstanding for the years ended December 31, 1999, 2000 and 2001. Diluted earnings per share are computed including the impact of all potentially dilutive securities. Potentially dilutive securities that have not been included in the computation of earnings per share include 200,000 options exercisable at $1.00 to $1.25 in 1999 and 2000, and 305,102 warrants exercisable at $6.15 and 1,064,244 options exercisable at $0.96 to $6.24 in 2001. The following table sets forth the shares outstanding for the earnings per share calculations for the years ended December 31, 1999, 2000 and 2001.
1999 2000 2001 ---------- ---------- ---------- Common stock issued, beginning of year... 13,078,718 12,964,918 12,964,918 Weighted average common stock issued..... -- -- 271,131 Weighted average common stock retired.... (23,183) -- -- ---------- ---------- ---------- Shares used in computing basic and diluted earnings per share.............. 13,055,535 12,964,918 13,236,049 ========== ========== ==========
Use of Estimates--The preparation of the Company's consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company's management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying results. Actual results could differ from these estimates. Fair Value of Financial Instruments--The fair value of financial instruments, primarily accounts receivable, notes receivable, bonds, accounts payable and notes payable, closely approximate the carrying values of the instruments due to the short-term maturities of such instruments. Comprehensive Income--Comprehensive income is defined as all changes in shareholders' equity, exclusive of transactions with owners, such as capital investments. Comprehensive income includes net income or loss, changes in certain assets and liabilities that are reported directly in equity, such as translation adjustments on investments in foreign subsidiaries and certain changes in minimum pension liabilities. The Company's comprehensive income (loss) is equal to net income (loss) for all periods presented in these financial statements. Reclassifications--Amounts in prior years' financial statements are reclassified as necessary to conform with the current year's presentation. Such reclassifications had no effect on net income. 32 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 3. Notes Receivable--Stockholder In anticipation of the merger, the Company forgave a note receivable due from the majority stockholder of the Company with principal and accrued interest totaling $196,500. The note receivable was unsecured, due on demand with an interest rate of 9% per annum. During the year ended December 31, 2000, the Company recognized interest income of approximately $13,500 on these notes. The note receivable and accrued interest had been classified as a reduction of shareholders' equity. (See Note 14 for disposition of this note.) 4. Recent Accounting Pronouncements In June 2001, SFAS No. 141 Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets were issued. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for under the purchase method. It also establishes specific criteria for recognition of intangible assets separately from goodwill and required unallocated negative goodwill to be written off immediately as an extraordinary gain, rather than deferred and amortized. SFAS No. 142 changes the accounting for goodwill and other intangible assets with the most significant changes being: 1) goodwill and intangible assets with indefinite lives will no longer be amortized; 2) goodwill and intangible assets with indefinite lives will be tested for impairment at least annually; and 3) the amortization period for intangible assets with finite lives will no longer be limited to 40 years. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. At this time, the Company cannot reasonably estimate the effect of the adoption of this statement on its financial position, results of operations, or cash flows. SFAS No. 143 Asset Retirement Obligations was issued in June 2001, establishing the accounting requirements for retirement obligations associated with tangible long-lived assets, including 1) timing of the liability recognition, 2) initial measurement of the liability, 3) allocation of asset retirement cost to expense, 4) subsequent measurement of the liability, and 5) financial statement disclosures. The statement requires that an asset retirement cost should be capitalized as part of the cost of the related long- lived asset and subsequently allocated to expense using a systematic and rational method. The Company will adopt the statement effective no later than January 1, 2003, as required. The transition adjustment resulting from the adoption of SFAS No. 143 will be reported as a cumulative effect of a change in accounting principle. Management does not believe that the effect of the adoption of this statement will have a material impact on its financial position, results of operations, or cash flows. In October 2001, SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets was issued, replacing SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The new pronouncement requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The provisions of Statement No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001, and generally, are to be applied prospectively. Management does not believe that the effect of the adoption of this statement will have a material impact on its financial position, results of operations, or cash flows. 33 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. Property and Equipment Property and equipment consisted of the following at December 31, 2000 and 2001 (in thousands):
2000 2001 ------ ------ Land......................................................... $ 90 $ 590 Building..................................................... 605 2,557 Computer equipment and software.............................. 493 733 Shop equipment............................................... 332 693 Furniture and fixtures....................................... 215 1,050 Building and leasehold improvements.......................... 167 222 Autos and trucks............................................. -- 27 ------ ------ 1,902 5,872 Accumulated depreciation and amortization.................... (498) (749) ------ ------ Property and equipment, net.................................. $1,404 $5,123 ====== ======
6. Detail of Certain Balance Sheet Accounts The components of trade receivables as of December 31, 2000 and 2001 are as follows (in thousands):
2000 2001 ------ ------- Amounts billed at December 31............................. $3,573 $14,224 Amounts billable at December 31, billed January of the following year........................................... -- 780 Retainage................................................. -- 175 Less--Allowance for uncollectible accounts................ (17) (271) ------ ------- Trade receivables, net.................................. $3,556 $14,908 ====== =======
The components of accounts payable and accrued expenses as of December 31, 2000 and 2001 (in thousands):
2000 2001 ------ ------ Accounts payable.............................................. $1,333 $3,678 Bank overdraft................................................ -- 1,468 Accrued vacation.............................................. 159 1,154 Accrued compensation.......................................... 149 566 Reserve for legal exposures (Note 18)......................... -- 950 Other......................................................... 80 1,260 ------ ------ Accounts payable and accrued expenses......................... $1,721 $9,076 ====== ======
34 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 7. Fixed-Fee Contracts Costs, estimated earnings and billings on uncompleted contracts consisted of the following at December 31, 2000 and 2001 (in thousands):
2000 2001 ------- ------- Costs incurred on uncompleted contracts..................... $ 1,745 $ 7,293 Estimated earnings on uncompleted contracts................. 1,004 1,091 ------- ------- Earned revenues............................................. 2,749 8,384 Less billings to date....................................... (2,419) (8,431) ------- ------- Net cost and estimated earnings in excess (under) billings uncompleted contracts...................................... $ 330 $ (47) ======= ======= Costs and estimated earnings in excess of billings on uncompleted contracts...................................... $ 330 $ 731 Billings in excess of costs and estimated earnings on uncompleted contracts...................................... -- (778) ------- ------- Net cost and estimated earnings in excess (under) billings uncompleted contracts...................................... $ 330 $ (47) ======= =======
8. Line of Credit and Debt Effective December 31, 2001 as part of the merger, IDSC entered into a financing arrangement with Fleet whereby all of Petrocon's outstanding debt (the Credit Facility comprised of a line of credit and a term loan), was refinanced. The new loan agreement positions the Fleet debt as senior to all other debt and includes a line of credit limited to $15.0 million, subject to borrowing base restrictions and a term loan in the amount of $5.0 million. The credit facility is collateralized by substantially all the assets of the Company. At December 31, 2001, $8.9 million was outstanding on the line of credit and $0.5 million was outstanding on the term loan. Both the line of credit and the term loan mature on June 14, 2003. The interest rate on the line of credit is one quarter of one percent plus prime (5.0 percent at December 31, 2001), and the commitment fee on the unused line of credit is 0.375 percent. The interest rate on the term loan is one-half of one percent plus prime (5.25 percent at December 31, 2001). Monthly principal payments on the term loan plus interest commenced January 1, 2002 and continue until maturity. The remaining borrowings available under the line of credit as of December 31, 2001, were $3.4 million after consideration of the borrowing base limitations. The Company's Credit Facility contains covenants which require the maintenance of certain ratios, including cumulative fixed charge coverage and specified levels of certain other items including average borrowing availability and various other covenants. This Credit Facility replaced a revolving credit note that was collateralized with accounts receivable and inventory of the Company. The previous note had a balance at December 31, 2000 of $386,000 with interest at prime plus 0.5% (10% at December 31, 2000). 35 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) As part of the merger consideration, Petrocon's pre-merger debt with Equus was reorganized, restructured and reduced. Equus agreed to exchange notes worth $9.7 million including accrued interest for $2.5 million in preferred stock, a payment of $2.0 million, a forgiveness of $2.2 million, and a new note for $3.0 million. The new note has interest at 9.5 percent per annum with interest paid quarterly beginning February 15, 2002 and principal payments being repaid quarterly beginning August 15, 2002. This note is subordinated to the Company's term loan with Fleet. (Amounts below in thousands)
2000 2001 ---- ------- Fleet-- Line of credit, prime plus 0.25% (5.00% at December 31, 2001), maturing in 2003............................................. $ -- $ 8,894 Term loan, interest at prime plus 0.50% (5.25% at December 31, 2001), due in monthly installments of $60, maturing through 2003......................................................... -- 523 Equus-- Note payable, interest at 9.5%, principal due quarterly in installments of $110, maturing through 2004.................. -- 3,000 Frost-- Line of credit, prime plus 0.5% (10% at December 31, 2000), maturing April 24, 2002, paid in full in 2001................ 386 -- Vendors-- Notes payable, interest at 8%, due monthly in decreasing amounts starting at $115, maturing in August 2004............ -- 1,072 ---- ------- 386 13,489 Less--current maturities........................................ (21) (1,357) ---- ------- Long-term debt, net of current portion........................ $365 $12,132 ==== =======
Maturities of debt as of December 31, 2001, are as follows (in thousands):
Years Ending December 31, ------------------------- 2002.............................................................. $ 1,357 2003.............................................................. 9,631 2004.............................................................. 601 2005.............................................................. 1,900 ------- Total of debt..................................................... $13,489 =======
Current notes payable include a note which finances commercial insurance on a short-term basis, with a balance of $275,000 and $434,000 as of December 31, 2000 and 2001, respectively. 9. Capital Leases and Operating Leases The Company leases equipment and office space under long-term lease agreements. Some of the leases covering certain pieces of equipment, which expire over the next five years, are classified as capital leases. Property and equipment includes equipment under capital leases of approximately $166,000 and $273,000, less accumulated amortization of approximately $18,000 and $41,000 at December 31, 2000 and 2001, respectively. 36 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The future minimum lease payments for capital leases and for operating leases (with initial or remaining non-cancelable terms in excess of one year) as of December 31, 2001 follows below (in thousands):
Years Ending December 31, Capital Operating ------------------------- ------- --------- 2002..................................................... $ 67 $1,147 2003..................................................... 67 711 2004..................................................... 65 645 2005..................................................... 45 464 2006..................................................... 5 1,877 ---- ------ Total minimum lease payments............................... 249 $4,844 ====== Less amount representing interest.......................... (51) ---- Present value of net minimum lease payments................ 198 Less current maturities.................................... 48 ---- Principal amount of lease obligations...................... $150 ====
Rental expense for all operating leases, including those with terms less than one year, amounted to approximately $109,000, $275,000 and $364,000 for the years ended December 31, 1999, 2000 and 2001, respectively. 10. Profit Sharing Plan The Company has a 401(k) profit sharing plan (the "Plan") covering substantially all employees. Under the terms of the Plan, the Company makes matching contributions equal to 50% of employee contributions up to 6% of employee compensation, as defined. Employees may make contributions up to 15% of their compensation, subject to certain maximum contribution limitations. The employer's contributions vest on a schedule of 25% per year for 4 years. The Company made contributions to the Plan of approximately $120,000, $127,000 and $194,000, respectively, for the years ended December 31, 1999, 2000 and 2001, respectively. 11. Stock Option Plan The Company has a nonqualified stock option plan that provides for the issuance of options up to 1,400,000 shares of common stock. The Option Plan provides for grants of non-statutory options, incentive stock options, restricted stock awards and stock appreciation rights. No compensation cost has been recognized for grants under the Option Plan because the exercise price of the options granted to employees equals the market price of the stock on the date of the grants. If compensation cost at the grant date of the Option Plan been determined based on the fair value consistent with the provisions of SFAS No. 123, the Company's pre-tax income in 1999, 2000 and 2001 would not have changed significantly. Effective with the merger, over 1,700,000 shares were placed in escrow by a group of significant Petrocon shareholders under the Option Escrow Agreement. Under terms of this agreement, shares issued by IDSC under its option plan due to the exercise of converted Petrocon options, will be replaced by shares from the Option Escrow. The Option Escrow Agreement has the effect of preventing dilution to IDSC shareholders due to exercise of converted Petrocon options. The Option Escrow Agreement stays in effect until all existing options have been exercised, terminated, or cancelled. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1999, 2000 and 2001 dividend yield of 0%, expected volatility of 94%, 123% and 86%, risk-free interest rates of 6% and 5.75%, and expected lives of two years. 37 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Each option granted in 1999 and 2000 has an exercise price of $1.25 or $1.00 per share, respectively, and vest over 48 months. The options granted in 2001 have exercise prices ranging from $0.96 to $6.24. The maximum term of the options is ten years. The following table summarizes stock option activity:
Options at Exercise Prices --------------------------------------- $0.96-$1.25 $4.26 $6.24 Total ----------- ------- ------- ----------- Outstanding, January 1, 1999......... -- -- -- -- Granted............................ 200,000 -- -- 200,000 Canceled or expired................ -- -- -- -- Exercised.......................... -- -- -- -- ------- ------- ------- ----------- Outstanding, December 31, 1999....... 200,000 -- -- 200,000 Granted............................ 66,000 -- -- 66,000 Canceled or expired................ (40,000) -- -- (40,000) Exercised.......................... -- -- -- -- ------- ------- ------- ----------- Outstanding, December 31, 2000....... 226,000 -- -- 226,000 Granted............................ 10,000 -- -- 10,000 Granted in connection with a merger............................ 733,030 129,082 202,131 1,064,243 Canceled or expired................ (27,500) -- -- (27,500) Exercised.......................... -- -- -- -- ------- ------- ------- ----------- Outstanding, December 31, 2001....... 941,530 129,082 202,131 1,272,743 Exercisable at December 31, 2001..... 507,807 129,082 121,945 758,834 Available for grant at December 31, 2001................................ 127,257 Weighted-average fair value of options, granted in 2001............ $0.03-$0.29 Weighted-average fair value of options, granted in 1999 and 2000... $0.42-$0.43 Weighted-average exercise price at December 31, 2001................... $1.84 Weighted-average remaining life of options outstanding at December 31, 2001................................ 2.55 yrs
12. Related-Party Transactions Petrocon leases office space from PEI Investments, a joint venture in which Petrocon has a one-third interest, Mike Burrow (the Company's CEO) has a one- third interest, and a shareholder who owns less than 1% of the Company's common stock has a one-third interest. Rentals paid under these leases were $0.1 million for 1999, 2000 and 2001. These leases expired in 2001 and have a present annual rental rate of $0.1 million. Petrocon expects to renegotiate the leases during 2002. 13. Concentration of Credit Risk and Major Customers The Company provides pipeline engineering and fabricated systems and services primarily to major integrated oil and gas companies throughout the world. It also fabricates power systems and battery chargers, and manufactures air handling equipment for air conditioning and heating systems to commercial companies primarily in the southern states. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company assesses its credit risk and provides an allowance for doubtful accounts for any accounts which it deems doubtful for collection. 38 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Financial instruments that potentially subject the Company to concentration of credit risk are accounts receivable. The Company performs ongoing credit evaluations as to the financial condition of its customers. Generally, no collateral is required. For the years ended December 31, 1999, 2000 and 2001, the Company had sales in the engineering segment totaling approximately $3.5 million, $4.2 million, and $5.4 million to one, two and two major customers, respectively, which represent approximately 25% of total revenues each year. At December 31, 2000 and 2001, the Company had amounts due from three and two customers who individually had amounts due in excess of 10% of trade receivables totaling $1.6 million and $3.2 million, respectively. 14. Shareholders' Equity On December 20, 2001, a special meeting of the shareholders of IDSC was held to approve an amendment to the articles of incorporation creating a class of preferred stock with 5,000,000 shares authorized for issuance and to adopt the Agreement and Plan of Merger between IDSC and Petrocon including the issuance of 9,800,000 shares of common stock to Petrocon's shareholders. In addition, the shareholders approved the issuance of 2,500,000 shares of IDSC preferred stock to Equus and 96,281 shares of IDSC common stock to the Company's financial advisor. The aggregate purchase price was approximately $23,806,000 including transaction expenses and assumption of debt. The common stock was valued at $0.71 per share, which is the average price of IDSC common stock three days prior to and subsequent to the announcement of the merger. Par value for the preferred stock was $0.001 with a fair value of $1.00 per share. At the May 14, 2001 meeting, in anticipation of the merger, the board approved the forgiveness of $196,500 in amounts owed the Company by a shareholder in exchange for options to buy back Company common stock as part of the Option Pool Agreement, which terminates in 2006. 15. Federal Income Taxes The components of income tax expense (benefit) were as follows (in thousands):
Years Ended December 31, ---------------- 1999 2000 2001 ---- ---- ---- Current: Federal................................................... $145 $139 $220 State..................................................... 11 33 135 ---- ---- ---- 156 172 355 Deferred.................................................... (5) (49) 319 ---- ---- ---- Tax provision............................................. $151 $123 $674 ==== ==== ====
39 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The components of the Company's deferred tax liability consisted of the following at December 31, 2000 and 2001 (in thousands):
2000 2001 ---- ------- Deferred tax asset: Allowance for doubtful accounts............................. $ 6 $ 92 Net operating loss from prior ownership change.............. -- 1,200 Accruals not yet deductible for tax purposes................ -- 397 Valuation allowance......................................... -- (1,621) ---- ------- Net deferred tax assets................................... 6 68 Deferred tax liabilities: Tax accounting change from cash basis to accrual basis-- CPM Acquisition............................................ (43) -- Depreciation................................................ (11) (68) ---- ------- Deferred tax (liability) asset, net....................... $(48) $ -- ==== =======
The following is a reconciliation of expected to actual income tax expense from continuing operations (in thousands):
1999 2000 2001 ---- ---- ---- Federal income tax expense at 34%........................... $106 $129 $563 State and foreign taxes..................................... 10 21 83 Nondeductible expenses...................................... 3 9 28 Other....................................................... 32 (36) -- ---- ---- ---- $151 $123 $674 ==== ==== ====
The Company benefited from a Petrocon net operating loss carryforward of approximately $1,000,000 in the calculation of current tax expense. The Company has additional net operating loss carryforward of approximately $3,530,000 that are subject to limitations on utilization due to by prior ownership changes. The Company has established a valuation allowance on the entire net operating loss due to uncertainty of the ultimate realization of this asset. The Company recorded a valuation allowance of $1,621,000 as of December 31, 2001. 16. Segment Information The Company operates in three business segments: (1) engineering consulting services primarily to major integrated oil and gas companies; (2) engineered systems, uninterruptible power systems, battery chargers and industrial grade computer systems for specialty applications; and (3) manufacturing of air handling equipment for commercial heating, ventilation and cooling systems. Sales, operating income, identifiable assets, capital expenditures and depreciation set forth in the following table are the results of these segments. The amount in corporate and the corporate segment includes those activities that are not allocated to the operating segments. 40 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Segment information for the years 1999, 2000 and 2001 was as follows (in thousands):
1999 ------------------------------------------------------------------------------- Engineering Engineered Services Systems Manufacturing Corporate Total ----------- ---------- ------------- --------- ------- Net sales from external customers.............. $ 5,978 $3,109 $3,151 $ -- $12,238 Operating profit (loss)................. 790 120 (38) (639) 233 Depreciation and amortization........... 50 36 58 -- 144 Tangible assets......... 1,735 2,409 1,719 51 5,914 Capital expenditures.... 121 -- 88 -- 209 2000 ------------------------------------------------------------------------------- Engineering Engineered Services Systems Manufacturing Corporate Total ----------- ---------- ------------- --------- ------- Net sales from external customers.............. $10,740 $2,815 $3,421 $ -- $16,976 Operating profit (loss)................. 1,366 207 (24) (1,028) 521 Depreciation and amortization........... 96 36 84 -- 216 Tangible assets......... 3,788 1,076 1,600 588 7,052 Capital expenditures.... 316 28 24 -- 368 2001 ------------------------------------------------------------------------------- Engineering Engineered Services Systems Manufacturing Corporate Total ----------- ---------- ------------- --------- ------- Net sales from external customers.............. $14,235 $3,575 $4,244 $ -- $22,054 Operating profit (loss)................. 1,571 (65) 277 (71) 1,712 Depreciation and amortization........... 116 4 93 53 266 Tangible assets......... 18,389 2,152 2,299 932 23,772 Capital expenditures.... 291 70 155 65 581
17. Discontinued Operations On October 28, 1999, the Company entered into a settlement agreement with the former owner of IDS FAB to rescind the original acquisition agreement dated November 1, 1998. As a result of the settlement agreement, the Company received the originally issued 50,000 shares of its common stock, valued at $43,750 at the date of the rescission, back from the former owner of IDS FAB and transferred the stock of IDS FAB to the former owner. All assets and liabilities of IDS FAB were transferred back to and assumed by the former owner of IDS FAB. In the first two fiscal quarters of the year ended December 31, 1999, prior to determination to dispose of the segment, the Company had recognized a loss of approximately $765,000 related to impairment of assets of IDS FAB. In the fourth quarter of 1999, this impairment charge was reclassified to be included in the loss on disposal of discontinued operations. The discontinued segment recognized no sales revenue in 1999. Additionally, included in the loss on disposal of discontinued operations is approximately $85,000 of legal fees related to the disposition. 41 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 18. Contingencies Employment Agreements The Company has employment agreements with certain of its executive officers, the terms of which expire in December 2004. Such agreements provide for minimum salary levels, adjusted annually for cost-of-living changes, as well as for incentive bonuses that are payable if specified management goals are attained. The aggregate commitment for future salaries at December 31, 2001, excluding bonuses, was approximately $4.6 million. Litigation The Company is subject to legal proceedings and claims that have arisen in the ordinary course of its business. Based on legal analysis and advice from its attorneys, allowances have been made for any litigation that Management of the Company believes could have a material adverse effect on its financial condition or results of operations. Two claims that involve failure of contractual performance have been identified by the Management of the Company and are covered by insurance. The Company has accrued the costs subject to the insurance deductible of $100 thousand each. Petrocon was party to a lawsuit wherein certain former employees asserted breach of contract. The Company has accrued $247 thousand in unpaid settlement costs related to this lawsuit. Concurrent with the merger, as a result of mediation with certain former executive officers, the Company reached a settlement whereby the remaining balance of $450 thousand must be paid in 24 equal monthly installments of approximately $12 thousand with the balance of $175 thousand paid in the 25th month. Insurance The Company carries a broad range of insurance coverage, including general and business auto liability, commercial property, professional errors and omissions, workers' compensation insurance and general umbrella policy. The Company has not incurred significant claims in excess of insurance recoveries. Petrocon is self-insured for health insurance claims. Provisions for expected future payments are accrued based on the Company's experience. 42 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 19. Quarterly Financial Information (unaudited)
1999 ------------------------------------ Qtr 1 Qtr 2 Qtr 3 Qtr 4 ------ ------ ------ ------ (In thousands except per share amounts) Sales................................. $2,636 $3,219 $2,884 $3,499 Gross profit.......................... 827 889 628 504 Percent of sales.................... 31.4% 27.6% 21.8% 14.4% Income from continuing operations..... 190 340 117 (496) Discontinued operations............... (66)(a) (886)(a) 6 465 Net income (loss)..................... 124 (547) 123 (23)(b) Per common share--basic and diluted Continuing operations per share.... 0.01 0.03 0.01 0.00 Discontinued operations per Share... -- (0.07) -- -- Net income (loss)................. 0.01 (0.04) 0.01 0.00 2000 ------------------------------------ Qtr 1 Qtr 2 Qtr 3 Qtr 4 ------ ------ ------ ------ (In thousands except per share amounts) Sales................................. $3,392 $3,332 $5,141 $5,111 Gross profit.......................... 993 701 1,536 719 Percent of sales.................... 29.3% 21.1% 29.9% 14.1% Net income (loss)..................... 161 (154)(d) 297 77 (c) Per common share--basic and diluted Net income (loss).................. 0.01 (0.01) 0.02 0.01 2001 ------------------------------------ Qtr 1 Qtr 2 Qtr 3 Qtr 4 ------ ------ ------ ------ (In thousands except per share amounts) Sales................................. $5,954 $5,149 $5,756 $5,195 Gross profit.......................... 1,327 1,434 1,596 938 Percent of sales.................... 22.3% 27.9% 27.7% 18.1% Net income............................ 338 293 307 44 (c) Per common share--basic and diluted Net income......................... 0.03 0.02 0.02 0.00
- -------- (a) During the 1999, the Company entered into a settlement agreement with the former owner of IDS FAB to rescind the original acquisition agreement dated November 1, 1998. In the first two fiscal quarters of the year ended December 31, 1999, prior to determination to dispose of the segment, the Company had recognized a loss of approximately $765,000 related to impairment of assets of IDS FAB. In the fourth quarter of 1999, this impairment charge was reclassified to be included in the loss on disposal of discontinued operations. (b) The loss in the fourth quarter of 1999 was primarily due to additional expenses related to the establishment of the Tulsa operation and related personnel and benefits costs. Also, fourth quarter earnings are generally lower as described in (c) below. (c) The reduced net earnings in the fourth quarter of 1999, 2000 and 2001 are the result of the seasonality of the industry. Holidays and employee vacation exert downward pressure on profits for the fourth quarter. Sometimes during the first quarter, the budgets of our clients have not yet been approved resulting in a slow start. (d) The decrease in the overall gross margin in the second quarter of 2000 was attributable to declines in the gross profit margins contributed by the manufacturing and engineered systems segments, to additional non-billable expenses in the Engineering segment and to an overall increase in corporate related expenses due the growing number of employees. Each segment experienced lower sales revenues in the 2000 period. Decreases in gross profit generated ranged from a decline of 21.6% in the engineered systems segment to a decline of 81.3% in the products segment, with the manufacturing segment experiencing a decline of 70.8% from the three month period in 2000. These declines were a result of the lower sales in these segments accompanied by higher production costs. 43 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Shareholders Industrial Data Systems Corporation We have audited, in accordance with auditing standards, generally accepted in the United States of America, the consolidated financial statements of Industrial Data Systems Corporation and Subsidiaries included in this Form 10- K and have issued our report thereon dated March 7, 2002. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedule listed in Item 16(b) herein (Schedule II--Valuation and Qualifying Accounts) is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The financial statement schedule has been subjected to the auditing procedures applied to the audits of the basic financial statements and in our opinion, is fairly stated in all material respects with the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Hein + Associates LLP - ------------------------------------- Hein + Associates LLP Houston, Texas March 7, 2002 44 SCHEDULE II INDUSTRIAL DATA SYSTEMS CORPORATION VALUATION AND QUALIFYING ACCOUNTS
(B) (E) Balance at (D) Balance (A) Beginning of (C) Deductions- at End Description the Period Additions Write offs of Period - ----------------------------------------------------------------------- December 31, 1999 Allowance for doubtful accounts............... $40 $ -- $ 33 $ 7 December 31, 2000 Allowance for doubtful accounts............... $ 7 $ 12 $ 2 $ 17 December 31, 2001 Allowance for doubtful accounts............... $17 $254 $ -- $271
Note:Column C(2) has been omitted, as all answers would be "none." The additions in 2001 are the result of the merger with Petrocon. 45 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure There are no changes in or disagreements with the Company's accountants on accounting and financial disclosure. PART III Item 10. Directors and Executive Officers of the Registrant Incorporated herein by reference to certain information contained in the Company's definitive proxy statement for its 2002 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or before April 30, 2002. Item 11. Executive Compensation Incorporated herein by reference to certain information contained in the Company's definitive proxy statement for its 2002 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or before April 30, 2002. Item 12. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference to certain information contained in the Company's definitive proxy statement for its 2002 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or before April 30, 2002. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference to certain information contained in the Company's definitive proxy statement for its 2002 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or before April 30, 2002. 46 PART IV Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K A. FINANCIAL STATEMENTS The consolidated financial statements are contained herein as listed on the "Index" on page 23 hereof. B. REPORTS ON FORM 8-K Although there were no reports on Form 8-K filed by the Company during the quarter ended December 31, 2001, a Report of Unscheduled Material Events on Form 8-K was filed on January 7, 2002 describing the merger with Petrocon and an Amended Report of Unscheduled Material Events on Form 8-K/A was filed on March 5, 2002 updating the financial information of Petrocon provided in the Amendment No. 3 to Form S-4, filed on November 14, 2001. This Form 8-K/A included Petrocon's result of operations for the third quarter of 2001 and updated the pro forma schedules regarding the merger as originally provided in the Amendment No. 3 to Form S-4. C. DESCRIPTION AND INDEX OF EXHIBITS
Number Description ------ ----------- 2 Agreement and Plan of Reorganization for the Purchase of Industrial Data Systems, Incorporated, dated August 1, 1994 (1) 2.1 Action by Written Consent of the Board of Directors for the Purchase of Industrial Data Systems, Incorporated, a Texas corporation, dated August 1, 1994 (1) 2.2 Action by Written Consent of the Shareholders for the Purchase of Industrial Data Systems, Incorporated, a Texas corporation, dated August 1, 1994 (1) 2.4 Escrow Agreement for the Purchase of Thermaire Incorporated, dba Thermal Corp., dated August 15, 1995 (1) 2.5 Earnest Money Contract for the Purchase of Thermaire Incorporated, dba Thermal Corp.'s Manufacturing Facility, dated August 15, 1995 (1) 2.6 Offering Memorandum, 504D Offering of 500,000 Shares of Common Stock in the State of Nevada, dated July 26, 1994 (1) 2.7 Action by the Board of Directors regarding the 504D Stock Offering of 2,499,999 Shares of Common Stock, dated July 10, 1996 (1) 2.8 Agreement for Amendment and Substitution of Subscription Agreement and Notes, dated July 10, 1996 (1) 2.9 Stock Acquisition Agreement, dated March 25, 1998, by and among Industrial Data Systems Corporation, John L. "Jack" Ripley, and Constant Power Manufacturing Incorporated. Previously filed as Exhibit 2.1 on (4). 2.23 Agreement and Plan of Merger by and between Industrial Data Systems Corporation, IDS Engineering Management, LC, PEI Acquisition, Inc. and Petrocon Engineering, Inc. (11) 2.24 First Amendment to Agreement and Plan of Merger (13) 2.25 Letter Agreement to Agreement and Plan of Merger (13) 3 Articles of Incorporation, Industrial Data Systems Corporation, dated June 20, 1994 (1) 3.1 Corporate Charter, Industrial Data Systems Corporation, dated June 22, 1994 (1) 3.2 Corporate Bylaws, Industrial Data Systems Corporation, dated October 15, 1997. Previously filed as Exhibit 3 on (3)
47 3.10 Articles of Incorporation of IDS Engineering Management, LC (11) 3.11 Regulations of IDS Engineering Management, LC (11) 3.12 Articles of Incorporation PEI Acquisition, Inc. (11) 3.13 Bylaws of PEI Acquisition, Inc. (11) 3.14 Amendment to Articles of Incorporation of Industrial Data Systems Corporation dated December 20, 2001 (18) 4.1 Form of Common Stock Certificate of Industrial Data Systems Corporation (13) 4.2 Form of Certificate of Designation of Convertible Preferred Stock of Industrial Data Systems Corporation, dated December 21, 2001 (13) 4.3 Form of Convertible Preferred Stock Certificate of Industrial Data Systems Corporation (12) 4.4 Exchange Agreement--Letter to Mr. Robert A. Marks dated December 4, 2001 (18) 4.5 Exchange Agreement--Letter to Mr. Richard E. Mitchen dated December 4, 2001 (18) 5.1 Opinion of Rooker, Gibson and Later regarding of legality of stock issuance (13) 8.1 Opinion of Gardere Wynne Sewell LLP regarding United States Tax Matters (13)(14) 8.2 Opinion of Gardere Wynne Sewell LLP regarding tax treatment of merger (17) 10.1 Adoption Agreement for Non-standardized Code 401(k) Profit Sharing Plan, dated January 1, 1993. Previously filed as Exhibit 10.5 on (1) 10.2 Blanket Service Contract--Exxon Pipeline Company. Previously filed as Exhibit 10.6 on (2) 10.3 Blanket Service Contract--Marathon Oil Company. Previously filed as Exhibit 10.7 on (2) 10.4 Lease between Industrial Data Systems, Incorporated, a Texas corporation, and 319 Century Plaza Associates, Ltd., dated August 18, 1997. Previously filed as Exhibit 10 on (3) 10.5 First Amendment to Lease Agreement between Industrial Data Systems, Incorporated, a Texas corporation, and 319 Century Plaza Associates, dated September 19, 1997. Previously filed as Exhibit 10.1 on (3) 10.6 Second Amendment to Lease Agreement between Industrial Data Systems, Incorporated, a Texas corporation, and 319 Century Plaza Associates, dated November 19, 1997. Previously filed as Exhibit 10.2 on (3) 10.7 Pledge Agreement, dated March 25, 1998, by and between Industrial Data Systems Corporation, and John L. "Jack" Ripley. Previously filed as Exhibit 10.22 on (4) 10.8 Fourth Amendment to Lease between Industrial Data Systems, Inc., a Texas corporation, and 600 C.C. Business Park Ltd., dated September 1, 1998. Previously filed as Exhibit 10.24 on (5) 10.31 Settlement Agreement between the Company and Michael L. Moore. Previously filed as Exhibit 10.31 on (6) 10.32 Blanket Service Contract with Caspian Consortium-R. Previously filed as Exhibit 10.32 on (7) 10.33 Blanket Service Contract with Caspian Consortium-K. Previously filed as Exhibit 10.33 on (7) 10.35 Master Equipment Lease between Unicapital BSB Leasing and Thermaire, Inc. dba Thermal Corporation. Previously filed as Exhibit 10.35 on (8) 10.36 Promissory Note payable to The Frost National Bank, dated April 14, 2000. Previously filed as Exhibit 10.36 on (9)
48 10.37 Loan Agreement with The Frost National Bank, dated April 24, 2000. Previously filed as Exhibit 10.37 on (9) 10.38 Commercial Security Agreement with The Frost National Bank dated April 24, 2000. Previously filed as Exhibit 10.38 on (9) 10.39 Commercial Guaranty for the benefit of The Frost National Bank dated April 24, 2000. Previously filed as Exhibit 10.39 on (9) 10.40 Business Park Lease for Tulsa Office Space. Previously filed as Exhibit 10.40 on (10) 10.41 Business Park Lease for Tulsa Office Space. Previously filed as Exhibit 10.41 on (10) 10.42 Standard Industrial Lease Agreement between Houston Industrial Assets, L.P. and Constant Power Manufacturing, Inc. dated May 30, 2001 (11) 10.43 Settlement Agreement and Plan of Reorganization dated July 31, 2001 among Petrocon Engineering, Inc., Industrial Data Systems Corporation, PEI Acquisition, Inc., and Equus II Incorporated (18) 10.44 Promissory Note between Petrocon Engineering, Inc. and Equus II Incorporated dated December 21, 2001 (18) 10.45 Form of Guaranty by and among Fleet Capital Corporation, Petrocon Engineering, Inc., PEI Acquisition, Inc., and Equus II Incorporated dated December 21, 2001 (18) 10.46 Security Agreement among Fleet Capital Corporation, Petrocon Engineering, Inc., and Equus II Incorporated dated December 21,2001 (18) 10.47 Mortgage and Security Agreement among Fleet Capital Corporation, Equus II Incorporated, and Petrocon Engineering, Inc. dated December 21, 2001 (18) 10.48 Option Pool Agreement between Industrial Data Systems Corporation and Alliance 2000, Ltd. Dated December 21, 2001 (18) 10.49 Indemnification Escrow Agreement among Industrial Data Systems Corporation, PEI Acquisitions, the individuals listed as "Significant PEI Shareholders", and Johnny Williams, Escrow Agent dated December 21, 2001 (18) 10.50 Option Escrow Agreement among Industrial Data Systems Corporation, PEI Acquisitions, the individuals listed as "Significant PEI Shareholders", and Johnny Williams, Escrow Agent dated December 21, 2001 (18) 10.51 Form of Lock-Up Agreement letter from Petrocon Engineering, Inc. shareholder(s) of record to Industrial Data Systems Corporation dated December 21, 2001 (18) 10.52 Voting Agreement among Industrial Data Systems Corporation, Equus II Corporation, Alliance 2000, Ltd. and individuals listed as "Significant PEI Shareholders" dated December 21, 2001 (18) 10.53 Second Amended and Restated Loan and Security Agreement by and among IDS Engineering, Inc., Thermaire, Inc., Constant Power Manufacturing, Inc., Industrial Data Systems, Inc., IDS Engineering Management, LC, Petrocon Engineering, Inc., Triangle Engineers and Constructors, Inc., Petrocon Systems, Inc., Petrocon Engineering of Louisiana, Inc., R.P.M. Engineering, Inc., Petrocon Construction Resources, Inc., Alliance Engineering Associates, Inc., and Fleet Capital Corporation dated December 21, 2001 (18) 10.54 Amended and Restated Revolving Note between Fleet Capital Corporation and IDS Engineering, Inc., Thermaire, Inc., Constant Power Manufacturing, Inc., Industrial Data Systems, Inc., IDS Engineering Management, LC, Petrocon Engineering, Inc., Triangle Engineers and Constructors, Inc., Petrocon Systems, Inc., Petrocon Engineering of Louisiana, Inc., R.P.M. Engineering, Inc., Petrocon Construction Resources, Inc., Alliance Engineering Associates, Inc., dated December 21, 2001 (18)
49 10.55 Stock Pledge Agreement between Industrial Data Systems, Inc. and Fleet Capital Corporation dated December 21, 2001 (18) 10.56 Stock Pledge Agreement between IDS Engineering Management, LC and Fleet Capital Corporation dated December 21, 2001 (18) 10.57 Amended and Restated Stock Pledge Agreement between Petrocon Engineering, Inc. and Fleet Capital Corporation dated December 21, 2001 (18) 10.58 Continuing Guaranty Agreement between Fleet Capital Corporation and "Borrowers" known as IDS Engineering, Inc., Thermaire, Inc., Constant Power Manufacturing, Inc., Industrial Data Systems, Inc., IDS Engineering Management, LC, Petrocon Engineering, Inc., Triangle Engineers and Constructors, Inc., Petrocon Systems, Inc., Petrocon Engineering of Louisiana, Inc., R.P.M. Engineering, Inc., Petrocon Construction Resources, Inc., Alliance Engineering Associates, Inc., dated December 21, 2001 (18) 10.59 Amended and Restated Patent Security Agreement between Petrocon Engineering, Inc. and Fleet Capital Corporation dated December 21, 2001 (18) 10.60 Amended and Restated Patent Security Agreement between Petrocon Technologies, Inc. and Fleet Capital Corporation dated December 21, 2001 (18) 10.61 Amended and Restated Trademark Security Agreement between R.P.M. Engineering, Inc. and Fleet Capital Corporation dated December 21, 2001 (18) 10.62 Intercreditor Agreement by and among Fleet Capital Corporation, Equus II Incorporated, Petrocon Engineering, Inc. (Borrower) together with the Loan Party (Industrial Data Systems Corporation, IDS Engineering, Inc., Thermaire, Inc., Constant Power Manufacturing, Inc., Industrial Data Systems, Inc., IDS Engineering Management, LC, Triangle Engineers and Constructors, Inc., Petrocon Systems, Inc., Petrocon Engineering of Louisiana, Inc., R.P.M. Engineering, Inc., Petrocon Construction Resources, Inc., Petrocon Technologies, Inc., and Alliance Engineering Associates, Inc. dated December 21, 2001 (18) 11.1 Statement Regarding Computation of Per Share Earnings (13) 21.1 Subsidiaries of the Registrant (18) 23.3 Consent of Gardere Wynne Sewell LLP (included as Ex 8.1) (13)(14) 24.1 Power of Attorney (12) 99.2 Press Release dated August 1, 2001 announcing signing of definitive merger agreement with Petrocon Engineering, Inc. (11) 99.3 Press Release dated December 24, 2001 announcing completion of merger with Petrocon Engineering, Inc. (16)
- -------- (1) Exhibits incorporated by reference on the Company's Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on January 27, 1997. (2) Exhibits incorporated by reference on the Company's Annual Report on Form 10-KSB/A for the year ended December 31, 1996 filed with the Securities and Exchange Commission on May 14, 1997. (3) Exhibits incorporated by reference on the Company's Annual Report on Form 10-KSB/A for the year ended December 31, 1997 filed with the Securities and Exchange Commission on April 10, 1998. (4) Exhibits incorporated by reference on the Company's Form 8-K filed April 10, 1998 and Form 8-K/A filed April 29, 1998. (5) Exhibits incorporated by reference on the Company's Annual Report on Form 10-KSB/A for the year ended December 31, 1998. (6) Exhibit incorporated by reference by the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities and Exchange Commission on November 15, 1999. 50 (7) Exhibits incorporated by reference on the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999. (8) Exhibit incorporated by reference on the Company's Quarterly Report on Form 10-QSB for the quarter ended March 31, 2000 filed with the Securities and Exchange Commission on May 15, 2000. (9) Exhibit incorporated by reference on the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2000 filed with the Securities and Exchange Commission on August 14, 2000. (10) Exhibit incorporated by reference on the Company's Quarterly Report on Form 10-QSB quarter ended September 30, 2000 filed with the Securities and Exchange Commission on November 13, 2000. (11) Exhibit incorporated by reference on the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2001 filed with the Securities and Exchange Commission on August 14, 2001. (12) Exhibit incorporated by reference on Form S-4 filed with the Securities and Exchange Commission on August 24, 2001 (13) Exhibit incorporated by reference on Amendment One to Form S-4 filed with the Securities and Exchange Commission on October 19, 2001 (14) Exhibit incorporated by reference on Amendment Two to Form S-4 filed with the Securities and Exchange Commission on November 6, 2001 (15) Exhibit incorporated by reference on Amendment Three to Form S-4 filed with the Securities and Exchange Commission on November 16, 2001 (16) Exhibit incorporated by reference on Form 8-K filed with the Securities and Exchange Commission on January 7, 2002 (17) Exhibit incorporated by reference on Post Effective Amendment filed with the Securities and Exchange Commission on January 30, 2002 (18) Filed herewith 51 SIGNATURES In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant has caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. INDUSTRIAL DATA SYSTEMS CORPORATION Dated: March 28, 2002 /s/ Michael L. Burrow, P.E. By: _________________________________ Michael L. Burrow, P.E., Chairman of the Board, Chief Executive Officer, Director /s/ William A. Coskey, P.E. By: _________________________________ William A. Coskey, P.E., President, Chief Operating Officer, Director /s/ Hulda L. Coskey By: _________________________________ Hulda L. Coskey, Chief Governance Officer, Secretary, Director /s/ Jimmie N. Carpenter, P.E. By: _________________________________ Jimmie N. Carpenter, Director /s/ David W. Gent, P.E. By: _________________________________ David W. Gent, P.E., Director /s/ Randall B. Hale By: _________________________________ Randall B. Hale, Director /s/ David C. Roussel By: _________________________________ David C. Roussel, Director 52 EX-3.14 3 dex314.txt AMENDMENT TO ARTICLES OF INCORPORATION OF IDS Exhibit 3.14 CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF INDUSTRIAL DATA SYSTEMS CORPORATION A Nevada Corporation 1. The name of the corporation (the "Corporation") is Industrial Data Systems Corporation. 2. The Articles of Incorporation of the Corporation are hereby amended by striking out Article Fourth thereof and by substituting in lieu thereof the following new Article Fourth: "FOURTH. The aggregate number of shares the corporation shall have authority to issue shall be SEVENTY FIVE MILLION (75,000,000) shares of common stock, par value one mil ($.001) per share, and FIVE MILLION (5,000,000) shares of Series A Convertible Preferred Stock, par value one mil ($.001) per share. Each share of common stock shall have equal rights, preferences and voting powers. Each share of Series A Convertible Preferred Stock shall have the preferences, limitations, restrictions, relative rights and voting powers as set forth on Exhibit A attached --------- hereto and incorporated herein." 3. The vote by which the stockholders holding shares in the corporation entitling them to exercise at least a majority of the voting power, or such greater proportion of the voting power as may be required in the case of a vote by classes or series, or as may be required by the provisions of the articles of incorporation have voted in favor of the amendment is: ______________. EXECUTED this _____ day of December, 2001. ___________________________________ William A. Coskey, President ___________________________________ Hulda L. Coskey, Secretary 1 EXHIBIT A --------- CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF THE TERMS OF THE SERIES A PREFERRED STOCK Section 1. Designation and Amount. The Series A Convertible Preferred ---------------------- Stock, $0.001 par value per share (the "Series A Preferred Stock") shall consist of 5,000,000 shares and will have the designations, preferences, voting powers and privileges set forth below. The number of shares of Series A Preferred Stock may be increased or decreased by a resolution duly adopted by the Board of Directors of the Corporation and by the filing of an amendment to the Corporation's Articles of Incorporation pursuant to the provisions of the Nevada Business Corporation Act stating that such increase or decrease has been so authorized. Section 2. Dividends. --------- (A) Preferred Stock Dividend Preference. The holders of Series ----------------------------------- A Preferred Stock, in preference to the holders of Common Stock , $.001 par value per share (the "Common Stock"), shall be entitled to receive, but only out of any funds legally available for the declaration of dividends, cumulative, preferential dividends payable as provided in paragraph (B) below of this Section 2. Dividends on shares of Series A Preferred Stock shall accrue and be cumulative from the date of issuance of such shares of Series A Preferred Stock, and shall accumulate and accrue from day to day thereafter. No dividends or distributions (other than dividends or distributions on Common Stock payable in Common Stock) shall be paid upon, or declared or set apart for, the Common Stock, nor shall any Common Stock be purchased, redeemed, retired, or otherwise acquired by the Corporation, unless and until all cumulative dividends then owed on the then outstanding shares of Series A Preferred Stock have been paid in full. (B) Payment of Series A Preferred Stock Dividends. Dividends on --------------------------------------------- outstanding shares of Series A Preferred Stock shall be payable annually, in arrears, on the last day of May of each year, beginning on the last day of May 2002 at a rate of 8% of the Liquidation Amount in cash, or, at the option of the Corporation, in shares of Series A Preferred Stock at the rate of 0.08 shares for each outstanding share of Series A Preferred Stock; provided, however, that if the Corporation pays in shares of Series A Preferred Stock, the Corporation may issue cash in lieu of fractional shares. (C) Common Stock. Subject to paragraphs (A) and (B) above of ------------ this Section 2, (i) dividends may be declared and paid on Common Stock, and (ii) Common Stock may be purchased, retired, or otherwise acquired, in either case when and as determined by the Board of Directors, out of any funds legally available for such purposes. Section 3. Preference on Liquidation. ------------------------- (A) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation (a "Liquidation") the holders of shares of the Series A Preferred Stock then outstanding shall be entitled to be paid, out of the assets of the Corporation available 2 for distribution to its shareholders, whether from capital, surplus or earnings, before any payment shall be made in respect of the Common Stock, an amount equal to $1.00 per share of Series A Preferred Stock (the "Liquidation Amount"), plus all accrued and unpaid dividends as set forth above in Section 2 with respect to such series to the date fixed for distribution. If, upon a Liquidation, the Corporation pays less than the total Liquidation Amount to holders of shares of Series A Preferred Stock, such payments shall be distributed pro rata on a share-by-share basis among all shares of Series A Preferred Stock at the time outstanding. Upon Liquidation, the Corporation shall not make any dividends or distributions to holders of Common Stock until it has paid the total Liquidation Amount plus all accrued but unpaid dividends to each holder of shares of Series A Preferred Stock. (B) After setting apart or paying in full the preferential amounts due the holders of Series A Preferred Stock, such holders will not be entitled to any further participation in any distribution of assets of the Corporation. Section 4. Voting. Except as provided in this Designation or otherwise ------ required by law, no holder of shares of Series A Preferred Stock shall be entitled to vote on any matter presented to shareholders for a vote. If a vote of the holders of Series A Preferred Stock is required by law, each holder of Series A Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such shares of Series A Preferred Stock could be converted on the record date for the vote or consent of shareholders and shall have voting rights and powers equal to the voting rights and powers of the Common Stock. The holder of each share of Series A Preferred Stock shall be entitled to notice of any shareholders' meeting in accordance with the Bylaws of the Corporation. Fractional votes by the holders of Series A Preferred Stock shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Series A Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number. Section 5. Conversion. The holders of the Series A Preferred Stock ---------- shall have conversion rights as follows (the "Conversion Rights"): (A) Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Series A Preferred Stock, into Common Stock as more fully described below. The number of fully paid and nonassessable shares of Common Stock into which each share of Series A Preferred Stock may be converted shall be determined by dividing $1.00 by the Conversion Price (as hereinafter defined) in effect at the time of conversion. The "Conversion Price" shall initially be $2.38, subject to adjustment as provided in Section 5(F) below. (B) Each share of Series A Preferred Stock shall automatically be converted into shares of Common Stock utilizing the then effective Conversion Price immediately upon obtaining the written consent of the holders of at least two-thirds of the outstanding Series A Preferred Stock to such conversion. (C) Each share of Series A Preferred Stock shall be convertible, at the option of the Corporation, at any time after the Common Stock has been publicly traded on a national 3 securities exchange or on Nasdaq for at least 20 consecutive trading days at a closing price of at least $3.00 (as adjusted to reflect any stock split, stock dividend, combination, recapitalization or similar event) or higher; provided, that if the market price of the Common Stock thereafter declines to a closing price that is below $3.00 per share, the Corporation may not cause the Series A Preferred Stock to convert into Common Stock until it has again been publicly traded for at least 20 consecutive trading days at a closing price of at least $3.00 (as adjusted to reflect any stock split, stock dividend, combination, recapitalization or similar event). (D) No fractional shares of Common Stock shall be issued upon conversion of the Series A Preferred Stock, and any shares of Series A Preferred Stock surrendered for conversion which would otherwise result in a fractional share of Common Stock shall be redeemed for the then fair market value thereof as determined by the Corporation's Board of Directors, payable as promptly as possible whenever funds are legally available therefor. If more than one share of Series A Preferred Stock is surrendered for conversion at any one time by the same holder, the number of full shares of Common Stock to be issued upon conversion shall be computed on the basis of the aggregate number of shares of Series A Preferred Stock so surrendered. (E) Before any holder of Series A Preferred Stock shall be entitled to convert the same into shares of Common Stock, it shall surrender the certificate or certificates therefor at the office of the Corporation or of any transfer agent for the Series A Preferred Stock, and shall give written notice to the Corporation at such office that it elects to convert the same and shall state therein the name or names in which it wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A Preferred Stock, or to its nominee or nominees, a certificate or certificates for the number of shares of Common Stock to which it shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (F) Adjustment of Number of Shares and Conversion Price. The --------------------------------------------------- Conversion Price and the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock shall be subject to adjustment from time to time as provided in this Section 5(F). (i) Issuance of Additional Shares of Common Stock. If --------------------------------------------- the Corporation issues or sells any shares ("Additional Shares") of Common Stock for a consideration per share less than the Conversion Price, the Conversion Price shall be adjusted to the price calculated by multiplying the Conversion Price in effect immediately before the issuance of the Additional Shares by a fraction: A. the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares plus the number of shares of Common Stock which the aggregate consideration for the total number of such Additional Shares so issued would purchase at the Conversion Price, and 4 B. the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares plus the number of such Additional Shares so issued. For purposes of this Section 5(F)(i), the date as of which the Conversion Price shall be computed shall be the earlier of the date upon which the Corporation shall (i) enter into a firm contract for the issuance of such shares or (ii) issue such shares. (ii) Adjustment of Number of Shares. Upon any adjustment ------------------------------ of the Conversion Price as provided in this Section 5(F), the holder of shares of Series A Preferred Stock shall thereafter be entitled to purchase, at the Conversion Price resulting from the adjustment, the number of shares of Common Stock (calculated to the nearest 1/100th of a share) obtained by multiplying the Conversion Price in effect immediately before the adjustment by the number of shares of Common Stock purchasable hereunder immediately before the adjustment and dividing the product thereof by the Conversion Price resulting from the adjustment. (G) Provisions Applicable to Section 5(F). For purposes of ------------------------------------- Section 5(F), the following Sections 5(G)(i) through (xii), inclusive, shall be applicable: (i) Issuance of Options or Other Rights. If the ----------------------------------- Corporation in any manner grants (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, (x) Common Stock or (y) evidences of indebtedness, shares of stock or other securities that are convertible into or exchangeable for, with or without payment of additional consideration in cash or property, additional shares of Common Stock, either immediately or upon a specified date or the happening of a specified event ("Convertible Securities"), whether or not such rights or options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and if the price per share for which shares of Common Stock are issuable upon the conversion of such rights or options or upon conversion or exchange of such Convertible Securities is less than the Conversion Price per share of Common Stock existing immediately before the granting of such rights or options, then the maximum number of shares of Common Stock issuable upon the conversion of such rights or options or upon conversion or exchange of the maximum amount of such Convertible Securities issuable upon the conversion of such rights or options shall (as of the date for the determination of the Conversion Price per share of Common Stock as hereinafter provided) be deemed to be outstanding and to have been issued for such price per share. The price per share for which shares of Common Stock are issuable upon the conversion of such right or options or upon conversion or exchange of such Convertible Securities shall be determined by dividing (1) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such rights or options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the conversion of such rights or options, plus, in the case of such Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the conversion or exchange thereof, by (2) the total maximum number of shares of Common Stock issuable upon the conversion of such rights or options or upon the conversion or exchange of all such Convertible Securities issuable upon the 5 conversion of such rights or options. No further adjustments of the Conversion Price shall be made upon the actual issue of such Common Stock or of such rights or options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities except as otherwise provided in Section 5(G)(iii) below. For purposes of this Section 5(G)(i), the date as of which the Conversion Price per share of Common Stock shall be computed shall be the earlier of the date upon which the Corporation shall (i) enter into a firm contract for the issuance of such rights or other options or (ii) issue such rights or other options. (ii) Issuance of Convertible Securities. If the ---------------------------------- Corporation in any manner issues or sells (whether directly or by assumption in a merger or otherwise) any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which shares of Common Stock are issuable upon such conversion or exchange shall be less than the Conversion Price per share of Common Stock existing immediately prior to the time of such issue or sale, then the maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall (as of the date for the determination of the Conversion Price per share of Common Stock as hereinafter provided) be deemed to be outstanding and to have been issued for such price per share; provided however, except as otherwise specified in Section 5(G)(iii) below, (1) no further adjustments of the Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities and (2) if any such issuance or sale of such Convertible Securities is made upon conversion of any rights to subscribe for or to purchase or any option to purchase any such Convertible Securities for which adjustments of the Conversion Price have been or are to be made under other provisions of Sections 5(F) and 5(G), no further adjustment of the Conversion Price shall be made by reason of such issuance or sale. The price per share for which shares of Common Stock are issuable upon such conversion or exchange shall be determined by dividing (x) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (y) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. For purposes of this Section 5(G)(ii), the date as of which the Conversion Price per share of Common Stock shall be computed shall be the earlier of the date upon which (i) the Corporation shall enter into a firm contract for the issuance of such Convertible Securities or (ii) such Convertible Securities are actually issued. (iii) Readjustment of Conversion Price. If (i) the -------------------------------- purchase price provided for in any rights or options referred to in Section 5(G)(i) above, (ii) the additional consideration, if any, payable upon the conversion or exchange of Convertible Securities referred to in Section 5(G)(i) or 5(G)(ii) above, or (iii) the rate at which any Convertible Securities referred to in Section 5(G)(i) or 5(G)(ii) above are convertible into or exchangeable for Common Stock shall change (other than under or by reason of provisions designed to protect against dilution), the Conversion Price in effect at the time of such event shall forthwith be readjusted to the Conversion Price that would have been in effect at such time had such rights, options or Convertible Securities still outstanding 6 provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. On the expiration of any such option or right or the termination of any such right to convert or exchange such Convertible Securities, the Conversion Price then in effect shall be increased to the Conversion Price that would have been in effect at the time of such expiration or termination had such right, option or Convertible Security never been issued, and the Common Stock issuable thereunder shall no longer be deemed to be outstanding. If the purchase price provided for in any such rights or options referred to in Section 5(G)(i) above or the rate at which any Convertible Securities referred to in Section 5(G)(i) or 5(G)(ii) are convertible into or exchangeable for Common Stock, shall be reduced at any time under or by reason of provisions with respect thereto designed to protect against dilution, then in case of the delivery of Common Stock upon the conversion in any such rights or options or upon conversion or exchange of any such Convertible Securities, the Conversion Price then in effect hereunder shall forthwith be adjusted to such amount as would have obtained had such right, option or Convertible Securities never been issued as to such Common Stock and had adjustments never been made upon the issuance of the shares of Common Stock delivered as aforesaid, but only if as a result of such adjustment the Conversion Price then in effect hereunder is thereby reduced. In the event any such adjustment would reduce the Conversion Price to an amount less than the then par value of the Common Stock, the Corporation shall cause its Articles of Incorporation to be amended to reduce the par value of the Common Stock to an amount equal to or less than the adjusted Conversion Price. (iv) Minimum Adjustment. If any adjustment of the ------------------ Conversion Price pursuant to Section 5(F) results in an adjustment of less than $.001 per share of Common Stock, no such adjustment shall be made, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment that, together with any adjustments so carried forward, shall amount to $.001 or more per share of Common Stock; provided, however, upon any adjustment of the Conversion Price resulting from (i) the declaration of a dividend upon, or the mailing of any distribution in respect of, any stock of the Corporation payable in Common Stock or Convertible Securities or (ii) the reclassification, by subdivision, combination or otherwise, of the Common Stock into a greater or smaller number of shares, the foregoing figure of $.001 per share (or such figure as last adjusted) shall be proportionately adjusted; provided, further, upon the conversion of the Series A Preferred Stock, the Corporation shall make all necessary adjustments not theretofore made to the Conversion Price up to and including the date upon which the Series A Preferred Stock is converted. (v) Consideration for Dividends in Securities. If the ----------------------------------------- Corporation declares a dividend or makes any other distribution upon any stock of the Corporation payable in either case in Common Stock or Convertible Securities, such 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. (vi) Consideration for Rights or Options. If any rights ----------------------------------- or options to purchase any shares of Common Stock or Convertible Securities are issued in connection with the issue or sale of other securities of the Corporation, together comprising one 7 integral transaction in which no specific consideration is allocated to the rights or options, the rights or options shall be deemed to have been issued without consideration. (vii) Determination of Consideration upon Payment of Cash, ---------------------------------------------------- Property or Merger. If any shares of Common Stock or Convertible ------------------ Securities or any rights or options to purchase any Common Stock or Convertible Securities are issued or sold for cash, the consideration received therefor shall be deemed to be the net amount received by the Corporation therefor, after deduction of any accrued interest, dividends or any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. If any shares of Common Stock or Convertible Securities or any rights or options to purchase any such Common Stock or Convertible Securities are issued for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair market value on the date of issue of the securities so issued by the Corporation, as determined in good faith by the Board of Directors of the Corporation, less any expenses incurred by the Corporation in connection therewith. If any shares of Common Stock or Convertible Securities or any rights or options to purchase such Common Stock or Convertible Securities are issued in connection with any merger or consolidation in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair market value thereof on the date of issue, as determined in good faith by the Board of Directors of the Corporation, for such portion of the assets and business of the non-surviving corporation as the Board of Directors shall attribute to such Common Stock, Convertible Securities, rights or options, as the case may be. In the event of any consolidation or merger of the Corporation in which the Corporation is not the surviving corporation or in the event of any sale of all or substantially all of the assets of the Corporation for stock or other securities of any corporation, the Corporation shall be deemed to have issued a number of shares of its Common Stock for stock or securities of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated and for a consideration equal to the fair market value on the date of such transaction of such stock or securities of the other corporation, and if any such calculation results in adjustment of the Conversion Price, the determination of the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock immediately prior to such merger, consolidation or sale, for the purposes of Section 5(G)(xi) below, shall be made after giving effect to such adjustment of the Conversion Price. (viii) Record Date. If the Corporation takes a record of ----------- the holders of the Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock or in Convertible Securities or (ii) to subscribe for or purchase Common Stock or Convertible Securities, then the record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of the dividend or the making of such other distribution or the date of the granting of the right of subscription or purchase, as the case may be. (ix) Shares Outstanding. The number of shares of Common ------------------ Stock deemed to be outstanding at any given time shall (i) include shares of Common Stock 8 issuable in respect of scrip certificates that have been issued in lieu of fractional shares of Common Stock, but (ii) exclude (x) shares of Common Stock in the treasury of the Corporation or any subsidiary of the Corporation, (y) shares of Common Stock previously issued upon the conversion of the Series A Preferred Stock and (z) shares of Common Stock issuable upon the conversion of the Series A Preferred Stock. (x) Splits and Combinations. If the Corporation at any ----------------------- time subdivides its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately before the subdivision shall be proportionately reduced, and, conversely, if the outstanding shares of Common Stock are combined into a smaller number of shares, the Conversion Price in effect immediately before the combination shall be proportionately increased. (xi) Reorganization, Reclassification or Recapitalization ---------------------------------------------------- of Corporation. In case of any capital reorganization or reclassification -------------- or recapitalization of the capital stock of the Corporation (other than in the cases referred to in Section 5(G)(x) or in case of the consolidation or merger of the Corporation with or into another corporation or other business entity or in case of the sale or transfer of the property of the Corporation as an entirety or substantially as an entirety, there shall thereafter be deliverable upon the conversion of the Series A Preferred Stock or any portion thereof (in lieu of or in addition to the number of shares of Common Stock theretofore deliverable) the number of shares of stock or other securities or property to which the holder of the number of shares of Common Stock that would otherwise have been deliverable upon the conversion of the Series A Preferred Stock or any portion thereof at the time would have been entitled upon such capital reorganization, reclassification or recapitalization of capital stock, consolidation, merger or sale, and at the same aggregate Conversion Price. Prior to and as a condition of the consummation of any transaction described in the preceding sentence, the Corporation shall make appropriate written adjustments in the application of the provisions herein set forth reasonably satisfactory to the holders of the Series A Preferred Stock entitled to not less than a majority of the shares of Common Stock issuable upon the conversion thereof with respect to the rights and interests of the holders of the Series A Preferred Stock so that the provisions set forth herein shall thereafter be applicable, as nearly as possible, in relation to any shares of stock or other securities or other property thereafter deliverable upon conversion of the Series A Preferred Stock. Any such adjustment shall be made by and set forth in a supplemental agreement between the Corporation and the successor entity and be approved by the holders of the Series A Preferred Stock entitled to not less than a majority of the shares of Common Stock issuable upon the conversion thereof. (xii) Exempt Issuances. Notwithstanding the prior ---------------- provisions of this Section 5(G), no adjustment of the Conversion Price or the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock shall be made by reason of: A. Common Stock issued upon conversion of the Series A Preferred Stock; 9 B. securities from time to time issuable or issued to employees, directors or consultants of the Corporation pursuant to stock option plans approved by a majority of the shareholders of the Corporation not to exceed 15% of the fully diluted shares of Common Stock then outstanding; C. securities issued in connection with an acquisition of all or part of another business is approved by the Board of Directors of the Corporation; D. securities issued to the holders of the Series A Preferred Stock as dividends; and E. securities outstanding or securities issued upon exercise or conversion of securities outstanding as of the filing of this Designation with the Secretary of State of the State of Nevada including but not limited to the securities issued with respect to the merger of an indirect subsidiary of the Corporation with and into Petrocon Engineering, Inc. (H) The Corporation will not, by amendment of its Articles of Incorporation or Certificate of Designation, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series A Preferred Stock against impairment. (I) The Corporation shall at all times reserve and keep available, out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of the Series A Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all shares of Series A Preferred Stock from time to time outstanding. The Corporation shall from time to time (subject to obtaining necessary director and shareholder action), in accordance with the laws of the State of Nevada, increase the authorized amount of its Common Stock if at any time the authorized number of shares of its Common Stock remaining unissued shall not be sufficient to permit the conversion of all of the shares of Series A Preferred Stock at the time outstanding. The Corporation will take such corporate action as may be necessary to increase its authorized Common Stock, including, without limitation, using its reasonable best efforts to obtain the requisite shareholder approval to amend its Articles of Incorporation. Section 6. Status of Converted Stock. If any shares of Series A ------------------------ Preferred Stock shall be converted pursuant to Section 5, the shares so converted shall be cancelled and shall not be issuable by the Corporation, and the Articles of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital. 10 Section 7. Redemption. ---------- (A) Optional Redemption. At any time and from time to time ------------------- after the issuance of the Series A Preferred Stock, the Corporation may, at its option, redeem all or part (but not less than 25% of the shares of Series A Preferred Stock then outstanding) of the outstanding shares of Series A Preferred Stock on a date specified by the Corporation (the "Optional Redemption Date") by paying to the holders thereof an amount equal to the Liquidation Amount plus the sum of all accrued but unpaid dividends on such shares (the "Redemption Price") in cash out of funds legally available for such purpose. Any redemption effected pursuant to this subsection 7(A) shall be made on a pro rata basis among the holders of the Series A Preferred Stock in proportion to the number of shares of Series A Preferred Stock then held by such holders. (B) Mandatory Redemption. To the extent legally permitted, at -------------------- any time after July 31, 2008, the holders of not less than two-thirds of the then outstanding Series A Preferred Stock, voting together as a single class may demand, by delivery of a written notice to the Corporation (the "Mandatory Redemption Notice"), that the Corporation redeem all (but not less than all) of the shares of Series A Preferred Stock then outstanding on a date (the "Mandatory Redemption Date") that is not less than 30 nor more than 90 days from the date of the Mandatory Redemption Notice by paying to the holders thereof an amount equal to the Redemption Price in cash out of funds legally available for such purpose. (C) As used herein and in Section 7(D) below, the term "Redemption Date" shall refer to both the Mandatory Redemption Date and the Optional Redemption Date. At least 15 but no more than 30 days prior to each Redemption Date, written notice shall be mailed, first class postage prepaid, to each holder of record of the Series A Preferred Stock to be redeemed notifying such holder of the redemption to be effected on the applicable Redemption Date, specifying the number of shares to be redeemed from such holder, the Redemption Date, the Redemption Price, the place at which payment may be obtained and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, its certificates representing shares to be redeemed (the "Redemption Notice"). Each holder of Series A Preferred Stock may, at any time prior to the Redemption Date (including during the period between its receipt of the Redemption Notice and the Redemption Date), convert all or part of its shares of Series A Preferred Stock into Common Stock in accordance with the terms of Section 5. Except as provided in Section 7(D), on or after the Redemption Date, each holder of Series A Preferred Stock to be redeemed shall surrender to the Corporation the certificate or certificates representing such shares, and thereupon the applicable Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates and each certificate shall be canceled. If less than all the shares represented by such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (D) From and after each Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of Series A Preferred Stock designated for redemption on such Redemption Date in the Redemption Notice as holders of Series A Preferred Stock (except the right to receive the applicable Redemption Price upon surrender of their certificate(s)) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of this Corporation or be deemed to be outstanding for any 11 purpose whatsoever. If the funds of this Corporation legally available for redemption of the Series A Preferred Stock on a Redemption Date are insufficient to redeem the total number of shares of Series A Preferred Stock to be redeemed on such date, those funds that are legally available will be used to redeem the maximum possible number of shares ratably among the holders of such shares to be redeemed such that each holder of a share of Series A Preferred Stock receives the same percentage of the applicable Series A Redemption Price. The shares of Series A Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. Subject to the rights of the Series A Preferred Stock, which may from time to time come into existence, at any time thereafter when additional funds of the Corporation are legally available for the redemption of shares of Series A Preferred Stock, such funds will be immediately used to redeem the balance of the shares that this Corporation has become obligated to redeem on any Redemption Date but that it has not redeemed. Section 8. Protection Provisions. So long as at least 750,000 shares --------------------- of Series A Preferred Stock remain outstanding (as adjusted for stock splits, reverse splits and other similar events), the Corporation shall, not without first obtaining the approval (by vote or written consent) of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, issue additional shares of capital stock with rights, preferences or privileges that are senior to or on a parity with the Series A Preferred Stock. Section 9. Amendment. The Articles of Incorporation of the --------- Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the written consent or affirmative vote of a majority of the then outstanding shares of Series A Preferred Stock, voting together as a single class. 12 EX-4.4 4 dex44.txt EXCHANGE AGREEMENTS--MARKS Exhibit 4.4 December 4, 2001 Robert A. Marks 160 Wilbrook Stratford, CT 06614 Dear Mr. Marks: Petrocon Engineering, Inc., a Texas corporation (the "Company"), has issued to you a Warrant (the "Existing Warrant") pursuant to the Warrant Agreement dated October 17, 1996 (the "Existing Warrant"), among you, Willie E. Rigsby and the Company. The Existing Warrant grants you the right to purchase 232,693 shares (the "Existing Warrant Shares") of the common stock, $.001 par value, of the Company (the "Petrocon Common Stock") at an exercise price of $6.25 per share (the "Existing Exercise Price"). The Existing Warrant expires on October 17, 2003. The Company has entered into an Agreement and Plan of Merger (the "Merger Agreement") with Industrial Data Systems Corporation, a Nevada corporation ("IDS"), IDS Engineering Management, LC, a Texas limited liability company and wholly-owned subsidiary of IDS ("LC"), and PEI Acquisition, Inc., a Texas corporation and a wholly-owned subsidiary of LC ("Newco"), pursuant to which the Company will merge with Newco (the "Merger"). Pursuant to the Merger, the Company will become an indirect wholly-owned subsidiary of IDS. A proxy statement and prospectus describing the proposed transaction has been sent to you by the Company. In connection with the Merger, you are required to exchange the Existing Warrant for a Warrant (the "Substitute Warrant") to be issued by IDS. IDS and the Company will grant this warrant by delivery of the Warrant Agreement among the Company, you and Richard E. Mitchen, attached hereto as Exhibit A (the "New Agreement"). Willie E. Rigsby is not a party to the New Agreement because he has surrendered his Warrants. The Substitute Warrant to be granted to you will permit you to purchase a number of shares (rounded to the nearest whole share) of the Common Stock, $.001 par value, of IDS (the "New Warrant Shares") equal to the number of Existing Warrant Shares multiplied by the Conversion Ratio (as hereinafter defined). The exercise price per share (rounded to the nearest whole cent) for the New Warrant Shares (the "New Exercise Price") will be equal to the Existing Exercise Price divided by the Conversion Ratio. The term "Conversion Ratio" means the number of shares of Common Stock, $.001 par value, of IDS (the "IDS Common Stock") being issued in exchange for each outstanding share of Petrocon Common Stock in connection with the Merger. The Conversion Ratio is expected to be between .88 and 1.06 shares of IDS Common Stock for each share of Petrocon Common Stock. The Substitute Warrant to be granted to you will have the same expiration date as the Existing Warrant and will be subject in all other respects to the terms of the New Agreement. The proxy statement and prospectus sent to you by Robert A. Marks December 4, 2001 Page 2 the Company contains a more detailed description of the Conversion Ratio and the factors that will determine the final Conversion Ratio. For good and valuable consideration received by you, and in order to induce Petrocon and IDS to consummate the Merger Agreement, by execution of this letter agreement in the space provided below, you hereby agree that, at the effective time of the Merger, the Existing Warrant issued to you pursuant to the Existing Agreement will be automatically converted, without any further action by you, into the Substitute Warrant and the Existing Warrant shall thereafter be of no further force and effect. At or after the effective time of the Merger you agree to surrender the Existing Warrant in exchange for the Substitute Warrant and to execute the New Agreement. However, your failure to do so shall not affect the conversion of the Existing Warrant into the Substitute Warrant described above. Very truly yours, PETROCON ENGINEERING, INC. By:____________________________________ Michael L. Burrow, President INDUSTRIAL DATA SYSTEMS CORPORATION By:____________________________________ William A. Coskey, President ACCEPTED AND AGREED TO as of the date first above written. ___________________________________________ Robert A. Marks cc: William C. Rowe EX-4.5 5 dex45.txt EXCHANGE AGREEMENTS--MITCHEN Exhibit 4.5 December 4, 2001 Richard E. Mitchen 12011 Bricksome Avenue Suite D Baton Rouge, Louisiana 70816 Dear Mr. Mitchen: Petrocon Engineering, Inc., a Texas corporation (the "Company"), has issued to you a Warrant (the "Existing Warrant") pursuant to the Warrant Agreement dated October 17, 1996 (the "Existing Warrant"), among Robert A. Marks, Willie E. Rigsby and the Company. The Existing Warrant grants you the right to purchase 60,000 shares (the "Existing Warrant Shares") of the common stock, $.001 par value, of the Company (the "Petrocon Common Stock") at an exercise price of $6.25 per share (the "Existing Exercise Price"). The Existing Warrant expires on October 17, 2003. The Company has entered into an Agreement and Plan of Merger (the "Merger Agreement") with Industrial Data Systems Corporation, a Nevada corporation ("IDS"), IDS Engineering Management, LC, a Texas limited liability company and wholly-owned subsidiary of IDS ("LC"), and PEI Acquisition, Inc., a Texas corporation and a wholly-owned subsidiary of LC ("Newco"), pursuant to which the Company will merge with Newco (the "Merger"). Pursuant to the Merger, the Company will become an indirect wholly-owned subsidiary of IDS. A proxy statement and prospectus describing the proposed transaction has been sent to you by the Company. In connection with the Merger, you are required to exchange the Existing Warrant for a Warrant (the "Substitute Warrant") to be issued by IDS. IDS and the Company will grant this warrant by delivery of the Warrant Agreement among the Company, you and Robert A. Marks, attached hereto as Exhibit A (the "New Agreement"). Willie E. Rigsby is not a party to the New Agreement because he has surrendered his Warrants. The Substitute Warrant to be granted to you will permit you to purchase a number of shares (rounded to the nearest whole share) of the Common Stock, $.001 par value, of IDS (the "New Warrant Shares") equal to the number of Existing Warrant Shares multiplied by the Conversion Ratio (as hereinafter defined). The exercise price per share (rounded to the nearest whole cent) for the New Warrant Shares (the "New Exercise Price") will be equal to the Existing Exercise Price divided by the Conversion Ratio. The term "Conversion Ratio" means the number of shares of Common Stock, $.001 par value, of IDS (the "IDS Common Stock") being issued in exchange for each outstanding share of Petrocon Common Stock in connection with the Merger. The Conversion Ratio is expected to be between .88 and 1.06 shares of IDS Common Stock for each share of Petrocon Common Stock. The Substitute Warrant to be granted to you will have the same expiration date as the Existing Warrant and will be subject in all other respects to the terms of the New Agreement. The proxy statement and prospectus sent to you by Richard E. Mitchen December 4, 2001 Page 2 the Company contains a more detailed description of the Conversion Ratio and the factors that will determine the final Conversion Ratio. For good and valuable consideration received by you, and in order to induce Petrocon and IDS to consummate the Merger Agreement, by execution of this letter agreement in the space provided below, you hereby agree that, at the effective time of the Merger, the Existing Warrant issued to you pursuant to the Existing Agreement will be automatically converted, without any further action by you, into the Substitute Warrant and the Existing Warrant shall thereafter be of no further force and effect. At or after the effective time of the Merger you agree to surrender the Existing Warrant in exchange for the Substitute Warrant and to execute the New Agreement. However, your failure to do so shall not affect the conversion of the Existing Warrant into the Substitute Warrant described above. Very truly yours, PETROCON ENGINEERING, INC. By:___________________________________ Michael L. Burrow, President INDUSTRIAL DATA SYSTEMS CORPORATION By:___________________________________ William A. Coskey, President ACCEPTED AND AGREED TO as of the date first above written. ____________________________________________ Richard E. Mitchen cc: William C. Rowe EX-10.43 6 dex1043.txt SETTLEMENT AGREEMENT AND PLAN OF REORGANIZATION Exhibit 10.43 SETTLEMENT AGREEMENT AND PLAN OF REORGANIZATION DATED AS OF JULY 31, 2001 AMONG PETROCON ENGINEERING, INC., INDUSTRIAL DATA SYSTEMS CORPORATION, PEI ACQUISITION, INC. AND EQUUS II INCORPORATED SETTLEMENT AGREEMENT AND PLAN OF REORGANIZATION This Settlement Agreement and Plan of Reorganization (this "Agreement") is dated as of July 31, 2001, among Petrocon Engineering, Inc., a Texas corporation ("PEI"), Industrial Data Systems Corporation, a Nevada corporation ("IDS"), PEI Acquisition, Inc., a Texas corporation ("Sub"), and Equus II Incorporated, a Delaware corporation ("Equus"). WITNESSETH WHEREAS, the parties to this Agreement (the "Parties") wish to effect a business combination in which (i) the indebtedness owed to Equus by PEI will be renewed, rearranged and extended, (ii) Sub will merge into PEI in a merger (the "Merger") to be consummated in accordance with the Texas Business Corporation Act (the "TBCA") and an Agreement and Plan of Merger among PEI, IDS, Engineering Management, LC, a Texas limited liability company ("LC"), and Sub of even date herewith (the "Plan of Merger"), and (iii) in connection with the Merger, a portion of the indebtedness owed to Equus will be repaid in cash, a portion will be renewed and extended as a term loan, and the remaining balance will be exchanged for shares of Series A Preferred Stock of IDS, $.001 par value per share (the "IDS Preferred Stock"); WHEREAS, there is now pending in the 136th Judicial District Court of Jefferson County, Texas, a civil action styled Petrocon Engineering, Inc. vs. Gary J. Coury and Rick Berry wherein PEI initially filed claims against Equus but later non-suited such claims (the "Coury/Berry Lawsuit"); and WHEREAS, certain disputes exist between Equus and PEI with respect to certain actions taken by Equus in connection with its investment in and loans to PEI; WHEREAS, Equus and PEI now desire to settle such claims and exchange mutual releases; NOW, THEREFORE, the Parties agree that: ARTICLE I DEFINITIONS 1.1 Definitions. In this Agreement: ----------- "Affiliate" means a person or entity that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with another person or entity, with the term "control" meaning for purposes of this definition, the power to direct the management and policies of a person or entity, directly or indirectly, whether through the ownership of voting securities or partnership or other ownership interests, or by contract or otherwise. "Alliance" means Alliance 2000, Ltd., a Texas limited partnership. "Certificate of Designation" means a Certificate of Designation, Preferences and Rights of the Series A Preferred Stock in the form attached to the Plan of Merger. "Closing" has the meaning specified in Section 2.8. "Closing Date" has the meaning specified in the Plan of Merger. "Conversion Shares" means any shares of IDS Common Stock issued upon the conversion of the IDS Preferred Stock. "Coury/Berry Lawsuit" has the meaning specified in the recitals of this Agreement. "Effective Time" means the time and date when the Merger becomes effective pursuant to the Plan of Merger. "Equus Actions" has the meaning specified in Section 5.1. "Equus Agreements" has the meaning specified in Section 5.1. "Equus Notes" means the Promissory Note, dated March 9, 1999, from PEI, as maker, payable to Equus in the original principal amount of $4,663,356.16 and the Series B Subordinated Promissory Note, dated March 9, 1999, from PEI, as maker payable to Equus in the original principal amount of $2,659,331.52. "Equus Released Parties" has the meaning specified in Section 6.2. "Equus Warrant" means the Warrant dated March 9, 1999 to purchase 1,582,571 shares (subject to adjustment as therein provided) of PEI Common Stock issued to Equus by PEI. "Escrow Agreements" means the Indemnity Escrow Agreement and the Option Escrow Agreement, together. "First Replacement Notes" has the meaning specified in Section 2.2. "Fleet" means Fleet Capital Corporation, a Rhode Island corporation. "IDS" has the meaning specified in the preamble of this Agreement. "IDS Common Stock" means the common stock of IDS, $.001 par value per share. "IDS Preferred Stock" has the meaning specified in the recitals of this Agreement. "Indemnity Escrow Agreement" means an Escrow Agreement in the form attached to the Plan of Merger, to be entered into at the Closing among IDS, Sub, Johnny J. Williams, as escrow agent, certain shareholders of PEI and the representative of such PEI shareholders. "LC" has the meaning specified in the recitals of this Agreement. "Lockup Agreement" means a Lockup Agreement in the form attached to the Plan of Merger to be entered into at the Closing among IDS, Equus and certain shareholders of PEI. "Merger Shares" means the aggregate shares of PEI Common Stock to be issued to Equus upon consummation of the Merger in exchange for the shares of PEI Common Stock owned by Equus at the Effective Time. "Note Exchange" has the meaning specified in Section 2.2. "Note Repayment" has the meaning specified in Section 2.4. "OEI" means OEI International, Inc., a Delaware corporation. "Option Escrow Agreement" means an Escrow Agreement in the form attached to the Plan of Merger to be entered into at the Closing among IDS, Sub, Johnny J. Williams, as escrow agent, certain shareholders of PEI and the representative of such PEI shareholders. "Parties" has the meaning specified in the preamble of this Agreement. "PEI" means Petrocon Engineering, Inc., a Texas corporation. "PEI Common Stock" means the Common Stock, $.001 par value per share of, PEI. "PEI Released Parties" has the meaning specified in Section 6.1. "PEI Replacement Notes" means the First Replacement Notes, the Second Replacement Note, and the Remainder Note, together. "PEI Shareholder" means any person or entity (other than Gary Coury, Rick Berry, or any relative or affiliate of Gary Coury or Rick Berry) who owned any capital stock of PEI prior to the Closing Date. "PEI Shareholders' Agreement" means that certain Shareholders' Agreement dated March 9, 1999 among PEI and some or all of its shareholders. "Plan of Merger" has the meaning specified in the recitals to this Agreement. "Prior Reorganization Agreement"' means the Agreement and Plan of Reorganization dated as of March 9, 1999, among PEI, certain of its shareholders, OEI and PEI Acquisition, Inc., a Delaware corporation and subsidiary of OEI. "Registration Cancellation" has the meaning specified in Section 2.3. "Registration Agreement" means that certain Registration Rights Agreement, dated as of March 9, 1999, among PEI and some or all of its shareholders. "Remainder Note" has the meaning specified in Section 2.2. "SEC" means the United States Securities and Exchange Commission. "Second Replacement Note" has the meaning specified in Section 2.2. "Securities Act" means the Securities Act of 1933, as amended. "Security Documents" has the meaning specified in subsection 2.5. "Significant PEI Shareholder" has the meaning specified in the Plan of Merger. "Sub Common Stock" means the common stock of Sub, $.001 par value per share. "Subsidiary" of a Party means an Affiliate of that Party more than 50% of the aggregate voting power (or any other voting equity interest in the case of an Affiliate that is not a corporation) of which is beneficially owned by that Party directly or indirectly through one or more other persons or entities. "Successor Corporation" means the surviving corporation of the Merger. "TBCA" has the meaning specified in the preamble of this Agreement. "Transactions" means the Merger, the Note Exchange, the Warrant Cancellation, the Registration Cancellation and the Note Repayment, together. "Voting Agreement" means a Voting Agreement in the form attached to the Plan of Merger, to be entered into at the Closing among IDS, Equus, Alliance and certain shareholders of PEI. "Warrant Cancellation" has the meaning specified in Section 2.2. ARTICLE II THE MERGER, NOTE EXCHANGE AND NOTE REPAYMENT 2.1 The Merger. On or about July 31, 2001, the Plan of Merger was ---------- executed and delivered by PEI, IDS, LC and Sub. Subject to satisfaction of the conditions set forth in this Agreement and in the Plan of Merger, at the Effective Time, Sub shall be merged with and into PEI in accordance with the TBCA and the Plan of Merger. 2.2 Note Exchange. Immediately before the Effective Time, Equus shall ------------- surrender and deliver the Equus Notes to PEI, and in renewal, extension and rearrangement of the Equus Notes, PEI shall issue and deliver to Equus: (1) two Promissory Notes of PEI each dated the Closing Date and payable to Equus and identical in all respects except that one such Promissory Note shall represent accrued but unpaid interest on the Equus Notes and be in a principal amount equal to $950,000 and the other shall represent a portion of the outstanding principal balance of the Equus Notes and be in a principal amount equal to $1,050,000 (together, the "First Replacement Notes"); and (2) a Promissory Note of PEI (the "Second Replacement Note") dated the Closing Date and payable to Equus in a principal amount equal to $3 million. (3) a Promissory Note of PEI (the "Remainder Note") dated the Closing Date and payable to Equus in a principal amount equal to the excess of (x) the outstanding principal balance of and all accrued but unpaid interest on the Equus Notes over (y) $5 million. The First Replacement Notes, the Second Replacement Note and the Remainder Note shall be in the form of and payable as provided in the Exhibits to the Plan of Merger. The exchange of the Equus Notes for the PEI Replacement Notes as provided in this Section 2.2 is called the "Note Exchange." 2.3 Warrant and Registration Cancellation. Immediately before the ------------------------------------- Effective Time, Equus shall surrender and deliver the Equus Warrant to PEI for cancellation, and the Equus Warrant shall be cancelled (the "Warrant Cancellation"), and PEI and Equus shall cancel and terminate the Registration Agreement (the "Registration Cancellation"). 2.4 Note Repayment. Immediately following the Effective Time: -------------- (1) Successor Corporation shall pay the outstanding principal balance of the First Replacement Notes in full by wire transfer to the following account of Equus designated by Equus: Bank: Bank of America ABA No.: 111000025 Bank Address: Houston, Texas Account No.: 5772222982 (2) IDS shall pay the outstanding principal balance of the Remainder Note in full by issuing to Equus 2,500,000 shares of IDS Preferred Stock. (3) Equus shall surrender and deliver to PEI the original Equus Notes, marked "Paid by Renewal," against PEI's delivery to Equus of the PEI Replacement Notes and shall surrender and deliver to Successor Corporation, the original of the First Replacement Notes and the original of the Remainder Note, marked "Paid in Full". The repayment of the First Replacement Notes and the Remainder Note as provided in this Section 2.4 is called the "Note Repayment". 2.5 Security Documents and Subordination. At the Effective Time, ------------------------------------ Successor Corporation shall assume the obligations of PEI under the Second Replacement Note and immediately following the Effective Time, Equus, IDS and each Subsidiary of IDS, including, without limitation, Successor Corporation and its Subsidiaries, shall execute and deliver the following documents (together, the "Security Documents") to secure the obligations of Successor Corporation under the Second Replacement Note and to subordinate such obligations to the obligations and liabilities of IDS and its Subsidiaries, including Successor Corporation and its Subsidiaries, to Fleet: (1) a security agreement covering substantially all of the personal property of IDS and each Subsidiary of IDS including, without limitation, Successor Corporation and its Subsidiaries, substantially in the form attached hereto as Exhibit A; (2) a guaranty of the Second Replacement Note, substantially in the form attached hereto as Exhibit B; (3) a mortgage substantially in the form attached hereto as Exhibit C covering the real property owned by RPM Engineering, Inc., a Louisiana corporation, and located at 10252 Mayfair Drive, Baton Rouge, Louisiana and 9969 Professional Boulevard, Baton Rouge, Louisiana; and (4) a subordination agreement containing terms and conditions mutually agreeable to Equus, IDS, Successor Corporation and Fleet. 2.6 Voting Agreement, Lockup Agreement and other Significant PEI ------------------------------------------------------------ Shareholder Agreements. At, or prior to, the Closing, Equus and IDS shall - ---------------------- execute and deliver the Voting Agreement and the Lockup Agreement and Equus shall execute each other document which must be executed by each Significant PEI Shareholder under the terms of the Plan of Merger. 2.7 Merger Conversion of Shares. As more fully provided in, and --------------------------- subject to the terms and provisions of, the Plan of Merger, each share of PEI Common Stock held by Equus immediately before the Effective Time will, as a result of the Merger, be converted into shares of IDS Common Stock. 2.8 Escrow Agreements. At the Closing, Equus shall execute and deliver ----------------- the Escrow Agreements and contribute its pro rata share of the IDS Common Stock received by Equus as a result of the Merger to the escrow agent for each of the Escrow Agreements. 2.9 Closing and Effective Time. The closing of the Transactions (the -------------------------- "Closing"') shall take place at the offices of Jenkens & Gilchrist, LLP, 1100 Louisiana Street, Houston, Texas, on the Closing Date. As soon as practicable after the Closing, PEI, Sub and IDS will cause Articles of Merger to be executed and filed with the Secretary of State of Texas as required by the TBCA with respect to the Merger. ARTICLE III PEI'S REPRESENTATIONS AND WARRANTIES PEI represents and warrants to Equus, IDS and Sub that: 3.1 Organization. PEI is a corporation duly organized, validly ------------ existing, and in good standing under the laws of the State of Texas. PEI has the corporate power to conduct its business as now conducted and as proposed to be conducted after the Merger, to enter into and perform its obligations under this Agreement, to issue the PEI Replacement Notes to pay the First Replacement Notes, to enter into the Security Agreements, to consummate the Merger and to take all other action required hereby. 3.2 Authority of PEI. The execution, delivery, and performance by PEI ---------------- of this Agreement, the consummation of the Merger, and the consummation of the Note Exchange have been duly authorized and approved by the Board of Directors of PEI, and except for the approval of the Merger by the shareholders of PEI as contemplated in the Plan of Merger, no other corporate action is required by law or PEI's Restated Articles of Incorporation or bylaws to authorize the execution, delivery and performance by PEI of this Agreement, the consummation of the Merger, or the consummation of the Note Exchange. This Agreement is, and the PEI Replacement Notes will be, valid and binding obligations of PEI enforceable against it in accordance with their terms. PEI's execution and delivery of this Agreement does not, and neither PEI's performance of this Agreement nor its execution, delivery, or performance of the PEI Replacement Notes will, violate, conflict with, or constitute a breach of or default under PEI's Restated Articles of Incorporation or bylaws, or (assuming any required consent of Fleet is obtained) any loan or credit agreement, indenture, mortgage, or deed of trust, to which PEI is a party or by which it or its properties are bound, or violate any order, writ, injunction, or decree of any court, administrative agency, or governmental body. ARTICLE IV IDS' AND SUB'S REPRESENTATIONS AND WARRANTIES 4.1 IDS and Sub each, jointly and severally, represent and warrant to Equus and PEI that: (a) Organization of Sub. Sub is a corporation duly organized, ------------------- validly existing, and in good standing under the laws of the State of Texas. Sub has the corporate power to conduct its business as now conducted and as proposed to be conducted after the Merger, to enter into and perform its obligations under this Agreement to consummate the Merger, to pay the First Replacement Notes, to enter into the Security Documents and to take all other action required hereby. (b) Authority of Sub. The execution, delivery, and performance ---------------- by Sub of this Agreement, the consummation of the Merger, the payment of the First Replacement Notes and the execution, delivery and performance of the Security Documents, have been duly authorized and approved by the Board of Directors and shareholders of Sub, and no other corporate action is required by law or Sub's Articles of Incorporation or bylaws to authorize the execution, delivery and performance by Sub of this Agreement or the consummation of the Merger, the payment of the First Replacement Notes and the execution and delivery of the Security Documents. This Agreement is a valid and binding obligation of Sub enforceable against it in accordance with its terms. Sub's execution and delivery of this Agreement does not, and Sub's performance of this Agreement will not, violate, conflict with, or constitute a breach of or default under Sub's Articles of Incorporation or bylaws, or any loan or credit agreement, indenture, mortgage, deed of trust, contract, lease, license, or other contract or agreement to which Sub is a party or by which it or its properties are bound, or violate any order, writ, injunction, or decree of any court, administrative agency, or governmental body. 4.2 IDS represents and warrants to Equus and PEI that: (a) Organization. IDS is a corporation duly organized, validly ------------ existing, and in good standing under the laws of the State of Nevada. IDS has the corporate power to conduct its business as now conducted and as proposed to be conducted after the Merger, to enter into and perform its obligations under this Agreement, the Voting Agreement and the Escrow Agreements, to issue the IDS Preferred Shares in connection with the Note Repayment, the issuance of the IDS Preferred Shares in connection with the Note Repayment and to take all other action required hereby. (b) Authority of IDS. The execution, delivery, and performance ---------------- by IDS of this Agreement and the consummation of the Merger, have been duly authorized and approved by the Board of Directors of IDS, and except for the approval of the Merger and the Certificate of Designation by the shareholders of IDS as contemplated by the Plan of Merger, no other corporate action is required by law or IDS' Articles of Incorporation or bylaws to authorize the execution, delivery and performance by IDS of this Agreement, the consummation of the Merger or the issuance of the IDS Preferred Shares. This Agreement is a valid and binding obligation of IDS enforceable against it in accordance with its terms. IDS's execution and delivery of this Agreement does not, and IDS's performance of this Agreement will not, violate, conflict with, or constitute a breach of or default under IDS's Articles of Incorporation or bylaws, or any loan or credit agreement, indenture, mortgage, deed of trust, contract, lease, license, or other contract or agreement to which IDS is a party or by which it or its properties are bound, or violate any order, writ, injunction, or decree of any court, administrative agency, or governmental body. (c) IDS Preferred Stock. At the Effective Time, the IDS ------------------- Preferred Stock will be, upon its issuance in accordance with the terms of the Plan of Merger, duly authorized, validly issued, fully paid, and nonassessable. At the Effective Time the Conversion Shares then and thereafter issuable upon conversion of the IDS Preferred Stock will be duly reserved for issuance, and, when issued upon conversion of the IDS Preferred Stock, will be duly authorized, validly issued, fully paid, and nonassessable. ARTICLE V EQUUS' REPRESENTATIONS, WARRANTIES AND AGREEMENTS 5.1 Equus represents and warrants to, and agrees with, PEI, Sub and IDS that: (1) Organization. Equus is a corporation duly organized, validly ------------ existing, and in good standing under the laws of the State of Delaware. Equus has the corporate power to conduct its business as now conducted to enter into and perform its obligations under this Agreement and to take all other action required hereby. (2) Authority of Equus. The execution, delivery, and performance by ------------------ Equus of this Agreement, and all other agreements and actions contemplated hereby, including, without limitation, the Security Documents, the Voting Agreement, the Lockup Agreement, the Escrow Agreements and each other document and agreement which Equus, as a Significant PEI Shareholder, is required to execute under the Plan of Merger (together, the "Equus Agreements") and the consummation of the Note Exchange, the Warrant Cancellation, the Registration Cancellation and the Note Repayment (together, the "Equus Actions") have been duly authorized and approved by all requisite corporate action on the part of Equus, and no further action is required by law or Equus' Certificate of Incorporation or bylaws to authorize the execution, delivery and performance by Equus of the Equus Agreements or the consummation of the Equus Actions. This Agreement is a valid and binding obligation of Equus enforceable against it in accordance with its terms. Equus' execution and delivery of the Equus Agreements does not, and Equus' performance of the Equus Agreements will not, violate, conflict with, or constitute a breach of or default under Equus' Certificate of Incorporation or bylaws, or any loan or credit agreement, indenture, mortgage, deed of trust, contract, lease, license or other contract or agreement to which Equus is a party or by which it or its properties are bound, or violate any order, writ, injunction, or decree of any court, administrative agency, or governmental body. (3) Investment Purpose. The PEI Replacement Notes and the IDS ------------------ Preferred Shares are being acquired by Equus for investment, for its own account, and not with a view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act. Neither the PEI Replacement Notes, the IDS Preferred Shares nor the Conversion Shares may be sold, transferred, or otherwise disposed of without registration under the Securities Act and any applicable state securities laws, except under an exemption from those laws. Notwithstanding such representations, but subject to the Lockup Agreement, IDS agrees to permit a sale or transfer of the Second Replacement Note, the IDS Preferred Shares or the Conversion Shares upon Equus providing IDS satisfactory assurances that the sale or transfer may be made without registration under the Securities Act and related rules and regulations (and all applicable state securities laws and regulations), including without limitation receipt by IDS of an opinion to such effect from counsel, which opinion and counsel shall be reasonably satisfactory to IDS, or compliance by Equus with the requirements of Rule 144(k) or Rule 144A under the Securities Act. 1.2 Restrictive Legend. ------------------ (1) Equus agrees that all certificates representing the Merger Shares, the IDS Preferred Shares and the Conversion Shares may be inscribed with a legend substantially as follows: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CONTRACTUAL RESTRICTION ON TRANSFER AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, EXCEPT AS SET FORTH IN THAT CERTAIN LOCKUP AGREEMENT BETWEEN THE COMPANY AND THE HOLDER HEREOF, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY. (2) Equus agrees that all certificates representing the IDS Preferred Shares and the Conversion Shares may be inscribed with a legend substantially as follows: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH A REGISTRATION UNLESS IDS IS FURNISHED WITH AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IDS TO THE EFFECT THAT THE TRANSFER IS EXEMPT FROM REGISTRATION UNDER THOSE LAWS. 5.1 No Brokers. Equus is not a party to any agreement, understanding, ---------- or arrangement, and has not committed any act which might give rise to any valid claim against PEI, Sub, LC, Successor Corporation or IDS for any investment banking fee, finder's fee, brokerage commission, or other like payment in connection with the origin, negotiation, or consummation of the Transactions. 5.2 Other Agreements of Equus. Equus agrees that: ------------------------- (1) upon consummation of the Merger, it will execute, and the Merger Shares to be received by Equus, the IDS Preferred Shares to be received by Equus and any Conversion Shares issued to Equus upon any conversion of the IDS Preferred Shares will be subject to, the Lockup Agreement and the Voting Agreement; and (2) upon consummation of the Merger it will execute, and the Merger Shares to be received by Equus will be subject to, the Escrow Agreements; and (3) Equus agrees to vote its shares of PEI Common Stock for the Merger and for the termination of the PEI Shareholders' Agreement; and (4) to the extent the consent of Equus is required under the Prior Reorganization Agreement or otherwise for PEI to consummate the Transactions, Equus hereby gives such consent. 5.3 No Other Securities. Equus has no rights to acquire any securities ------------------- of PEI other than the right to acquire PEI Common Stock pursuant to the Equus Warrant. 5.4 No Other Equus Debt. Neither PEI nor any of its Subsidiaries has ------------------- any indebtedness, obligation or liability to Equus or any of its Affiliates other than the indebtedness and obligations evidenced by the Equus Notes. ARTICLE VI MUTUAL RELEASES 6.1 Equus Release. ------------- (a) Effective upon the Closing, Equus hereby releases, acquits and forever discharges PEI and its predecessors, successors (including Successor Corporation and its Affiliates), subsidiaries, Affiliates, past and present officers, directors, partners, stockholders, trustees, employees, attorneys, accountants, insurers, consultants, agents and servants (collectively, the "PEI --- Released Parties") from, and waives, any and all claims, demands, liabilities, - ---------------- damages, costs, losses, responsibilities, challenges, contests, disputes, causes of action and rights of every nature whatsoever based upon facts existing as of the date hereof (whether sounding in tort, contract, statute or otherwise and expressly including any of the foregoing based on fraud, gross negligence or willful or intentional misconduct on the part of the PEI Released Parties, or any of them), liquidated or unliquidated, known or unknown, matured or unmatured, fixed or contingent, that Equus now or hereafter has, owns or holds or has at any time heretofore had, owned or held against the PEI Released Parties, or any of them, under or arising out of or in any way related to any agreement of the parties made prior to the date of this Agreement, including, without limitation, the 1998 Reorganization Agreement, the Prior Reorganization Agreement, the Equus Notes or any agreements, documents, or representations in connection therewith. (b) Equus represents and warrants that neither it nor any of its predecessors has heretofore assigned or transferred, or purported to assign or transfer, to any Person whatsoever any of the claims, demands, liabilities, responsibilities, disputes, causes of action or obligations released herein or intended so to be, and agrees to indemnify and hold the PEI Released Parties harmless from any and all liability, damage, cost and expense incurred (including reasonable attorneys' fees) should any Person hereafter claim ownership of, or the right to sue upon, any of said matters. (c) Equus acknowledges and agrees that it has read and understands all of the provisions of this Agreement and that it has been represented by legal counsel of its own choosing in connection with the negotiation, execution and delivery of this Agreement. (d) Equus does hereby indemnify and hold harmless each and all of the PEI Released Parties from any and all liability, damage, cost and expense incurred (including reasonable attorneys' fees) should any Person assert any claim, demand, action or cause of action of whatsoever nature or character by, through or under Equus with respect to the matters herein released or intended so to be. 6.2 PEI and Sub Release. ------------------- (a) Effective upon the Closing, each of PEI and Sub hereby releases, acquits and forever discharges Equus and its predecessors, successors, parents, subsidiaries, Affiliates, past and present officers, directors, partners, stockholders, trustees, employees, attorneys, accountants, insurers, consultants, agents and servants (collectively, the "Equus Released Parties") ---------------------- from, and waives, any and all claims, demands, liabilities, damages, costs, losses, responsibilities, challenges, contests, disputes, causes of action and rights of every nature whatsoever based upon facts existing as of the date hereof (whether sounding in tort, contract, statute or otherwise and expressly including any of the foregoing based on fraud, gross negligence or willful or intentional misconduct on the part of the Equus Released Parties, or any of them), liquidated or unliquidated, known or unknown, matured or unmatured, fixed or contingent, that either of PEI or Sub now or hereafter has, owns or holds or has at any time heretofore had, owned or held against the Equus Released Parties, or any of them, under or arising out of or in any way related to any agreement of the parties made prior to the date of this Agreement, including, without limitation, the 1998 Reorganization Agreement, the Prior Reorganization Agreement, the Equus Notes, or any agreements, notes, or documents executed in connection therewith. (b) Each of PEI and Sub represents and warrants that neither it nor any of its predecessors has heretofore assigned or transferred, or purported to assign or transfer, to any Person whatsoever any of the claims, demands, liabilities, responsibilities, disputes, causes of action or obligations released herein or intended so to be, and agrees, jointly and severally, to indemnify and hold the Equus Released Parties harmless from any and all liability, damage, cost and expense incurred (including reasonable attorneys' fees) should any Person hereafter claim ownership of, or the right to sue upon, any of said matters. (c) Each of PEI and Sub acknowledges and agrees that it has read and understands all of the provisions of this Agreement and that it has been represented by legal counsel of its own choosing in connection with the negotiation, execution and delivery of this Agreement. (d) Each of PEI and Sub does hereby, jointly and severally, indemnify and hold harmless each and all of the Equus Released Parties from any and all liability, damage, cost and expense incurred (including reasonable attorneys' fees) should any Person (other than Gary Coury or Rick Berry or any relative or affiliate of Gary Coury or Rick Berry) assert any claim, demand, action or cause of action of whatsoever nature or character by, through or under, either of PEI or Sub (including Successor Corporation) with respect to the matters herein released or intended so to be or should any PEI Shareholder assert any claim, demand, action or cause of action of whatsoever nature or character with respect to the matters herein released or intended so to be. ARTICLE VII MUTUAL CONDITIONS The respective obligations of all Parties to consummate the Transactions are subject to the fulfillment of each of the following conditions at or before the Closing: 7.1 No Adverse Proceedings. No order entered or law promulgate or ---------------------- enacted by any governmental authority shall be in effect that would prevent consummation of either of the Transactions, and no proceeding brought by a governmental authority or any other person shall have been commenced and be pending that seeks to restrain, enjoin, prevent or materially delay or restructure any of the Transactions. 7.2 Shareholder Approval. The Merger shall have been approved by the -------------------- requisite vote of the holders of PEI Common Stock and the requisite vote of the holders of IDS Common Stock as provided in the Plan of Merger. 7.3 Fleet Consent. Fleet shall have consented to the Transactions ------------- under the Fleet Loan Documents. ARTICLE VIII CONDITIONS TO OBLIGATIONS OF PEI The obligations of PEI, Sub and IDS to consummate the Transactions are subject to the fulfillment of each of the following conditions at or before the Closing: 8.1 Representations True at Closing. None of PEI, Sub nor IDS shall ------------------------------- have discovered any material error, misstatement, or omission in the representations and warranties made by Equus in Article V; the representations and warranties made by PEI in Article III, the representations and warranties made by Sub and IDS in Article IV and the representations and warranties made by Equus in Article V shall be deemed to have been made again as of the time of the Closing, and shall then be true in all material respects; Equus shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by it at or prior to the Closing; and PEI, Sub and IDS shall have received certificates, each dated the Closing Date, of the President or a Vice President of Equus, of the President or Vice President of PEI, and of the President or Vice President of Sub and IDS to the effect set forth in this Section 8.1. 8.2 Opinion of Equus Counsel. PEI, IDS and Sub shall have received an ------------------------ opinion, dated the Closing Date, of Porter & Hedges, L.L.P., counsel to Equus, reasonably satisfactory to PEI, IDS, Sub and Equus and their respective counsel. 8.3 Voting Agreement, Lockup Agreement and Escrow Agreements. Equus -------------------------------------------------------- shall have executed the Voting Agreement, the Lockup Agreement and the Escrow Agreements. ARTICLE IX CONDITIONS TO EQUUS' OBLIGATIONS The obligations of Equus to consummate the Transactions are subject to the fulfillment of each of the following conditions at or before the Closing: 9.1 Representations at Closing. Equus shall not have discovered any -------------------------- material error, misstatement, or omission in the representations or warranties made by PEI, Sub or IDS in Articles III and IV; the representations and warranties made by PEI, Sub and IDS in Articles III and IV shall be deemed to have been made again as of the time of Closing, and shall then be true in all material respects; PEI, Sub and IDS shall each have performed and complied with all agreements and conditions required by this Agreement to be performed or complied by it at or before the Closing and Equus shall have received certificates, each dated the Closing Date, of the President or a Vice President of PEI, Sub and IDS, respectively, to the effect set forth in this Section 9.1. 9.2 Opinion of Counsel. Equus shall have received the opinions ------------------ required from Gardere Wynne Sewell LLP, counsel for PEI, and Jenkens & Gilchrist, LLP, counsel for Sub and IDS, under the Plan of Merger and shall have received the right to rely on such opinions with respect to this Agreement, the Agreements to be executed in connection with this Agreement and the actions contemplated by this Agreement. ARTICLE X SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION 10.1 Survival of Representations and Warranties. Regardless of any ------------------------------------------ investigation at any time made by or on behalf of any party to this Agreement, or of any information any party may have, all covenants, agreements, representations, and warranties made in this Agreement shall survive and continue in effect after the Closing. 10.2 Indemnification by PEI. PEI agrees to indemnify and hold harmless ---------------------- Equus, Sub and IDS and their respective successors and assigns from and against any actions, suits, proceedings, claims, demands, judgments, liabilities, losses, damages, or expenses, including court costs and reasonable attorneys' fees associated with the defense of any of the foregoing, which are caused by or arise out of: (i) any breach of warranty or inaccurate or erroneous representation made in Article III; or (ii) any breach or default in the performance by PEI of any covenant or agreement of PEI contained in this Agreement. 10.3 Indemnification by Sub and IDS. Sub and IDS agree to indemnify and ------------------------------ hold harmless Equus and PEI and their respective successors and assigns from and against any actions, suits, proceedings, claims, demands, judgments, liabilities, losses, damages, or expenses, including court costs and reasonable attorneys' fees associated with the defense of any of the foregoing, which are caused by or arise out of: (i) any breach of warranty or inaccurate or erroneous representation made in Article IV; or (ii) any breach or default in the performance by Sub or IDS of any covenant or agreement of Sub or IDS contained in this Agreement. 10.4 Indemnification by Equus. Equus agrees to indemnify and hold ------------------------ harmless PEI, Sub and IDS and their respective successors and assigns from and against any actions, suits, proceedings, claims, demands, judgments, liabilities, losses, damages, or expenses, including court costs and reasonable attorneys' fees associated with the defense of any of the foregoing, which are caused by or arise out of: (i) any breach of warranty or inaccurate or erroneous representation made in Article V; or (ii) any breach or default in the performance by Equus of any covenant or agreement of Equus contained in this Agreement. ARTICLE XI MISCELLANEOUS 11.1 Expenses. Each of the parties to this Agreement shall bear all of -------- its own expenses (including attorneys fees and expenses) in connection with negotiation and closing of this Agreement and the transactions contemplated thereby and any subsequent amendment to, waiver or consent under this Agreement; provided that such costs and expenses incurred by Equus (other than expenses [including attorneys fees and expenses] incurred in connection with the Coury/Berry Lawsuit prior to the Effective Time) shall be paid by the Successor Corporation. 11.2 Notices. All notices, requests, waivers, consents, and other ------- communications under this Agreement shall be in writing and shall be deemed to have been given if personally delivered, delivered by courier, or mailed, first class, registered or certified mail, postage prepaid: (i) if to PEI, to: Petrocon Engineering, Inc. 3155 Executive Blvd. Beaumont, Texas 77705 Attn: Mr. Michael L. Burrow with a copy to (which shall not constitute notice): Mr. Gary Clark Gardere Wynne Sewell LLP 1601 Elm Street, Suite 3000 Dallas, Texas 75201 (ii) if to Sub or IDS, to: Industrial Data Systems Corporation 600 Century Plaza Drive, Building 140 Houston, Texas 77073-6013 Attn: William A. Caskey With a copy to (which shall not constitute notice): Jenkens & Gilchrist, a Professional Corporation 600 Congress Avenue, Suite 2200 Austin, Texas 78701 Fax: 512-404-3520 Attn: Kathryn K. Lindauer (iii) if to Equus, to: c/o Equus Capital Corporation 2929 Allen Parkway, 25th Floor Houston, Texas 77019 Attn: Mr. Randy Hale, Vice President with a copy to (which shall not constitute notice): Mr. James Harbison Porter & Hedges, L.L.P. 700 Louisiana, 35th Floor Houston, Texas 77002 or at such other address as shall be given in writing by any party to the others. Notices shall be deemed effective when received by their addressees. 11.3 Assignment. This Agreement may not be assigned by any of the ---------- Parties without the consent of the other Parties. Any purported assignment in violation of this Section 11.3 shall be void and vest no rights in the purported assignee. 11.4 Successors Bound. Subject to Section 11.3, this Agreement shall be ---------------- binding upon and inure to the benefit of the parties and their respective successors and assigns. 11.5 Section Headings. The article and section headings in this ---------------- Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. References in this Agreement to a designated "Article" or "Section" refer to an Article or Section of this Agreement unless otherwise specifically indicated. 11.6 Amendment. This Agreement may be amended only by a written --------- instrument executed by all the Parties, by or pursuant to action taken by their respective Board of Directors; provided, however, that no such amendment shall (i) alter or change any provision of this Agreement, the alteration or change of which must be adopted by the holders of capital stock of IDS or PEI under the Articles of Incorporation of IDS or PEI or applicable corporate law, or (ii) alter or change this Section 11.6, unless each such alteration or change is adopted by the holders of shares of capital stock of IDS and PEI as may be required by the Articles of Incorporation of IDS or PEI or applicable corporate law. Prior to the Effective Time, all amendments to this Agreement must be by an instrument in writing signed on behalf of Equus, PEI, Sub and IDS. After the Effective Time, all amendments to this Agreement must be by an instrument in writing signed on behalf of Equus, Successor Corporation and IDS. Any term or provision of this Agreement (other than the requirements for shareholder approvals) may be waived in writing at any time by the party which is, or whose shareholders are, entitled to the benefits thereof. 11.7 Entire Agreement. This Agreement and its Exhibits constitute the ---------------- entire agreement among the Parties concerning the subject matter hereof. 11.8 Severability. The invalidity or unenforceability of any specific ------------ provision of this Agreement shall not invalidate or render unenforceable any of its other provisions. Any provision of this Agreement held invalid or unenforceable shall be deemed reformed, if practicable, to the extent necessary to render it valid and enforceable and to the extent permitted by law and consistent with the intent of the parties to this Agreement. 11.9 Counterparts. This Agreement may be executed in counterparts, each ------------ of which shall be deemed an original, but all of which shall constitute the same instrument. 11.10 Governing Law. This Agreement shall be construed under and ------------- governed by the law of Texas without regard to choice of law or conflict of law principles that direct the application of the laws of another state. 11.11 No Rule of Construction. All of the parties hereto have been ----------------------- represented by counsel in the negotiations and preparation of this Agreement; therefore, this Agreement will be deemed to be drafted by each of the parties hereto, and no rule of construction will be invoked respecting the authorship of this Agreement. 11.12 Termination. This Agreement may be terminated and the Transactions ----------- contemplated hereby shall be abandoned by any party if, for any reason, the Note Exchange and the Merger have not been consummated by September 30, 2001, provided, however, that no party shall be entitled to terminate this Agreement pursuant to this Section 11.12 if such party is in material breach of this Agreement or the Plan of Merger at such time. On termination pursuant to this Section 11.12, this Agreement shall be of no further force or effect except as to liabilities for misrepresentation, breach or default in connection with any warranty, representation, covenant, duty or obligation given, occurring or arising prior to the date of termination and abandonment. [Signature Page Follows] IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. PETROCON ENGINEERING, INC. By:__________________________________ Michael L. Burrow, President INDUSTRIAL DATA SYSTEMS CORPORATION By:__________________________________ William A. Coskey, President PEI ACQUISITION, INC. By:__________________________________ William A. Coskey, President EQUUS II INCORPORATED By:__________________________________ Randall B. Hale, Vice President List of Exhibits Exhibit A Form of Security Agreement Exhibit B Form of Guaranty Exhibit C Form of Mortgage EXHIBIT A FORM OF SECURITY AGREEMENT EXHIBIT B FORM OF GUARANTY EXHIBIT C FORM OF MORTGAGE EX-10.44 7 dex1044.txt PROMISSORY NOTE EXHIBIT 10.44 THIS NOTE IS SUBJECT TO AN INTERCREDITOR AGREEMENT, DATED AS OF DECEMBER 21, 2001, AMONG FLEET CAPITAL CORPORATION, A RHODE ISLAND CORPORATION, PETROCON ENGINEERING, INC., AND EQUUS II INCORPORATED, A DELAWARE CORPORATION, ET AL. THIS NOTE IS SUBORDINATED IN RIGHT AND TIME OF PAYMENT TO THE PRIOR PAYMENT IN FULL IN CASH OF ALL SENIOR DEBT (AS DEFINED IN THE INTERCREDITOR AGREEMENT) IN ACCORDANCE WITH, AND TO THE EXTENT SPECIFIED IN, SUCH INTERCREDITOR AGREEMENT AND EACH HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE TERMS AND PROVISIONS OF SUCH INTERCREDITOR AGREEMENT. PROMISSORY NOTE --------------- $3,000,000 Houston, Texas December 21, 2001 FOR VALUE RECEIVED, PETROCON ENGINEERING, INC., a Texas corporation ("Maker"), does hereby promise to pay to the order of EQUUS II INCORPORATED, a Delaware corporation with its principal office at 2929 Allen Parkway, Suite 2500, Houston, Texas 77019 ("Payee"), or at such other place as the holder hereof may from time to time designate in writing, in lawful money of the United States, the principal sum of THREE MILLION AND NO/100 DOLLARS ($3,000,000), with interest thereon as provided in this Promissory Note (the "Note"). 1. Certain Definitions. For the purposes hereof, the terms set forth ------------------- below shall have the following meanings: (a) "Applicable Law" shall mean (i) the laws of the United -------------- States of America applicable to contracts made or performed in the State of Texas, now or at any time hereafter prescribing maximum rates of interest or eliminating maximum rates of interest on loans and extensions of credit, (ii) the laws of the State of Texas now or at any time hereafter prescribing or eliminating maximum rates of interest on loans and extensions of credit, and (iii) any other laws at any time applicable to contracts made or performed in the State of Texas which permit a higher interest rate ceiling hereunder. (b) "Base Rate" shall mean 9.5%. --------- (c) "Final Maturity Date" shall mean December 21, 2005. ------------------- (d) "Highest Lawful Rate" shall mean at the particular time ------------------- in question the maximum rate of interest which, under Applicable Law, Payee is then permitted to charge Maker in regard to the loan evidenced by this Note. If the maximum rate of interest which, under Applicable Law, Payee is permitted to charge Maker in regard to the loan evidenced by this Note shall change after the date hereof, the Highest Lawful Rate shall be automatically increased or decreased, as the case may be, from time to time as of the effective date of each change in the Highest Lawful Rate without notice to Maker. In determining the Highest Lawful Rate, all fees and other charges contracted for, charged or received by Payee in connection with the loan evidenced by this Note which are either deemed interest under Applicable Law or required under Applicable Law to be deducted from the principal balance hereof to determine the rate of interest charged on this Note shall be taken into account. (e) "Merger" shall mean the merger of PEI Acquisition, Inc. a Texas ------ corporation ("PEI Acquisition") with and into Maker pursuant to that certain Agreement and Plan of Merger dated July 31, 2001 by and among Parent, IDS Engineering Management, LC, a Texas limited liability company, PEI Acquisition and Maker. (f) "Parent" shall mean Industrial Data Systems Corporation, a Nevada ------ corporation. (g) "Sale of Maker" shall mean (i) a sale of substantially all of the ------------- assets of Maker to a person or entity that is not an affiliate of Maker, (ii) any sale in a single transaction or in a series of related and substantially similar contemporaneous transactions of the common stock, par value $.01 per share of Maker ("MAKER COMMON STOCK"), representing 50% or more of the total number of shares of Maker Common Stock then outstanding (determined on a fully diluted basis) to any person or entity which is not an affiliate of the selling shareholders, or (iii) any merger, consolidation or reorganization of Maker with or into one or more entities which are not Subsidiaries or affiliates of Maker or Parent (other than the Merger), as a result of which less than 50% of the outstanding voting securities, partnership interests or membership interests of the surviving or resulting entity are owned by the holders of Maker Common Stock (or their Affiliates) immediately prior to such merger, consolidation or reorganization. (h) "Sale of Parent" shall mean (i) a sale of substantially all of the -------------- assets of Parent to a person or entity that is not an affiliate of Parent, (ii) any sale in a single transaction or in a series of related and substantially similar contemporaneous transactions of the common stock of Parent, par value $0.001 per share ("PARENT COMMON STOCK"), representing 50% or more of the total number of shares of Parent Common Stock then outstanding (determined on a fully diluted basis) to any person or entity which is not an affiliate of the selling shareholders, or (iii) any merger, consolidation or reorganization of the Parent with or into one or more entities which are not Subsidiaries or affiliates of the Parent, as a result of which less than 50% of the outstanding voting securities, partnership interests or membership interests of the surviving or resulting entity are owned by the holders of Parent Common Stock (or their Affiliates) immediately prior to such merger, consolidation or reorganization. (i) "Security Documents" has the meaning specified in Section 13 of ------------------ this Note. (j) "Senior Debt" shall mean (i) all now existing or hereafter incurred ----------- indebtedness of the Parent, the Maker or any of their respective Subsidiaries for money borrowed, loans made or letters of credit issued or other credit extended to the Parent, Maker or any of their respective Subsidiaries by any bank or other financial or lending 2 institution, including, without limitation, Fleet Capital Corporation, that is specifically designated by the Parent or the Maker, in the document or instrument creating or evidencing such indebtedness or in an officer's certificate delivered to the holder of this Note, as "Senior Debt", (ii) all assumptions or guaranties of any indebtedness of the type described in the preceding clause (i), and (iii) all indebtedness of the Parent, the Maker or any of their respective Subsidiaries arising in connection with any refunding or refinancing of, or increases in the principal amount of, any indebtedness of the type described in the preceding clause (i) and (ii), in each instance together with all interest, fees, costs, taxes, expense reimbursements, indemnification and other like amounts arising under the documents and instruments evidencing such indebtedness, including all such amounts that become payable (or that would have become payable if enforceable or allowable in such case or proceeding) on the terms specified in such documents and instruments after the commencement of any bankruptcy, reorganization, receivership, insolvency, liquidation or dissolution proceeding, whether or not the claim for such amount is enforceable, allowable or allowed as a claim in such proceeding and even if such claim is not enforceable or allowed therein; provided, however, that, except for the outstanding principal balance as of the date hereof of the term loan indebtedness evidenced by that certain Term Note, dated June 15, 1999, from Maker and each of its Subsidiaries, as Borrower, to Fleet Capital Corporation, in the stated principal amount of $5,000,000, in no event shall the principal amount of any indebtedness described in the preceding clause (i) be Senior Debt unless the documents, agreements and instruments evidencing such indebtedness provide that the principal amount of such indebtedness which may be advanced from time to time shall be determined by reference to a borrowing base (i.e., accounts receivable and inventory) of Maker, Parent and/or any one or more of their respective Subsidiaries regardless of whether the aggregate amount of such indebtedness may from time to time exceed the amounts permitted to be advanced on such borrowing base. (k) "Subsidiary" means, with respect to any person or entity, any ---------- corporation, partnership, limited liability company, association or other business entity of which more than fifty percent (50%) of the total voting power of shares of stock (or equivalent ownership or controlling interest) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or general partners thereof is at the time owned or controlled, directly or indirectly, by that person or entity or one or more of the other Subsidiaries of that person or entity or a combination thereof. 2. CALCULATION AND PAYMENT OF PRINCIPAL AND INTEREST. -------------------------------------------------- (a) Interest on the unpaid principal balance hereof from time to time outstanding shall be computed at a per annum rate equal to the lesser of (i) the Base Rate in effect from time to time and (ii) the Highest Lawful Rate, and shall be due and payable quarterly, in arrears, on the 15(th) day of each February, May, August and November of each year, commencing on November 15, 2001, and continuing on the 15(th) day of each such month thereafter until such time as the full principal balance, together with all other amounts owing hereunder, shall have been paid in full. 3 (b) The principal balance shall be due and payable in equal quarterly installments of $110,000 each, commencing on August 15, 2002, and continuing on the 15(th) day of each February, May, August and November of each year thereafter to and including the 15(th) day of December, 2005, and the entire remaining principal amount then outstanding, together with any and all other amounts due hereunder shall be due and payable on the Final Maturity Date. (c) All payments on this Note shall be applied first to the payment of accrued interest and then to the payment of principal. (d) Interest on this Note shall be calculated on the basis of 365 -day or 366-day years, as the case may be. (e) If the date for any payment or prepayment hereunder falls on a day which is a Saturday, Sunday or other legal holiday, then for all purposes of this Note, the same shall be deemed to have fallen on the next following day, and such extension of time shall in such case be included in the calculation of interest. 3. Prepayment. Maker shall have the right to prepay the unpaid principal ---------- balance of and all accrued interest upon this Note in whole or in part at any time without premium or penalty. Maker shall prepay the outstanding principal balance of and all accrued but unpaid interest on this Note prior to the Final Maturity Date upon a Sale of Maker or a Sale of Parent. 4. Waiver. Maker and all sureties, endorsers, accommodation parties, ------ guarantors and other parties now or hereafter liable for the payment of this Note, in whole or in part, hereby severally (i) waive demand, notice of demand, presentment for payment, notice of nonpayment, notice of default, protest, notice of protest, notice of intent to accelerate, notice of acceleration, notice of dishonor and all other notices, and further waive diligence in collecting this Note, in taking action to collect this Note, in bringing suit to collect this Note, or in enforcing this Note or any of the security for this Note; (ii) agree to any substitution, subordination, exchange or release of any security for this Note or the release of any party primarily or secondarily liable for the payment of this Note; (iii) agree that Payee shall not be required to first institute suit or exhaust its remedies hereon against Maker or others liable or to become liable for the payment of this Note or to enforce its rights against any security for the payment of this Note. 5. Events of Default. ----------------- (a) Upon the happening of any of the following events (each an "Event of Default"), Payee may, at its option upon ten (10) days prior written notice to the Maker, declare immediately due and payable the entire principal balance of this Note together with all interest accrued and owing hereon, plus any other sums payable at the time of such declaration pursuant to this Note. Events of Default include the following: (i) If Maker shall fail to pay any principal and/or interest under this Note and such failure shall continue for a period of ten (10) days after the receipt by Maker of written notice of such failure from Payee when same becomes due and payable in accordance with the terms hereof, or if Maker shall default in any other payment obligation under this Note and such default shall continue for a 4 period of ten (10) days after the receipt by Maker of written notice of such default from Payee; (ii) If Maker becomes insolvent, fails to pay its debts generally as they become due or becomes the subject of any proceeding under any debtor relief law. In the event of Default, Payee may declare the entire unpaid balance of this Note, or any part hereof, immediately due and payable; (iii) If any default shall occur in the performance or compliance with any term contained in any of the Security Documents and such default is not remedied or waived within 30 days after receipt by Maker of written notice of such default from Payee; or (iv) The failure to exercise the foregoing option upon the happening of an Event of Default shall not constitute a waiver of the right to exercise the same or any other option at any subsequent time, and no such failure shall nullify any prior exercise of any such option without the express written consent of Payee. 6. Default Interest. If the entire unpaid principal balance and ---------------- accrued but unpaid interest is not paid on or before the earlier to occur of the Final Maturity Date, all unpaid amounts of this Note, including principal and interest, shall thereafter bear interest at a rate of interest (the "Default Rate") equal to the lesser of (i) 12% per annum or (ii) the Highest Lawful Rate; provided, however, that the obligation to pay such interest is subject to the limitation contained in the following paragraph. 7. Compliance with Law. All agreements between Maker and Payee, ------------------- whether now existing or hereafter arising and whether written or oral, are hereby limited so that in no contingency, whether by reason of demand of the Final Maturity Date or otherwise, shall the interest contracted for, charged, received, paid or agreed to be paid to Payee in regard to the loan evidenced by the Note exceed the maximum amount permissible under Applicable Law. If, from any circumstance whatsoever, interest would otherwise be payable to Payee in excess of the maximum amount permissible under Applicable Law, the interest payable to Payee shall be reduced to the maximum amount permissible under Applicable Law; and if from any circumstance Payee shall ever receive anything of value deemed interest by Applicable Law in excess of the maximum amount permissible under Applicable Law, an amount equal to the excessive interest shall be applied to the reduction of the principal hereof and not to the payment of interest, or if such excessive amount of interest exceeds the unpaid balance of principal hereof, such excess shall be refunded to Maker. All interest paid or agreed to be paid to Payee shall, to the extent permitted by Applicable Law, be amortized, prorated, allocated, and spread throughout the full period (including any renewal or extension) until payment in full of the principal so that the interest hereon for such full period shall not exceed the maximum amount permissible under Applicable Law. Payee expressly disavows any intent to contract for, charge or receive interest in an amount which exceeds the maximum amount permissible under Applicable Law. This paragraph shall control all agreements between Maker and Payee. 8. Attorneys' Fees and Costs. If an Event of Default shall occur, and ------------------------- if thereafter this Note is placed in the hands of an attorney for collection, or if this Note is collected in whole or in 5 part through legal proceedings of any nature, including arbitration, then and in any such case Maker promises to pay, and there shall be added to the unpaid principal balance hereof, all reasonable costs of collection, including, but not limited to, reasonable attorneys' fees incurred by the holder hereof, on account of such collection, whether or not suit is filed. 9. Cumulative Rights. No delay on the part of the holder of this Note ----------------- in the exercise of any power or right under this Note or under any other instrument executed pursuant hereto shall operate as a waiver thereof, nor shall a single or partial exercise of any power or right preclude other or further exercise thereof or the exercise of any other power or right. Enforcement by the holder of this Note of any security for the payment hereof shall not constitute any election by it of remedies so as to preclude the exercise of any other remedy available to it. 10. Headings. The paragraph headings used in this Note are for -------- convenience of reference only, and shall not affect the meaning or interpretation of this Note. 11. Notices and Demands. Any notice or demand given hereunder shall be ------------------- deemed to have been given and received (a) when actually delivered to the address of the party to be notified or delivered in person, (b) if mailed, on the third Business Day (hereinafter defined) after it is deposited in the United States mail, certified, return receipt requested or (c) one Business Day after it has been deposited with an overnight courier, marked for next day delivery. For purposes hereof, the addresses of the parties are as follows: Equus II Incorporated Attn: Mr. Randall Hale 2929 Allen Parkway, Suite 2500 Houston, Texas 77019 Petrocon Engineering, Inc. Attn: Mr. Michael L. Burrow 3155 Executive Blvd. Beaumont, Texas 77705 12. Governing Law. This Note shall be governed by and construed in ------------- accordance with the laws of the State of Texas and the laws of the United States applicable to transactions in the State of Texas. Courts within the State of Texas shall have jurisdiction over any and all disputes between Maker and Payee, whether at law or in equity. 13. Security. This Note is secured by (i) one or more Security -------- Agreements by Maker and each of Maker's Subsidiaries now existing and hereafter created; (ii) one or more Guaranties by all of Maker's Subsidiaries now existing and hereafter created; (iii) one or more Security Agreements by Parent and all of Parent's Subsidiaries now existing and hereafter created; (iv) one or more Guaranties by Parent and all of Parent's Subsidiaries now existing and hereafter created; and (v) one or more mortgages, dated on or after the date hereof, by and between RPM Engineering, Inc., a Louisiana corporation, and Payee, covering certain real property generally described as 10252 Mayfair Drive, Baton Rouge, Louisiana and 9969 Professional Boulevard, Baton Rouge, Louisiana, as more particularly described therein (collectively, and as each of the 6 foregoing may be amended, modified, supplemented, renewed or extended from time to time, the "SECURITY DOCUMENTS"). 14. Subordination. This Note is subject to an Intercreditor Agreement, ------------- dated on or about the date hereof, executed by Payee, Fleet Capital Corporation, Maker et al. This Note is subordinated in right and time of payment to the prior payment in full in cash of all "Senior Debt" (as defined in the Intercreditor Agreement) in accordance with, and to the extent specified in, such Intercreditor Agreement and each holder of this Note, by its acceptance hereof, irrevocably agrees to be bound by the terms and provisions of such Intercreditor Agreement. Payee hereby agrees that, upon the request of Maker and within fifteen (15) days of such request, Payee shall execute and deliver to any other holder of Senior Debt an intercreditor agreement on substantially the same terms as such Intercreditor Agreement or on such other terms which are acceptable to Maker, Payee and such holder of Senior Debt. 15. Successors and Assigns. The terms "Payee" and "Maker" shall include ---------------------- all of the respective parties' successors and assigns to whom the benefits of this Note shall inure. Nothing herein shall be construed to limit the Maker's ability to assign or transfer this Note in connection with a merger, consolidation, sale of substantially all of its assets or similar transaction. MAKER: ----- PETROCON ENGINEERING, INC., a Texas corporation By:____________________________ Michael L. Burrow, President and Chief Executive Officer PAYEE: ----- EQUUS II INCORPORATED, a Delaware corporation By:____________________________ Randall B. Hale, Vice President 7 EX-10.45 8 dex1045.txt GUARANTY EXHIBIT 10.45 THIS GUARANTY IS SUBJECT TO AN INTERCREDITOR AGREEMENT, DATED AS OF DECEMBER 21, 2001, AMONG FLEET CAPITAL CORPORATION, A RHODE ISLAND CORPORATION, PETROCON ENGINEERING, INC., AND EQUUS II INCORPORATED, A DELAWARE CORPORATION, ET AL. THIS GUARANTY IS SUBORDINATED IN RIGHT AND TIME OF PAYMENT TO THE PRIOR PAYMENT IN FULL IN CASH OF ALL SENIOR DEBT (AS DEFINED IN THE INTERCREDITOR AGREEMENT) IN ACCORDANCE WITH, AND TO THE EXTENT SPECIFIED IN, SUCH INTERCREDITOR AGREEMENT AND EACH HOLDER OF THIS GUARANTY, BY ITS ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE TERMS AND PROVISIONS OF SUCH INTERCREDITOR AGREEMENT. GUARANTY THIS GUARANTY dated as of December 21, 2001, between EACH OF THE UNDERSIGNED, (each, a "Guarantor"), in favor of and for the benefit of EQUUS II INCORPORATED, a Delaware corporation ("Lender"). RECITALS A. Pursuant to that certain Settlement Agreement and Plan of Reorganization dated as of July 31, 2001, by and among INDUSTRIAL DATA SYSTEMS CORPORATION, a Nevada corporation ("IDS"), PETROCON ENGINEERING, INC., a Texas corporation ("PEI"), PEI ACQUISITION, INC., a Texas corporation, and a wholly owned and indirect subsidiary of IDS ("Sub"), and Lender (the "Settlement Agreement"), Equus has agreed to renew, rearrange and extend $3,000,000 of its existing loan to PEI (the "Loan") as evidenced by that certain Promissory Note from PEI to Lender in the principal amount of $3,000,000 of even date herewith (the "Note"). B. IDS, IDS Engineering Management LC, a Texas limited liability company ("LC"), Sub, and PEI have entered into that certain Agreement and Plan of Merger on or about July 31, 2001, whereby Sub will merge with and into PEI and PEI will be the surviving corporation (the "Plan of Merger"; PEI as the surviving corporation of the Plan of Merger is the "Successor Corporation"). C. Successor Corporation is an indirect, wholly owned subsidiary of IDS, IDS Engineering, Inc. and LC (the "Parent Guarantors"). The Parent Guarantors will receive direct and indirect benefits from the Loan in an amount at least equal to the obligations of the Parent Guarantors under this Guaranty, and the proceeds of the Loan will produce direct and indirect financial benefits to the Parent Guarantors. D. Thermaire, Inc. d/b/a Thermal Corp., a Texas corporation, Constant Power Manufacturing, Inc., a Texas corporation and Industrial Data Systems, Inc., a Texas corporation are wholly owned subsidiaries of IDS (the "IDS Guarantors"). The IDS Guarantors will receive direct and indirect benefits from the Loan in an amount at least equal to the obligations of the 1 IDS Guarantors under this Guaranty, and the proceeds of the Loan will produce direct and indirect financial benefits to the IDS Guarantors. E. Triangle Engineers & Constructors, Inc., Petrocon Systems, Inc. Petrocon Technologies, Inc., Petrocon Engineering of Louisiana, Inc., RPM Engineering, Inc., Alliance Engineering Associates, Inc. and Petrocon Construction Resources, Inc. (the "Subsidiary Guarantors") are wholly owned subsidiaries of Successor Corporation. The Subsidiary Guarantors will receive direct and indirect benefits from the Loan in an amount at least equal to the obligations of the Subsidiary Guarantors under this Guaranty, and the proceeds of the Loan will produce direct and indirect financial benefits to the Subsidiary Guarantors. F. It is a condition of the Note that Successor Corporation's obligations thereunder be guaranteed by each Guarantor and that the obligations of each Guarantor under the Guaranty be secured by the Security Agreement of even date herewith (the "Security Agreement"), executed by each Guarantor in favor of Lender. G. Each Guarantor is willing irrevocably and unconditionally to guaranty such obligations of Successor Corporation subject to the terms and provisions hereof. NOW, THEREFORE, based upon the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce Lender to make the Loan, each Guarantor hereby agrees as follows: SECTION 1. DEFINITIONS 1.1 Certain Defined Terms. Capitalized terms not otherwise defined herein shall have the meanings as such terms in the Note and in Appendix A attached hereto. 1.2 Interpretation. (a) References to "Sections" and "subsections" shall be to Sections and subsections, respectively, of this Guaranty unless otherwise specifically provided. (b) In the event of any conflict or inconsistency between the terms, conditions and provisions of this Guaranty and the terms, conditions and provisions of the Note, the terms, conditions and provisions of this Guaranty shall prevail. SECTION 2. THE GUARANTY 2.1 Guaranty of the Guaranteed Obligations. Subject to the provisions of subsection 2.2(a), each Guarantor hereby irrevocably and unconditionally guarantees, as a primary obligor and not merely as a surety, the due and punctual payment in full of all Guaranteed Obligations when the same shall become due, whether at stated maturity, by required prepayment, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S) 362(a)), as amended. The term "Guaranteed Obligations" is used herein in its most 2 comprehensive sense and includes any and all obligations of Successor Corporation now or hereafter made, incurred or created, whether absolute or contingent (including contingent obligations in respect of underwriters of credit or any other guaranty), liquidated or unliquidated, whether due or not due, and however arising under or in connection with the Note. 2.2 Limitation on Amount Guaranteed; Contribution by Each Guarantor. (a) Anything contained in this Guaranty to the contrary notwithstanding, the obligations of each Guarantor hereunder shall be limited to a maximum principal amount equal to $3,000,000 and a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code, as amended, or any applicable provisions of comparable state law (collectively, the "Fraudulent Transfer laws"), in each case after giving effect to all other liabilities of Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer laws (specifically excluding, however, any liabilities of each Guarantor (x) in respect of intercompany indebtedness to Successor Corporation or other subsidiaries or affiliates of Successor Corporation to the extent that such indebtedness would be discharged in an amount equal to the amount paid by each Guarantor hereunder and (y) under any guaranty of Senior Debt which guaranty contains a limitation as to maximum amount similar to that set forth in this subsection 2.2(a), pursuant to which the liability of each Guarantor hereunder is included in the liabilities taken into account in determining such maximum amount) and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer laws) of any rights to subrogation or contribution of each Guarantor pursuant to (i) applicable law or (ii) any agreement providing for an equitable allocation among each Guarantor and other subsidiaries or affiliates of Successor Corporation of obligations arising under guaranties by such parties. 2.3 Liability of Each Guarantor Absolute. Each Guarantor agrees that its obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than payment in full of the Guaranteed Obligations. "Payment in full" or "paid in full" means the final and indefeasible payment in full in cash or such other type of payment or satisfaction as Lender may approve. In furtherance of the foregoing and without limiting the generality thereof, Guarantor agrees as follows: (a) This Guaranty is a guaranty of payment when due and not of collectibility. (b) Lender may enforce this Guaranty upon the occurrence of and during the continuation of an Event of Default under the Note notwithstanding the existence of any dispute between Lender and Successor Corporation with respect to the existence of such Event of Default. (c) The obligations of each Guarantor hereunder are independent of the obligations of Successor Corporation under the Note and the obligations of any other guarantor of the obligations of Successor Corporation under the Note, and a separate action or actions may be brought and prosecuted against each Guarantor whether or not 3 any action is brought against Successor Corporation or any of such other guarantors and whether or not Successor Corporation is joined in any such action or actions. (d) Any Guarantor's payment of a portion, but not all, of the Guaranteed Obligations shall in no way limit, affect, modify or abridge such Guarantor's liability for any portion of the Guaranteed Obligations that has not been paid. Without limiting the generality of the foregoing, if Lender is awarded a judgment in any suit brought to enforce any Guarantor's covenants to pay a portion of the Guaranteed Obligations, such judgment shall not be deemed to release such Guarantor from its covenant to pay the portion of the Guaranteed Obligations that is not the subject of such suit. (e) Subject to the terms of the Note, Lender, upon such terms as it deems appropriate, without notice or demand and without affecting the validity or enforceability of this Guaranty or giving rise to any reduction, limitation, impairment, discharge or termination of any Guarantor's liability hereunder, and from time to time, may (i) renew, extend, accelerate, increase the rate of interest on, or otherwise change the time, place, manner or terms of payment of the Guaranteed Obligations; (ii) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Guaranteed Obligations or any agreement relating thereto and/or subordinate the payment of the same to the payment of any other obligations; (iii) request and accept other guaranties of the Guaranteed Obligations and take and hold security for the payment of this Guaranty or the Guaranteed Obligations; (iv) release, surrender, exchange, substitute, compromise, settle, rescind, waive, alter, subordinate or modify, with or without consideration, any security for payment of the Guaranteed Obligations, any other guaranties of the Guaranteed Obligations, including, without limitation, any Related Guaranties or any other obligation of any person with respect to the Guaranteed Obligations; (v) enforce and apply any security now or hereafter held by or for the benefit of Lender in respect of this Guaranty or the Guaranteed Obligations and direct the order or manner of sale thereof, or exercise any other right or remedy that Lender may have against any such security, as Lender in its discretion may determine consistent with the Note and any applicable security agreement, including foreclosure on any such security pursuant to one or more judicial or nonjudicial sales, even though such action operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of such Guarantor against Successor Corporation or any security for the Guaranteed Obligations; and (vi) exercise any other rights available to it under the Note. (f) This Guaranty and the obligations of each Guarantor hereunder shall be valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than payment in full of the Guaranteed Obligations), including without limitation the occurrence of any of the following, whether or not each Guarantor shall have had notice or knowledge of any of them: (i) any failure or omission to assert or enforce or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising under the Note, at law, in equity or otherwise) with respect to the Guaranteed Obligations or any agreement relating thereto, or with respect to any other guaranty of or 4 security for the payment of the Guaranteed Obligations; (ii) any waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including without limitation provisions relating to events of default) of the Note; (iii) the Guaranteed Obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect unless due to the gross negligence or willful misconduct of Lender; (iv) the application of payments received from any source (other than payments received pursuant to the Note pursuant to this Guaranty, or from the proceeds of any security for the Guaranteed Obligations, except to the extent such security also serves as collateral for indebtedness other than the Guaranteed Obligations and such payments are applied to such other indebtedness) to the payment of indebtedness other than the Guaranteed Obligations, even though Lender might have elected to apply such payment to any part or all of the Guaranteed Obligations; (v) Lender's consent to the change, reorganization or termination of the corporate structure or existence of Successor Corporation or any of its subsidiaries and to any corresponding restructuring of the Guaranteed Obligations; (vi) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Guaranteed Obligations; and (vii) any defenses, set-offs or counterclaims which Successor Corporation may allege or assert against Lender in respect of the Guaranteed Obligations, including but not limited to failure of consideration, breach of warranty, statute of frauds, statute of limitations, accord and satisfaction and usury, but excluding any defense based upon Lender's gross negligence or willful misconduct. 2.4 Waivers by Each Guarantor. Each Guarantor hereby waives, for the benefit of Lender: (a) any right to require Lender, as a condition of payment or performance by Guarantor, to (i) proceed against Successor Corporation, any other guarantor of the Guaranteed Obligations or any other person, (ii) proceed against or exhaust any security held from Successor Corporation, any other guarantor of the Guaranteed Obligations or any other person, (iii) proceed against or have resort to any balance of any deposit account or credit on the books of Lender in favor of Successor Corporation or any other person, or (iv) pursue any other remedy in the power of Lender whatsoever; (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of Successor Corporation including, without limitation, any defense based on or arising out of the lack of validity or the unenforceability of the Guaranteed Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of Successor Corporation from any cause other than payment in full of the Guaranteed Obligations; (c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; 5 (d) any defense based upon Lender's errors or omissions in the administration of the Guaranteed Obligations, except behavior which amounts to gross negligence or willful misconduct as determined by a court of competent jurisdiction; (e) (i) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms of this Guaranty and any legal or equitable discharge of such Guarantor's obligations hereunder, (ii) the benefit of any statute of limitations affecting such Guarantor's liabilities hereunder or the enforcement hereof, (iii) any rights to set- offs, recoupments and counterclaims, and (iv) promptness, diligence and any requirement that Lender protect, secure, perfect or insure any security interest or lien or any property subject thereto; and (f) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance of this Guaranty, notices of default under the Note or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Guaranteed Obligations or any agreement related thereto. 2.5 Payment by Each Guarantor: Application of Payments. Subject to the provisions of subsection 2.2(a), each Guarantor hereby agrees in furtherance of the foregoing and not in limitation of any other right which Lender or any other person may have at law or in equity against such Guarantor by virtue hereof, that upon the failure of Successor Corporation to pay any of the Guaranteed Obligations when and as the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S) 362(a)), Guarantor will forthwith pay, or cause to be paid, in cash, to Lender, an amount equal to the sum of the unpaid principal amount of all Guaranteed Obligations then due as aforesaid, accrued and unpaid interest on such Guaranteed Obligations (including, without limitation, interest which, but for the filing of a petition in bankruptcy with respect to Successor Corporation, would have accrued on such Guaranteed Obligations, whether or not a claim is allowed against Successor Corporation for such interest in any such bankruptcy proceeding) and all other Guaranteed Obligations then owed to Lender as aforesaid. All such payments shall be applied promptly from time to time by Lender: First, to the payment of the reasonable costs and expenses of any collection or other realization under this Guaranty and the Security Agreement, including reasonable attorney's fees, and all expenses, liabilities and advances made or incurred by Lender in connection therewith; Second, to the payment of all other Guaranteed Obligations; and Third, after payment in full of all Guaranteed Obligations, to the payment to each Guarantor, or its successors or assigns, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such payments. 6 2.6 Subrogation. If any Guarantor shall make any payment pursuant to this Guaranty, then such Guarantor shall be subrogated to the rights of Lender to receive payments or distributions of assets of Successor Corporation; provided, however, until the Guaranteed Obligations shall have been paid in full, such Guarantor shall withhold exercise of (a) any right of subrogation, (b) any right of contribution such Guarantor may have against any other guarantor of the Guaranteed Obligations, (c) any right to enforce any remedy that Lender now has or may hereafter have against Successor Corporation or (d) any benefit of, and any right to participate in, any security now or hereafter held by Lender. Each Guarantor further agrees that, to the extent the withholding of the exercise of its rights of subrogation and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation such Guarantor may have against Successor Corporation or against any collateral or security, and any rights of contribution Guarantor may have against any other such Guarantor, shall be junior and subordinate to any rights Lender may have against Successor Corporation, to all right, title and interest Lender may have in any such collateral or security, and to any right Lender may have against such other guarantor; provided, however, that such Guarantor may take any action necessary to preserve any right of subrogation or contribution that such Guarantor may have. Lender, may use, sell or dispose of any item of collateral or security as it sees fit without regard to any subrogation rights any Guarantor may have. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all Guaranteed Obligations shall not have been paid in full, such amount shall be held in trust for Lender and shall forthwith be paid over to Lender to be credited and applied against the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms of the Note or any applicable security agreement. 2.7 Subordination of Other Obligations of Successor Corporation. Any indebtedness of Successor Corporation now or hereafter held by any Guarantor is hereby subordinated in right of payment to the Guaranteed Obligations, provided prior to an Event of Default, any Guarantor may receive ordinary course or regularly scheduled payments of such indebtedness. Any such indebtedness of Successor Corporation to such Guarantor collected or received by suchGuarantor after an Event of Default has occurred and is continuing shall be held in trust for Lender and shall forthwith be paid over to Lender to be credited and applied against the Guaranteed Obligations but without affecting, impairing or limiting in any manner the liability of such Guarantor under any other provision of this Guaranty. 2.8 Expenses. Each Guarantor agrees to pay, or cause to be paid, and to save Lender harmless against liability for, any and all reasonable costs and expenses (including reasonable fees and disbursements of counsel and allocated costs of internal counsel) incurred or expended by Lender in connection with the enforcement of or preservation of any rights under this Guaranty. 2.9 Continuing Guaranty. This Guaranty is a continuing guaranty and shall remain in effect until all of the Guaranteed Obligations shall have been paid in full. 2.10 Financial Condition of Successor Corporation. Lender shall have no obligation to disclose or discuss with any Guarantor Lender's assessment of the financial condition of Successor Corporation. Each Guarantor has adequate means to obtain information from 7 Successor Corporation on a continuing basis concerning the financial condition of Successor Corporation and its ability to perform its obligations under the Note, and each Guarantor assumes the responsibility for being and keeping informed of the financial condition of Successor Corporation and of all circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations. Each Guarantor hereby waives and relinquishes any duty on the part of Lender to disclose any matter, fact or thing relating to the business, operations or conditions of Successor Corporation now known or hereafter known by Lender. 2.11 Rights Cumulative. The rights, powers and remedies given to Lender by this Guaranty are cumulative and shall be in addition to and independent of all rights, powers and remedies given to Lender by virtue of any statute or rule of law or in the Note. Any forbearance or failure to exercise, and any delay by any Lender in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy. 2.12 Bankruptcy: Post-Petition Interest: Reinstatement of Guaranty. (a) So long as any Guaranteed Obligations remain outstanding, no Guarantor shall, without the prior written consent of Lender, commence or join with any other person in commencing any bankruptcy, reorganization or insolvency proceedings of or against Successor Corporation. The obligations of each Guarantor under this Guaranty shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of Successor Corporation or by any defense which Successor Corporation may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding. (b) Each Guarantor acknowledges and agrees that any interest on any portion of the Guaranteed Obligations which accrues after the commencement of any proceeding referred to in clause (a) above (or, if interest on any portion of the Guaranteed Obligations ceases to accrue by operation of law by reason of the commencement of said proceeding, such interest as would have accrued on such portion of the Guaranteed Obligations if said proceedings had not been commenced) shall be included in the Guaranteed Obligations because it is the intention of each Guarantor and Lender that the Guaranteed Obligations which are guaranteed by each Guarantor pursuant to this Guaranty should be determined without regard to any rule of law or order which may relieve Successor Corporation of any portion of such Guaranteed Obligations. Each Guarantor will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay Lender, or allow the claim of Lender in respect of, any such interest accruing after the date on which such proceeding is commenced. (c) In the event that all or any portion of the Guaranteed Obligations are paid by Successor Corporation, the obligations of each Guarantor hereunder shall continue and remain in full force and effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from Lender 8 as a preference, fraudulent transfer or otherwise, and any such payments which are so rescinded or recovered shall constitute Guaranteed Obligations for all purposes under this Guaranty. 2.13 Notice of Events. As soon as any Guarantor obtains knowledge thereof, and to the extent Successor Corporation had such knowledge, such Guarantor shall give Lender written notice of any condition or event which has resulted or might reasonably be expected to result in (a) a material adverse change in the financial condition of any Guarantor and Successor Corporation, taken as a whole, or (b) a breach of or noncompliance with any term, condition or covenant contained herein or in the Note, or (c) a material breach of, or material noncompliance with, any material term, condition or covenant of any material contract to which any Guarantor or Successor Corporation is a party or by which any Guarantor or Successor Corporation or any Guarantor's or Successor Corporation's property may be bound. 2.14 Set Off. In addition to any other rights Lender may have under law or in equity, if any amount shall at any time be due and owing by any Guarantor to Lender under this Guaranty from and after the occurrence of an Event of Default and during the continuation thereof, Lender is authorized at any time or from time to time, without notice (any such notice being hereby expressly waived), to set off and to appropriate and to apply any and all deposits (general or special, including but not limited to indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness of Lender owing to any Guarantor and any other property of any Guarantor held by Lender to or for the credit or the account of any Guarantor against and on account of the Guaranteed Obligations and liabilities of any Guarantor to Lender under this Guaranty. After exercising any right to set off, appropriate or apply any deposits or other indebtedness of such Guarantor, Lender exercising such right shall endeavor to provide notice of such set off, appropriation or application to such Guarantor promptly, but any failure to do so shall not affect the validity of any such set off, appropriation or application. SECTION 3. REPRESENTATIONS AND WARRANTIES In order to induce Lender to accept this Guaranty and to make the Loan, each Guarantor hereby represents and warrants to Lender that the following statements are true and correct: 3.1 Corporate Existence. Each Guarantor is duly organized, validly existing and in good standing under the laws of the state of its incorporation or organization, has the power to own its assets and to transact the business in which it is now engaged and is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification. 3.2 Corporate Power: Authorization: Enforceable Obligations. Each Guarantor has the power, authority and legal right to execute, deliver and perform this Guaranty and the Security Agreement (collectively referred to as the "Guarantor Agreements") and all obligations required under the Guarantor Agreements, each Guarantor has taken all necessary action to authorize the Guarantor Agreements on the terms and conditions of such agreements and to authorize such Guarantor's execution, delivery and performance of the Guarantor Agreements and all obligations required under such agreements. No consent of any other person including, 9 without limitation, stockholders and creditors of each Guarantor, and no license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required by any Guarantor in connection with the Guarantor Agreements or the execution, delivery, performance, validity or enforceability of the Guarantor Agreements and the obligations required under such agreements except for (i) such consents which have been validly obtained, or (ii) in the case of any leasehold interest of any Guarantor, such Guarantor has used commercially reasonable efforts to obtain any such consent and the failure of such Guarantor to obtain any such consent is the result of the exercise by a landlord of such landlord's existing contractual right to withhold such consent. The Guarantor Agreements have been, and each instrument or document required in connection with such agreements will be, executed and delivered by a duly authorized officer of such Guarantor, and the Guarantor Agreements constitute, and each instrument or document required in connection therewith when executed and delivered will constitute, the legally valid and binding obligation of each Guarantor, enforceable against such Guarantor in accordance with its respective terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws or equitable principles relating to or limiting creditors' rights generally. 3.3 No Legal Bar to this Guaranty. The execution, delivery and performance of the Guarantor Agreements and the documents or instruments required in connection therewith, and the use of the proceeds of the borrowings under the Note, will not violate any provision of any existing law or regulation binding on any Guarantor, or any order, judgment, award or decree of any court, arbitrator or governmental authority binding on any Guarantor, or the certificate of incorporation or bylaws or certificate of formation or operating agreement of any Guarantor or any securities issued by any Guarantor, or any mortgage, indenture, lease, contract or other agreement, instrument or undertaking to which any Guarantor is a party or by which any Guarantor or any of its assets may be bound, the violation of which would have a material adverse effect on the business, operations, assets or financial condition of such Guarantor and will not result in, or require, the creation or imposition of any lien on any of its property, assets or revenues pursuant to the provisions of any such mortgage, indenture, lease, contract or other agreement, instrument or undertaking. 3.4 Benefit to Each Guarantor. Successor Corporation is an indirect subsidiary of IDS, and IDS's board of directors has determined, as evidenced by resolution duly adopted and in full force and effect on the date hereof, that IDS will receive direct and indirect benefit from the transactions contemplated by the Loan in an amount at least equal to the obligations of IDS under this Guaranty, and that the Loan will produce direct and indirect financial benefits to IDS. Therefore, the value of the consideration received and to be received by IDS as a result of IDS's entering into this Guaranty is reasonably worth at least as much as the liability and obligations of IDS hereunder and may reasonably be expected to benefit IDS directly or indirectly. SECTION 4. COVENANTS 4.1 Each Guarantor covenants and agrees that, unless and until all of the Guaranteed Obligations shall have been paid in full, unless Lender shall otherwise consent in writing: 10 (a) Corporate Existence, Etc. Each Guarantor shall at all times preserve and keep in full force and effect its corporate existence and all rights and franchises material to its business. (b) Compliance with Laws, Etc. Each Guarantor shall comply in all material respects with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, paying when due all taxes, assessments and governmental charges imposed upon it or upon any of its properties or assets or in respect of any of its franchises, businesses, income or property before any penalty or interest accrues thereon unless such tax, assessment or charge is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and each Guarantor has established such reserve or other appropriate provision, if any, as shall be required in conformity with general accepted accounting principals; provided that each Guarantor shall in any event pay such taxes, assessments and governmental charges not later than five (5) days prior to the date of any proposed sale under any judgment, writ or warrant of attachment entered or filed against any Guarantor as a result of the failure to make such payment. (c) Financial Statements. Each Guarantor shall keep, and cause each of its Subsidiaries to keep, adequate records and books of account with respect to its business activities in which proper entries are made in accordance with GAAP reflecting all its financial transactions; and cause to be prepared and furnished to Lender the following (all to be prepared in accordance with GAAP applied on a consistent basis, unless any Guarantor's certified public accountants concur in any change therein and such change is disclosed to Lender and is consistent with GAAP): (i) as soon as available but not later than one hundred twenty (120) days after the close of each fiscal year of each Guarantor, unqualified audited financial statements of each Guarantor and its Subsidiaries as of the end of such year, on a Consolidated basis, consisting of a balance sheet, income statement and statement of cash flows, certified by a firm of independent certified public accountants of recognized standing selected by each Guarantor but reasonably acceptable to Lender (except for a qualification for a change in accounting principles with which the accountant concurs); (ii) as soon as available but not later than thirty (30) days after the end of each month hereafter, including the last month of each Guarantor's fiscal year, unaudited interim financial statements of each Guarantor and its Subsidiaries as of the end of such month and of the portion of such Guarantor's financial year then elapsed, on a Consolidated basis, consisting of a balance sheet, income statement and statement of cash flows certified by the principal financial officer of Guarantor as prepared in accordance with GAAP and fairly presenting the Consolidated financial position and results of operations of such Guarantor and its Subsidiaries for such month and period subject only to changes from audit and year-end adjustments and except that such statements need not contain notes; 11 (iii) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which each Guarantor has made available to its shareholders and copies of any regular, periodic and special reports or registration statements which such Guarantor and/or its Subsidiaries files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or any national securities exchange; (iv) promptly after the filing thereof, copies of any annual report to be filed with ERISA in connection with each Plan; and (v) such other data and information (financial and otherwise) as any Guarantor, from time to time, may reasonably request, bearing upon or related to the Collateral or Guarantor's and each of its Subsidiaries' accounts payable, accounts receivable, financial condition or results of operations. (d) Projections. Each Guarantor shall, no later than thirty (30) days prior to the end of each fiscal year of such Guarantor, beginning December 31, 2001, deliver to Lender projections of such Guarantor (consisting of Consolidated balance sheets, income statements and cash flow statements, together with appropriate supporting details and underlying assumptions) for the forthcoming fiscal year, month by month, the form of which shall be consistent with those furnished by such Guarantor to Lender prior to the date of this Guaranty. (e) Mergers, Consolidations, Acquisitions. No Guarantor shall (i) except for the Merger, merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any Person; nor (ii) acquire, nor permit any of its Subsidiaries to acquire, all or any substantial part of the Properties of any Person (provided, however, that notwithstanding clauses (i) and (ii) above, one or more Subsidiaries of any Guarantor may merge with or into such Guarantor or any other Subsidiary of such Guarantor). (f) Total Indebtedness. No Guarantor shall create, incur, assume, or suffer to exist, or permit any of its Subsidiaries to create, incur or suffer to exist, any Indebtedness, except: (i) Senior Debt and Indebtedness permitted by the provisions of the documentation governing the Senior Debt; (ii) Indebtedness of any Guarantor and/or its Subsidiaries which is subordinated to the Guaranteed Obligations in a manner satisfactory to Lender; (iii) Indebtedness evidenced by the Note and any guaranty thereof; (iv) Indebtedness of any Subsidiary of Borrower to Borrower or between any Subsidiary of Borrower; 12 (v) Accounts payable to trade creditors and current operating expenses (other than for Money Borrowed) which are not aged more than 90 days from the due date, in each case incurred in the ordinary course of business and paid within such time period, unless the same are being Properly Contested; (vi) Obligations to pay Rentals; (vii) Permitted Purchase Money Indebtedness; (viii) Contingent liabilities arising out of endorsements of checks and other negotiable instruments for deposit or collection in the ordinary course of business; (ix) Indebtedness existing on the date hereof and described on Exhibit A hereto, and any extensions, renewals or refinancings thereof so long as (i) the principal amount thereof does not exceed the then outstanding principal amount of the Indebtedness being so extended, renewed or refinanced, and (ii) the amortization of principal on any such refinancings shall be for no shorter period, and for no greater annual amounts, than the original amortization established for such Indebtedness; and (x) contingent obligations under any guarantee by any Guarantor or its Subsidiaries of any of the obligations of any other Subsidiary as lessee under any lease which is otherwise permitted under this Agreement; (xi) Indebtedness constituting deposits to secure the performance of bids, trade contracts (other than for Money Borrowed), leases, statutory obligations, surety and appeal bonds and performance bonds under other obligations of a like nature that are incurred in the ordinary course of business, not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate at any time outstanding; (xii) indemnities arising under agreements entered into by Guarantor or any of its Subsidiaries in the ordinary course of business; (xiii) Indebtedness arising on account of deferred taxes, deferred workers' compensation liabilities, or deferred employee medical liabilities; and (xiv) Indebtedness not included in paragraphs (i) through (xiii) above which does not exceed at any time, in the aggregate, the sum of One Hundred Thousand Dollars ($100,000). (g) Affiliate Transactions. No Guarantor shall enter into, or be a party to, or permit any of its Subsidiaries to enter into or be a party to, any transaction with any Affiliate or stockholder except (i) those in existence on the closing date of the Merger 13 and fully disclosed to Lender, or (ii) in the ordinary course of and pursuant to the reasonable requirements of any Guarantor's or such Subsidiary's business and upon fair and reasonable terms which are fully disclosed to Lender and are no less favorable than would be obtained in a comparable arm's length transaction with a Person not an Affiliate or stockholder of such Guarantor or such Subsidiary. (h) Limitation on Liens. No Guarantor shall create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any Lien upon any of its Property, income or profits, whether now owned or hereafter acquired, except: (i) Liens at any time granted in favor of the holders of Senior Debt or their representative; (ii) Liens at any time granted in favor of Lender; (iii) Liens for Taxes (excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet due, or being Properly Contested; (iv) Liens arising in the ordinary course of its business by operation of law or regulation in favor of materialmen, mechanics, carriers, warehousemen, landlords and similar Persons, but only if (a) payment in respect of any such Lien is not at the time required or (b) the Indebtedness secured by such Lien is being Properly Contested and such Lien does not materially detract from the value of the Property or materially impair the use thereof in the operation of its business; (v) Purchase Money Liens securing Permitted Purchase Money Indebtedness; (vi) Liens securing Indebtedness of one of Guarantor's Subsidiaries to Guarantor or another such Subsidiary; (vii) such other Liens as appear on Exhibit B hereto; (viii) with respect to any real Property of Borrower or any of its Subsidiaries, such other easements or encumbrances or other imperfections of title to the extent they do not materially affect the value of, interfere with the use of, or materially impair the business or operations of, Borrower or any of its Subsidiaries; (ix) Liens permitted by the documentation governing the Senior Debt; and (x) such other Liens as Lender may hereafter approve in writing. 14 (i) Distributions. No Guarantor shall declare or make any Distributions, except (i) Distributions to employees of such Guarantor or its Subsidiaries consisting of the purchase of such Guarantor Common Stock upon the termination of the employment of any such employee, and (ii) Distributions consisting of dividends paid-in-kind on the Series A Preferred Stock, .001 par value per share of Guarantor, and (iii) Distributions permitted by the provisions of the documentation governing the Senior Debt. 4.2 Indemnity. From and after the date hereof and notwithstanding the payment in full of the Guaranteed Obligations and termination of this Guaranty, each Guarantor hereby indemnifies and holds harmless Lender and its predecessors, successors, parents, subsidiaries, affiliates, past and present officers, directors, partners, stockholders, trustees, employees, attorneys, accountants, insurers, consultants, agents and servants (collectively, the "Equus Parties") from any and all liability, damage, cost and expenses incurred (including reasonable attorneys fees) should any Person (other than Gary Coury, Rick Berry or any relative or affiliate of Gary Coury or Rick Berry) assert any claim, demand, action or cause of action of any nature or character, by, through or under, either PEI or Successor Corporation with respect to the matters released pursuant to Section 6.2(a) of that certain Settlement Agreement and Plan of Reorganization, dated July 31, 2001, among PEI, IDS, Sub and Lender (the "Equus Settlement Agreement") or should any PEI Shareholder assert any claim, demand, action or cause of action of any nature or character with respect to the matters released or intended to be released pursuant to Section 6.2(a) of the Equus Settlement Agreement. "PEI Shareholder" means any Person (other than Gary Coury, Rick Berry or any relative or affiliate of Gary Coury or Rick Berry) who owned any capital stock of PEI prior to the Closing Date (as defined in the Plan of Merger). SECTION 5. MISCELLANEOUS 5.1 Survival of Warranties. All agreements, representations and warranties made herein shall survive the execution and delivery of this Guaranty. 5.2 Notices. Except as otherwise provided herein, all notices, requests and demands to or upon a party hereto, to be effective, shall be writing and shall be sent by certified or registered mail, return receipt requested, by personal delivery against receipt, by overnight courier or by facsimile, and unless otherwise expressly provide herein, shall be deemed to have been validly served, given or delivered immediately when delivered against receipt, three days after deposit in the mail, or one day after delivery to an overnight courier or, in the case of a facsimile notice when sent, addressed to the address on the signature pages or to such other addresses as each such party may in writing hereafter indicate. 5.3 Severability. In case any provision in or obligation under this Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 5.4 Amendments and Waivers. No amendment, modification, termination or waiver of any provision of this Guaranty, or consent to any departure by any Guarantor therefrom, shall in any event be effective unless in writing and signed by Lender and each Guarantor. Any 15 waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. 5.5. Headings. Section and subsection headings in this Guaranty are included herein for convenience of reference only and shall not constitute a part of this Guaranty for any other purpose or be given any substantive effect. 5.6 Applicable Law. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF EACH GUARANTOR AND LENDER HEREUNDER AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER, SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE. 5.7 Successors and Assigns; Reliance by Lender. This Guaranty is a continuing guaranty and shall be binding upon each Guarantor and its successors and assigns. This Guaranty shall inure to the benefit of Lender and their respective successors and assigns, including, without limitation, any subsequent holder of all or any part of the Obligations. No Guarantor shall assign this Guaranty nor any of the rights or obligations of any Guarantor hereunder without the prior written consent of Lender. Lender may assign its interest in this Guaranty in whole or in part as part of a sale or other transfer of all or any portion of its interest in the Note (whether by direct transfer, transfer of a participation interest, or otherwise). The terms and provisions of this Guaranty shall inure to the benefit of any assignee or transferee of any interest in the Note, and in the event of such transfer or assignment the rights and privileges herein conferred upon Lender shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. 5.8 Consent to Jurisdiction and Service of Process. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GUARANTOR ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE NOTE MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED IN HARRIS COUNTY, TEXAS AND BY EXECUTION AND DELIVERY OF THIS GUARANTY EACH GUARANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS GUARANTY AND/OR THE NOTE. Each Guarantor hereby agrees that service of process sufficient for personal jurisdiction in any action against such Guarantor in the State of Texas may be made by registered or certified mail, return receipt requested, to each Guarantor in accordance with subsection 5.2, and each Guarantor hereby acknowledges that such service shall be effective and binding in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of Lender to bring proceedings against Guarantor in the courts of any other jurisdiction. 16 5.9 Waiver of Trial by Jury. EACH GUARANTOR AND, BY ITS ACCEPTANCE OF THE BENEFITS HEREOF, LENDER HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY, THE SECURITY AGREEMENT OR THE NOTE. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each Guarantor and, by its acceptance of the benefits hereof, Lender (i) acknowledges that this waiver is a material inducement for each Guarantor and Lender to enter into a business relationship, that each Guarantor and Lender have already relied on this waiver in entering into this Guaranty and the Security Agreement or accepting the benefits thereof, as the case may be, and that each will continue to rely on this waiver in their related future dealings and (ii) further warrants and represents that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY, THE SECURITY AGREEMENT AND THE NOTE. In the event of litigation, this Guaranty may be filed as a written consent to a trial by the court. 5.10 No Other Writing. This writing is intended by each Guarantor and Lender as the final expression of this Guaranty and is also intended as a complete and exclusive statement of the terms of their agreement with respect to the matters covered hereby. No course of dealing, course of performance or trade usage, and no parol evidence of any nature, shall be used to supplement or modify any terms of this Guaranty. There are no conditions to the full effectiveness of this Guaranty. 5.11 Further Assurances. At any time or from time to time, each Guarantor shall execute and deliver such further documents and do such other acts and things as Lender may reasonably request in order to effect fully the purposes of this Guaranty. [Signature pages follow] 17 IN WITNESS WHEREOF, each Guarantor has executed this Guaranty by its duly authorized officer as of the date first above written. INDUSTRIAL DATA SYSTEMS CORPORATION, a Nevada corporation By: ---------------------------------------- William A. Coskey, President Address: 600 Century Plaza Drive Building 140 Houston, Texas 77073-6013 IDS ENGINEERING, INC., a Texas corporation By: ---------------------------------------- William A. Coskey President and Chief Executive Officer IDS ENGINEERING MANAGEMENT, LC, a Texas limited liability company By: ---------------------------------------- William A. Coskey Chief Executive Officer THERMAIRE, INC. d/b/a THERMAL CORP., a Texas corporation By: ---------------------------------------- William A. Coskey President and Chief Executive Officer CONSTANT POWER MANUFACTURING, INC., a Texas corporation By: ---------------------------------------- William A. Coskey President and Chief Executive Officer 18 INDUSTRIAL DATA SYSTEMS, INC., a Texas corporation By: ---------------------------------------- William A. Coskey Chief Executive Officer PETROCON ENGINEERING, INC., a Texas corporation By: ---------------------------------------- Michael L. Burrow President and Chief Executive Officer TRIANGLE ENGINEERS & CONSTRUCTORS, INC., a Texas corporation By: ---------------------------------------- Robert W. Raiford, Secretary PETROCON SYSTEMS, INC., a Texas corporation By: ---------------------------------------- Robert W. Raiford, Secretary PETROCON TECHNOLOGIES, INC., a Texas corporation By: ---------------------------------------- Robert W. Raiford, Secretary 19 PETROCON ENGINEERING OF LOUISIANA, INC., a Louisiana corporation By: ---------------------------------------- Robert W. Raiford, Secretary R.P.M. ENGINEERING, INC., a Louisiana corporation By: ---------------------------------------- Robert W. Raiford, Secretary ALLIANCE ENGINEERING ASSOCIATES, INC., a Texas corporation By: ---------------------------------------- Robert W. Raiford, Secretary PETROCON CONSTRUCTION RESOURCES, INC., a Texas corporation By: ---------------------------------------- Robert W. Raiford, Secretary Accepted by: EQUUS II INCORPORATED, as Lender By: ------------------------------- Randall B. Hale, Vice President Address: 2929 Allen Parkway, 25th Floor Houston, Texas 77019 20 APPENDIX A GENERAL DEFINITIONS When used in the Guaranty by and between the Guarantors and Equus II Incorporated, the following terms shall have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): Affiliate - means, as to any specified Person, any other Person who, directly or indirectly through one or more intermediaries or otherwise, controls, is controlled by or is under common control with the specified Person. As used in this definition, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person (whether through ownership of capital stock of the Person, by contract, or otherwise). Capitalized Lease Obligations - any Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. Collateral - all of the Property and interests in Property described in the Security Agreements of even date herewith in favor of Guarantor, and all other Property and interests in Property that now or hereafter secure the payment and performance of any of the Guaranteed Obligations. Consolidated - the consolidation in accordance with GAAP of the accounts or other items as to which such term applies. Distribution - in respect of any corporation means and includes: (i) the payment of any dividends or other distributions on capital stock of the corporation (except distributions in such stock) and (ii) the redemption or acquisition of Securities unless made contemporaneously from the net proceeds of the sale of Securities. ERISA - the Employee Retirement Income Security Act of 1974, as amended, and all rules and regulations from time to time promulgated thereunder. GAAP - generally accepted accounting principles in the United States of America in effect from time to time. Indebtedness - as applied to a Person means, without duplication: (i) all items which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as at the date as of which Indebtedness is to be determined, including Capitalized Lease Obligations; (ii) all obligations of other Persons which such Person has guaranteed; (iii) all reimbursement obligations in connection with letters of credit or letter of credit guaranties issued for the account of such Person; and (iv) in the case of Guarantor or any of its Subsidiaries (without duplication), the Senior Debt and the Guaranteed Obligations. 21 Lien - any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on common law, statute or contract. The term "Lien" shall also include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purpose of the Guaranty, each Guarantor and its Subsidiaries shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes. Money Borrowed - means (i) Indebtedness arising from the lending of money by any person to any Guarantor or any of its Subsidiaries, (ii) Indebtedness, whether or not in any such case arising from the lending by any Person of money to any Guarantor or any of its Subsidiaries, (A) which is represented by notes payable or drafts accepted that evidence extensions of credit, (B) which constitutes obligations evidenced by bonds, debentures, notes or similar instruments, or (C) upon which interest charges are customarily paid (other than accounts payable) or that was issued or assumed as full or partial payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease Obligation; (iv) reimbursement obligations with respect to letters of credit or guaranties of letters of credit and (v) Indebtedness of any Guarantor or any of its Subsidiaries under any guaranty of obligations that would constitute Indebtedness for Money Borrowed under clauses (i) through (iii) hereof, if owed directly by any Guarantor or any of its Subsidiaries. Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of any Guarantor or any of its Subsidiaries incurred after the date hereof which is secured by a Purchase Money Lien and which, when aggregated with the principal amount of all other such Indebtedness and Capitalized Lease Obligations of Guarantor and its Subsidiaries at the time outstanding, does not exceed Two Hundred Thousand Dollars ($200,000). For the purposes of this definition, the principal amount of any Purchase Money Indebtedness consisting of capitalized leases shall be computed as a Capitalized Lease Obligation. Person - an individual, partnership, corporation, limited liability company, joint stock company, land trust, business trust, or unincorporated organization, or a government agency or political subdivision thereof. Plan - an employee benefit plan now or hereafter maintained for employees of Borrower that is covered by Title IV of ERISA. Property Contested - in the case of any Indebtedness of any Guarantor or any of its Subsidiaries (including any Taxes) that is not paid as and when due or payable by reason of such Person's bona fide dispute concerning its liability to pay same or concerning the amount thereof, that (i) such Indebtedness and any Liens securing same are being properly contested in good faith by appropriate proceedings promptly instituted and diligently conducted, (ii) such Person has established appropriate reserves as shall be required in conformity with GAAP, (iii) the non-payment of such Indebtedness will not have a material adverse effect and will not result in a forfeiture of any assets of such Person; (iv) no Lien is imposed upon any of such Person's assets 22 with respect to such Indebtedness unless such Lien is at all times junior and subordinate in priority to the Liens in favor of Lender (except only with respect to property taxes that have priority as a matter of applicable state law and Liens securing Senior Debt); (v) if the Indebtedness results from the entry, rendition or issuance against any Guarantor or any of its Subsidiaries or any of their respective assets of a judgment, writ, order or decree, such judgment, writ, order or decree is stayed or bonded pending a timely appeal or other judicial review; and (vi) if such contest is abandoned, settled or determined adversely to such Person, such Person forthwith pays such Indebtedness and all penalties and interest in connection therewith. Property - any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. Purchase Money Indebtedness - means and includes (i) Indebtedness (other than Senior Debt or the Guaranteed Obligations) for the payment of all or any part of the purchase price of any fixed assets, (ii) any Indebtedness (other than Senior Debt or the Guaranteed Obligations) incurred at the time of or within ten (10) days prior to or after the acquisition of any fixed assets for the purpose of financing all or any part of the purchase price thereof, and (iii) any renewals, extensions or refinancings thereof, but not any increases in the principal amounts thereof outstanding at the time. Purchase Money Lien - a Lien upon fixed assets which secures Purchase Money Indebtedness, but only if such Lien shall at all times be confined solely to the fixed assets the purchase price of which was financed through the incurrence of the Purchase Money Indebtedness secured by such Lien. Rentals - payments which a lessee is required to make by the terms of any operating lease. Security - shall have the same meaning as in Section 2(l) of the Securities Act of 1933, as amended. Taxes - any present or future taxes, levies, imposts, duties, fees, assessments, deductions, withholdings or other charges of whatever nature, including, without limitation, income, receipts, excise, property, sales, transfer, license, payroll, withholding, social security and franchise taxes now or hereafter imposed or levied by the United States, or any state, local or foreign government or by any department, agency or other political subdivision or taxing authority thereof or therein and all interest, penalties, additions to tax and similar liabilities with respect thereto. 23 EXHIBIT A EXISTING INDEBTEDNESS
HOLDER OF INDEBTEDNESS DESCRIPTION OF INDEBTEDNESS MATURITY DATE - ----------------------------------------------------------------------------------------------------------------------- Chase Bank of Texas, N.A. Mortgage loan on Thermaire, Inc. land and 2-28-02 (balloon of building--debt to be paid off at closing $362,432.63) - ----------------------------------------------------------------------------------------------------------------------- HOLDER OF INDEBTEDNESS DESCRIPTION OF INDEBTEDNESS MATURITY DATE - ----------------------------------------------------------------------------------------------------------------------- Wall Street Financial, LP $190,916.47 owed to Wall Street 6/30/2002 Financial, LP by Petrocon Engineering, Inc. pursuant to a finance agreement dated October 16, 2001, related to premiums for commercial insurance for the period from September 30, 2001 to September 30, 2002. - ----------------------------------------------------------------------------------------------------------------------- Petrocon Arabia, Ltd. $937,230.00 Non-Negotiable Subordinated 6/1/2004 Promissory Note from Petrocon Engineering to Petrocon Arabia, Ltd. dated March 9, 2000. - ----------------------------------------------------------------------------------------------------------------------- CNA Insurance Companies $193,180.56 owed to CNA by Petrocon pursuant to a finance agreement dated October 26, 2001 related to premiums for commercial insurance for the period from September 30, 2001 to September 30, 2002. - ----------------------------------------------------------------------------------------------------------------------- David Seldford Vehicle Financing, Ford F-150 12/2003 VIN: 1FTZF17241NA28178 - ----------------------------------------------------------------------------------------------------------------------- CARLTECH, INC. $1,759,881.24 owed to subcontractors on 05/2002 CPW, INC. the ARAMCO project pursuant to Debt GAS UNLIMITED, INC. Restructure Agreement dated August 11, PETROTECH SERVICES, INC. 1999 TACI - ----------------------------------------------------------------------------------------------------------------------- ABB AUTOMATION $1,435,351.90 owed to equipment supplies 05/2002 YOKOGAWA ELECTRIC CORP. on the ARAMCO project pursuant to Debt Restructure Agreement dated June, 2000. - -----------------------------------------------------------------------------------------------------------------------
24 EXHIBIT B PERMITTED LIENS IDSC and its Subsidiaries have the following capitalized leases:
LESSEE LESSOR TERMS OF LEASE PROPERTY COVERED - ---------------------------------------------------------------------------------------------------------------- Thermal Citicapital 60 months Press Brake - ---------------------------------------------------------------------------------------------------------------- Thermal Unicapital 60 months Flexspander - ---------------------------------------------------------------------------------------------------------------- Constant Power Great American Leasing 60 months Phone System - ---------------------------------------------------------------------------------------------------------------- Thermal CIT Group Equipment 36 months Fork Lift - ---------------------------------------------------------------------------------------------------------------- Constant Power ______________ _____________ CADD Plodder - ----------------------------------------------------------------------------------------------------------------
IDSC and its Subsidiaries have the following operating leases:
LESSEE LESSOR TERMS OF LEASE PROPERTY COVERED - ------------------------------------------------------------------------------------------------------------------------- IDS-Eng Houston G E Capital 48 Months Eff 09/01 Xerox Printing System - ------------------------------------------------------------------------------------------------------------------------- IDS-Eng Houston Panasonic 48 Months Eff 05/01 Panasonic Copier FP 60552 - ------------------------------------------------------------------------------------------------------------------------- IDS-Eng Houston G E Capital 48 Months Toshiba Copier 5550 - ------------------------------------------------------------------------------------------------------------------------- Industrial Data System G E Capital 36 Months Eff 02/00 Toshiba Copier 6550 - ------------------------------------------------------------------------------------------------------------------------- Constant Power Mfg. Stargel 36 Months Toshiba Copier - -------------------------------------------------------------------------------------------------------------------------
Real Estate Leases: 1. Lease dated August 18, 1997, and all amendments thereto, between 319 Century Plaza Associates, Ltd. and Industrial Data Systems, Inc. 2. Lease dated September 1, 1998, and all amendments thereto, between 600 C.C. Business Park Ltd. and Industrial Data Systems, Inc. 3. Business Park Lease dated September 1, 2000, between Wilshire Square and IDS Engineering, Inc. 4. Master Lease Agreement dated January 3, 2001, between Citicorp Capital and Thermaire, Inc. Standard Industrial Lease Agreement between Constant Power Manufacturing, Inc. and Houston Industrial Assets, L.P. 25
FILING JURISDICTION: IOWA SECRETARY OF STATE - -------------------------------------------------------------------------------------------------------------------- Secured Party Debtor Nature of Lien - -------------------------------------------------------------------------------------------------------------------- Petrocon Construction Resources, None of Record Inc. - -------------------------------------------------------------------------------------------------------------------- FILING JURISDICTION: ILLINOIS SECRETARY OF STATE - -------------------------------------------------------------------------------------------------------------------- Secured Party Debtor Nature of Lien - -------------------------------------------------------------------------------------------------------------------- Petrocon Construction Resources, None of Record Inc. - -------------------------------------------------------------------------------------------------------------------- FILING JURISDICTION: LOUISIANA STATEWIDE SEARCH - -------------------------------------------------------------------------------------------------------------------- Secured Party Debtor Nature of Lien - -------------------------------------------------------------------------------------------------------------------- AMEC Engineering, Inc. None of Record - -------------------------------------------------------------------------------------------------------------------- Barnard & Burke Engineering, Inc. None of Record - -------------------------------------------------------------------------------------------------------------------- Petrocon Construction Resources, None of Record Inc. - -------------------------------------------------------------------------------------------------------------------- IBM Credit Corporation R.P.M. Engineering, Inc. IBM Equipment lien - -------------------------------------------------------------------------------------------------------------------- IBM Credit Corporation R.P.M. Engineering, Inc. IBM Equipment lien - -------------------------------------------------------------------------------------------------------------------- FILING JURISDICTION: CALCASIEU PARISH, LOUISIANA - -------------------------------------------------------------------------------------------------------------------- Secured Party Debtor Nature of Lien - -------------------------------------------------------------------------------------------------------------------- Petrocon Engineering, Inc. None of Record - -------------------------------------------------------------------------------------------------------------------- Petrocon Engineering of Louisiana, None of Record Inc. - -------------------------------------------------------------------------------------------------------------------- FILING JURISDICTION: EAST BATON ROUGE PARISH, LOUISIANA - -------------------------------------------------------------------------------------------------------------------- Secured Party Debtor Nature of Lien - -------------------------------------------------------------------------------------------------------------------- AMEC Engineering, Inc. None of Record - -------------------------------------------------------------------------------------------------------------------- Barnard & Burk Engineering, Inc. None of Record - --------------------------------------------------------------------------------------------------------------------
26
FILING JURISDICTION: NORTH DAKOTA SECRETARY OF STATE - -------------------------------------------------------------------------------------------------------------------- Secured Party Debtor Nature of Lien - -------------------------------------------------------------------------------------------------------------------- AMEC Engineering, Inc. None of Record - -------------------------------------------------------------------------------------------------------------------- Barnard & Burk Engineering None of Record - -------------------------------------------------------------------------------------------------------------------- R.P.M. Engineering, Inc. None of Record - -------------------------------------------------------------------------------------------------------------------- FILING JURISDICTION: TEXAS SECRETARY OF STATE - -------------------------------------------------------------------------------------------------------------------- Secured Party Debtor Nature of Lien - -------------------------------------------------------------------------------------------------------------------- Sunbelt National Bank Alliance Engineering Associates, PMSI in custom computer network Inc. (also Alliance Engineering, system. Inc.) - -------------------------------------------------------------------------------------------------------------------- AMEC Engineering, Inc. None of Record - -------------------------------------------------------------------------------------------------------------------- Barnard & Burk Engineering, Inc. None of Record - -------------------------------------------------------------------------------------------------------------------- Petrocon of Arabia, Ltd. None of Record - -------------------------------------------------------------------------------------------------------------------- Texas Commerce Bank - National Petrocon Construction Resources, 1995 Ford F150 Association Inc. - -------------------------------------------------------------------------------------------------------------------- Sanwa Leasing Corp. Petrocon Engineering, Inc. Sharp duplicator and copiers. - -------------------------------------------------------------------------------------------------------------------- Lease Partners, Inc. Petrocon Engineering, Inc. Equipment lease for phone system - -------------------------------------------------------------------------------------------------------------------- Lease Partners, Inc. Petrocon Engineering, Inc. Equipment lease for routers and voice mail - -------------------------------------------------------------------------------------------------------------------- Sharp Electronic Credit Co. Petrocon Engineering, Inc. Sharp copier systems - -------------------------------------------------------------------------------------------------------------------- Tokai Financial Services, Inc. Petrocon Engineering, Inc. Royal copier systems - -------------------------------------------------------------------------------------------------------------------- Ervin Leasing Company Petrocon Engineering, Inc. Xerox equipment - -------------------------------------------------------------------------------------------------------------------- Technology Integration Financial Petrocon Engineering, Inc. Computer equipment and accessories Services, Inc.(Assigned to under lease NationsCredit Commercial Corp.) - -------------------------------------------------------------------------------------------------------------------- Petrocon FSC, Ltd. None of Record - -------------------------------------------------------------------------------------------------------------------- R.P.M. Engineering, Inc. None of Record - --------------------------------------------------------------------------------------------------------------------
27
FILING JURISDICTION: HARRIS COUNTY, TEXAS - -------------------------------------------------------------------------------------------------------------------- Secured Party Debtor Nature of Lien - -------------------------------------------------------------------------------------------------------------------- Alliance Engineering, Inc. None of Record - -------------------------------------------------------------------------------------------------------------------- Alliance Engineering Associates, None of Record Inc. - -------------------------------------------------------------------------------------------------------------------- Technology Integration Financial Petrocon Engineering, Inc. Computer equipment and accessories Services, Inc.(Assigned to under lease NationsCredit Commercial Corp.) - -------------------------------------------------------------------------------------------------------------------- FILING JURISDICTION: JEFFERSON COUNTY, TEXAS - -------------------------------------------------------------------------------------------------------------------- Secured Party Debtor Nature of Lien - -------------------------------------------------------------------------------------------------------------------- Technology Integration Financial Petrocon Engineering, Inc. Computer equipment and accessories Services, Inc. (Assigned to under lease NationsCredit Commercial Corp.) - --------------------------------------------------------------------------------------------------------------------
28 EX-10.46 9 dex1046.txt SECURITY AGREEMENT EXHIBIT 10.46 THIS SECURITY AGREEMENT IS SUBJECT TO AN INTERCREDITOR AGREEMENT, DATED AS OF DECEMBER 21, 2001, AMONG FLEET CAPITAL CORPORATION, A RHODE ISLAND CORPORATION, PETROCON ENGINEERING, INC., AND EQUUS II INCORPORATED, A DELAWARE CORPORATION, ET AL. THIS SECURITY AGREEMENT IS SUBORDINATED IN RIGHT AND TIME OF PAYMENT TO THE PRIOR PAYMENT IN FULL IN CASH OF ALL SENIOR DEBT (AS DEFINED IN THE INTERCREDITOR AGREEMENT) IN ACCORDANCE WITH, AND TO THE EXTENT SPECIFIED IN, SUCH INTERCREDITOR AGREEMENT AND EACH HOLDER OF THIS SECURITY AGREEMENT, BY ITS ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE TERMS AND PROVISIONS OF SUCH INTERCREDITOR AGREEMENT. SECURITY AGREEMENT ------------------ THIS SECURITY AGREEMENT (the "Agreement") dated as of December 21, 2001, --------- between EACH OF THE UNDERSIGNED (each, a "Grantor"), in favor of and for the ------- benefit of EQUUS II INCORPORATED, a Delaware corporation ("Lender"). ------ RECITALS A. Pursuant to that certain Settlement Agreement and Plan of Reorganization dated as of July 31, 2001, by and among INDUSTRIAL DATA SYSTEMS CORPORATION, a Nevada corporation ("IDS"), PETROCON ENGINEERING, INC., a Texas corporation ("Debtor"), PEI ACQUISITION, INC., a Texas corporation, and a ------ wholly owned and indirect subsidiary of IDS ("Sub") and Lender (the "Settlement --- ---------- Agreement"), Equus has agreed to renew, rearrange and extend $3,000,000 of its - --------- existing loan to PEI (the "Loan") as evidenced by that certain Promissory Note ---- from PEI to Lender in the principal amount of $3,000,000 dated as of December 21, 2001 (the "Note"). ---- B. IDS, Sub, IDS Engineering Management, LC, a Texas limited liability company ("LC") and PEI have entered into that certain Agreement and Plan of Merger on or about July 31, 2001, whereby Sub will merge with and into PEI and PEI will be the surviving corporation (the "Plan of Merger"). -------------- C. It is a condition of the Note and the Settlement Agreement that Grantors' obligations thereunder be secured by this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce Lender to renew, rearrange and extend its loans to Debtor, each Grantor hereby agrees with Lender as follows: SECTION 1. Definitions ----------- Security Agreement - Page 1 1.1 Certain Defined Terms. Terms defined in the Note and not otherwise --------------------- defined herein have the respective meanings provided for in the Note. The following terms, as used herein, have the meanings set forth below: "Accounts" means with respect to any Person, all accounts, accounts -------- receivable, contract rights, including without limitation rights under contracts for the purchase of supplies (in any such case to the extent a security interest can be granted in particular contracts), instruments, notes, drafts, acceptances, documents, chattel paper, any right of or to payment for goods sold or leased or for services rendered, whether arising out of the sale of Inventory (as hereinafter defined) or otherwise and whether or not earned by performance, and all other forms of obligations owing to such Person, and all of such Person's rights to any merchandise (including without limitation any returned or repossessed goods and the right of stoppage in transit which is represented by, arises from or is related to any of the foregoing) whether now existing or hereafter arising, and however evidenced or acquired, in which such Person now has or hereafter acquires any interest or rights. "Account Debtor" means with respect to any Person, any other Person who is -------------- or may become obligated under or on account of an Account of Grantor owing to such Person. "Collateral" has the meaning assigned to that term in Section 2. ---------- "Copyright License" means any written agreement now or hereafter in ----------------- existence granting to any Grantor any right to use any Copyright (excluding any such agreement if and to the extent that any attempt to grant a security interest hereunder in any such agreement without the consent of a third party would constitute a breach thereof or such consent has not been obtained by any Grantor) including, without limitation, the agreements described in Schedule 1 of the Copyright Security Agreement. "Copyrights" means collectively all of the following: (a) all copyrights, ---------- rights and interests in copyrights, works protectable by copyright, copyright registrations and copyright applications now owned or hereafter created or acquired by each Grantor, including, without limitation, those listed on Schedule 1 of the Copyright Security Agreement; (b) all renewals of any of the foregoing; (c) all income, royalties, damages and payments now or hereafter due and/or payable under any of the foregoing, including, without limitation, damages or payments for past or future infringements of any of the foregoing; (d) the right to sue for past, present and future infringements of any of the foregoing; (e) all rights corresponding to any of the foregoing throughout the world; and (f) all goodwill associated with and symbolized by any of the foregoing. "Copyright Security Agreement" means the copyright security agreement to ---------------------------- be executed and delivered by any Grantor to Lender, substantially in the form of Exhibit A, as such agreement may hereafter be amended, supplemented or --------- otherwise modified from time to time. "Documents" means all "documents" (as defined in the UCC) or other --------- receipts covering, evidencing or representing goods now owned or hereafter acquired by any Grantor. Security Agreement - Page 2 "Equipment" means with respect to any Person, all machinery, apparatus, --------- equipment, fittings, furniture, fixtures, motor vehicles and other tangible personal Property (other than Inventory) of every kind and description used in the operations of such Person or owned by such Person or in which such Person has an interest, whether now owned or hereafter acquired by such Person and wherever located, and all parts, accessories and special tools and all increases and accessions thereto and substitutions and replacements therefor. "Fixtures" means all "Fixtures" (as defined in the UCC) now owned or -------- hereafter acquired by any Grantor including, without limitation, all plant Fixtures; business Fixtures; other Fixtures and storage office facilities, wherever located; and all additions and accessions thereto and replacements therefor. "General Intangibles" means with respect to any Person, all general ------------------- intangibles of such Person, whether now owned or hereafter created or acquired by such Person, including, without limitation, all payment intangibles, all choses in action, causes of action, corporate or other business records, deposit accounts, inventions, designs, patents, patent applications, trademarks, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, tax refund claims, computer programs, all claims under guaranties, security interests or other security held by or granted to such Person to secure payment of any of the Accounts owing to such Person by an Account Debtor, all rights to indemnification and all other intangible property of every kind and nature (other than Accounts owing to such Person). "Instruments" means all "instruments", "chattel paper" or "letters of ----------- credit" (each as defined in the UCC) including, but not limited to, promissory notes, drafts, bills of exchange and trade acceptances, now owned or hereafter acquired by any Grantor. "Intellectual Property" shall mean collectively all of the following: --------------------- Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses. "Inventory" means with respect to any Person, all inventory of such --------- Person, whether now owned or hereafter acquired including, but not limited to, all goods intended for sale or lease by such Person, or for display or demonstration; all work in process; all raw materials and other materials and supplies of every nature and description used or which might be used in connection with the manufacture, printing, packing, shipping, advertising, selling, leasing or furnishing of such goods or otherwise used or consumed in such Person's business; and all documents evidencing and General Intangibles relating to any of the foregoing, whether now owned or hereafter acquired by such Person. "Investment Property" means with respect to any Person, all of such ------------------- Person's investment property, whether now owned or hereinafter acquired by such Person, including, without limitation, all securities (certificated or uncertificated), securities accounts, securities entitlements, commodity accounts and contracts. "Lien" means any interest in Property securing an obligation owed to, or a ---- claim by, a Person other than the owner of the Property, whether such interest is based on common law, statute or contract. The term "Lien" shall also include reservations, exceptions, encroachments, Security Agreement - Page 3 easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. "Obligations" means all loans and all other advances, debts, liabilities, ----------- obligations, covenants and duties to Lender arising in connection with the Note together with all interest, fees and other charges thereon, owing, arising, due or payable from Debtor to Lender of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, arising under the Note or any other loan documents whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising and however acquired. "Obligor" means any maker of the Note or any guarantor of the Obligations. ------- "Patent License" means any written agreement now or hereafter in existence -------------- granting to any Grantor any right to use any invention on which a Patent is in existence (excluding any such agreement if and to the extent that any attempt to grant a security interest hereunder in any such agreement without the consent of a third party would constitute a breach thereof and such consent has not been obtained by any Grantor) including, without limitation, the agreements described in Schedule 1 of the Patent Security Agreement. "Patents" means collectively all of the following: (a) all patents and ------- patent applications now owned or hereafter created or acquired by any Grantor including, without limitation, those listed on Schedule l of the Patent Security Agreement and the inventions and improvements described and claimed therein, and patentable inventions; (b) the reissues, divisions, continuations, renewals, extensions and continuations-in-part of any of the foregoing; (c) all income, royalties, damages or payments now and hereafter due and/or payable under any of the foregoing with respect to any of the foregoing, including, without limitation, damages or payments for past or future infringements of any of the foregoing; (d) the right to sue for past, present and future infringements of any of the foregoing; (e) all rights corresponding to any of the foregoing throughout the world; and (f) all goodwill associated with any of the foregoing. "Patent Security Agreement" means a patent security agreement executed and ------------------------- delivered by any Grantor to Lender, substantially in the form of Exhibit B, as --------- such agreement may be amended, supplemented or otherwise modified from time to time. "Person" means a an individual, partnership, corporation, limited ------ liability company, joint stock company, land trust, business trust, or unincorporated organization, or a government or agency or political subdivision thereof. "Proceeds" means all proceeds of, and all other profits, rentals or -------- receipts, in whatever form, arising from the collection, sale, lease, exchange, assignment, licensing or other disposition of, or realization upon, any Collateral including, without limitation, all claims of any Grantor against third parties for loss of, damage to or destruction of, or for proceeds payable under, or unearned premiums with respect to, policies of insurance with respect to any Collateral, and any condemnation or requisition payments with respect to any Collateral, in each case whether now existing or hereafter arising. Security Agreement - Page 4 "Property" means any interest in any kind of property or asset, whether -------- real (including immovable), personal (including movable) or mixed, or tangible or intangible. "Secured Obligations" has the meaning assigned to that term in Section 3. ------------------- "Security Interests" means the security interests granted pursuant to ------------------ Section 2, as well as all other security interests created or assigned by any Grantor as additional security for the Secured Obligations pursuant to the provisions of this Agreement. "Senior Debt" has the meaning assigned to that term in the Note. ----------- "Senior Lender" means Fleet Capital Corporation, a Rhode Island ------------- corporation or any successor or assignee thereof and any Person providing refinancing re replacement of the Senior Debt. "Trademark License" means any written agreement now or hereafter in ----------------- existence granting to any Grantor any right to use any Trademark (excluding any such agreement if and to the extent that any attempt to grant a security interest hereunder in any such agreement without the consent of a third party would constitute a breach thereof and such consent has not been obtained by such Grantor), including, without limitation, the agreements described in Schedule 1 to the Trademark Security Agreement. "Trademarks" means collectively all of the following now owned or ---------- hereafter created or acquired by any Grantor: (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos, other business identifiers, prints and labels on which any of the foregoing have appeared or appear, all registrations and recordings thereof, and all applications in connection therewith including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, including, without limitation, those described in Schedule 1 of the Trademark Security Agreement; (b) all reissues, extensions or renewals thereof; (c) all income, royalties, damages and payments now or hereafter due and/or payable under any of the foregoing or with respect to any of the foregoing including damages or payments for past or future infringements of any of the foregoing; (d) the right to sue for past, present and future infringements of any of the foregoing; (e) all rights corresponding to any of the foregoing throughout the world; and (f) all goodwill associated with and symbolized by any of the foregoing. "Trademark Security Agreement" means the trademark security agreement ---------------------------- executed and delivered by any Grantor to Lender substantially in the form of Exhibit C, as such agreement may hereafter be amended, supplemented or - --------- otherwise modified from time to time. "UCC" means the Uniform Commercial Code as in effect on the date hereof in --- the State of Texas, as amended from time to time, and any successor statute; provided that if by reason of mandatory provisions of law, the perfection or - -------- the effect of perfection or non-perfection of the Security Interest in any Collateral is governed by the Uniform Commercial Code as in effect on or after the date hereof in any other jurisdiction, "UCC" means the Uniform Commercial Code as Security Agreement - Page 5 in effect from time to time in such other jurisdiction for purposes of the provision hereof relating to such perfection or effect of perfection or non-perfection. 1.2 Other Definition Provisions. References to "Sections", --------------------------- "subsections", "Exhibits" and "Schedules" shall be to Sections, subsections, Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in subsection 1.1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. SECTION 2. Grant of Security Interests --------------------------- To secure the prompt payment and performance to Lender of the Obligations, each Grantor hereby grants, subject to Applicable Law, to Lender a continuing Lien upon all of such Grantor's assets, including all of the following Property and interests in Property of such Grantor whether now owned or existing or hereafter created, acquired or arising and wheresoever located (all being collectively referred to as the "Collateral"): ---------- (A) Accounts; (B) Inventory; (C) Equipment; (D) General Intangibles; (E) Investment Property; (F) All monies and other Property of each Grantor of any kind now or at any time or times hereafter in the possession or under the control of Lender or a bailee of Lender; (G) All accessions to, substitutions for and all replacements, products and cash and non-cash proceeds of (A) through (F) above, including, without limitation, proceeds of and unearned premiums with respect to insurance policies insuring any of the Collateral; and (H) All books and records (including, without limitation, customer lists, credit files, computer programs, print-outs, and other computer materials and records) of each Grantor pertaining to any of (A) through (G) above. SECTION 3. Security for Obligations ------------------------ This Agreement secures the payment and performance of the Note and all obligations of every nature of Debtor now or hereafter existing under this Agreement and under the Note Security Agreement - Page 6 and all renewals, extensions, restructurings and refinancings of any of the above (all such debts, obligations and liabilities of Debtor being collectively called the "Secured Obligations"). ------------------- SECTION 4. Debtor Remains Liable --------------------- Anything herein to the contrary notwithstanding: (a) each Grantor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its respective duties and obligations thereunder to the same extent as if this Agreement had not been executed; (b) the exercise by Lender of any of the rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral; and (c) Lender shall not have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall Lender be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION 5. Representations and Warranties ------------------------------ In order to induce Lender to renew, rearrange and extend the loan contemplated by the Note, each Grantor represents and warrants to Lender that the following statements are and will be true, correct and complete: 5.1 Location of Equipment, Fixtures and Inventory. All of the Equipment --------------------------------------------- and Inventory is located at the places specified in Section B and C of Schedule -------- I or at such other locations as are specified in the Security Agreements - - executed by other Obligors in favor of Lender. All Fixtures are located at the place specified in Section B of Schedule I. Schedule I correctly identifies the ---------- ---------- landlords (other than Lender), if any, of each Grantor's respective locations identified on Schedule I. Schedule I sets forth the names and addresses of all ---------- ---------- Persons other than any Grantor who have possession of any of the Collateral. None of the Collateral has been located in any location within the past four months other than as set forth on Schedule I. None of the Equipment is ----------- evidenced by a certificate of title other than Equipment with an aggregate book value not to exceed $50,000. 5.2 Ownership of Collateral. Except for the matters disclosed on Schedule ----------------------- -------- II, the Liens in favor of the Senior Lender and the Security Interests and - -- Liens otherwise permitted under the documents and agreements governing the Senior Debt and the Obligations, each Grantor owns its Collateral free and clear of any Lien. No effective financing statement or other form of lien notice covering all or any part of the Collateral is on file in any recording office, except for those in favor of Senior Lender and Lender and as disclosed on Schedule II. ----------- 5.3 Jurisdiction of Organization; Office Locations; Fictitious Names. ---------------------------------------------------------------- Debtor is organized under the laws of the State of Texas. The chief executive offices and the offices where each Grantor keeps its respective books and records are located at the place or places specified in Section A of Schedule -------- I. Section B of Schedule I sets forth all other locations where each Grantor - - ---------- has a place of business. No Grantor does business or has done business during the past five years from the date hereof under any trade-name or fictitious business name except as disclosed on Schedule III. ------------ Security Agreement - Page 7 5.4 Perfection. This Agreement and the Trademark Security Agreement, the ---------- Patent Security Agreement and the Copyright Security Agreement executed pursuant hereto create a valid and enforceable security interest in the Collateral, securing the payment of the Secured Obligations, including, without limitation, all extensions, renewals and other modifications thereof. Upon the filing of Uniform Commercial Code Financing Statements naming each Grantor as a debtor and Lender as secured party in the jurisdictions set forth in Schedule -------- IV hereto, the delivery to Lender of all Collateral the possession of which is - -- necessary to perfect the security interest therein, the notation of Lender's security interest on all certificates of title evidencing Equipment, the release or assignment to Lender of the security interests described on Schedule -------- V hereto, the Filing of the Trademark Security Agreement with the United States - - Patent and Trademark Office, the Filing of the Patent Security Agreement with the United States Patent and Trademark Office, and the Filing of the Copyright Security Agreement with the United States Copyright Office, the security interests created hereby shall constitute perfected security interests upon all the Collateral (other than Trademarks and Trademark Licenses registered in countries other than the United States). 5.5 Intellectual Property. The Copyrights, Copyright Licenses, Patents, --------------------- Patent Licenses, Trademarks and Trademark Licenses listed on the respective schedules to each of the Copyright Security Agreement, the Trademark Security Agreement and the Patent Security Agreement in the forms attached hereto as exhibits constitute all of the material Intellectual Property owned and currently in use by any Grantor. SECTION 6. Further Assurances: Covenants ------------------ 6.1 Other Documents and Actions. Each Grantor will, from time to time, at --------------------------- its expense, promptly execute and deliver all further instruments and documents and take all further action that may be necessary or desirable, or that Lender may reasonably request, in order to perfect and protect any Security Interests granted or purported to be granted hereby or to enable Lender to exercise and enforce its rights and remedies hereunder, with respect to any Collateral or to carry out the provisions and purposes hereof. Without limiting the generality of the foregoing, each Grantor will: (a) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, and as Lender may request, in order to perfect and preserve the Security Interests granted or purported to be granted hereby; (b) at any reasonable time, upon demand by Lender make the Collateral available for inspection by Lender or Persons designated by Lender; and (c) upon Lender's request, appear in and defend any action or proceeding that may affect such Grantor's title to or Lender's Security Interests in the Collateral. Notwithstanding the foregoing, no Grantor shall be required to execute any document or take any action to perfect the Lender's Lien in any foreign Intellectual Property under the laws of the applicable foreign jurisdiction. 6.2 Lender Authorized. Each Grantor hereby authorizes Lender to file one ----------------- or more financing or continuation statements, and amendments thereto (or similar documents required by any laws of any applicable jurisdiction), relating to all or any part of the Collateral without the signature of any Grantor. 6.3 Corporate or Name Change. Each Grantor will notify Lender in writing ------------------------ thirty (30) days prior to any change in such Grantor's name, identity or corporate structure. Security Agreement - Page 8 6.4 Business Locations. Except for sales of Inventory in the ordinary ------------------ course of business and the movement of Equipment between such locations and any other location specified by any Obligor in any other Security Agreement executed by Obligor in favor of Lender and movements permitted by the documentation governing the Senior Debt, each Grantor will keep the Collateral at the locations specified on Schedule I. ---------- 6.5 Third Parties in Possession of Collateral. Each Grantor shall not ----------------------------------------- permit Inventory having an aggregate value of $50,000 to be held by any third Person. 6.6 Instruments. Subject to the prior rights of the Senior Lender, each ----------- Grantor will deliver and pledge to Lender all Instruments duly endorsed and/or accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Lender except that each Grantor may retain for collection and use in the ordinary course of business any checks representing Proceeds of Accounts received in the ordinary course of business. When all the obligations of each Grantor or issuer, as applicable, under any Instrument delivered to Lender hereunder have been satisfied or otherwise terminated, Lender agrees to return such Instrument to such Grantor, without recourse or warranty, duly endorsed and/or accompanied by duly executed instruments of transfer or assignment. 6.7 Certificates of Title; Equipment. Subject to the prior rights of the -------------------------------- Senior Lender and at Lender's request, each Grantor shall promptly deliver to Lender any and all certificates of title, applications for title or similar evidence of ownership of all Equipment and shall cause Lender to be named as lienholder on any such certificate of title or other evidence or ownership. 6.8 Intellectual Property Covenants. Each Grantor shall concurrently ------------------------------- herewith deliver to Lender the Copyright Security Agreement, the Trademark Security Agreement and the Patent Security Agreement and all other documents, instruments and other items as may be necessary for Lender to file such agreements with the United States Copyright Office, the United States Patent and Trademark Office and any similar domestic or foreign office, department or agency except as otherwise provided in Section 6.1. If, before the Secured Obligations are paid in full, any Grantor obtains any new Intellectual Property or rights thereto or becomes entitled to the benefit of any Intellectual Property which is (a) not listed on the schedules to the Copyright Security Agreement, the Trademark Security Agreement or the Patent Security Agreement, as the form of such agreements are attached hereto as Exhibits, and (b) should be listed thereon to perfect or protect the Security Interest therein, then such Grantor shall give to Lender prompt written notice thereof, and shall amend the applicable Intellectual Property security agreement to include any such new Intellectual Property and shall deliver all other documentation and other items as may be necessary for Lender to file such agreements with the United States Copyright Office, the United States Patent and Trademark Office and/or any similar domestic or foreign office, department or agency except as otherwise provided in Section 6.1. Each Grantor shall: (a) prosecute diligently any copyright, patent, trademark or license application at any time pending to the extent the Intellectual Property relating to such application has a material value or is material to the conduct of such Grantor's business; (b) make application on all new material copyrights, patents and trademarks as reasonably deemed appropriate by such Grantor; (c) preserve and maintain all rights in the Intellectual Property to the extent such Intellectual Property has a material value or is material to the conduct of such Grantor's business; and (d) Security Agreement - Page 9 upon and after the occurrence of an Event of Default, use its best efforts to obtain any consents, waivers or agreements necessary to enable Lender to exercise its remedies with respect to the Intellectual Property. No Grantor shall abandon any right to file a copyright, patent or trademark application nor shall any Grantor abandon any pending copyright, patent or trademark application, or Copyright, Copyright License, Patent, Patent License, Trademark or Trademark License unless such Intellectual Property has no material value and is not material to the conduct of such Grantor's business. 6.9 Insurance of Collateral. Each Grantor shall maintain and pay for ----------------------- insurance upon all Collateral owned by it wherever located and with respect to such Grantor's business, covering casualty, hazard, public liability and such other risks in such amounts and with such insurance companies as are reasonably satisfactory to Lender. Notwithstanding the foregoing, to the extent Grantor maintains insurance in compliance with the provisions of the documentation governing the Senior Debt, the requirements of this Section 6.9 shall be deemed satisfied. 6.10 Dispositions of Equipment. No Grantor will sell, lease or otherwise ------------------------- dispose of or transfer any of the Equipment of such Grantor or any part thereof without the prior written consent of Lender; provided, however, that the -------- ------- foregoing restriction shall not apply (a) to dispositions permitted by the provisions of the documentation governing the Senior Debt, (b) for so long as no Event of Default exists, to (i) bona fide sales of Inventory to customers for fair value in the ordinary course of business and dispositions of obsolete Equipment not used or useful in the business, (ii) sales, discounts or transfers of delinquent accounts receivable in the ordinary course of business for purposes of collection, (iii) leases (as lessor) of real or personal property, so long as the assets subject to any such lease are not necessary for the conduct of such Grantor's business, (iv) dispositions of any Grantor's Equipment which, in the aggregate in respect to all such dispositions by such Grantor during any consecutive twelve-month period, has a fair market value or book value, whichever is less, of One Hundred Fifty Thousand Dollars and No/100 ($150,000) or less, and (v) any other sale, lease or disposition of or transfer of any of the Equipment or other assets permitted under the terms of the agreements and documents governing the Senior Debt or the Obligations. SECTION 7. Transfers and Other Liens ------------------------- Except as otherwise permitted herein, by the Note or the other documents and agreements evidencing the Obligations, no Grantor shall: (a) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Collateral to any Person who is not an Obligor; or (b) create or suffer to exist any lien, security interest or other charge or encumbrance upon or with respect to any of the Collateral to secure indebtedness of any Person except for the Security Interest created by this Agreement and the liens, security interest and other charges to secure the Senior Debt and any other liens, and security interests permitted under the terms of the agreements and documents governing the Senior Debt or the Obligations. Security Agreement - Page 10 SECTION 8. Remedies -------- Subject to the rights of the Senior Lender, if any Event of Default shall have occurred and be continuing, Lender may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the UCC (whether or not the UCC applies to the affected Collateral) and also may: (a) require each Grantor to, and each Grantor hereby agrees that it will, at its expense and upon request of Lender forthwith, assemble all or part of the Collateral as directed by Lender and make it available to Lender at a place to be designated by Lender which is reasonably convenient to both parties; (b) without notice or demand or legal process, enter upon any premises of any Grantor and take possession of the Collateral; and (c) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Lender's offices or elsewhere, at such time or times, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as Lender may deem commercially reasonable. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least fifteen days notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. At any sale of the Collateral, if permitted by law, Lender may bid (which bid may be, in whole or in part, in the form of cancellation of indebtedness) for the purchase of the Collateral or any portion thereof for the account of Lender. Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. To the extent permitted by law and to the extent Lender's rights hereunder may be impaired, each Grantor hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any law now existing or hereafter enacted. SECTION 9. License of Intellectual Property -------------------------------- Each Grantor hereby assigns, transfers and conveys to Lender, effective upon the occurrence of any Event of Default, the nonexclusive right and license to use all Intellectual Property owned or used by such Grantor together with any goodwill associated therewith, all to the extent necessary to enable Lender and any successor or assign to enjoy the benefits of the Collateral. This right and license shall inure to the benefit of all successors, assigns and transferees of Lender and its successors, assigns and transferees, whether by voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such right and license is granted free of charge, without requirement that any monetary payment whatsoever be made to such Grantor by Lender. SECTION 10. Limitation on Duty of Lender With Respect to Collateral ------------------------------------------------------- Beyond the safe custody thereof, Lender shall have no duty with respect to any Collateral in its possession or control (or in the possession or control of any agent or bailee) or with respect to any income thereon or the preservation of rights against prior parties or any other rights pertaining thereto; provided, however, that any Intellectual Property that is confidential shall be kept confidential by Lender. Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment Security Agreement - Page 11 substantially equal to that which it accords its own property. Lender shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any warehouseman, carrier, forwarding agency, consignee or other agent or bailee selected by Lender in good faith. SECTION 11. Expenses -------- Each Grantor shall pay all insurance expenses and all expenses of protecting, storing, warehousing, appraising, insuring, handling, maintaining and shipping the Collateral, all costs, fees and expenses of perfecting and maintaining the Security Interests, any and all excise, property, sales and use taxes imposed by any federal, state, local or foreign authority on any of the Collateral, or with respect to periodic appraisals and inspections of the Collateral, or with respect to the sale or other disposition thereof. If any Grantor fails to promptly pay any portion of the above expenses when due or to perform any other obligation of such Grantor under this Agreement, Lender may, at its option, but shall not be required to, pay or perform the same and charge such Grantor's account for all costs and expenses incurred therefor, and such Grantor agrees to reimburse Lender therefor on demand. All sums so paid or incurred by Lender for any of the foregoing, any and all other sums for which such Grantor may become liable hereunder and all costs and expenses (including reasonable attorneys' fees, legal expenses and court costs) incurred by Lender in enforcing or protecting the Security Interests or any of their rights or remedies under this Agreement shall be payable on demand, shall constitute Obligations, shall bear interest until paid at the highest rate provided in the Note and shall be secured by the Collateral. SECTION 12. Termination of Security Interests: Release of Collateral -------------------------------------------------------- Upon payment in full of all Secured Obligations, the Security Interests shall terminate and all rights to the Collateral shall revert to Grantors. Upon such termination of the Security Interests or release of any Collateral, Lender will, at the expense of each Grantor, execute and deliver to each Grantor such documents as such Grantor shall reasonably request to evidence the termination of the Security Interests or the release of such Collateral, as the case may be. SECTION 13. Notices ------- All notices, approvals, requests, demands and other communications hereunder shall be given in accordance with the notice provisions of the Note. SECTION 14. Waivers: Non-Exclusive Remedies ------------------------------- No failure on the part of Lender to exercise, and no delay in exercising and no course of dealing with respect to, any power, privilege or right under the Note or this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise by Lender of any power, privilege or right under the Note or this Agreement preclude any other or further exercise thereof or the exercise of any other power, privilege or right. The powers, privileges and rights in this Agreement and the Note are cumulative and are not exclusive of any other remedies provided by law. Security Agreement - Page 12 SECTION 15. Successors and Assigns ---------------------- This Agreement is for the benefit of Lender and its successors and assigns, and in the event of an assignment of all or any of the Secured Obligations, the rights hereunder, to the extent applicable to the Secured Obligations so assigned, may be transferred with such Secured Obligations. This Agreement shall be binding on each Grantor and its respective successors and assigns. SECTION 16. Changes in Writing ------------------ No amendment, modification, termination or waiver of any provision of this Agreement or consent to any departure by Grantors therefrom, shall in any event be effective without the written concurrence of Lender and each Grantor. SECTION 17. Applicable Law -------------- THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. SECTION 18. Failure or Indulgence Not Waiver: Remedies Cumulative ----------------------------------------------------- No failure or delay on the part of Lender in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or any other right, power or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. SECTION 19. Headings -------- Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. SECTION 20. Counterparts ------------ This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement and any of the parties hereto may execute this Agreement by signing any such counterpart. [Signature page follows] Security Agreement - Page 13 Witness the due execution hereof by the respective duly authorized officers of the undersigned as of the day first above written. GRANTORS: INDUSTRIAL DATA SYSTEMS CORPORATION, a Nevada corporation By:___________________________________ William A. Coskey, President IDS ENGINEERING, INC., a Texas corporation By:___________________________________ William A. Coskey President and Chief Executive Officer IDS ENGINEERING MANAGEMENT, LC, a Texas limited liability company By:___________________________________ William A. Coskey Chief Executive Officer THERMAIRE, INC. d/b/a THERMAL CORP., a Texas corporation By:___________________________________ William A. Coskey President and Chief Executive Officer CONSTANT POWER MANUFACTURING, INC., a Texas corporation By:___________________________________ William A. Coskey President and Chief Executive Officer Security Agreement - Signature Page INDUSTRIAL DATA SYSTEMS,INC., a Texas corporation By:___________________________________ William A. Coskey Chief Executive Officer PETROCON ENGINEERING, INC., a Texas corporation By:___________________________________ Michael L. Burrow, President and Chief Executive Officer TRIANGLE ENGINEERS & CONSTRUCTORS, INC., a Texas corporation By:___________________________________ Robert W. Raiford, Secretary PETROCON SYSTEMS, INC., a Texas corporation By:___________________________________ Robert W. Raiford, Secretary PETROCON TECHNOLOGIES, INC., a Texas corporation By:___________________________________ Robert W. Raiford, Secretary PETROCON ENGINEERING OF LOUISIANA, INC., a Louisiana corporation By:___________________________________ Robert W. Raiford, Secretary Security Agreement - Signature Page R.P.M. ENGINEERING, INC., a Louisiana corporation By:___________________________________ Robert W. Raiford, Secretary ALLIANCE ENGINEERING ASSOCIATES, INC., a Texas corporation By:___________________________________ Robert W. Raiford, Secretary PETROCON CONSTRUCTION RESOURCES, INC., a Texas corporation By:___________________________________ Robert W. Raiford, Secretary SECURED PARTY: EQUUS II INCORPORATED, a Delaware corporation By:___________________________________ Randall B. Hale, Vice President Security Agreement - Signature Page SCHEDULE I TO SECURITY AGREEMENT Locations of Equipment, Inventory, Books and Records, Chief Executive Office, Other Locations ------------------------------------------------ 1. Grantors currently have the following business locations, and no others: Chief Executive Office: ---------------------- Industrial Data Systems 600 Century Plaza Drive, Building 140, Houston, Corporation: TX 77073-6033 Other Locations (Operations offices): ------------------------------------ IDS Engineering, Inc.: 600 Century Plaza Drive, Building 140, Houston, TX 77073-6033 and 11008 East 51st Street, Tulsa, OK 74146 Constant Power Manufacturing: 757 Kenrick, Suite 100, Houston, TX 77060- 3639 Thermaire, Inc. dba Thermal Corporation: 10500 Windfern Rd, Houston, TX 77064 Industrial Data Systems, Inc.: 15031 Woodham Drive, Suite 360, Houston, TX 77073-6026 Chief Executive Office: ---------------------- Petrocon Engineering, Inc. 3155 Executive Blvd. Beaumont, Texas 77705-0150 (Jefferson County) Other Locations: --------------- Petrocon Engineering, Inc. 8901 Market Street Houston, Texas 77029 (Harris County) 3105 Executive Blvd. Beaumont, Texas 77705-1097 (Jefferson County) Security Agreement - Schedule 2580 North 11th Street Spaces F and G Beaumont, Texas 77703-4604 (Jefferson County) Chief Executive Office: ---------------------- Triangle Engineers and 3155 Executive Blvd. Constructors, Inc. Beaumont, Texas 77705-1050 (Jefferson County) Other Location: -------------- Triangle Engineers and None Constructors, Inc. Chief Executive Office: ---------------------- R.P.M. Engineering, Inc. 3155 Executive Blvd. Beaumont, Texas 77705-1050 (Jefferson County) Other Locations: --------------- R.P.M. Engineering, Inc. 10252 Mayfair Baton Rouge, Louisiana 70809-2505 (East Baton Rouge Parish) 9969 Professional Blvd. Baton Rouge, Louisiana 70809-2500 (East Baton Rouge Parish) Hibernia Tower Suite 1895 Lake Charles, Louisiana Chief Executive Office: ---------------------- Petrocon Systems, Inc. 3155 Executive Blvd. Beaumont, Texas 77705-1050 (Jefferson County) Security Agreement - Schedule Other Location: -------------- Petrocon Systems, Inc. 3255 Executive Blvd. Suites 100 & 101 Beaumont, Texas 77705-1051 (Jefferson County) Chief Executive Office: ---------------------- Petrocon Engineering of 3155 Executive Blvd. Louisiana, Inc. Beaumont, Texas 77705-1050 (Jefferson County) Other Location: -------------- Petrocon Engineering of One Lakeshore Drive Louisiana, Inc. Lake Charles, Louisiana 70629 (Calcasieu Parish) Chief Executive Office: ---------------------- Alliance Engineering 3155 Executive Blvd. Associates, Inc. Beaumont, Texas 77705-1050 (Jefferson County) Other Location: -------------- Alliance Engineering None Associates, Inc. Chief Executive Office: ---------------------- Petrocon Construction 3155 Executive Blvd. Resources, Inc. Beaumont, Texas 77705-1050 (Jefferson County) Other Location: -------------- Petrocon Construction None Resources, Inc. Chief Executive Office: ---------------------- Petrocon Technologies, Inc. 3155 Executive Blvd. Beaumont, Texas 77705-1050 (Jefferson County) Security Agreement - Schedule Other Location: -------------- Petrocon Technologies, Inc. None 2. Grantors maintain their books and records relating to Accounts and General Intangibles at: Industrial Data Systems 15031 Woodham Drive, Corporation Suite 360, Houston, Texas 77073-6026 Petrocon Engineering, Inc. 3155 Executive Blvd. Beaumont, Texas 77705-1050 (Jefferson County) Triangle Engineers and 3155 Executive Blvd. Constructors, Inc. Beaumont, Texas 77705-1050 (Jefferson County) R.P.M. Engineering, Inc. 3155 Executive Blvd. Beaumont, Texas 77705-1050 (Jefferson County) Petrocon Systems, Inc. 3155 Executive Blvd. Beaumont, Texas 77705-1050 (Jefferson County) Petrocon Engineering of 3155 Executive Blvd. Louisiana, Inc. Beaumont, Texas 77705-1050 (Jefferson County) Alliance Engineering 3155 Executive Blvd. Associates, Inc. Beaumont, Texas 77705-1050 (Jefferson County) Petrocon Construction 3155 Executive Blvd. Resources, Inc. Beaumont, Texas 77705-1050 (Jefferson County) Petrocon Technologies, Inc. 3155 Executive Blvd. Beaumont, Texas 77705-1050 (Jefferson County) 3. Grantors have had no office, place of business or agent for process located in any county other than as set forth above, except: Security Agreement - Schedule Registered Agents: ----------------- Entity Registered Agent Registered Office Industrial Data Systems Leisa Stillwell 11270 Winter Cottage Place Corporation Las Vegas, NV 89135 IDS Engineering, Inc. Johnny J. Williams 13831 Northwest Freeway, Ste. 155 Constant Power Houston, TX 77040 Manufacturing, Inc. Thermaire, Inc. Industrial Data Systems, Inc. IDS Engineering Management, William A. Coskey 600 Century Plaza Drive, LC Bldg. 140 Houston, TX 77073 PEI Acquisition, Inc. 4. No bailee, warehouseman or similar party or cosignee holds inventory of any Grantor. Security Agreement - Schedule SCHEDULE II TO SECURITY AGREEMENT Other Liens, Security Interests and Financing Statements -------------------- 1. Capitalized leases: ------------------ Lessee Lessor Terms of Lease Property Covered Thermal Citicapital 60 months Press Brake Thermal Unicapital 60 months Flexspander Constant Power Great American Leasing 60 months Phone System Thermal CIT Group Equipment 36 months Fork Lift Constant Power CADD Plodder --------------- -------------- 2. Operating leases: ----------------
Lessee Lessor Terms of Lease Property Covered IDS-Eng Houston G E Capital 48 Months Eff 09/01 Xerox Printing System IDS-Eng Houston Panasonic 48 Months Eff 05/01 Panasonic Copier FP 60552 IDS-Eng Houston G E Capital 48 Months Toshiba Copier 5550 Industrial Data System G E Capital 36 Months Eff 02/00 Toshiba Copier 6550 Constant Power Mfg. Stargel 36 Months Toshiba Copier
3. Real Estate Leases: ------------------ 1. Lease dated August 18, 1997, and all amendments thereto, between 319 Century Plaza Associates, Ltd. and Industrial Data Systems, Inc. 2. Lease dated September 1, 1998, and all amendments thereto, between 600 C.C. Business Park Ltd. and Industrial Data Systems, Inc. 3. Business Park Lease dated September 1, 2000, between Wilshire Square and IDS Engineering, Inc. 4. Master Lease Agreement dated January 3, 2001, between Citicorp Capital and Thermaire, Inc. 5. Standard Industrial Lease Agreement between Constant Power Manufacturing, Inc. and Houston Industrial Assets, L.P. Security Agreement - Schedule 4. - -------------------------------------------------------------------------------- Holder of Indebtedness Description of Indebtedness Maturity Date - -------------------------------------------------------------------------------- Chase Bank of Texas, N.A. Mortgage loan on Thermaire, 2-28-02 (balloon of Inc. land and building--debt $362,432.63) to be paid off at closing - -------------------------------------------------------------------------------- 5. Other equipment leases entered into in the ordinary course of business and consistent with past practice. 6. - -------------------------------------------------------------------------------- Holder of Indebtedness Description of Indebtedness Maturity Date - -------------------------------------------------------------------------------- Wall Street Financial, LP $190,916.47 owed to Wall Street 6/30/2002 Financial, LP by Petrocon Engineering, Inc. pursuant to a finance agreement dated October 16, 2001, related to premiums for commercial insurance for the period from September 30, 2001 to September 30, 2002. - -------------------------------------------------------------------------------- Petrocon Arabia, Ltd. $937,230.00 Non-Negotiable 6/1/2004 Subordinated Promissory Note from Petrocon Engineering to Petrocon Arabia, Ltd. dated March 9, 2000. - -------------------------------------------------------------------------------- CNA Insurance Companies $193,180.56 owed to CNA by Petrocon pursuant to a finance agreement dated October 26, 2001 related to premiums for commercial insurance for the period from September 30, 2001 to September 30, 2002. - -------------------------------------------------------------------------------- David Seldford Vehicle Financing, Ford F-150 12/2003 VIN: 1FTZF17241NA28178 - -------------------------------------------------------------------------------- CARLTECH, INC. $1,759,881.24 owed to 05/2002 CPW, INC. subcontractors on the ARAMCO GAS UNLIMITED, INC. project pursuant to Debt PETROTECH SERVICES, INC. Restructure Agreement dated TACI August 11, 1999 - -------------------------------------------------------------------------------- Security Agreement - Schedule - -------------------------------------------------------------------------------- Holder of Indebtedness Description of Indebtedness Maturity Date - -------------------------------------------------------------------------------- ABB AUTOMATION $1,435,351.90 owed to equipment 05/2002 YOKOGAWA ELECTRIC supplies on the ARAMCO project Agreement dated June, 2000. - -------------------------------------------------------------------------------- 7. - -------------------------------------------------------------------------------- Filing Jurisdiction: Iowa Secretary of State - -------------------------------------------------------------------------------- Secured Party Debtor Nature of Lien - -------------------------------------------------------------------------------- Petrocon Construction None of Record Resources, Inc. - -------------------------------------------------------------------------------- Filing Jurisdiction: Illinois Secretary of State - -------------------------------------------------------------------------------- Secured Party Debtor Nature of Lien - -------------------------------------------------------------------------------- Petrocon Construction None of Record Resources, Inc. - -------------------------------------------------------------------------------- Filing Jurisdiction: Louisiana Statewide Search - -------------------------------------------------------------------------------- Secured Party Debtor Nature of Lien - -------------------------------------------------------------------------------- AMEC Engineering, Inc. None of Record - -------------------------------------------------------------------------------- Barnard & Burke None of Record Engineering, Inc. - -------------------------------------------------------------------------------- Petrocon Construction None of Record Resources, Inc. IBM Credit R.P.M. Engineering, Inc. IBM Equipment lien Corporation - -------------------------------------------------------------------------------- IBM Credit R.P.M. Engineering, Inc. IBM Equipment lien Corporation - -------------------------------------------------------------------------------- Filing Jurisdiction: Calcasieu Parish, Louisiana - -------------------------------------------------------------------------------- Secured Party Debtor Nature of Lien - -------------------------------------------------------------------------------- Petrocon Engineering, Inc. None of Record - -------------------------------------------------------------------------------- Petrocon Engineering of None of Record Louisiana, Inc. - -------------------------------------------------------------------------------- Security Agreement - Schedule - -------------------------------------------------------------------------------- Filing Jurisdiction: East Baton Rouge Parish, Louisiana - -------------------------------------------------------------------------------- Secured Party Debtor Nature of Lien - -------------------------------------------------------------------------------- AMEC Engineering, Inc. None of Record - -------------------------------------------------------------------------------- Barnard & Burk None of Record Engineering, Inc. - -------------------------------------------------------------------------------- Filing Jurisdiction: North Dakota Secretary of State - -------------------------------------------------------------------------------- Secured Party Debtor Nature of Lien - -------------------------------------------------------------------------------- AMEC Engineering, Inc. None of Record - -------------------------------------------------------------------------------- Barnard & Burk None of Record Engineering - -------------------------------------------------------------------------------- R.P.M. Engineering, Inc. None of Record - -------------------------------------------------------------------------------- Filing Jurisdiction: Texas Secretary of State - -------------------------------------------------------------------------------- Secured Party Debtor Nature of Lien - -------------------------------------------------------------------------------- Sunbelt National Alliance Engineering PMSI in custom computer Bank Associates, Inc. (also network system. Alliance Engineering, Inc.) - -------------------------------------------------------------------------------- AMEC Engineering, Inc. None of Record - -------------------------------------------------------------------------------- Barnard & Burk None of Record Engineering, Inc. - -------------------------------------------------------------------------------- Petrocon of Arabia, Ltd. None of Record - -------------------------------------------------------------------------------- Texas Commerce Petrocon Construction 1995 Ford F150 Bank - National Resources, Inc. Association - -------------------------------------------------------------------------------- Sanwa Leasing Corp. Petrocon Engineering, Inc. Sharp duplicator and copiers. - -------------------------------------------------------------------------------- Lease Partners, Inc. Petrocon Engineering, Inc. Equipment lease for phone system - -------------------------------------------------------------------------------- Lease Partners, Inc. Petrocon Engineering, Inc. Equipment lease for routers and voice mail - -------------------------------------------------------------------------------- Sharp Electronic Petrocon Engineering, Inc. Sharp copier systems Credit Co. - -------------------------------------------------------------------------------- Tokai Financial Petrocon Engineering, Inc. Royal copier systems Services, Inc. - -------------------------------------------------------------------------------- Security Agreement - Schedule - -------------------------------------------------------------------------------- Ervin Leasing Petrocon Engineering, Inc. Xerox equipment Company - -------------------------------------------------------------------------------- Technology Petrocon Engineering, Inc. Computer equipment and Integration Financial accessories under lease Services, Inc.(Assigned to NationsCredit Commercial Corp.) - -------------------------------------------------------------------------------- Petrocon FSC, Ltd. None of Record - -------------------------------------------------------------------------------- R.P.M. Engineering, Inc. None of Record - -------------------------------------------------------------------------------- Filing Jurisdiction: Harris County, Texas - -------------------------------------------------------------------------------- Secured Party Debtor Nature of Lien - -------------------------------------------------------------------------------- Alliance Engineering, Inc. None of Record - -------------------------------------------------------------------------------- Alliance Engineering None of Record Associates, Inc. - -------------------------------------------------------------------------------- Technology Petrocon Engineering, Inc. Computer equipment and Integration Financial accessories under lease Services, Inc.(Assigned to NationsCredit Commercial Corp.) - -------------------------------------------------------------------------------- Filing Jurisdiction: Jefferson County, Texas - -------------------------------------------------------------------------------- Secured Party Debtor Nature of Lien - -------------------------------------------------------------------------------- Technology Petrocon Engineering, Inc. Computer equipment and Integration Financial accessories under lease Services, Inc. (Assigned to NationsCredit Commercial Corp.) - -------------------------------------------------------------------------------- Security Agreement - Schedule SCHEDULE III TO SECURITY AGREEMENT Trade-names and Fictitious Names (Present and Past Five Years) --------------------------- 1. Exact Corporate Name Trade Names -------------------- ----------- Petrocon Engineering, Inc. Milltech Petrocon West All Resources Total Staffing Services 2. Mergers/Acquisition Targets: OEI International, Inc. (Petrocon was the successor of a merger with OEI International, Inc. pursuant to a Plan and Agreement of Merger between OEI and Petrocon dated February 5, 1999 in connection with that certain Agreement and Plan of Reorganization by and among OEI, Petrocon and Equus II Incorporated dated February, 1999) HTC Systems, Inc. (assets acquired by Petrocon Engineering, Inc.) Temple Associates, Inc. (assets acquired by Petrocon Engineering, Inc.) Pressure Technologies, Inc. (acquired and dissolved) Total Staffing Services, Inc. (a former company subsidiary which was merged with and into Petrocon Engineering, Inc. effective December 24, 1997). R.P.M. Engineering, Inc. Merger/Acquisition Targets: AMEC Engineering, Inc. Barnard & Burk Engineering, Inc. RPM Investments, Ltd (assets acquired by R.P.M. Engineering, Inc. contemporaneously with PEI acquisition of R.P.M. Engineering, Inc.). Alliance Engineering Associates, Inc.* Energy Integration Services, Inc. (former wholly-owned subsidiary of Petrocon Engineering, Inc. which merged with and into Alliance Engineering Associates, Inc. effective January 31, 1997). Security Agreement - Schedule Alliance Engineering Incorporated (assumed name) Alliance Engineering Associates Incorporated d/b/a Alliance Engineering, Inc. Petrocon Construction Resources, Inc. Petrocon Plant Services, Inc. (former company subsidiary which was merged with and into Petrocon Construction Resources, Inc. effective December 24, 1997). Petrocon Arabia Ltd. Eagleton Saudi Arabia Limited (former name) *Acquired in reverse triangular merger with transitory subsidiary of Petrocon Engineering, Inc. 3. Exact Corporate Name Fictitious or Trade Name -------------------- ------------------------ Industrial Data Systems None Corporation IDS Engineering, Inc. None Thermaire, Inc. Thermal Corporation Constant Power Manufacturing, None Inc. Industrial Data Systems, Inc. None IDS Engineering Management, None LC PEI Acquisition, Inc. None Security Agreement - Schedule SCHEDULE IV TO SECURITY AGREEMENT UCC Filing Jurisdictions ------------------------ Debtor Jurisdiction ------ ------------ Industrial Data Systems Corporation Nevada IDS Engineering, Inc. Texas IDS Engineering Management, LC Texas Thermaire, Inc. d/b/a Thermal Corp. Texas Constant Power Manufacturing, Inc. Texas Industrial Data Systems, Inc. Texas Petrocon Engineering, Inc. Texas Triangle Engineers & Constructors, Inc. Texas Petrocon Systems, Inc. Texas Petrocon Technologies, Inc. Texas Petrocon Engineering of Louisiana, Inc. Louisiana R.P.M. Engineering, Inc. Louisiana Alliance Engineering Associates, Inc. Texas Petrocon Construction Resources, Inc. Texas Security Agreement - Schedule SCHEDULE V TO SECURITY AGREEMENT Releases and Assignments ------------------------ None Security Agreement - Schedule EXHIBIT A COPYRIGHT SECURITY AGREEMENT WHEREAS, [___________________________], a [____________] corporation ("Grantor") owns the Copyright registrations and Copyright applications listed ------- on Schedule 1 annexed hereto, and is a party to the Copyright Licenses listed ---------- on Schedule 1 annexed hereto; and ---------- WHEREAS, Grantor has executed that certain Promissory Note dated as of ______________, 2001, payable to the order of Equus II Incorporated, a Delaware corporation ("Lender") in the principal sum of $3,000,000 (the "Note"; ------ ---- capitalized terms defined therein and not otherwise defined herein being used herein as therein defined); and WHEREAS, pursuant to the terms of the Security Agreement dated as of ___________, 2001, (as said Security Agreement may be amended and in effect from time to time, the "Security Agreement"), between Grantor and Lender (in such ------------------ capacity, together with its successors in such capacity, the "Grantee"), ------- Grantor has granted to Grantee a security interest in substantially all the assets of Grantor including all right, title and interest of Grantor in, to and under all now owned and hereafter acquired Copyrights (as defined in the Security Agreement), Copyright registrations, Copyright applications and Copyright Licenses (as defined in the Security Agreement), together with the goodwill of the business symbolized by Grantor's Copyrights and all proceeds thereof, to secure, inter alia, the payment of all amounts owing by Grantor ---------- under the Note. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantor does hereby grant to Grantee a continuing security interest in all of its respective right, title and interest in, to and under the following (all of the following items or types of property being herein collectively referred to as the "Copyright --------- Collateral"), whether presently existing or hereafter created or acquired: - ---------- (1) each Copyright, Copyright application and Copyright registration, together with any reissues, extensions or renewals thereof, including, without limitation, the Copyright, Copyright registrations and Copyright applications referred to in Schedule 1 annexed hereto, and all ---------- of the goodwill of the business connected with the use of, and symbolized by, each Copyright, Copyright registration and Copyright application; (2) each Copyright License and all of the goodwill of the business connected with the use of, and symbolized by, each Copyright License; and (3) all products and proceeds of the foregoing, including, without limitation, any claim by Grantor against third parties for past, present or future (a) infringement or dilution of any Copyright or Copyright registration including, Security Agreement - Exhibit A without limitation, the Copyright and Copyright registrations referred to in Schedule 1 annexed hereto, the Copyright registrations issued with ---------- respect to the Copyright applications referred in Schedule 1 and the ---------- Copyright licensed under the Copyright License, or (b) injury to the goodwill associated with any Copyright, Copyright registration or Copyright licensed under any Copyright License. This security interest is granted in conjunction with the security interests granted to Grantee pursuant to the Security Agreement. Grantor hereby acknowledges and affirms that the rights and remedies of Grantee with respect to the security interest in the Copyright Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. Security Agreement - Exhibit A IN WITNESS WHEREOF, Grantor has caused this Copyright Security Agreement to be duly executed by its duly authorized officer as of the ------- day of - --------, 2001. GRANTOR: [________________________________] By:________________________________ Name:______________________________ Title:_____________________________ ACKNOWLEDGED: EQUUS II INCORPORATED By:________________________________ Name:______________________________ Title:_____________________________ Security Agreement - Exhibit A ACKNOWLEDGMENT STATE OF _________ (S) (S) COUNTY OF ________ (S) On the _____ day of ___________, 2001, before me personally appeared ____________________, to me personally known or proved to me on the basis of satisfactory evidence to be the person described in and who executed the foregoing instrument as ___________________________ of [______________________________], a Texas corporation, who being by me duly sworn, did depose and say that he is ___________________________ of [_______________________________], the corporation described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that the said instrument was signed and sealed on behalf of said corporation by order of its Board of Directors; that he signed his name thereto by like order; and that he acknowledged said instrument to be the free act and deed of said corporation. (Seal) _____________________________________________ Notary Public in and for the State of Texas My commission expires:_____________ Security Agreement - Exhibit A ACKNOWLEDGMENT STATE OF __________ (S) (S) COUNTY OF _________ (S) On the _____ day of ____________, 2001 before me personally appeared ___________________, to me personally known proved to me on the basis of satisfactory evidence to be the person described in and who executed the foregoing instrument as __________________ of EQUUS II INCORPORATED, a Delaware corporation, who being by me duly sworn, did depose and say that he is ____________________ of EQUUS II INCORPORATED, the corporation described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that the said instrument was signed and sealed on behalf of said corporation by order of its Board of Directors; that he signed his name thereto by like order; and that he acknowledged said instrument to be the free act and deed of said corporation. (Seal) _____________________________________________ Notary Public in and for the State of Texas My commission expires:___________ Security Agreement - Exhibit A Schedule 1 to Copyright Security Agreement ------------------ COPYRIGHTS ---------- Grantor Work Reg. No. Date - ------- ---- -------- Registered ---------- COPYRIGHT APPLICATIONS ---------------------- COPYRIGHT LICENSES ------------------ Security Agreement - Exhibit A EXHIBIT B PATENT SECURITY AGREEMENT ------------------------- WHEREAS, [______________________________], a [____________] corporation ("Grantor") owns the Patents and Patent Applications listed on Schedule 1 ------- ---------- annexed hereto, is a party to the Patent Licenses listed on Schedule 1 annexed hereto; and WHEREAS, Grantor has executed that certain Promissory Note dated as of ______________, 2001, payable to the order of Equus II Incorporated, a Delaware corporation ("Lender") in the principal sum of $3,000,000 (the "Note"; ---- capitalized terms defined therein and not otherwise defined herein being used herein as therein defined); and WHEREAS, pursuant to the terms of the Security Agreement dated as of _______________, 2001, (as said Security Agreement may be amended and in effect from time to time, the "Security Agreement"), between Grantor and ------------------ Lender (in such capacity, together with its successors in such capacity, the "Grantee"), Grantor has granted to Grantee a security interest in ------- substantially all the assets of Grantor including all right, title and interest of Grantor in, to and under all now owned and hereafter acquired Patents (as defined in the Security Agreement), Patent applications and Patent Licenses (as defined in the Security Agreement), and all products and proceeds thereof, to secure, inter alia, the payment of all amounts ----- ---- owing by Grantor under the Note. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantor does hereby grant to Grantee a continuing security interest in all of its respective right, title and interest in, to and under the following (all of the following items or types of property being herein collectively referred to as the "Patent ------ Collateral"), whether presently existing or hereafter created or - ---------- acquired: (1) each Patent and Patent application, including, without limitation, each Patent and Patent application referred to in Schedule 1 ---------- annexed hereto, together with any reissues, continuations or extensions thereof; (2) each Patent License, including, without limitation, each Patent License listed on Schedule 1 annexed hereto; and ---------- (3) all products and proceeds of the foregoing, including, without limitation, any claim by any Grantor against third parties for past, present or future infringement of any Patent, including, without limitation, any Patent referred to in Schedule 1 annexed hereto, any ---------- Patent issued pursuant to a Patent Applications referred to in Schedule 1 ---------- and any Patent licensed under any Patent License listed on Schedule 1 ---------- annexed hereto. This security interest is granted in conjunction with the security11 interests granted to Grantee pursuant to the Security Agreement. Grantor hereby acknowledges and affirms that the rights and remedies of Grantee with respect to the security interest in the Patent Security Agreement - Exhibit B Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provision of which are incorporated by reference herein as if fully set forth herein. Security Agreement - Exhibit B IN WITNESS WHEREOF, Grantor has caused this Patent Security Agreement to be duly executed by its duly authorized officer thereunto as of the ______ day of _______________, _____. GRANTOR: [________________________________] By:________________________________ Name:______________________________ Title:_____________________________ ACKNOWLEDGED: EQUUS II INCORPORATED By:________________________________ Name:______________________________ Title:_____________________________ Security Agreement - Exhibit B ACKNOWLEDGMENT STATE OF _________ (S) (S) COUNTY OF ________ (S) On the _____ day of ______________, 2001, before me personally appeared ________________, to me personally known or proved to me on the basis of satisfactory evidence to be the person described in and who executed the foregoing instrument as _____________________ of [__________________________], a Texas corporation, who being by me duly sworn, did depose and say that he is __________________ of [_____________________], the corporation described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that the said instrument was signed and sealed on behalf of said corporation by order of its Board of Directors; that he signed his name thereto by like order; and that he acknowledged said instrument to be the free act and deed of said corporation. (Seal) _____________________________________________ Notary Public in and for the State of Texas My commission expires:_____________ Security Agreement - Exhibit B ACKNOWLEDGMENT STATE OF _________ (S) (S) COUNTY OF ________ (S) On the ______ day of ___________, 2001, before me personally appeared - --------------------, to me personally known or proved to me on the basis of satisfactory evidence to be the person described in and who executed the foregoing instrument as _____________________ of EQUUS II INCORPORATED, a Delaware corporation, who being by me duly sworn, did depose and say that he is ____________________ of EQUUS II INCORPORATED, the corporation described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that the said instrument was signed and sealed on behalf of said corporation by order of its Board of Directors; that he signed his name thereto by like order; and that he acknowledged said instrument to be the free act and deed of said corporation. (Seal) _____________________________________________ Notary Public in and for the State of Texas My commission expires:________________ Security Agreement - Exhibit B Schedule 1 to Patent Security Agreement ------------------ UNITED STATES PATENTS --------------------- Patent Issue Grantor Country Description Number Date - ------- ------- ----------- ------ ---- PATENT APPLICATIONS ------------------- PATENT LICENSES --------------- Security Agreement - Exhibit B EXHIBIT C TRADEMARK SECURITY AGREEMENT ---------------------------- WHEREAS, [________________________], a [__________________] corporation ("Grantor") owns the Trademarks, Trademark registrations, and Trademark ------- applications listed on Schedule 1 annexed hereto, and is a party to the ---------- Trademark Licenses listed on Schedule 1 annexed hereto; ---------- WHEREAS, Grantor has executed that certain Promissory Note dated as of _________________, 2001, payable to the order of Equus II Incorporated, a Delaware corporation ("Lender") in the principal sum of $3,000,000 (the ------ "Note"; capitalized terms defined therein and not otherwise defined herein ---- being used herein as therein defined); and WHEREAS, pursuant to the terms of the Security Agreement dated as of - --------------, 2001, (as said Security Agreement may be amended and in effect from time to time, the "Security Agreement"), between Grantor and ------------------ Lender (in such capacity, together with its successors in such capacity, the "Grantee"), Grantor has granted to Grantee a security interest in ------- substantially all the assets of Grantors including all right, title and interest of Grantor in, to and under all now owned and hereafter acquired Trademarks (as defined in the Security Agreement), Trademark registrations, Trademark applications and Trademark Licenses (as defined in the Security Agreement), together with the goodwill of the business symbolized by Grantor's Trademarks, and all proceeds thereof, to secure, inter alia, the payment of all amounts owing by Grantor under the Note. ---- NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantor does hereby grant to Grantee a continuing security interest in all of its respective right, title and interest in, to and under the following (all of the following items or types of property being herein collectively referred to as the "Trademark Collateral"), whether presently existing or hereafter created -------------------- or acquired: (1) each Trademark, Trademark registration and Trademark application, including, without limitation, the Trademarks, Trademark registrations (together with any reissues, continuations or extensions thereof and Trademark applications referred to in Schedule 1 annexed hereto, and all ---------- of the goodwill of the business connected with the use of, and symbolized by, each Trademark, Trademark registration and Trademark application; (2) each Trademark License and all of the goodwill of the business connected with the use of, and symbolized by, each Trademark License; and (3) all products and proceeds of the foregoing, including, without limitation, any claim by Grantor against third parties for past, present or future Security Agreement - Exhibit C (a) infringement or dilution of any Trademark or Trademark registration including, without limitation, the Trademarks and Trademark registrations referred to in Schedule 1 annexed hereto, the Trademark ---------- registrations issued with respect to the Trademark applications referred in Schedule 1 and the Trademarks licensed under any Trademark License, or ---------- (b) injury to the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License. This security interest is granted in conjunction with the security interests granted to Grantee pursuant to the Security Agreement. Grantor hereby acknowledges and affirms that the rights and remedies of Grantee with respect to the security interest in the Trademark Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. Security Agreement - Exhibit C IN WITNESS WHEREOF, Grantor has caused this Trademark Security Agreement to be duly executed by its duly authorized officer thereunto as of the ____ day of __________________, 2001. GRANTOR: [_______________________________] By:________________________________ Name:______________________________ Title:_____________________________ ACKNOWLEDGED: EQUUS II INCORPORATED By:________________________________ Name:______________________________ Title:_____________________________ Security Agreement - Exhibit C ACKNOWLEDGMENT STATE OF _________ (S) (S) COUNTY OF ________ (S) On the _____ day of _______________, 2001, before me personally appeared ____________________, to me personally known or proved to me on the basis of satisfactory evidence to be the person described in and who executed the foregoing instrument as _____________________________________ of [_______________________________], a Texas corporation, who being by me duly sworn, did depose and say that he is ______________________________ of [___________________________], the corporation described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that the said instrument was signed and sealed on behalf of said corporation by order of its Board of Directors; that he signed his name thereto by like order; and that he acknowledged said instrument to be the free act and deed of said corporation. (Seal) _____________________________________________ Notary Public in and for the State of Texas My commission expires:_____________ Security Agreement - Exhibit C ACKNOWLEDGMENT STATE OF _________ (S) (S) COUNTY OF ________ (S) On the _____ day of ________________, 2001, before me personally appeared ________________, to me personally known or proved to me on the basis of satisfactory evidence to be the person described in and who executed the foregoing instrument as _________________ of EQUUS II INCORPORATED, a Delaware corporation, who being by me duly sworn, did depose and say that he is ___________________ of EQUUS II INCORPORATED, the corporation described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that the said instrument was signed and sealed on behalf of said corporation by order of its Board of Directors; that he signed his name thereto by like order; and that he acknowledged said instrument to be the free act and deed of said corporation. (Seal) ____________________________________________ Notary Public in and for the State of Texas My commission expires:_____________ Security Agreement - Exhibit C Schedule 1 to Trademark Security Agreement ------------------ UNITED STATES TRADEMARK REGISTRATIONS ------------------------------------- Registration Registration Grantor Mark Country Number Date - ------- ---- ------- ------ ---- UNITED STATES TRADEMARK APPLICATIONS ------------------------------------ Application Date of Grantor Mark Country Number Filing - ------- ---- ------- ------ ------ FOREIGN TRADEMARK REGISTRATIONS ------------------------------- FOREIGN TRADEMARK APPLICATIONS ------------------------------ TRADEMARK LICENSES ------------------ UNREGISTERED TRADEMARKS ----------------------- Security Agreement - Exhibit C EX-10.47 10 dex1047.txt MORTGAGE AND SECURITY AGREEMENT EXHIBIT 10.47 THIS MORTGAGE IS SUBJECT TO AN INTERCREDITOR AGREEMENT, DATED AS OF DECEMBER 21, 2001, AMONG FLEET CAPITAL CORPORATION, A RHODE ISLAND CORPORATION, PETROCON ENGINEERING, INC., AND EQUUS II INCORPORATED, A DELAWARE CORPORATION. THIS MORTGAGE IS SUBORDINATED IN RIGHT AND TIME OF PAYMENT TO THE PRIOR PAYMENT IN FULL IN CASH OF ALL SENIOR DEBT (AS DEFINED THEREIN) IN ACCORDANCE WITH, AND TO THE EXTENT SPECIFIED IN, SUCH INTERCREDITOR AGREEMENT AND EACH HOLDER OF THIS MORTGAGE, BY ITS ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE TERMS AND PROVISIONS OF SUCH INTERCREDITOR AGREEMENT. AFTER RECORDING RETURN TO: Gary B. Clark, Esq. Gardere Wynne Sewell LLP 3000 Thanksgiving Tower 1601 Elm Street Dallas, Texas 75201 MORTGAGE AND SECURITY AGREEMENT with Assignment of Rents and Leases and Assignment of Contracts and Sales Proceeds BE IT KNOWN, that on this 21st day of December, 2001, before me, the undersigned Notary Public, duly commissioned and qualified in and for the State of Texas, and in the presence of the undersigned competent witnesses, personally came and appeared: R.P.M. ENGINEERING, INC., a Louisiana corporation (hereinafter referred to as "Grantor"), whose taxpayer identification number is 33235900D, and whose address for notice hereunder is c/o Petrocon Engineering, Inc., 3155 Executive Boulevard, Beaumont, Texas 77720, Attention: Michael L. Burrow P.E., who declared and acknowledged as follows: Grantor is executing this Mortgage and Security Agreement with Assignment of Rents and Leases and Assignment of Contracts and Sales Proceeds (as amended, modified or restated from time to time and hereinafter referred to as this "Mortgage") in favor of EQUUS II INCORPORATED, a Delaware corporation ("Grantee"). RECITALS A. Pursuant to that certain Settlement Agreement and Plan of Reorganization dated as of December 21, 2001, by and among Petrocon Engineering, Inc., a Texas corporation ("PEI"), Industrial Data Systems --- Corporation, a Nevada corporation ("IDS"), PEI Acquisition, Inc., a Nevada --- corporation ("Sub") and Grantee (the "Settlement Agreement"), Grantee has --- -------------------- agreed to 1 renew, rearrange extend $3,000,000 of its existing loan to PEI (the "Loan") as evidenced by that certain Promissory Note from PEI to Grantee in the principal amount of $3,000,000 dated as of December 21, 2001 (the "Note"). ---- B. IDS, Sub, and PEI have entered into that certain Agreement and Plan of Merger on or about December 21, 2001, whereby Sub will merge with and into PEI and PEI will be the surviving corporation (the "Plan of Merger"; PEI as the -------------- surviving corporation of the Plan of Merger is the "Grantor"). ------- C. Pursuant to the terms of the Settlement Agreement and Plan of Merger, Grantor shall enter into this Mortgage for the purpose, among other things, of securing and providing for the repayment of the Note and the obligations of Grantor under this Mortgage. ARTICLE I DEFINITIONS As used in this Mortgage, the following terms shall have the respective meanings assigned to them: 1.01 CERCLA: The term "CERCLA" shall mean the Comprehensive ------ Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. [sec][sec] 9601 et seq.), as amended from time to time, including, without -- --- limitation, the Superfund Amendments and Reauthorization Act ("SARA"). ---- 1.02 Contracts: The term "Contracts" shall mean any and all purchase --------- contracts and agreements for the sale by Grantor of the Mortgaged Property or any part thereof, together with any and all renewals or extensions thereof and substitutions or replacements therefor. 1.03 Environmental Law: The term "Environmental Law" shall mean any ----------------- federal, state or local law, statute, ordinance, or regulation, as amended from time to time, pertaining to air pollution, water pollution, health, industrial hygiene, environmental conditions, noise control and/or the handling, discharge, disposal or recovery of any on-site or off-site Hazardous Substance on, under or about the Mortgaged Property, including but not limited to, CERCLA, SARA and RCRA. The term "Environmental Law" shall also be deemed to ----------------- include the Louisiana Environmental Quality Act, La. R.S. 30:2001 et seq., as ------ amended, and the regulations now or hereafter promulgated pursuant to said law. 1.04 Event of Default: The term "Event of Default" shall mean any ---------------- happening or occurrence described in Article IX of this Mortgage. ---------- 1.05 Financial Statements. The term "Financial Statements" shall mean -------------------- such balance sheets, profit and loss statements, reconciliations of capital and surplus, changes in financial condition, schedules of sources and applications of funds, operating statements with respect to the 2 Mortgaged Property, and other financial information of Grantor and of the Mortgaged Property, submitted to Grantee prior to the date hereof consistent for all periods after the date hereof so as to properly reflect the financial condition and the results of operations and changes in financial position of such relevant party, and which statements shall, as to the Grantor, be certified by an officer and chief financial officer of the Grantor. 1.06 Financing Statements: The term "Financing Statements" shall mean -------------------- the Form UCC-1 or other Grantee-approved financing statements to be filed on or before the Closing Date with the appropriate offices for the perfection of a security interest in any of the Mortgaged Property. 1.07 Fixtures: The term "Fixtures" shall mean all materials, supplies, -------- equipment, apparatus and other items now or hereafter attached to, installed on or in the Land or the Improvements, or which in some fashion are deemed to be fixtures to the Land or Improvements under applicable law. The term "Fixtures" shall include, without limitation, all items of personalty to the extent that the same may be deemed Fixtures under applicable law, but shall not include -------- trade fixtures owned by any tenant of the Improvements. 1.08 Governmental Authority: The term "Governmental Authority" shall ---------------------- mean the United States, the state, the county, the city, or any other political subdivision in which the Mortgaged Property is located, and any other political subdivision, agency, or instrumentality exercising jurisdiction over Grantor or the Mortgaged Property. 1.09 Grantor: The term "Grantor" shall mean the above defined Grantor ------- and any and all subsequent record or equitable owners of the Mortgaged Property. 1.10 Hazardous Substance: The term "Hazardous Substance" shall mean one ------------------- or more of the following substances: (i) those substances included within the definitions of (A) "hazardous substances", "hazardous materials" or "toxic substances", in CERCLA, SARA, RCRA, Toxic Substances Control Act, Federal Insecticide, Fungicide and Rodenticide Act and the Hazardous Materials Transportation Act (49 U.S.C. Sections 1801 et seq.), or (B) "solid waste," as defined under the Texas Solid Waste Disposal Act; (ii) such other substances, materials, constituents and wastes which are or become regulated as hazardous or toxic under applicable local, state or federal law, or the United States government, or which are classified as hazardous or toxic under federal, state, or local laws or regulations; and (iii) any material, waste or substance which is: (A) asbestos; (B) polychlorinated biphenyls; (C) designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Sections 1251 et seq. (33 U.S.C. (S)1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. [sec]1317); (D) explosives; (E) radioactive materials; or (F) petroleum, petroleum products or any fraction thereof. 3 1.11 Impositions: The term "Impositions" shall mean all real estate and ----------- personal property taxes, water, gas, sewer, electricity and other utility rates and charges; charges for any easement, license or agreement maintained for the benefit of the Mortgaged Property, and all other taxes, charges and assessments and any interest, costs or penalties with respect thereto of any kind and nature whatsoever which at any time prior to or after the execution hereof may be assessed, levied or imposed upon the Mortgaged Property or the ownership, use, occupancy or enjoyment thereof. 1.12 Improvements: The term "Improvements" shall mean any and all ------------ buildings, constructions, structures, open parking areas and other improvements, including all component parts thereof, and any and all accessions, additions, replacements, substitutions or alterations thereof or appurtenances thereto, now or at any time hereafter situated, placed or constructed upon the Land or any part thereof. 1.13 Indebtedness: The term "Indebtedness" shall mean the principal of, ------------ interest on and all other amounts and payments due under or secured by the Note, the Settlement Agreement and other Security Instruments, together with all funds hereafter advanced by Grantee to or for the benefit of Grantor as contemplated by any covenant or provision herein contained or for any other purpose, and all other indebtedness, of whatever kind or character, direct or indirect, absolute or contingent, owing or which may hereafter become owing by Grantor to Grantee, whether such indebtedness is evidenced by note, open account, overdraft, endorsement, surety agreement, guaranty or otherwise, it being contemplated that Grantor may hereafter become indebted to Grantee in further sum or sums and any and all renewals, extensions, or reinstatements of, or amendments, modifications, or supplements to the indebtedness, liabilities and obligations described above. Notwithstanding any other provision of this Mortgage, the maximum amount of the Indebtedness secured hereby at any time from time to time shall be limited to the Maximum Amount. 1.14 Land: The term "Land" shall mean the full ownership or any interest ---- therein covering the real estate or immovable property described in Exhibit "A" ---------- attached hereto and made a part hereof, together with all Improvements and Fixtures and all rights, titles and interests appurtenant thereto. 1.15 Leases: The term "Leases" shall mean any and all leases, subleases, ------ licenses, concessions or other agreements (written or verbal, now or hereafter in effect) which grant a possessory interest in and to, or the right to extract, mine, reside in, sell or use the Mortgaged Property, and all other agreements, including, but not limited to, utility contracts, maintenance agreements and service contracts, which in any way relate to the use, occupancy, operation, maintenance, enjoyment or ownership of the Mortgaged Property, save and except any and all leases, subleases or other agreements pursuant to which Grantor is granted a possessory interest in the Land. 1.16 Legal Requirements: The term "Legal Requirements" shall mean (a) ------------------ any and all present and future judicial decisions, statutes, rulings, rules, regulations, permits, certificates or 4 ordinances of any Governmental Authority in any way applicable to Grantor or the Mortgaged Property, including, but not limited to, those respecting the ownership, use, occupancy, possession, operation, maintenance, alteration, repair or reconstruction thereof and all Environmental Laws, (b) Grantor's presently or subsequently effective Articles of Incorporation, Bylaws or any instruments establishing any partnership, limited partnership, joint venture, trust or other form of business association (if either, both or all by any of same), (c) any and all Leases and other contracts (written or oral) of any nature to which Grantor may be bound and (d) any and all restrictions, reservations, conditions, easements or other covenants or agreements of record affecting the Mortgaged Property. 1.17 Loans: The term "Loans" shall mean the Loans by Grantee to Grantor ----- evidenced by the Note and pursuant to the Settlement Agreement. 1.18 Maker: The term "Maker" shall mean the party or parties designated ----- as the Maker or Makers of the Note. Grantor and Maker may or may not be the same party. 1.19 Maximum Amount: The amount of the Indebtedness that may be secured any time and from time to time by this Mortgage (including the assignment of Rents and Leases and the assignment of Contract and Sales Proceeds contained herein) and the aggregate amount which Grantee may claim for damages that Grantee may suffer from a breach of the Obligations secured by this Mortgage (other than the payment of money), shall be fixed and limited to Three Million and 00/100 ($3,000,000.00) Dollars. 1.20 Mortgaged Property: The term "Mortgaged Property" shall mean the ------------------ Land, the Improvements, Fixtures, Contracts, Leases, Rents, Proceeds and Personalty, whether now owned or hereafter acquired, and the following described collateral: (a) all rights, privileges, tenements, hereditaments, rights-of- way, easements, appendages and appurtenances in anywise appertaining thereto, and all right, title and interest of Grantor in and to any street, ways, alleys, strips or gores of land adjoining the Land or any part thereof, whether now owned or hereinafter acquired; (b) all betterments, accessions, additions, appurtenances, substitutions, replacements and revisions thereof and thereto and all reversions and remainders therein; (c) all of Grantor's right, title and interest in and to any award, remuneration, settlement or compensation heretofore made or hereafter to be made by any Governmental Authority to Grantor, including those for any vacation of, or change of grade in, any streets affecting the Land or the Improvements; (d) all plans and specifications for the Improvements; all contracts and subcontracts relating to the Improvements, all deposits (including tenant's security deposits), funds, accounts, contract rights, instruments, documents, general intangibles (including trademarks, service marks, trade names and symbols used in connection therewith), and Note or chattel paper arising from or by virtue of any transactions related to the property described herein; all permits, licenses, franchises, certificates, and other rights and privileges obtained in connection with the 5 property described herein; all proceeds arising from or by virtue of the sale, lease or other disposition of all or any part of the Mortgaged Property (consent to same not granted or to be implied hereby); all proceeds (including premium refunds) payable or to be payable under each policy of insurance relating to the Mortgaged Property; (e) all other interest of every kind and character which Grantor now has or at any time hereafter acquires in and to the above described real and personal property and all property which is used or useful in connection therewith, including rights of ingress and egress, easements, licenses, and all reversionary rights or interests of Grantor with respect to such property. To the extent permitted by law, all of the foregoing Personalty and Fixtures are to be deemed and held to be a part of and affixed to the real property; and (f) any and all other security and collateral of any nature whatsoever, now or hereafter given for the repayment of the Indebtedness or the performance and discharge of the Obligations. In the event the estate of Grantor in and to any of the Land and Improvements is a leasehold estate, the definition of "Mortgaged Property" ------------------ shall include and the lien, security interest and assignment created hereby shall encumber and extend to all other, further or additional titles, estates, interests, or rights which may exist now or at any time be acquired by Grantor in or to the property demised under the lease creating such leasehold estate, excluding Grantor's rights, if any, to purchase the property demised under such lease. If full ownership title to any of such property shall ever become vested in Grantor, Grantor's full ownership interest shall be encumbered by this Mortgage in the same manner as if Grantor had full ownership title to such property as of the date of execution of this Mortgage. As used in this Mortgage, the term "Mortgaged Property" is expressly ------------------ defined as meaning all or, where the context permits or requires, any portion of the Mortgaged Property and all or, where the context permits or requires, any interest therein. 1.21 Note: The term "Note" shall mean collectively, (i) that certain ---- Promissory Note dated of even date herewith in the stated principal amount of $3,000,000.00 from the Borrower to Grantee, and. 1.22 Obligations: The term "Obligations" shall mean any and all of the ----------- covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Grantor or others to Grantee or others as set forth in the Security Instruments, or any lease, sublease, or other agreement pursuant to which Grantor is granted a possessory interest in the Land. 1.23 Permitted Encumbrances: The term "Permitted Encumbrances" shall ---------------------- mean the outstanding liens, easements, building lines, restrictions, security interests and other matters (if any) as set forth on Exhibit "B" attached ----------- hereto and made a part hereof. 6 1.24 Personalty: The term "Personalty" shall mean all of the right, ---------- title and interest of Grantor in and to all tangible and intangible personal or movable property, including all equipment, inventory, goods, consumer goods, accounts, chattel paper, instruments, money, general intangibles, documents, minerals, crops and timber which is attached to, installed on or placed or used on, in connection with or is acquired for such attachment, installation, placement or use, or which arises out of the development, improvement, financing, leasing, operation or use of, the Land, the Improvements, Fixtures or other goods located on the Land or Improvements, together with all additions, accessions, accessories, amendments and modifications thereto, extensions, renewals, enlargements and proceeds thereof, substitutions therefor, and income and profits therefrom. The following are included, without limitation, in the definition of Personalty: furnishings, building materials, supplies, machines, engines, boilers, stokers, pumps, fans, vents, blowers, dynamos, furnaces, elevators, ducts, shafts, pipes, furniture cabinets, shades, blinds, screens; plumbing, heating, air conditioning, lighting, lifting, ventilating, refrigerating, cooking, medical, laundry and incinerating equipment; partitions, drapes, carpets, rugs and other floor coverings, awnings, call and sprinkler systems, fire prevention and extinguishing apparatus and equipment, water tanks, swimming pools, compressors, vacuum cleaning systems, disposals, dishwashers, ranges, ovens, kitchen equipment, cafeteria equipment, recreational equipment, loan commitments, financing arrangements, bonds, construction contracts, leases, licenses, permits, sales contracts, insurance policies and the proceeds therefrom, plans and specifications, surveys, rent rolls, books and records, funds, bank deposits and all other intangible personal property. 1.25 Proceeds: The term "Proceeds" shall mean all of Grantor's rights -------- to receive payments, receipts, revenues, interest and income of any kind under the Contracts, less reasonable closing costs, as approved by Grantee. 1.26 RCRA: The term "RCRA" shall mean the Resource Conservation and ---- Recovery Act of 1976 (42 U.S.C. Sections 6901, et seq.), as amended from time -- --- to time. 1.27 Remedial Work: The term "Remedial Work" shall have the meaning ------------- assigned to such term in Subsection 8.01(d) of this Mortgage. ------------------ 1.28 Rents: The term "Rents" shall mean all of the rents, revenues, ----- income, proceeds, royalties, issues, profits and other benefits paid or payable under all Leases and/or for using, leasing, licensing, possessing, operating from or in, residing in, selling, mining, extracting or otherwise enjoying or using the Mortgaged Property. 1.29 Security Instruments: The term "Security Instruments" shall mean -------------------- this Mortgage, the Note, the Financing Statements and such other instruments evidencing, securing, or pertaining to the Loans as shall, from time to time, be executed and delivered by Grantor, or any other party to Grantee to secure the Loans. 1.30 Senior Debt: The term "Senior Debt" shall have the meaning assigned ----------- to such term in the Note. 7 1.31 Senior Lender: The term "Senior Lender" shall mean Fleet Capital ------------- Corporation, a Rhode Island corporation, or any successor or assignee thereof and any Person providing refinancing or replacement of the Senior Debt. 1.32 Miscellaneous Definitions as used in the Louisiana Civil Code: The term "lien" will also mean a privilege, mortgage, security interest, ---- assignment, or other encumbrance. The term "real property" will mean "immovable ------------- property" as that term is used in the Louisiana Civil Code. The term "personal -------- property" will mean "movable property" as that term is used in the Louisiana - -------- Civil Code. The term "easement" will mean "servitude" as that term is used in -------- the Louisiana Civil Code. The term "building" will also include "other -------- constructions" as that term is used in the Louisiana Civil Code. The term "tangible" will mean "corporeal" as that term is used in the Louisiana Civil -------- Code. The term "intangible" will mean "incorporeal" as that term is used in the ---------- Louisiana Civil Code. The term "Uniform Commercial Code" will mean Louisiana ----------------------- Commercial Laws, La. R.S. 10:1-101 et seq. The term "fee estate" will mean ------ ---------- "full ownership interest" as that term is used in the Louisiana Civil Code. The term "condemnation" will include "expropriation" as that term is used in ------------ Louisiana law. The term "receiver" will include "keeper" as that term is used -------- in Louisiana law. The term "conveyance in lieu of foreclosure" or "action in --------------------------------- --------- lieu thereof" will mean "giving in payment" as that term is used in the - ------------ Louisiana Civil Code and "dation en paiment". The term "joint and several" will ----------------- mean "solidary" as that term is used in the Louisiana Civil Code. ARTICLE II GRANT 2.01 Mortgage: To secure the full and timely payment of the Indebtedness and the full and timely performance and discharge of the Obligations, Grantor does by these presents specifically mortgage, affect and hypothecate, collaterally assign, pledge and grant a continuing security interest upon, unto and in favor of Grantee any and all of the Mortgaged Property for the purpose of securing the Indebtedness and Obligations up to the Maximum Amount, subject only to the Permitted Encumbrances. To secure the full and timely payment of the Indebtedness and the full and timely performance at the Obligations, Grantor does hereby bind itself, its successors and assigns to warrant and forever defend the title to the Mortgaged Property unto Grantee against every person whomsoever lawfully claiming or to claim the same or any part thereof, other than claims arising pursuant to the Permitted Encumbrances, provided, however, that if Grantor shall pay (or cause to be paid) the Indebtedness as and when the same shall become due and payable and shall perform and discharge (or cause to be performed and discharged) the Obligations, then the liens, security interests, estates and rights granted by the Security Instruments shall terminate, otherwise same shall remain in full force and effect. The reference to Permitted Encumbrances hereinabove is not intended to be an acknowledgment, adoption or ratification by Grantor or Grantee (by its acceptance of this Mortgage) that such Permitted Encumbrances are enforceable or binding against the Mortgaged Property or against the rights of Grantee hereunder, nor is it intended that this Mortgage, the Mortgaged Property or the rights of Grantee hereunder shall be subject to, or encumbered by, any Permitted 8 Encumbrance except to the extent that, in each case, this Mortgage, the Mortgaged Property, or the rights of Grantee hereunder, without any reference herein to such Permitted Encumbrance, would be as a matter of law subject to, or encumbered by, such Permitted Encumbrance. This Mortgage has been executed by Grantor pursuant to Article 3298 of the Louisiana Civil Code for the purpose of securing the Indebtedness and performance of the Obligations that may now be existing and/or that may arise in the future as provided herein, with the preferences and priorities provided under applicable Louisiana law. However, nothing under this Mortgage shall be construed as limiting the duration of this Mortgage or the purpose or purposes for which the Indebtedness may be requested or extended. 2.02 Security Interest: Grantor does by these presents specifically hypothecate, and grant a continuing security interest in favor of Grantee, as secured party, in all the Mortgaged Property that is susceptible of a security interest under Chapter 9 of the Louisiana Commercial Laws (La. R.S. 10:9-101 et seq.) for the purposes of securing the Indebtedness and Obligations up to - ------ the Maximum Amount. ARTICLE III ASSIGNMENT OF RENTS AND LEASES 3.01 Assignment: Grantor hereby pledges, grants, assigns, transfers and sets over unto Grantee, and grants Grantee a continuing security interest in, all of Grantor's right, title and interest in and to all current and future Rents and Leases that are susceptible of assignment under La. R.S. 9:4401 for the purpose of securing the Indebtedness and Obligation up to the Maximum Amount together with (a) all rights, remedies, benefits and advantages to be derived therefrom, (b) all of the right, power and authority of Grantor to alter, modify or change the terms of the Leases, or to surrender, cancel or terminate the same and (c) all Rents, arising from the Leases and renewals thereof, if any. Notwithstanding any other provision herein contained, the assignment of Rents and Leases contained herein is intended by Grantor and Grantee to be a collateral assignment, subject, however, to the license granted to Grantor pursuant to Section 3.02 hereof. ------------ 3.02 Collection of Rents: Grantor shall have a license (which license may, at the option of Grantee, be terminated upon the occurrence of an Event of Default) to collect, all Rents from the Mortgaged Property; provided, however, that all such Rents that are ever received by Grantor shall be applied first to pay the sums due and to be due upon the Indebtedness and otherwise to discharge the remaining items referred to in subparts (a), (b) and (c) of Section 3.04 ------------- --- --- ------------ below, and Grantor covenants and agrees, and represents and warrants to Grantee that upon the occurrence of an Event of Default, a constructive trust is hereby imposed upon such Rents for the benefit of Grantee. Grantee may make from time to time alterations, renovations, repairs or replacements to the Mortgaged Property as may seem proper to Grantee and apply such Rents to the payment of (a) the cost of all such alterations, renovations, repairs and replacements, and expenses incident to taking and retaining possession of the Mortgaged Property, and the management and operation thereof, and keeping the same properly insured, and (b) all taxes, charges, claims, assessments, water rents, and any other liens which may be prior in lien or payment to the mortgage debt, and premiums for said insurance, with interest on all such items and (c) the Indebtedness, together with all costs and attorney's fees, in such order of priority as to any of such items as Grantee in its sole discretion may determine. Notwithstanding anything contained herein or in any other Security Instrument to the contrary, possession of the Mortgaged Property by Grantee shall not be a prerequisite to Grantee's right to collect Rents upon the occurrence of an Event of Default, it being hereby declared that the 9 Assignment of Rents and Leases set forth herein is absolute and unconditional and, subject only to the license hereinabove granted, shall entitle Grantee to collect all Rents. 3.03 Default: Upon the occurrence of an Event of Default hereunder, then the assignment granted in this Mortgage shall automatically become absolute as provided in La. R.S. 9:4401, and Grantee, without in any way waiving such default, at its option, upon notice and without regard to the adequacy of the security for the Indebtedness and performance of the Obligations or to whether it has exercised any of its other rights or remedies hereunder, shall have the right to directly collect and receive all Rents and any other proceeds and/or payments arising under or in any way accruing under the Leases assigned herein, as such amounts become due and payable and to apply the same to the Indebtedness as provided herein. In order to permit the foregoing, Grantor unconditionally agrees to deliver to Grantee, immediately following demand, any and all of Grantor's records, ledger sheets, and other documentation, in the form requested by Grantee, with regard to the Leases and the Rents any and all proceeds and/or payments applicable thereto. Grantee shall have the further right, upon the occurrence of an Event of Default, where appropriate and within Grantee's sole discretion, to file suit, either in Grantor's own name or in the name of Grantee, to collect any and all Rents and other proceeds and payments that may then and/or in the future be due and owing under and/or as a result of the Leases assigned herein. Where it is necessary for Grantee to attempt to collect any such Rents and other proceeds and/or payments from the obligors therefor, Grantee may compromise, settle, extend, or renew for any period (whether or not longer than the original period) any obligation or indebtedness thereunder or evidenced thereby, or surrender, release, or exchange all or any part of said obligation or indebtedness, without affecting the liability of Grantee under this Mortgage or under the Indebtedness. To that end, Grantor hereby irrevocably constitutes and appoints Grantee as its attorney-in-fact, coupled with an interest and with full power of substitution, to take any and all such actions and any and all other actions permitted hereby, either in the name of Grantor or Grantee. In order to permit the foregoing, Grantee shall have the additional irrevocable right, coupled with an interest, to: (a) remove any and all of Grantor's documents, instruments, files and records relating or pertaining to the Leases and/or the Rents from any premises where the same shall then be located; (b) at Grantor's sole cost and expense, use such of Grantor's personnel, supplies and space at Grantor's place or places of business as may be necessary and proper within Grantee's sole discretion, to administer collection of such proceeds and/or payments; (c) receive, open and dispose of all mail addressed to Grantor pertaining to any of the Leases and/or the Rents and proceeds and/or payments thereunder; (d) notify the postal authorities to change the address and delivery of mail addressed to Grantor pertaining to any of the Leases and/or Rents and proceeds and/or payments thereunder, to such address as Grantee may designate; (e) endorse Grantor's name on any and all notes, acceptances, checks, drafts, money orders, or other evidences of payment of such proceeds and/or payments that may come into Grantee's possession, and to deposit or otherwise collect the same; (f) prepare and mail invoices and/or statements to such obligors and/or debtors; (g) send verifications of amounts owed to such obligors and/or debtors; and (h) execute in Grantor's name affidavits and/or notices with regard to lien rights available to Grantor in connection with such Leases and/or Rents. In the event that Grantor should, for any reason whatsoever, receive any proceeds derived from the sale, lease, insurance loss, damage and/or condemnation, of all or any part of 10 said premises and/or the Leases or Rents, or should Grantor receive any other payments under the Leases or Rents as provided hereunder (with such proceeds and/or payments being hereinafter individually, collectively and interchangeably referred to as Grantor's "Rent Funds"), following notice to the obligors or debtors thereunder to make their respective payments directly to Grantor, Grantor shall hold such Rent Funds in trust for and on behalf of Grantee, and Grantor hereby unconditionally agrees to remit or to otherwise turn over such Rent Funds to Grantee immediately following demand. Should Grantor deposit any such Rent Funds into one or more of Grantor's deposit accounts, no matter where located, Grantee shall have the additional right to attach any and all of Grantor's deposit accounts in which Grantee may prove such Rent Funds were deposited, whether or not such Rent Funds are or were commingled with other moneys of Grantor, and whether or not such Rent Funds then remain on deposit in such an account or accounts. Anything to the contrary in this Mortgage notwithstanding, Grantee will not be deemed or construed to have taken possession of said premises or to be managing it by reason of its exercise of any of its rights or remedies under this Paragraph. 3.04 Possession: Grantor hereby authorizes Grantee, at Grantee's option, upon any taking by Grantee of possession of the Mortgaged Property hereunder, to let or relet the Mortgaged Property or any part thereof, to cancel and modify leases, evict tenants, bring or defend any suits in connection with the possession of the Mortgaged Property in its own name or Grantor's name, make repairs as Grantee deems appropriate, and perform such other acts in connection with the management and operation of the Mortgaged Property as Grantee, in its discretion, may deem proper. The receipt by Grantee of any Rents pursuant to this assignment after the institution of foreclosure proceedings under this Mortgage shall not cure any default nor affect such proceedings or sale pursuant thereto. 3.05 Grantor's Obligations: Grantee shall not be obligated to perform or discharge, nor does it hereby undertake to perform or discharge, any obligation, duty or liability under the Leases or under or by reason of this assignment; and Grantor shall and does hereby agree to perform and discharge any and all obligations, duties and liabilities of Grantor under the terms of any of the Leases and to indemnify Grantee for and to hold Grantee harmless of and from any and all liability, loss or damage which it may or might incur under the Leases or under or by reason of this assignment, and of and from any and all claims and demands whatsoever which may be asserted against it by reason of any alleged obligations or undertakings on its part to perform or discharge any of the terms, covenants or agreements contained in the Leases, except for matters caused by Grantee's gross negligence or willful acts. Should Grantee incur any liability, loss or damage under the Leases or under or by reason of this assignment, or in the defense of any such claims or demands, the amounts thereof, including costs, expenses and reasonable attorney's fees, shall be secured by this Mortgage; and Grantor shall reimburse Grantee therefor immediately upon demand, and upon failure of Grantor so to do Grantee may declare all sums secured by this Mortgage immediately due and payable. 3.06 Payment of Indebtedness; Performance of Obligations: Upon payment in full of all Indebtedness and the complete and timely performance and discharge of the Obligations, this assignment shall become and be void and of no effect; but the affidavit, certificate, letter or statement of any officer, supervisor or attorney of Grantee, showing any part of said Indebtedness to 11 remain unpaid, shall be and constitute conclusive evidence of the validity, effectiveness and continuing force of this assignment, and any person may be and is hereby authorized to rely thereon. A demand on the tenants by Grantee for the payment of the Rents on any default claimed by Grantee shall be sufficient notice to said tenants to make future payments of Rents to Grantee, without the necessity of further consent by said Grantor. 3.07 Release: Grantee may take or release other security, may release any party primarily or secondarily liable for any Indebtedness secured hereby, may grant extensions, renewals or indulgences with respect to such Indebtedness, and may apply any other security therefor held by it to the satisfaction of such indebtedness, without prejudice to any of its rights hereunder. 3.08 Waiver: Nothing herein contained and no act done or omitted by Grantee pursuant to the powers and rights granted it herein shall be deemed to be a waiver by Grantee of its rights and remedies under the Settlement Agreement, the Note or any of the Security Instruments, but this assignment is made and accepted without prejudice to any of the rights and remedies possessed by Grantee under the terms thereof. The right of Grantee to collect said Indebtedness and to enforce any other security therefor owned by it may be exercised by Grantee either prior to, simultaneously with, or subsequent to any action taken by it under this assignment. This assignment and the powers and rights granted are separate and independent from any obligation contained elsewhere in this Mortgage and may be enforced without regard to whether Grantee institutes foreclosure proceedings under this Mortgage. ARTICLE IV ASSIGNMENT OF CONTRACTS AND SALES PROCEEDS 4.01 Assignment: As additional security for payment of the Indebtedness and the performance of the Obligations, Grantor hereby pledges, grants, assigns, transfers, sets over unto Grantee, and grants Grantee a continuing security interest in, all of Grantor's right, title and interest in, to and under the Contracts, including, but not limited to (a) any and all rights of Grantor to receive the Proceeds and (b) any and all rights and remedies which Grantor may have against any other party to any of the Contracts, whether related to the payment of any portion of the Proceeds or otherwise. 4.02 Grantee in Possession: These presents shall not be deemed or construed to constitute Grantee as mortgagee in possession of the Mortgaged Property or to obligate Grantee to take any action hereunder, to incur expenses or to perform or discharge any obligation, duty or liability hereunder or under the Contracts. Until all Indebtedness shall have been paid in full, and all Obligations are completely and timely performed and discharged, Grantor will from time to time execute and deliver unto Grantee upon demand any and all writings that Grantee may reasonably deem necessary or desirable to carry out the purpose and intent of this assignment, or to enable Grantee to enforce any right or rights hereunder. 4.03 Default: From and after the occurrence of an Event of Default and so long as such Event of Default shall be continuing (whether or not Grantee shall have exercised its option to 12 declare the Note or other Indebtedness evidenced by the Settlement Agreement immediately due and payable), all Proceeds assigned hereunder shall be paid directly to Grantee; and Grantee may notify the purchasers under the Contracts (or any other parties in possession of the Mortgaged Property) to pay all of the Proceeds directly to Grantee. All Proceeds so paid to Grantee shall be applied by Grantee, in its sole discretion, to the payment of the costs and expenses of the operation of the Mortgaged Property, to the payment of accrued interest and principal on the Indebtedness and/or the prepayment of the Indebtedness, all in such order and in such respective amounts as Grantee shall from time to time determine. 4.04 Possession: Grantor, upon the occurrence of an Event of Default, hereby authorizes Grantee, at its option, to enter and take possession of the Mortgaged Property and to manage, operate, develop and construct the same; to collect as herein provided all or any Proceeds payable under the Contracts; to consummate the transactions contemplated by the Contracts; to bring or defend any suits in connection with the possession of the Mortgaged Property, in Grantor's name or Grantee's own name; to make repairs as Grantee deems appropriate; and to perform such other acts in connection with the management, operation and development of the Mortgaged Property as Grantee, in its sole discretion, may deem proper. 4.05 Grantor's Obligations: Grantee shall not be obligated to perform or discharge any obligation or duty to be performed or discharged by Grantor under any of the Contracts; and Grantor hereby agrees to indemnify Grantee for, and to save Grantee harmless from, any and all liability arising from any of the Contracts or from this assignment. This assignment shall not place responsibility for the care, management, operation, upkeep, repair or control of the Mortgaged Property resulting in loss or damage or injury or death to any party; provided, however, the aforesaid indemnity and save harmless of Grantor shall not apply to any liability caused by Grantee's gross negligence or willful misconduct occurring while Grantee has actual possession of the Mortgaged Property and is operating same pursuant thereto, upon foreclosure or otherwise. 4.06 Foreclosure: The receipt by Grantee of any Proceeds pursuant to this assignment after the institution of foreclosure proceedings under this Mortgage shall not cure any such Event of Default or affect such proceedings or any sale pursuant thereto. 4.07 Performance of Mortgage: The full performance of the Mortgage and the duly executed and delivered release of the Mortgaged Property shall render this assignment of no further force or effect from the date of such release forward. ARTICLE V WARRANTIES AND REPRESENTATIONS Grantor hereby unconditionally warrants and represents to Grantee as follows: 5.01 Access and Utilities: The Mortgaged Property has adequate rights of access to public ways and all water, sanitary sewer and storm drain facilities. All public utilities necessary or convenient to the full use and enjoyment of the Mortgaged Property are connected so as to fully serve the Mortgaged Property. To the best of Grantor's knowledge after due inquiry, all roads 13 necessary for the full utilization of the Mortgaged Property for its intended purposes have been completed, dedicated to public use and accepted by the appropriate Governmental Authority. 5.02 Lien Potential: Grantor has not made any contract or arrangement of any kind, which has given rise to (or the performance of which by the other party thereto would give rise to) a lien or claim of lien on the Mortgaged Property or other collateral covered by the Security Instruments, except for the collateral documents executed in connection with the Loans. 5.03 Title to the Property: Grantor has good and indefeasible title to the Land in full ownership and the Mortgaged Property, free and clear of any liens, charges, encumbrances, security interests and adverse claims whatsoever, subject only to the Permitted Encumbrances. The reference to Permitted Encumbrances hereinabove is made for the purpose of giving effect to the warranty of Grantor contained herein, and is not intended to limit or restrict the description of the Mortgaged Property, nor is it intended that this Mortgage or the rights of Grantee hereunder shall be subject to, or encumbered by, the Permitted Encumbrances. 5.04 Leases: Grantor has full right, title, power and authority to assign the Leases and the Rents, income and profits due or to become due thereunder and no other assignment of any interest in the Leases has been made by Grantor. There are no existing defaults under the provisions of the Leases. Grantor has not performed any act or executed any instrument which might prevent Grantee from operating under any terms and conditions of the Assignment of Rents and Leases contained in Article III of this Mortgage or which would ----------- limit Grantee in such operation. Grantor has not accepted and will not accept Rents under any Lease for any period subsequent to the current period for which Rent has already become due, except as otherwise permitted by this Mortgage. 5.05 Contracts and Proceeds: (a) Grantor has the full right, power and capacity to assign the Contracts and Proceeds and no person, firm or corporation other than Grantor or Grantee has or will have (i) any right, title or interest in, to or under the Contracts, as seller thereunder or (ii) any right to receive the Proceeds or any part thereof. Grantor will perform and discharge all of Grantor's obligations and undertakings as seller under the Contracts. Grantor will use all reasonable efforts to enforce or secure the performance of each and every obligation and undertaking of the purchasers under the Contracts and will appear in and prosecute or defend any action or proceeding arising under, or in any manner connected with, the Contracts or the obligations and undertakings of the purchasers thereunder. (b) Grantor will not, without the prior written consent of Grantee, (i) pledge, transfer, mortgage or otherwise encumber or assign any portion of the Proceeds or any of Grantor's rights under any of the Contracts, (ii) waive, excuse, condone or in any manner release or discharge any purchaser under any of the Contracts, (iii) disaffirm, cancel, terminate or consent to any surrender of any of the Contracts or (iv) modify, extend or in any way alter the terms of any of the Contracts so as to reduce or diminish or postpone Grantor's receipt of any portion of the Proceeds, except that Grantor may take in the ordinary course of business any such actions described in (i), (ii) and (iii) if taken to protect Grantor's interest in the Mortgaged Property or any portion thereof 14 and to obtain Proceeds from the sale thereof. Grantee shall not unreasonably withhold its approval with regard to any matter for which its approval is required under this Section. (c) There are no existing defaults under any of the Contracts and Grantor has not performed any act or executed any instrument which might prevent Grantee from operating under any of the terms and provisions of this Mortgage or which would limit Grantee in such operation. ARTICLE VI AFFIRMATIVE COVENANTS: Grantor hereby unconditionally covenants and agrees with Grantee as follows: 6.01 Payment and Performance: Grantor will pay the Indebtedness, as and when called for in the Security Instruments and will perform all of the Obligations in full and on or before the dates they are to be performed. 6.02 Compliance with Legal Requirements: Grantor will promptly and faithfully comply with, conform to and obey all present and future Legal Requirements, whether or not same shall necessitate structural changes in, improvements to, or interfere with the use or enjoyment of, the Mortgaged Property. 6.03 Payment of Impositions: Grantor will duly pay and discharge, or cause to be paid and discharged, the Impositions not later than the due date thereof, or the day any fine, penalty, interest or cost may be added thereto or imposed, or the day any lien may be filed, for the nonpayment thereof (if such day is used to determine the due date of the respective item), except and only to the extent that such Impositions are being Properly Contested. The term "Properly Contested" as used herein means that if an Imposition is not paid as ------------------ and when due or payable by reason of the Grantor's bona fide dispute concerning its liability to pay the same or concerning the amount thereof, that (a) such Impositions and any liens securing the same are being properly contested in good faith by appropriate proceedings promptly instituted and diligently conducted; (b) subject to the rights of the Senior Lender, the Grantor has established appropriate reserves as shall be required in conformity with generally accepted accounting principles in the United States of America in effect from time to time; (c) the non-payment of such Imposition will not have a material adverse effect and will not result in a forfeiture of any assets of the Grantor; (d) no lien is imposed upon any of the Grantor's assets with respect to such Imposition unless such lien is at all times junior and subordinate in priority to the liens in favor of Grantee (except only with respect to property taxes that have priority as a matter of applicable state law); (e) if the Imposition results from the entry, rendition or issuance against Grantor or any of its assets of a judgment, writ, order or decree, such judgment, writ, order or decree is stayed or bonded pending a timely appeal or other judicial review; and (f) if such contest is abandoned, settled or determined adversely to Grantor, Grantor forthwith pays such Imposition and all penalties and interest in connection therewith. 6.04 Repair: Grantor will keep the Mortgaged Property in good, working order and condition and will make all repairs, replacements, renewals, additions, betterments, improvements 15 and alterations thereof and thereto, interior and exterior, structural and nonstructural, ordinary and extraordinary, foreseen and unforeseen, which are necessary or reasonably appropriate to keep same in such order and condition. Grantor will also use its reasonable efforts to prevent any act or occurrence which might impair the value or usefulness of the Mortgaged Property for its intended usage as set forth in any plans and specifications for the Improvements submitted to Grantee or in the Security Instruments. In instances where repairs, replacements, renewals, additions, betterments, improvements or alterations are required in and to the Mortgaged Property on an emergency basis to prevent loss, damage, waste or destruction thereof, Grantor shall proceed to construct same, or cause same to be constructed, notwithstanding anything to the contrary contained in Section 7.02 hereof; provided, however, that in ------------ -------- ------- instances where such emergency measures are to be taken, Grantor will promptly notify Grantee in writing of the commencement of same and the measures to be taken, and when same are completed, the completion date and the measures actually taken. 6.05 Insurance: Grantor shall obtain and maintain insurance upon and relating to the Mortgaged Property in accordance with the provisions of the Note. 6.06 Restoration Following Casualty: If any act or occurrence of any kind or nature (including any casualty for which insurance was not obtained or obtainable) shall result in damage to or loss or destruction of the Mortgaged Property, Grantor will give notice thereof to Grantee. 6.07 Leases and Rents: Grantee shall, at any time subsequent to, and during the continuance of, an Event of Default, have the right to collect all Rents due and owing from the Mortgaged Property directly from any lessee, tenant or any other obligor obligated to pay the same. After the occurrence and during the continuance of an Event of Default, Grantee at any time may contact each and every such lessee, tenant or obligor and any other party obligated on the Leases, informing them to make payment of all sums due and owing Grantor or any other party directly to Grantee to the credit of Grantor. After the occurrence and during the continuance of an Event of Default, Grantee may demand, sue for, compromise and collect any Rents, either under its own name or in the name of Grantor, with or without the consent of Grantor. 6.08 Defense of Title: If the interest of Grantee in, the Mortgaged Property hereby granted, or any part thereof, shall be endangered or shall be attacked, directly or indirectly, Grantor hereby authorizes Grantee, at Grantor's expense, to take all necessary and proper steps for the defense of such interest, including the employment of counsel, the prosecution or defense of litigation and the compromise or discharge of claims made against such interest in the Mortgaged Property. Grantor will indemnify and hold Grantee harmless from and against any and all loss, cost, damage, liability or expense incurred by Grantee in protecting its interests hereunder in such an event (including all court costs and reasonable attorneys' fees). 6.09 Future Impositions: If at any time any law shall be enacted imposing or authorizing the imposition of any tax upon this Mortgage or upon any rights, titles, liens or security interest created hereby or upon the Note, or any part thereof, Grantor shall immediately pay all such taxes; provided that, in the alternative, Grantor may, in the event of the enactment of such a law, and must, if it is unlawful for Grantor to pay such taxes, prepay the Note and all other Obligations in 16 full within 60 days after demand therefor by Grantee. Grantor shall, upon request, promptly furnish at any time and from time to time, a written statement or affidavit, in such form as may be required by Grantee, stating the amount of the unpaid balance of the Note and that there are no offsets or defenses against full payment of the Note and performance of the terms hereof or, if there are any such offsets and defenses, specifying them in detail. 6.10 Costs and Expenses: Except as provided in Section 6.03 hereof, Grantor shall pay when due all costs and expenses required by this Mortgage, which shall include, without limitation, (a) all taxes and assessments applicable to the Mortgaged Property, (b) all fees for filing or recording the Security Instruments, (c) all fees and commissions lawfully due to brokers, salesmen and agents in connection with the Loans or the Mortgaged Property, (d) all reasonable fees and expenses of counsel to Grantee, (e) all title insurance and title examination charges, (f) all survey costs and expenses, (g) all premiums for the insurance incurred by Grantee in connection with the consummation of the transactions contemplated by this Mortgage and (h) all appraisal fees for appraisal of all or any portion of the Mortgaged Property. 6.11 Change in Information: Grantor shall give the Grantee thirty (30) days notice prior to any change in Grantor's employer identification number by Grantor and shall give the Grantee notice of any change in Grantor's employer identification number that is not made by Grantor within thirty (30) days after such change. In the event of any change whatsoever in Grantor's employer identification number, Grantor will execute and file any new UCC-1 financing statements or any other documents that are necessary or desirable to preserve and continue the Grantee's security interest under this Mortgage within thirty (30) days after such change. 6.12 No Subordination. Mortgagor shall not subordinate any Lease to any ---------------- mortgage or other encumbrance (other than Liens in favor of Mortgagee or Senior Lender), or permit, consent or agree to such subordination. ARTICLE VII NEGATIVE COVENANTS Grantor hereby covenants and agrees with Grantee that, until the entire Indebtedness shall have been paid in full and all of the Obligations shall have been fully performed and discharged: 7.01 Use Violations: Grantor will not use, maintain, operate or occupy, or allow the use, maintenance, operation or occupancy of the Mortgaged Property in a manner which (a) violates any Legal Requirement, (b) may be dangerous unless safeguarded as required by law, (c) constitutes a public or private nuisance or (d) makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto. 7.02 Alterations: Grantor will not commit or permit any waste of the Mortgaged Property and will not (subject to the provisions of Section 6.04 ------------ herein), without the prior written consent of Grantee, make or permit to be made any alterations or additions to the Mortgaged Property of a material nature. 17 ARTICLE VIII PROVISIONS REGARDING ENVIRONMENTAL LAWS 8.01 Covenants Regarding Environmental Compliance: Grantor hereby covenants and agrees with Grantee as follows: (a) Hazardous Substance Use, Manufacture: Grantor shall not use, generate, manufacture, produce, store, release, discharge or dispose of on, under or about the Mortgaged Property or transport to or from the Mortgaged Property any Hazardous Substance, or allow any other person or entity to do so on the Mortgaged Property, except in compliance with all Legal Requirements (including all applicable Environmental Laws). (b) Compliance with Environmental Laws: Grantor shall keep and maintain the Mortgaged Property in compliance with, and shall not cause or permit the Mortgaged Property to be in violation of, any applicable Environmental Law. (c) Legal Proceeding: Grantee shall have the right, at its expense, to join and participate in, as a party if it so elects, any legal proceedings or actions initiated with respect to the Mortgaged Property in connection with any Environmental Law. (d) Remedial Work: In the event that any investigation, site monitoring, containment, cleanup, removal, restoration or other remedial work of any kind or nature (the "Remedial Work") is required to be undertaken under ------------- any applicable local, state or federal law or regulation, any judicial order, or by any governmental entity because of, or in connection with, the current or reasonably threatened future presence or release of a Hazardous Substance in or into the air, soil, groundwater, surface water or soil vapor at, on, about, under or within the Mortgaged Property (or any portion thereof), Grantor shall promptly after written demand for performance thereof by appropriate governmental authorities or Grantee (or such shorter period of time as may be required under any applicable law, regulation, order or agreement or, if any applicable law, regulation, order or agreement expressly specifies a longer period of time, such longer period), commence and thereafter diligently prosecute to completion, all such Remedial Work. ARTICLE IX EVENTS OF DEFAULT The term "Event of Default" shall mean the occurrence or happening, at ---------------- any time and from time to time, of any Event of Default under the Note. 18 ARTICLE X DEFAULT AND FORECLOSURE If an Event of Default shall occur and so long as it is continuing and subject to the rights of the Senior Lender, Grantee may exercise any or all of the following rights, remedies and recourses: 10.01 Acceleration: Grantee may declare the entire Indebtedness, including the Note, Principal Balance (defined hereby as meaning the then aggregate unpaid principal balance on the Note), the accrued interest and any other accrued but unpaid interest thereon, court costs and attorneys' fees hereunder immediately due and payable, without notice, presentment, protest, demand or action of any nature whatsoever (each of which hereby is expressly waived by Grantor), whereupon the same shall become immediately due and payable. 10.02 Entry on Mortgage Property: Grantee may enter upon the Mortgaged Property and take exclusive possession thereof and of all books, records and accounts relating thereto without notice and without being guilty of trespass. If Grantor remains in possession of all or any part of the Mortgaged Property after an Event of Default and without Grantee's prior written consent thereto, Grantee may, without notice to Grantor, invoke any and all legal remedies to dispossess Grantor, including specifically one or more actions for forcible entry and detainer, trespass to try title and writ of restitution. Nothing contained in the foregoing sentence shall, however, be construed to impose any greater obligation or any prerequisites to acquiring possession of the Mortgaged Property after an Event of Default than would have existed in the absence of such sentence. 10.03 Operation of Mortgaged Property: Grantee may hold, lease, manage, operate or otherwise use or permit the use of the Mortgaged Property, either itself or by other persons, firms or entities, in such manner, for such time and upon such other terms as Grantee may deem to be prudent and reasonable under the circumstances (making such repairs, alterations, additions and improvements thereto and taking any and all other action with reference thereto, from time to time, as Grantee shall deem necessary or desirable), and apply all Rents and other amounts collected by Grantee in connection therewith in accordance with the provisions of Section 10.12 herein. ------------- 10.04 Foreclosure and Sale: (a) Seizure and Sale of Mortgaged Property: In the event that Grantee elects to commence appropriate Louisiana foreclosure proceedings under this Mortgage, Grantee may cause the Mortgaged Property, or any part or parts thereof, to be immediately seized and sold, whether in term of court or in vacation, under ordinary or executory process, in accordance with applicable Louisiana law, to the highest bidder for cash, with or without appraisement, and without the necessity of making additional demand upon or notifying Grantor or placing Grantor in default, all of which are expressly waived. (b) Automatic Transfer of Rights: In the event of foreclosure under this Mortgage, or other transfer of title or assignment of the Mortgaged Property, or any part or parts thereof, in lieu of payment of the Indebtedness or Obligations, whether in whole or in part, all 19 policies of insurance and other incorporeal rights applicable to the foreclosed upon or transferred Mortgaged Property (collectively, the "Rights") shall automatically inure to the benefit of and shall pass to the purchaser(s) or transferee(s) thereof, subject to the rights of the purchaser(s) or transferee(s) to reject such insurance coverage and/or Rights at its or their sole option and election. (c) Additional Expenses: In the event that it should become necessary for Grantee to conduct a search for any of the Mortgaged Property in connection with any foreclosure action, or should it be necessary to remove the Mortgaged Property, or any part or parts thereof, from the premises in which or on which the Mortgaged Property is then located, and/or to store and/or refurbish such Mortgaged Property, Grantor agrees to reimburse Grantee for the cost of conducting such a search and/or removing and/or storing and/or refurbishing such Mortgaged Property, which additional expense shall also be secured by the lien of this Mortgage and the assignments and security interests created herein. (d) Purchaser: To the extent and under such circumstances as are permitted by law, Grantee may be a purchaser at any such sale. (e) Confession of Judgment: For purposes of foreclosure under Louisiana executory process procedures, Grantor confesses judgment and acknowledges to be indebted unto and in favor of Grantee, up to the full amount of the Indebtedness and Obligations, in principal, interest, costs, expenses, and attorneys' fees. To the extent permitted under applicable Louisiana law, Grantor additionally waives: (a) the benefit of appraisal as provided in Articles 2332, 2336, 2723 and 2724 of the Louisiana Code of Civil Procedure, and all other laws with regard to appraisal upon judicial sale; (b) the demand and three (3) days' delay as provided under Articles 2639 and 2721 of the Louisiana Code of Civil Procedure; (c) the notice of seizure as provided under Articles 2293 and 2721 of the Louisiana Code of Civil Procedure; (d) the three (3) days' delay provided under Articles 2331 and 2722 of the Louisiana Code of Civil Procedure; and (e) all other benefits provided under Articles 2331, 2722 and 2723 of the Louisiana Code of Civil Procedure and all other Articles not specifically mentioned above. (f) Seizure and Sale: Upon the occurrence of an Event of Default and at any time thereafter so long as the same shall be continuing, and in addition to all other rights and remedies granted Grantee hereunder, it shall be lawful for and Grantor hereby authorizes Grantee without making a demand or putting Grantor in Default, a putting in default being expressly waived, to cause all and singular the Mortgaged Property and/or the Collateral under Article XII hereof, or any part thereof, to be seized and sold after due process of law, Grantor waiving the benefit of any and all laws or parts of laws relative to the appraisement of property seized and sold under executory process or other legal process, and consenting that such Mortgaged Property or Collateral be sold without appraisement, either in its entirety, or in lots or parcels, as Grantee may determine, to the highest bidder for cash or on such other terms as Grantee in such proceedings may direct. Grantee should be granted all of the rights and remedies grant it hereunder as well as all of the rights and remedies granted mortgagees or secured parties under Louisiana law. 20 10.05 Specific Performance: Grantee may, in addition to the foregoing remedies, or in lieu thereof, in Grantee's sole discretion, commence an appropriate action against Grantor seeking specific performance of any covenant contained herein, or in aid of the execution or enforcement of any power herein granted. 10.06 Collect Revenues, Apply Account: Grantee shall have the right, at its sole option and election, to directly collect and receive all proceeds and/or payments arising under or in any way accruing from the Mortgaged Property, as such amounts become due and payable. In order to permit the foregoing, Grantor unconditionally agrees to deliver to Grantee, immediately following demand, any and all of Grantor's records, ledger sheets, and other documentation, in the form requested by Grantee, with regard to the Mortgaged Property and any and all proceeds and/or payments applicable thereto. Grantee shall have the further right within Grantee's sole discretion, to file suit, either in Grantee's own name or in the name of Grantor, to collect any and all proceeds and payments that may then and/or in the future be due and owing under this Mortgage, and if as a result of such it is necessary for Grantee to attempt to collect any such proceeds and/or payments from the obligors therefor, Grantee may compromise, settle, extend, or renew for any period (whether or not longer than the original period) any obligation or indebtedness thereunder or evidenced thereby, or surrender, release, or exchange all or any part of said obligation or indebtedness, without affecting the liability of Grantor under this Mortgage or under the Indebtedness or Obligations. To that end, Grantor hereby irrevocably constitutes and appoints Grantee as its attorney-in-fact, coupled with an interest and with full power of substitution, to take any and all such actions and any and all other actions permitted hereby, either in the name of Grantor or Grantee. 10.07 Keeper: Should any or all of the Mortgaged Property be seized as an incident to an action for the recognition or enforcement of this Mortgage, by executory process, sequestration, attachment, writ of fieri facias or otherwise, Grantor hereby agrees that the court issuing any such order shall, if requested by Grantee, appoint Grantee, or any agent designated by Grantee, or any person or entity named by Grantee at the time such seizure is requested, or any time thereafter, as Keeper of the Mortgaged Property as provided under La. R.S. 9:5136 et seq. Such a Keeper shall be entitled to reasonable -- --- compensation. Grantor agrees to pay the reasonable fees of such Keeper, which are hereby fixed at the greater of market rate or $50.00 per hour, which compensation to the Keeper shall also be secured by this Mortgage. 10.08 Public or Private Sale of Collateral: To the extent that any of the Collateral is then in Grantee's possession, Grantee shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in its own name or that of Grantor. Grantee may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Grantee will give Grantor reasonable notice of the time after which any private sale or any other intended disposition of the Collateral is to be made. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the Indebtedness and Obligations secured hereby and shall be payable on demand, with interest at the Default Rate from date of expenditure until repaid. Grantor agrees that any such sale shall be conclusively deemed to be conducted in a 21 commercially reasonable manner if it is made consistent with the standard of similar sales of collateral by commercial banks in Louisiana. 10.09 Separate Sales: Grantee may cause the seizure of all or any portion of the Mortgaged Property together or in lots or parcels and in such manner and order as Grantee, in its sole discretion, may elect. The foreclosure of less than the whole of the Mortgaged Property shall not exhaust the right of Grantee to institute successive foreclosures until the whole of the Mortgaged Property shall be foreclosed upon; and if the proceeds of such sale or sales of less than the whole of such Mortgaged Property shall be less than the aggregate of the Indebtedness and the expenses of foreclosure, this Mortgage and the lien, security interest and assignment hereof shall remain in full force and effect as to the unsold portion of the Mortgaged Property just as though no foreclosure had been made; provided, however, that Grantor shall never have any -------- ------- right to require the sale or sales of less than the whole of the Mortgaged Property, but Grantee shall have the right, at its sole election, to request the sale of less than the whole of the Mortgaged Property. If default is made hereunder, the holder of the Indebtedness or any part thereof on which the payment is delinquent shall have the option to proceed as if under a full foreclosure, conducting the sale as herein provided without declaring the entire Indebtedness due, and if sale is made because of default of an installment, or a part of an installment, such sale may be made subject to the unmatured portions of the Note and the Indebtedness; and such sale, if so made, shall not in any manner affect the unmatured part of the Indebtedness but as to such unmatured part, this Mortgage shall remain in full force and effect as though no sale had been made under the provisions of this paragraph. Any number of foreclosure sales may be made hereunder without exhausting the right of foreclosure for any unmatured part of the Indebtedness secured hereby. 10.10 Remedies Cumulative, Concurrent and Nonexclusive: Grantee shall have the rights, remedies and recourses granted in the Security Instruments and available at law or equity (including specifically those granted by the Uniform Commercial Code in effect and applicable to the Mortgaged Property or any portion thereof) and same (a) shall be cumulative and concurrent; (b) may be pursued directly, separately, successively or concurrently against Grantor, Maker, or others obligated under the Note, or against the Mortgaged Property, or against any one or more of them at the sole discretion of Grantee; (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse and (d) are intended to be, and shall be, nonexclusive. 10.11 Release of and Resort to Collateral: Any part of the Mortgaged Property may be released by Grantee without affecting, subordinating, noveting or releasing the lien, security interest and assignment hereof against the remainder. The lien, security interest and other rights granted hereby shall not affect or be affected by any other security taken for the same indebtedness or any part thereof. The taking of additional security, or the rearrangement, extension or renewal of the Indebtedness, or any part thereof, shall not release or impair the lien, security interest and other rights granted hereby or affect the liability of any endorser, guarantor or surety, or improve the right of any permitted junior lienholder; and this Mortgage, as well as any instrument given to secure any rearrangement, renewal or extension of the Indebtedness secured hereby, or any part thereof, shall 22 be and remain a first and prior lien, except as otherwise provided herein, on all of the Mortgaged Property not expressly released until the Indebtedness is completely paid. 10.12 Waiver of Redemption, Notice and Marshaling of Assets: To the fullest extent permitted by law, Grantor hereby irrevocably and unconditionally waives and releases (a) all benefits that might accrue to Grantor and/or Maker by any present or future laws exempting the Mortgaged Property from attachment, levy or sale on execution or providing for any appraisement, valuation, stay of execution, exemption from civil process, redemption or extension of time for payment; (b) all notices of any Event of Default (except as may be provided for under the terms hereof) or of Grantee's election to exercise or the actual exercise of any right, remedy or recourse provided for under the Security Instruments; (c) any right to appraisal or marshaling of assets or a sale in inverse order of alienation; (d) the exemption of homestead; and (e) the administration of estates of decedents, or other matter whatever to defeat, reduce or affect the right of Grantee under the terms of this Mortgage, to sell the Mortgaged Property for the collection of the Indebtedness secured hereby (without any prior or different resort for collection) or the right of Grantee, under the terms of this Mortgage, to the payment of the Indebtedness out of the proceeds of sale of the Mortgaged Property in preference to every other person and claimant whatever (only reasonable expenses of such sale being first deducted). 10.13 Discontinuance of Proceedings: In case Grantee shall have proceeded to invoke any right, remedy or recourse permitted under the Security Instruments and shall thereafter elect to discontinue or abandon the same for any reason, Grantee shall have the unqualified right so to do and, in such event, Grantor and Grantee shall be restored to their former positions with respect to the Indebtedness, the Obligations, the Security Instruments, the Mortgaged Property and otherwise, and the rights, remedies, recourses and power of Grantee shall continue as if same had never been invoked. 10.14 Application of Proceeds; Deficiency Obligation: The proceeds of any sale of, and the Rents and other income generated by the holding, leasing, operating or other use of, the Mortgaged Property shall be applied by Grantee (or the receiver, if one is appointed) to the extent that funds are so available therefrom as provided in the Note. 10.15 Purchase by Grantee: Grantee shall have the right to become the purchaser at the sale of the Mortgaged Property hereunder pursuant to any other means and shall have the right to be credited on the amount of its bid therefor all of the Indebtedness and Obligations due and owing as of the date of such sale. 10.16 Disaffirmation of Contracts: The purchaser at any foreclosure sale hereunder may disaffirm any easement granted, or rental, lease or other contract made in violation of any provisions of this Mortgage and may take immediate possession of the Mortgaged Property free from, and despite the terms of, such grant of easement and rental, lease or other contract. 23 ARTICLE XI CONDEMNATION If the Mortgaged Property, or any part thereof, shall be condemned or otherwise taken for public or quasi-public use under the power of eminent domain, or be transferred in lieu thereof, all damages or other amounts awarded for the taking of, or injury to, the Mortgaged Property shall be paid to the Grantee who shall apply the amounts so received as provided in the Note. ARTICLE XII SECURITY AGREEMENT 12.01 Security Interest: This Mortgage shall be construed as a mortgage lien and assignment of leases and rents on real or immovable property, and it shall also constitute and serve as a security agreement on personal or movable property within the meaning of, and shall constitute until this Mortgage shall terminate and be released as provided in Article II hereof, a first and prior ---------- pledge and assignment and a first and prior lien security interest under the Uniform Commercial Code in effect in the state where such property is situated with respect to the Mortgaged Property, Contracts, Proceeds, Personalty, Fixtures, Leases and Rents (collectively referred to as the "Collateral"). Grantor has granted, bargained, conveyed, assigned, transferred and set over, and by those presents does grant, bargain, convey, assign, transfer and set over unto Grantee a first and prior security interest in and to all of Grantor's right, title and interest in, to and under the Collateral, to secure the full and timely payment of the Indebtedness and the full and timely performance and discharge of the Obligations of Grantor and Maker. 12.02 Financing Statements: Contemporaneously with the execution of this Mortgage, Grantor has completed and signed one or more appropriate Louisiana UCC-1 financing statements with regard to the Mortgaged Property and the proceeds thereof. Grantor authorizes Grantee, at Grantor's expense, to file multiple originals, or photocopies, carbon copies or facsimile copies of such Louisiana UCC-1 financing statements with the appropriate filing officer or officers in the State of Louisiana, pursuant to the provisions of the Uniform Commercial Code. Grantor shall execute and deliver to Grantee, in form and substance satisfactory to Grantee, such Financing Statements and such further assurances as Grantee may, from time to time, consider reasonably necessary to create, perfect and preserve Grantee's security interest herein granted, and Grantee may cause such statements and assurances to be recorded and filed at such times and places as may be required or permitted by law to so create, perfect and preserve such security interest. 12.03 Uniform Commercial Code Remedies: Upon the occurrence of an Event of Default and so long as it is continuing and subject to the rights of the Senior Lender, Grantee shall have all the rights, remedies and recourses with respect to the Collateral afforded a secured party by the aforesaid Uniform Commercial Code in addition to, and not in limitation of, the other rights, remedies and recourses afforded by this Mortgage, the Security Instruments and at law. 12.04 No Obligation of Grantee: The assignment and security interest herein granted shall not be deemed or construed to constitute Grantee as a trustee in possession of the Mortgaged Property, to obligate Grantee to operate the Mortgaged Property or attempt to do the same, or take 24 any action, incur expenses or perform or discharge any obligation, duty or liability whatsoever under any of the Leases or otherwise. ARTICLE XIII MISCELLANEOUS 13.01 Survival of Obligations: Each and all of the Obligations shall survive the execution and delivery of the Security Instruments and the consummation of the loan called for therein and shall continue in full force and effect until the Indebtedness shall have been paid in full. 13.02 Further Assurances: Grantor, upon the request of Grantee, will execute, acknowledge, deliver and record and/or file such further instruments and do such further acts as may be necessary, desirable or proper to carry out more effectively the purposes of the Security Instruments, to subject to the liens and security interests thereof any property intended by the terms thereof to be covered thereby, including specifically, without limitation, any renewals, additions, substitutions, replacements or appurtenances to the Mortgaged Property, and to complete, execute, record and file any document or instrument necessary to place third parties on notice of the liens and security interests granted under the Security Instruments. Grantor hereby irrevocably appoints Grantee as its agent to execute and deliver all such instruments and additionally to record and file any of the same as may be necessary. 13.03 Recording and Filing: Grantor will cause the Security Instruments and all amendments and supplements thereto and substitutions therefor to be recorded, filed, re-recorded and refiled in such manner and in such places as Grantee shall reasonably request and will pay all such recording, filing, re-recording and refiling taxes, fees and other charges. 13.04 Notices: All notices or other communications required or permitted to be given pursuant to this Mortgage shall be in writing and shall be given in accordance with the Note except as otherwise may be required by applicable law. 13.05 No Waiver: Any failure by Grantee to insist, or any election by Grantee not to insist, upon strict performance by Grantor of any of the terms, provisions or conditions of the Security Instruments shall not be deemed to be a waiver of the same or of any other term, provisions or condition thereof, and Grantee shall have the right at any time thereafter to insist upon strict performance by Grantor of any and all of such terms, provisions and conditions. 13.06 Grantee's Right to Pay Indebtedness and Pay Obligations: If Maker, Grantor or any other party shall fail, refuse or neglect to make any required payment of the Indebtedness or perform any of the Obligations required by the Security Instruments, then at any time thereafter and without notice or demand upon Maker, Grantor or any other party, and without waiving or releasing any other right, remedy or recourse Grantee may have because of the same, Grantee may (but shall not be obligated to) make such payment or perform such act for the account of and at the expense of Grantor and shall have the right to enter upon the Mortgaged Property for such purpose and to take all such action thereon with respect to the Mortgaged Property as it may deem necessary or 25 appropriate. Grantor shall be obligated to repay Grantee for all sums advanced by it pursuant to this Section 13.06 and shall indemnify and hold Grantee ------------- harmless from and against any and all loss, cost, expense, liability, damage and claims and causes of action, including reasonable attorneys' fees, incurred or accruing by any acts performed by Grantee pursuant to the provisions of this Section 13.06 or by reason of any other provision of the Security Instruments. - ------------- All sums paid by Grantee pursuant to this Section 13.06 and all other sums ------------- extended by Grantee to which it shall be entitled to be indemnified, together with interest thereon at the maximum legal contract rate of interest that Grantee may charge Grantor from the date of such payment or expenditure, shall constitute additions to the Indebtedness and Obligations, shall be secured by the Security Instruments and shall be paid by Grantor to Grantee upon demand. 13.07 Covenants Running with the Land: All Obligations contained in the Security Instruments are intended by the parties to be and shall be construed as covenants running with the Mortgaged Property. 13.08 Successors and Assigns: All of the terms of the Security Instruments shall apply to, be binding upon and inure to the benefit of the parties thereto, their respective successors, assigns, heirs and legal representatives and all other persons claiming by, through or under them. 13.09 Severability: The Security Instruments are intended to be performed in accordance with, and only to the extent permitted by, all applicable Legal Requirements. If any provision of any of the Security Instruments or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of the instrument in which such provision is contained nor the application of such provision to other persons or circumstances or other instruments referred to hereinabove shall be affected thereby, but rather, the same shall be enforced to the greatest extent permitted by law. 13.10 Usury: It is the intention of Grantor, Maker and Grantee to conform strictly to the usury laws in force in the State of Texas. Therefore: (a) in the event that Indebtedness is prepaid or the maturity of the Indebtedness and Obligations is accelerated by reason of an election by Grantee, unearned interest shall be canceled and, if theretofore paid, shall either be refunded to Maker or credited on the Indebtedness, as Grantee may elect; (b) the aggregate of all interest and other charges constituting interest under applicable laws and contracted for, chargeable or receivable under the Note, the Indebtedness (if unpaid), the other Security Instruments or otherwise in connection with the loan transaction contemplated thereby shall never exceed the maximum amount of interest, nor produce a rate in excess of the maximum contract rate of interest that Grantee is authorized to charge Maker under applicable law and (c) if any excess interest is provided for, it shall be deemed a mistake, and the same shall, at the option of the Grantee, either be refunded to the Maker or credited on the unpaid principal amount (if any), and the Indebtedness shall be automatically reformed so as to permit only the collection of the maximum legal contract rate and the amount of interest. 13.11 Entire Agreement and Modification: The Security Instruments contain the entire agreements between the parties relating to the subject matter hereof and thereof, and all prior agreements relative thereto which are not contained herein or therein are terminated. The Security 26 Instruments may be amended, revised, waived, discharged, released or terminated only by a written instrument or instruments executed by the party against which enforcement of the amendment, revision, waiver, discharge, release or termination is asserted. Any alleged amendment, revision, waiver, discharge, release or termination which is not so documented shall not be effective as to any party. 13.12 Counterparts: This Mortgage may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute but one instrument. 13.13 Applicable Law and Uniform Commercial Code: The Security Instruments provide that to the extent permitted by otherwise applicable law, they are to be governed by, construed and enforced in accordance with the laws of the State of Texas. Notwithstanding such provisions, however, the terms and provisions of this Mortgage relating to the creation, perfection and enforcement of the liens and security interests created by this Mortgage and the realization by Grantee of its rights and remedies under this Mortgage or with respect to the Mortgaged Property or the Collateral in which a security interest is granted herein, shall be governed by, and construed and enforced in accordance with, the internal laws of the State of Louisiana. BORROWER HEREBY SUBMITS ITSELF TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF TEXAS AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THE SECURITY INSTRUMENTS OR THE INDEBTEDNESS BY ANY MEANS ALLOWED UNDER TEXAS OR FEDERAL LAW. VENUE FOR ANY LEGAL PROCEEDING MAY BE DALLAS COUNTY, TEXAS; PROVIDED, THAT Grantee MAY CHOOSE ANY VENUE IN ANY STATE THAT IT DEEMS APPROPRIATE IN THE EXERCISE OF ITS SOLE DISCRETION. 13.14 Headings and General Application: The article, section, paragraph and subparagraph entitlements hereof are inserted for convenience of reference only and shall in no way affect, modify or define, or be used in construing, the text of such article, paragraph or subparagraph. If the text requires, words used in the singular shall be read as including the plural, and pronouns of any gender shall include all genders. 13.15 Sole Benefit: This Mortgage and the other Security Instruments have been executed for the sole benefit of Grantor, Maker and Grantee and the successors, assigns and legal representatives of Grantee. No other party shall have rights thereunder nor be entitled to assume that the parties thereto will insist upon strict performance of their mutual obligations hereunder, any of which may be waived from time to time. Grantor and Maker shall have no right to assign any of their rights under the Security Instruments to any party whatsoever, including the right to receive advances under the Note or otherwise. 13.16 Subrogation: If any or all of the proceeds of the Indebtedness or Obligations have been used to extinguish, extend or renew any indebtedness heretofore existing against the Mortgaged Property or to satisfy any indebtedness or obligation secured by a lien or encumbrance of any kind (including liens securing the payment of any Impositions), such proceeds have been advanced by Grantee at Grantor's request, and to the extent of such funds so used, the Indebtedness 27 and Obligations in this Mortgage shall be subrogated to and extend to all of the rights, claims, liens, titles and interests heretofore existing against the Mortgaged Property pursuant thereto to secure the indebtedness or obligation so extinguished, paid, extended or renewed, and the rights, claims, liens, titles and interests of Grantee pursuant thereto, shall not be waived but rather shall be continued in full force and effect and in favor of Grantee and shall be merged with the lien and security interest created herein as cumulative security for the repayment of the Indebtedness and satisfaction of the Obligations. 13.17 Business or Commercial Purpose: Grantor warrants that the extensions of credit evidenced by the Note and the Security Instruments secured hereby are each solely for business or commercial purposes, other than agricultural purposes. The Grantor further warrants that the credit transactions evidenced by the Note and other Security Instruments are each specifically exempted under Section 226.3(a) of Regulation Z issued by the Board of Governors of the Federal Reserve System and Title 12 (Truth in Lending Act) and Section 1603 of Title 15 (General Provisions) of the Consumer Credit Protection Act and that no disclosures are required to be given under such regulations and federal laws in connection with the above transaction. 13.18 Not Acting as Agent: If Grantor is not a corporation, Grantor warrants and represents that it does not hold title as agent or trustee for a noncorporate entity. 13.19 ORAL AGREEMENTS INEFFECTIVE: THIS MORTGAGE REPRESENTS THE FINAL --------------------------- AGREEMENT BETWEEN THE PARTIES, AND THIS MORTGAGE MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 13.20 Limitation: Notwithstanding any other provision of this Mortgage, the maximum amount of the Indebtedness and Obligations secured hereby at any time from time to time shall be limited to the Maximum Amount. 13.21 Resolutions: Grantor does declare that attached hereto as Exhibit C --------- and made a part hereof is a certified copy of the resolutions adopted by the Board of Directors of Grantor authorizing the execution and delivery of this Mortgage. 13.22 No Paraph: The Note and other evidences of the Indebtedness have not been paraph for identification with this Mortgage. 13.23 Declaration of Fact: Should it become necessary for Grantee to foreclose under this Mortgage, all declarations of fact, which are made under an authentic act before a Notary Public in the presence of two witnesses, by a person declaring such facts to lie within his or her knowledge, shall constitute authentic evidence for purposes of executory process and also for purposes of La. R.S. 9:3509.1, La. R.S. 9:3504(D)(6) and La. R.S. 10:9-508, where applicable. 13.24 Acceptance: The acceptance of this Mortgage by Grantee is presumed and this Mortgage need not be signed by Grantee. 28 13.25 Note Controls: If any provision contained in this Mortgage is in direct conflict with, or inconsistent with, any provision in the Note, the provision in the Note shall govern and control; provided, however, (i) the provisions of this Mortgage shall govern and control over the terms of the Note to the extent that any provision of the Note would negate or adversely affect the enforceability, validity, perfection or priority of the lien and security interest created by this Mortgage, and (ii) the provisions of Article II and ---------- Sections 3.01, 4.01, and 13.20 hereof shall govern and control over the Note in - ------------- ---- ----- the event of a conflict. 13.26 Certificates: The parties to this Mortgage hereby waive the production of mortgage, conveyance, tax, paving, assignment of accounts receivable and other certificates and relieve and release the Notary before whom this Mortgage was passed from all responsibilities and liabilities in connection therewith. 13.27 Clerk of Court: The parties to this Mortgage hereby authorize, direct and instruct the East Baton Rouge Parish Clerk of Court to record this instrument in the records. 29 THUS DONE AND PASSED, in multiple originals, before me, the undersigned Notary Public, in and for the State of Texas, on the day and in the month and year first above written, in the presence of the undersigned competent witnesses, who hereunto sign their names with Grantor and me, said Notary Public, after reading of the whole. GRANTOR: WITNESSES: R.P.M. Engineering, Inc. __________________ a Louisiana corporation __________________ By:______________________________ Robert W. Raiford, Secretary ________________________________________________ NOTARY PUBLIC, In and for the State of Texas My Commission Expires: ______________ [NOTARY SEAL] 1 EXHIBIT "A" ----------- Land See attached. 1 EXHIBIT "B" ----------- Permitted Encumbrances See attached. B-1 EXHIBIT "C" ----------- Board Resolutions See attached. C-1 EX-10.48 11 dex1048.txt OPTION POOL AGREEMENT EXHIBIT 10.48 OPTION POOL AGREEMENT THIS OPTION POOL AGREEMENT (this "AGREEMENT") is entered into effective December 21, 2001 (the "EFFECTIVE DATE") by and between Industrial Data Systems Corporation, a Nevada corporation (together with its existing and future subsidiaries, "IDS" or the "COMPANY"), and Alliance 2000, Ltd., a Texas limited partnership ("ALLIANCE"). RECITALS Alliance and IDS desire to provide an incentive for key employees of IDS to remain in the service of IDS, to extend to them the opportunity to acquire a proprietary interest in IDS so that they will apply their best efforts for the benefit of IDS, and to aid IDS in attracting able persons to enter the service of IDS; Alliance has agreed, in accordance with the terms of that certain Agreement and Plan of Merger dated July 31, 2001, to give certain employees of Petrocon and certain current and future employees of IDS an option to acquire up to 2,600,000 shares of the common stock, par value $.001 per share (the "COMMON STOCK"), of IDS held by Alliance in accordance with the terms of this Agreement; NOW, THEREFORE, the parties agree as follows: 1. Option Pool. Alliance hereby agrees to hold 2,600,000 shares of Common Stock, (the "OPTION SHARES") and to grant options (the "ALLIANCE OPTIONS") to acquire the Option Shares, in such amounts and to such persons as are determined from time to time from the Effective Date until the Termination Date (as defined below) by the mutual agreement of the General Partner of Alliance and the Shareholder Representative of the Significant PEI Shareholders as those terms are defined in that certain Voting Agreement dated of even date herewith by and between the Significant PEI Shareholders and Michael L. Burrow in his capacity as the Shareholder Representative. If any of the options granted pursuant to this Agreement lapse prior to their exercise, then the General Partner of Alliance and the Shareholder Representative shall determine, by mutual agreement, the persons and the amounts in which further options shall be granted; provided however, at no time shall the Alliance Options (including any Alliance Options which have been exercised) exceed the right to acquire 2,600,000 shares of Common Stock. This Agreement shall terminate on December 21, 2006 (the "TERMINATION DATE"). 2. Option Agreements. The options shall be granted pursuant to option agreements in the form of the agreement set forth on Exhibit A and no changes may be made in the form or substance of the Option Agreements without the prior written consent of Alliance and the Company. 3. Reclassification. If IDS at any time shall, by subdivision, combination or reclassification of securities or otherwise, change any of the securities covered by the Option Pool into the same or a different number of securities of any class or classes, or a dividend or other distribution is issued with respect to the Option Shares, this Agreement shall thereafter represent a right to grant options with respect to such number and kind of securities and the dividend or other distribution as were issued as the result of such change. 1 4. Miscellaneous. (a) Binding. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors or assigns. There are no third party beneficiaries to this Agreement, and the only entitlement to receive an option hereunder shall be obtained by the grant of an actual option agreement. THIS AGREEMENT SHALL CONSTITUTE A CONTRACT UNDER THE LAWS OF THE STATE OF TEXAS AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF TEXAS EXCLUDING CHOICE OF LAW AND CONFLICT OF LAW PRINCIPLES THAT DIRECT THE APPLICATION OF THE LAWS OF A DIFFERENT STATE. Venue for any disputes arising under this Agreement shall be in Harris County, Texas, and the parties agree to submit such disputes to the state and federal courts therein. (b) Restrictions. Alliance agrees that it shall, at all times, retain at least the number of shares for which options have been granted or may be granted hereunder, and that it shall not sell or transfer shares of Common Stock to the extent such sale or transfer would reduce the number of Shares that it holds to fewer shares than are redeemable hereunder. (c) Waivers and Amendments. This Agreement and any provisions hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought; provided that any agreement on the part of IDS to amend this Agreement must be approved by a majority of the disinterested directors of IDS. (d) Assignment and Transferability. This Agreement may not be assigned or transferred to any person or entity without the consent of the other parties. (e) Legend on Share Certificates. The certificates representing the Option Shares shall bear the following legend: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO (I) AN OPTION POOL AGREEMENT TO WHICH THE COMPANY IS A PARTY AND (II) OPTION AGREEMENTS GRANTING CERTAIN INDIVIDUALS RIGHTS TO PURCHASE SOME OR ALL OF SUCH SHARES. COPIES OF THE OPTION POOL AGREEMENT AND THE OPTION AGREEMENTS ARE ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY. (f) Counterparts; Facsimile Signatures, Etc. This Agreement may be executed by facsimile and in two or more counterparts, each of which shall be deemed an original and all of which taken together shall constitute one agreement. Signatures transmitted via facsimile shall be deemed originals for purposes of this Agreement. 2 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date set forth above. ALLIANCE 2000, LTD., a Texas limited partnership By: --------------------------------- William A. Coskey, General Partner By: ---------------------------------- Hulda Coskey, General Partner INDUSTRIAL DATA SYSTEMS CORPORATION, a Nevada corporation By: --------------------------------- William A. Coskey, President Address: 600 Century Plaza Drive, Building 140 Houston, Texas 77073 3 EXHIBIT A FORM OF OPTION AGREEMENT 4 EX-10.49 12 dex1049.txt INDEMNIFICATION ESCROW AGREEMENT EXHIBIT 10.49 INDEMNIFICATION ESCROW AGREEMENT THIS INDEMNIFICATION ESCROW AGREEMENT (the "Agreement") is made effective as of the Effective Time (as defined in the Merger Agreement (as defined below)) by and among Industrial Data Systems Corporation, a Nevada corporation ("Parent"), PEI Acquisition, Inc., a Texas corporation, all of whose capital stock is owned (indirectly through ownership of IDS Engineering Management, LC, a Texas limited liability company) by Parent (the "Purchaser"), the persons and entities listed on the attached Schedule 1 (the "Significant PEI ---------- Shareholders"), Michael L. Burrow, acting as the shareholder representative for the Significant PEI Shareholders (the "Shareholder Representative"), and Johnny J. Williams, Esq., whose office address is 13831 Northwest Freeway, Suite 155, Houston, Texas 77040 (the "Escrow Agent"). RECITALS: -------- A. Parent, Purchaser, IDS Engineering Management, LC, a Texas limited liability company, and Petrocon Engineering Inc., a Texas corporation ("PEI"), entered into a Merger Agreement on or about July 31, 2001 (the "Merger Agreement"). B. Pursuant to the Merger Agreement, the Significant PEI Shareholders are to deposit 1,000,000 shares of the Parent's common stock, par value $.001 per share (the "Common Stock" or the "Escrow Shares"), into an escrow created by this Agreement, which shall be a fund against which the Purchaser shall make any claims for indemnity pursuant to the Merger Agreement. C. This Agreement, together with the Merger Agreement, shall govern the terms upon which Escrow Agent may distribute the Escrow Shares to Purchaser and to the Significant PEI Shareholders. Capitalized terms used in this Agreement but not defined herein shall have the definition ascribed to them in the Merger Agreement. NOW, THEREFORE, in consideration of the promises contained herein and in the Merger Agreement and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: AGREEMENT: 1. Appointment of Escrow Agent; Delivery of Escrow Shares. Each of the ------------------------------------------------------ Parent, Purchaser, and the Shareholder Representative hereby appoints Johnny J. Williams as Escrow Agent, and Escrow Agent hereby accepts such appointment. Immediately after the Closing of the Merger Agreement, the Shareholder Representative shall deliver or cause to be delivered to Escrow Agent, two original share certificates, one in the amount of 230,993 shares and another in the amount of 500,000 shares of Common Stock, registered in the name of the Shareholder Representative as agent for the Significant PEI Shareholders, and representing the Escrow Shares, together with a fully executed blank stock power bearing the name of Escrow Agent as the transferee. 2. Claim Certificates. Purchaser or Parent (the "Claimant"), from time ------------------ to time on or prior to the second anniversary of the Closing, may make a claim to some or all of the Escrow Shares (a "Claim") by delivering to Escrow Agent a certificate (a "Claim Certificate") signed by the president or a vice president of Purchaser or Parent, as applicable, stating: (a) That the Claimant is entitled to be indemnified under the Merger Agreement or reasonably expects to have a claim for such indemnification; (b) The reasons therefor, set forth in reasonable detail; (c) The amount of the claim, which shall be the amount reasonably estimated by the Purchaser or Parent where the amount of the claim is not a liquidated sum, and which shall, together with all other claims, exceed the $100,000 threshold specified in the Merger Agreement, and (d) That Claimant has delivered a copy of the Claim Certificate to the Shareholder Representative and the date on which the copy was delivered. 3. Disputed Claims. The Shareholder Representative may dispute or object --------------- to any Claim, in whole or in part, by delivering to Escrow Agent a notice (an "Objection Notice") within 30 days of receipt of the Claim Certificate stating: (a) That the Shareholder Representative disputes or objects to such Claim; (b) The reasons for such objections or dispute, set forth in reasonable detail; (c) That the Shareholder Representative has delivered a copy of the Objection Notice to Claimant and the date on which such copy was delivered; and (d) The portion of the Claim set forth in the Claim Certificate, if any, which is not disputed or objected to. Whenever there shall be delivered to Escrow Agent an Objection Notice, Claimant and the parties shall invoke the conciliation and arbitration procedures set forth in the Merger Agreement. Any claim which is disputed or objected to by the Shareholder Representative shall, to the extent of such dispute or objection, constitute a "Disputed Claim." 4. Distribution of Escrow Shares. ----------------------------- (a) If Escrow Agent receives from the Shareholder Representative written notice of consent or agreement to all or part of a Claim, or fails to receive a timely Objection Notice, Escrow Agent shall thereupon promptly deliver to Claimant from the Escrow Shares a number of shares (rounded to the nearest whole share) equal to the amount of such Claim divided by the Fair Market Value (as herein defined) per share of the Escrow Shares. The "Fair Market Value" per share of the Escrow Shares shall be the greater of (i) the average closing price per share of the Escrow Shares over the 30 trading days prior to the day before the delivery of such shares to Claimant; or (ii) $0.75. 2 (b) If the Escrow Shares are not sufficient to pay in full any amounts payable to Claimant under Section 4(a), Escrow Agent shall transfer all remaining shares to Claimant. (c) If the Escrow Agent receives a timely Objection Notice with respect to any Claim and the parties invoke the conciliation and arbitration provisions in the Merger Agreement, then, upon obtaining a Final Decision with respect to such Claim, Escrow Agent shall transfer the Escrow Shares to Claimant or to the Significant PEI Shareholders, as provided in the Final Decision. "Final Decision" means a decision, order, judgment or decree of an arbitrator or court having jurisdiction which is either not subject to appeal or as to which notice of appeal has not been timely filed or served. (d) With respect to any distribution of the Escrow Shares to the Significant PEI Shareholders, each Significant PEI Shareholder shall be entitled to receive such Significant PEI Shareholder's Pro Rata Share of the Escrow Shares, and with respect to any delivery of Escrow Shares to the Claimant in accordance with the terms hereof each Significant PEI Shareholder shall bear its Pro Rata Share of such reduction in the Escrow Shares. Each Significant PEI Shareholder's Pro Rata Share is as set forth on Schedule 1. ---------- 5. Adjustments to Escrow Shares; Dividends; Voting. ----------------------------------------------- (a) If Claimant or any Significant PEI Shareholder is entitled to receive any securities or other distributions in respect of or in exchange for any of the Escrow Shares (other than dividends declared by the Board of Directors of Parent on the Escrow Shares that are payable in cash), whether by way of stock dividends, share splits, recapitalizations, liquidations, mergers, consolidations, split-ups, spin-offs, redemptions, exchanges or conversions of shares and the like ("New Shares"), such Significant PEI Shareholder shall deliver share certificates representing such New Shares and such other distributions (registered in the name of the Shareholder Representative as agent for such Significant PEI Shareholder) to Escrow Agent, along with a fully executed blank stock power bearing the name of the Escrow Agent as the transferee. Upon receipt of such New Shares and other distributions, Escrow Agent shall hold in escrow such securities and the same shall be subject to all of the provisions of this Agreement relating to the Escrow Shares. Notwithstanding anything to the contrary herein, any dividend declared by the Board of Directors of Parent that is payable in cash with respect to the Escrow Shares shall not be delivered to the Escrow Agent and each Significant PEI Shareholder shall be entitled to receive such Significant PEI Shareholder's Pro Rata Share of such cash dividend. (b) Subject to the terms of the Voting Agreement, the Shareholder Representative shall have all voting rights with respect to the Escrow Shares for so long as such Escrow Shares are held in the Escrow Fund; provided that if -------- so directed by the Requisite Shareholders (as herein defined) with respect to any matter submitted to a vote of the stockholders of IDS, the Shareholder Representative shall, subject to the Voting Agreement, vote the Escrow Shares as directed by the Requisite Shareholders. "Requisite Shareholders" means, on any date of determination, Significant PEI Shareholders having a Pro Rata Share of 51% or more of the Escrow Shares. 3 6. Shareholder Representative as Agent. ----------------------------------- (a) Appointment. Each Significant PEI Shareholder hereby designates ----------- and appoints the Shareholder Representative as its Shareholder Representative and agent under this Agreement, and each Significant PEI Shareholder hereby irrevocably authorizes Shareholder Representative to execute and deliver the documents and to take such action or to refrain from taking such action on its behalf under the provisions of this Agreement and to exercise such powers as are set forth herein or therein, together with such other powers as are reasonably incidental thereto. In performing its functions and duties under this Agreement, Shareholder Representative shall act solely as agent of the Significant PEI Shareholders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for Purchaser or Parent. (b) Nature of Duties. The duties of the Shareholder Representative ---------------- shall be mechanical and administrative in nature. The Shareholder Representative shall not have by reason of this Agreement a fiduciary relationship in respect of any Significant PEI Shareholder. Nothing in this Agreement, express or implied, is intended to or shall be construed to impose upon Shareholder Representative any obligations in respect of this Agreement except as expressly set forth herein or therein. If Shareholder Representative seeks the consent or approval of any Significant PEI Shareholder to the taking or refraining from taking any action hereunder, then Shareholder Representative shall send notice thereof to each Significant PEI Shareholder. Shareholder Representative shall promptly notify each Significant PEI Shareholder any time that the Requisite Shareholders have instructed Shareholder Representative to act or refrain from acting pursuant hereto. (c) Rights, Exculpation, Etc. Neither Shareholder Representative ------------------------ nor any of his agents shall be liable to any Significant PEI Shareholder for any action taken or omitted by them hereunder or under the Merger Agreement, or in connection herewith or therewith, except that Shareholder Representative shall be liable to the extent of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction. Shareholder Representative may at any time request instructions from the Significant PEI Shareholders with respect to any actions or approvals which by the terms of this Agreement, Shareholder Representative is permitted or required to take or to grant, and if such instructions are promptly requested, Shareholder Representative shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any person or entity for refraining from any action or withholding any approval under this Agreement until it shall have received such instructions from Requisite Shareholders or all or such other portion of the Significant PEI Shareholders as shall be prescribed by this Agreement. Without limiting the foregoing, no Significant PEI Shareholder shall have any right of action whatsoever against Shareholder Representative as a result of Shareholder Representative acting or refraining from acting under this Agreement in accordance with the instructions of Requisite Shareholders and, notwithstanding the instructions of Requisite Shareholders, the Shareholder Representative shall have no obligation to take any action if it believes, in good faith, that such action exposes Shareholder Representative to any liability for which it has not received satisfactory indemnification in accordance with Section 6(d) of this Agreement. 4 (d) Indemnification. Significant PEI Shareholders will reimburse and --------------- indemnify Shareholder Representative for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, reasonable attorneys' fees and expenses), advances or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Shareholder Representative in any way relating to or arising out of this Agreement or any action taken or omitted by Shareholder Representative under this Agreement, in proportion to each Significant PEI Shareholders' Pro Rata Share, but only to the extent that any of the foregoing is not reimbursed by Purchaser or Parent; provided, -------- however, that no Significant PEI Shareholders shall be liable for any portion of - ------- such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements to the extent resulting from Shareholder Representative's gross negligence or willful misconduct as determined by a court of competent jurisdiction. If any indemnity furnished to Shareholder Representative for any purpose shall, in the opinion of Shareholder Representative, be insufficient or become impaired, Shareholder Representative may call for additional indemnity and cease, or not commence, to do the acts indemnified against even if so directed by Requisite Shareholders until such additional indemnity is furnished. The obligations of the Significant PEI Shareholders under this Section 6(d) shall survive the termination of this Agreement. (e) Successor Shareholder Representative. ------------------------------------ (1) Resignation. Shareholder Representative may resign from the ----------- performance of all its agency functions and duties hereunder at any time by giving at least 30 days prior written notice to the Significant PEI Shareholders. Such resignation shall take effect upon the acceptance by a successor Shareholder Representative of appointment pursuant to Section 6(e)(2) or as otherwise provided below. (2) Appointment of Successor. Upon any such notice of resignation ------------------------ pursuant to Section 6(e)(1) or the death or disability of the Shareholder Representative, the Requisite Shareholders shall appoint a successor Shareholder Representative. If, with respect to a retiring Shareholder Representative, a successor Shareholder Representative shall not have been so appointed within the 30 day period referred to in Section 6(e)(1), the retiring Shareholder Representative, upon notice to the Escrow Agent, may petition any court of competent jurisdiction to appoint a successor Escrow Agent. The Shareholder Representative shall continue to serve until his successor is duly appointed and accepts such service. (3) Successor Shareholder Representative. Upon the acceptance of ------------------------------------ any appointment as Shareholder Representative under the Agreement by a successor Shareholder Representative, such successor Shareholder Representative shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Shareholder Representative, and the retiring Shareholder Representative shall be discharged from its duties and obligations under this Agreement. After any retiring Shareholder Representative's resignation as Shareholder Representative or upon the death or disability of the Shareholder Representative, the provisions of this Section 6(e)(3) shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Shareholder Representative. 5 7. Share Certificates. In connection with any issuance of Escrow Shares ------------------ to Claimant or to any Significant PEI Shareholder, Escrow Agent and Parent agree to take any and all actions necessary to cause a stock certificate evidencing the number of shares to be delivered to Claimant, delivered to the Significant PEI Shareholders or to Escrow Agent, as the case may be, as required or specified in this Agreement, including the issuance of stock certificates to each Significant PEI Shareholder evidencing the Pro Rata Share Significant of such Significant PEI Shareholder with respect to any distribution to the PEI Shareholders required by this Agreement. 8. Notices. All notices (including Objection Notices), certificates ------- (including Claim Certificates), payment, and distributions required or permitted to be given or delivered hereunder shall be deemed to have been properly given or delivered to the following addresses, if delivered in person, or, if mailed, on the second business day following the date when mailed by registered or certified mail, postage prepaid and addressed as follows: If to Purchaser: PEI Acquisition, Inc. Attn: William A. Coskey 600 Century Plaza Drive, Building 140 Houston, Texas 77073 With a copy (which shall not constitute notice) to: Jenkens & Gilchrist A Professional Corporation Attn: Kathryn K. Lindauer 600 Congress Avenue, Suite 2200 Austin, Texas 78701 If to Parent: Industrial Data Systems Corporation Attn: William A. Coskey 600 Century Plaza Drive, Building 140 Houston, Texas 77073 With a copy (which shall not constitute notice) to: Jenkens & Gilchrist A Professional Corporation Attn: Kathryn K. Lindauer 600 Congress Avenue, Suite 2200 Austin, Texas 78701 If to Shareholder Representative: Mr. Michael L. Burrow 3155 Executive Blvd. Beaumont, Texas 77705 6 With a copy (which shall not constitute notice) to: Gardere Wynne Sewell LLP Attn: Gary B. Clark 1601 Elm Street, Suite 3000 Dallas, Texas 75201 If to Escrow Agent: Johnny J. Williams 13831 Northwest Freeway, Suite 155 Houston, Texas 77040 or to such other address as a party shall designate by written notice to all other parties to the Agreement. 9. Escrow Agent. ------------ (a) Reliance. The Escrow Agent may act upon any instrument or other -------- writing believed by it in good faith to be genuine and to be signed or presented by the proper person or persons and shall not be liable in connection with the performance by it of its duties pursuant to the provisions hereof, except for its own willful misconduct or gross negligence. Purchaser and each Significant PEI Shareholder shall, jointly and severally, indemnify and hold harmless the Escrow Agent pursuant to Section 14 of the Agreement. (b) Successor Agent. --------------- (1) Resignation. Escrow Agent may resign from the performance of ----------- all its agency functions and duties hereunder at any time by giving at least 30 days prior written notice to Parent and the Shareholder Representative. Such resignation shall take effect upon the acceptance by a successor Escrow Agent of appointment pursuant to Section 9(b)(2) or as otherwise provided below. (2) Appointment of Successor. Upon any such notice of resignation ------------------------ pursuant to Section 9(b)(1) or the death or disability of the Escrow Agent, Parent and the Shareholder Representative shall, by mutual agreement, appoint a successor Escrow Agent. If, with respect to a retiring Escrow Agent, a successor Escrow Agent shall not have been so appointed within the 30 day period referred to in Section 9(b)(1), the retiring Escrow Agent, upon notice to Parent and the Shareholder Representative, may petition any court of competent jurisdiction to appoint a successor Escrow Agent. The retiring Escrow Agent shall continue to serve until his successor is duly appointed and accepts such service. (3) Successor Escrow Agent. Upon the acceptance of any appointment ---------------------- as Escrow Agent under the Agreement by a successor Escrow Agent, such successor Escrow Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Escrow Agent, and the retiring Escrow Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Escrow Agent's resignation as Escrow Agent or upon the death or disability of the Escrow Agent, the provisions of this Section 9(b)(3) shall inure to its benefit as to any actions taken or omitted to be taken by him while he was Escrow Agent. 7 10. Termination of Escrow. On the first anniversary of the date hereof, --------------------- all shares in excess of 500,000 Escrow Shares held by Escrow Agent pursuant to the terms of this Agreement, less a reasonable reserve (as determined by mutual agreement of Purchaser and the Shareholder Representative, but if they cannot agree, then by the Escrow Agent) to cover Disputed Claims (and interest thereon at the rate of 6% per annum), shall be distributed by Escrow Agent to the Significant PEI Shareholders or their respective successors or assigns. On the second anniversary of the date hereof, all remaining Escrow Shares held by Escrow Agent pursuant to the terms of this Agreement, less a reasonable reserve (as determined by mutual agreement of Purchaser and the Shareholder Representative, but if they cannot agree, then by the Escrow Agent) to cover Disputed Claims (and interest thereon at the rate of 6% per annum), shall be distributed by Escrow Agent to the Significant PEI Shareholders or their respective successors or assigns. With respect to Escrow Shares reserved to cover Disputed Claims, upon settlement of all such Disputed Claims, this escrow shall terminate, and all remaining Escrow Shares held by Escrow Agent shall be distributed by Escrow Agent to Parent or to the Significant PEI Shareholders, as provided in the Final Decision. 11. Fees and Expenses. The Escrow Agent shall not be entitled to ----------------- compensation for its services. Escrow Agent shall be reasonably compensated for services and reimbursed for all costs and expenses, including reasonable attorney's fees, occasioned by any delay, controversy, litigation or event, and the same shall be recoverable one-half from the Significant PEI Shareholders (with each Significant PEI Shareholder being responsible for its Pro-Rata Share of such one-half) and one-half from Purchaser. 12. Indemnification of Escrow Agent. Purchaser and each Significant PEI ------------------------------- Shareholder hereby agrees to jointly and severally indemnify and hold harmless Escrow Agent from and against, any and all loss, liability, cost, damage and expense, including, without limitation, reasonable attorneys' fees and expenses, which Escrow Agent may suffer or incur by reason of any action, claim or proceeding brought against Escrow Agent arising out of or relating in any way to this Agreement or any transaction to which this Agreement relates unless such action, claim or proceeding is the result of the willful misconduct or gross negligence of Escrow Agent. Escrow Agent may consult counsel in respect of any question arising under this Agreement or the Merger Agreement, and Escrow Agent shall not be liable for any action taken or omitted in good faith upon advice of such counsel. The Significant PEI Shareholders' portion of any indemnity pursuant to this Agreement shall be deducted from the Escrow Shares. 13. Counterparts. This Agreement may be executed by facsimile and in two ------------ or more counterparts, each of which shall be deemed an original and all of which taken together shall constitute one agreement. Signatures transmitted via facsimile shall be deemed originals for purposes of this Agreement. 14. Governing Law. This Agreement shall be construed, performed, and ------------- enforced in accordance with, and governed by, the internal laws of the State of Texas, without giving effect to the principles of conflict of laws thereof that direct the application of the laws of a different state. Venue for any disputes pursuant to this Agreement shall be in Harris County, Texas, and the parties agree to submit to the jurisdiction of the state and federal courts in Harris County, Texas. 8 15. Amendments. This Agreement may be amended or modified, and any of the ---------- terms, covenants, representations, warranties, or conditions hereof may be waived, only by a written instrument executed by the parties hereto, or in the case of a waiver, by the party waiving compliance. Any waiver by any party of any condition, or of the breach of any provision, term, covenant, representation, or warranty contained in this Agreement, in any one or more instances, shall not be deemed to be nor construed as further or continuing waiver of any such conditions, or of the breach of any other provision, term, covenant, representation, or warranty of this Agreement. 16. Section Headings. The section headings in this Agreement are for ---------------- reference purposes only and shall not affect the meaning or interpretation of this Agreement. 17. Severability. If any provision of this Agreement is held by final ------------ judgment of a court of competent jurisdiction to be invalid, illegal or unenforceable, such invalid, illegal or unenforceable provision shall be severed from the remainder of this Agreement, and the remainder of this Agreement shall be enforced. In addition, the invalid, illegal or unenforceable provision shall be deemed to be automatically modified, and, as so modified, to be included in this Agreement, such modification being made to the minimum extent necessary to render the provision valid, legal and enforceable. Notwithstanding the foregoing, however, if the severed or modified provision concerns all or a portion of the essential consideration to be delivered under this Agreement by one party to the other, the remaining provisions of this Agreement shall also be modified to the extent necessary to equitably adjust the parties' respective rights and obligations hereunder. [The Remainder of this Page is Intentionally Left Blank] 9 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed the day and year first above written. PETROCON ENGINEERING, INC. By: ______________________________________ Michael L. Burrow, President and Chief Executive Officer INDUSTRIAL DATA SYSTEMS CORPORATION By: ______________________________________ William A. Coskey, President PEI ACQUISITION, INC. By: ______________________________________ William A. Coskey, President SHAREHOLDER REPRESENTATIVE ______________________________________ Michael L. Burrow ESCROW AGENT ______________________________________ Johnny J. Williams, Esq. [Signature Page to Indemnification Escrow Agreement] SIGNIFICANT PEI SHAREHOLDERS: EQUUS II INCORPORATED, a Delaware corporation By: ______________________________________ Randall B. Hale, Vice President M.L. Burrow Family Partnership, Ltd.* Michael L. Burrow* Fahad Al-Tamimi* Norbert C. Roobaert* David L. Hopson* Jimmie N. Carpenter* Thomas H. Noble* Douglas W. Eckols Family Partnership, Ltd.* The Olan Weeks Family Limited Partnership, Ltd.* Olan B. Weeks* Terry D. Allen* Lowell J. Walker, Sr.* Mills Group, Ltd.* Robert W. Raiford* Robert G. Chapman Family Partnership, Ltd.* Owen G. Vaughn, Jr.* The Lawrence J. Bradford Family Partnership, Ltd.* Robert A. Knost* David Smith* William or Carolyn Miller* Willie E. Rigsby* Byron P. Walker, Sr.* * Indicates that the Shareholder has executed this Indemnification Escrow Agreement by execution of a Master Signature Page. SCHEDULE 1 Significant PEI Shareholders ---------------------------- Name Pro Rata Share ---- -------------- M.L. Burrow Family Partnership, Ltd. 10.759% Michael L. Burrow 8.967% Equus II Incorporated 13.208% Fahad Al-Tamimi 9.051% Norbert C. Roobaert 8.627% David L. Hopson 7.780% Jimmie N. Carpenter 4.766% Thomas H. Noble 3.830% Douglas W. Eckols Family Partnership, Ltd. 3.666% The Olan Weeks Family Limited Partnership, Ltd. 3.370% Olan B. Weeks 1.628% Terry D. Allen 3.346% Lowell J. Walker, Sr. 2.803% Mills Group, Ltd. 2.298% Robert W. Raiford 2.162% Robert G. Chapman Family Partnership, Ltd. 2.073% Owen G. Vaughn, Jr. 2.036% The Lawrence J. Bradford Family Partnership, Ltd. 2.022% Robert A. Knost 1.755% David Smith 1.594% William or Carolyn Miller 1.460% Willie E. Rigsby 1.628% Byron P. Walker, Sr. 1.169% EX-10.50 13 dex1050.txt OPTION ESCROW AGREEMENT EXHIBIT 10.50 OPTION ESCROW AGREEMENT THIS OPTION ESCROW AGREEMENT (the "Agreement") is made effective as of the Effective Time (as defined in the Merger Agreement (as defined below)) by and among Industrial Data Systems Corporation, a Nevada corporation ("Parent"), PEI Acquisition, Inc., a Texas corporation, all of whose capital stock is owned (indirectly through ownership of IDS Engineering Management, LC, a Texas limited liability company) by Parent (the "Purchaser"), the persons and entities listed on the attached Schedule 1 (the "Significant PEI Shareholders"), Michael L. Burrow, acting as the shareholder representative for the Significant PEI Shareholders (the "Shareholder Representative"), and Johnny J. Williams (the "Escrow Agent"). RECITALS: -------- A. Parent, Purchaser, IDS Engineering Management, LC, a Texas limited liability company, and Petrocon Engineering Inc., a Texas corporation ("PEI"), entered into a Merger Agreement on or about July 31, 2001 (the "Merger Agreement"). B. The Merger Agreement provides that each outstanding and unexercised PEI stock option and warrant that represents a right to acquire securities in PEI shall be assumed by Parent and converted into an option or warrant, as the case may be (together, the "Surviving Options"), to purchase shares of Parent common stock, par value $.001 per share (the "Common Stock"), in an amount and at an exercise price set forth in the Merger Agreement. C. The Merger Agreement further provides that the Significant PEI Shareholders are to deposit the number of shares of Common Stock equal to the number of shares issuable on the exercise of the Surviving Options (the "Escrow Shares"), into an escrow created by this Agreement, which shall be a fund to satisfy the obligations under the Surviving Options pursuant to the Merger Agreement. D. Pursuant to the terms of the Merger Agreement, upon the exercise of any Surviving Option, the Parent shall deliver the aggregate exercise price (less any amount required to be paid in by Parent for social security and Medicare taxes as a result of such exercise) received by Parent (the "Consideration") to the Escrow Agent for deposit into an escrow created by this Agreement. E. This Agreement, together with the Merger Agreement, shall govern the terms upon which Escrow Agent may distribute the Escrow Shares to holders of the Surviving Options (the "Surviving Option Holders") and to the Significant PEI Shareholders. Capitalized terms used in this Agreement but not defined herein shall have the definition ascribed to them in the Merger Agreement. NOW, THEREFORE, in consideration of the promises contained herein and in the Merger Agreement and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1 AGREEMENT: 1. Appointment of Escrow Agent; Delivery of Escrow Shares; Delivery of ------------------------------------------------------------------- Exercise Price. Each of the Parent, Purchaser, and the Shareholder - -------------- Representative hereby appoints Johnny J. Williams as Escrow Agent, and Escrow Agent hereby accepts such appointment. Immediately after the Closing, the Shareholder Representative shall deliver or cause to be delivered to Escrow Agent original share certificates registered in the name of the Shareholder Representative as agent for the Significant PEI Shareholders, and representing the Escrow Shares, together with a fully executed blank stock power bearing the name of Escrow Agent as the transferee. Upon the exercise of any Surviving Option after the Closing, the Parent shall deliver the Consideration to the Escrow Agent. 2. Parent's Claim Certificates. Parent, from time to time on or prior to --------------------------- the expiration of the Surviving Options, may make a claim to some or all of the Escrow Shares (the "Parent's Claim") by delivering to Escrow Agent a certificate (the "Parent's Claim Certificate") signed by the president or a vice president of Parent stating: (a) That a Surviving Option Holder has exercised a Surviving Option; (b) The amount of Consideration received by Parent from the Surviving Option Holder, and that such Consideration has been delivered to the Escrow Agent; (c) The amount of the Parent's Claim (rounded to the nearest whole share), which shall be a number of Escrow Shares equal to the number of shares issuable upon the exercise of the Surviving Option; (d) That, upon payment of the Parent's Claim, the Parent shall cancel a number of Escrow Shares equal to the amount of the Parent's Claim; and (e) That Parent has delivered a copy of such Parent's Claim Certificate to the Shareholder Representative and the date on which such copy was delivered. 3. Disputed Parent's Claims. The Shareholder Representative may dispute ------------------------ or object to any Parent's Claim, in whole or in part, by delivering to Escrow Agent a notice (a "Shareholder Representative's Objection Notice") within 15 days of receipt of the Parent's Claim Certificate stating: (a) That the Shareholder Representative disputes or objects to such Parent's Claim; (b) The reasons for such objections or dispute, set forth in reasonable detail; (c) That the Shareholder Representative has delivered a copy of the Shareholder Representative's Objection Notice to Parent and the date on which such copy was delivered; and (d) The portion of the Parent's Claim set forth in the Parent's Claim Certificate, if any, which is not disputed or objected to. 2 Whenever there shall be delivered to Escrow Agent a Shareholder Representative's Objection Notice, Parent and the parties shall invoke the conciliation and arbitration procedures set forth in the Merger Agreement. Any claim which is disputed or objected to by the Shareholder Representative shall, to the extent of such dispute or objection, constitute a "Disputed Claim." 4. Distribution of Escrow Shares. ----------------------------- (a) If Escrow Agent receives from the Shareholder Representative written notice of consent or agreement to all or part of a Parent's Claim, or fails to receive a timely Shareholder Representative's Objection Notice, Escrow Agent shall thereupon promptly: (1) deliver to Parent from the Escrow Shares a share certificate or certificates representing a number of shares equal to the amount of such Parent's Claim. (2) deliver the Consideration to each Significant PEI Shareholder based on their Pro Rata Share (as hereinafter defined); provided however that if any Significant PEI Shareholder's Pro Rata Share of the Consideration is less than $500, the Escrow Agent may hold such funds in escrow, in a non-interest bearing account, until the amount of the disbursements due to such Significant PEI Shareholders aggregate at least $500. (b) If the Escrow Shares are not sufficient to satisfy in full any obligations to Parent under the preceding Section 4(a), Escrow Agent shall deliver to Parent such Escrow Shares as are available. 5. Shareholder Representative's Claim Certificates. The Shareholder ----------------------------------------------- Representative, upon the expiration of any Surviving Options, may make a claim to some or all of the Escrow Shares (the "Shareholder Representative's Claim") by delivering to Escrow Agent a certificate (the "Shareholder Representative's Claim Certificate") signed by the Shareholder Representative stating: (a) That a Surviving Option has expired; (b) The amount of the Shareholder Representative's Claim (rounded to the nearest whole share), which shall be a number of Escrow Shares equal to the number of shares that would otherwise have been issued upon exercise of the expired Surviving Option; and (c) That the Shareholder Representative has delivered a copy of such Shareholder Representative's Claim Certificate to the Parent and the date on which such copy was delivered. 6. Disputed Shareholder Representative's Claim. The Parent may dispute ------------------------------------------- or object to any Shareholder Representative's Claim, in whole or in part, by delivering to Escrow Agent a notice signed by the president or vice president of the Parent (a "Parent's Objection Notice") within 30 days of receipt of the Shareholder Representative's Claim stating: (a) That the Parent disputes or objects to such Shareholder Representative's Claim; 3 (b) The reasons for such objections or dispute, set forth in reasonable detail; (c) That the Parent has delivered a copy of said Objection Notice to the Shareholder Representative and the date on which such copy was delivered; and; (d) The portion of the Shareholder Representative's Claim set forth in the Shareholder Representative's Claim Certificate, if any, which is not disputed or objected to. 7. Payment of Shareholder Representative's Claims. ---------------------------------------------- (a) If Escrow Agent receives from the Parent written notice of consent or agreement to all or part of a Shareholder Representative's Claim, or fails to receive a timely Parent's Objection Notice, Escrow Agent shall thereupon promptly deliver to the Significant PEI Shareholders the number of shares equal to their Pro Rata Share (as hereinafter defined); provided however that if any Significant PEI Shareholder's Pro Rata Share of such shares is less than 500 shares, the Escrow Agent may hold such shares in escrow until the aggregate number of undisbursed shares attributable to such Significant PEI Shareholders' Pro Rata Share (together with any other undisbursed shares attributable to such Significant PEI Shareholder's Pro Rata Share) is 500 or more shares. (b) If the Escrow Shares are not sufficient to pay in full any amounts payable to the Significant PEI Shareholders under Section 7(a), Escrow Agent shall pay to Significant PEI Shareholders such Escrow Shares as are available. 8. Distribution of Escrow Shares. ----------------------------- (a) Escrow Agent shall not make any distribution of Escrow Shares with respect to any Parent's Claim or Shareholder Representative's Claim until: (1) it receives the written consent or agreement of the Parent or the Shareholder Representative, as the case may be, with respect to such distribution, or fails to receive a timely Shareholder Representative's Objection Notice or Parent's Objection Notice; or (2) there is a Final Decision with respect to a Disputed Claim. "Final Decision" means a decision, order, judgment or decree of an arbitrator or court having jurisdiction which is either not subject to appeal or as to which notice of appeal has not been timely filed or served. (b) In addition to the foregoing, Parent, Purchaser, Escrow Agent and the Shareholder Representative agree that at any time and from time to time, Parent shall be authorized, upon the joint written request of the Shareholder Representative and a Surviving Option Holder and within five days of such request, to issue to such Surviving Option Holder the number of shares of Common Stock specified by the Shareholder Representative and such Surviving Option Holder (which number may be zero) in such request (the "Requested Shares"), provided that contemporaneous with such written request: -------- (1) the Surviving Option is thereby canceled; 4 (2) the Escrow Agent surrenders to Parent for cancellation a number of shares of Common Stock equal to the number of shares that the Shareholder Representative and such Surviving Option Holder have requested Parent to issue in such request; (3) the number of Escrow Shares remaining would be equal to or greater than the aggregate number of shares issuable upon exercise of all then outstanding Surviving Options. (c) Promptly following the issuance of any Requested Shares, the Escrow Agent shall issue to the Significant PEI Shareholders the number of Escrow Shares equal to the difference between the total number of shares issuable upon the exercise of the Surviving Option canceled in connection with the issuance of the Requested Shares (regardless of whether such shares were vested) and the number of Requested Shares. 9. Adjustments to Escrow Shares; Dividends; Voting. ----------------------------------------------- (a) If Parent or any Significant PEI Shareholder is entitled to receive any securities or other distributions in respect of or in exchange for any of the Escrow Shares (other than dividends declared by the Board of Directors of Parent on the Escrow Shares that are payable in cash), whether by way of stock dividends, share splits, recapitalizations, liquidations, mergers, consolidations, split-ups, spin-offs, redemptions, exchanges or conversions of shares and the like ("New Shares"), such Significant PEI Shareholder shall deliver share certificates representing such New Shares and such other distributions (registered in the name of the Shareholder Representative as agent for such Significant PEI Shareholder) to Escrow Agent, along with a fully executed blank stock power bearing the name of the Escrow Agent as the transferee. Upon receipt of such New Shares and other distributions, Escrow Agent shall hold in escrow such securities and the same shall be subject to all of the provisions of this Agreement relating to the Escrow Shares. Notwithstanding anything to the contrary herein, any dividend declared by the Board of Directors of Parent that is payable in cash with respect to the Escrow Shares shall not be delivered to the Escrow Agent and each Significant PEI Shareholder shall be entitled to receive such Significant PEI Shareholder's Pro Rata Share of such cash dividend. (b) Subject to the terms of the Voting Agreement, the Shareholder Representative shall have all voting rights with respect to the Escrow Shares for so long as such Escrow Shares are held in the Escrow Fund; provided that if -------- so directed by the Requisite Shareholders (as hereinafter defined) with respect to any matter submitted to a vote of the shareholders of IDS, the Shareholder Representative shall, subject to the Voting Agreement, vote the Escrow Shares as directed by the Requisite Shareholders. "Requisite Shareholders" means, on any date of determination, Significant PEI Shareholders having a Pro Rata Share of 51% or more of the Escrow Shares. 10. Distributions and Reductions. With respect to any distribution of the ---------------------------- Escrow Shares to the Significant PEI Shareholders, each Significant PEI Shareholder shall be entitled to receive such Significant PEI Shareholders' Pro Rata Share of the Escrow Shares, and with respect to any delivery of Escrow Shares to the Parent in accordance with the terms hereof each Significant PEI Shareholder shall bear its Pro Rata Share of such reduction in the Escrow Shares. Each Significant PEI Shareholder's Pro Rata Share shall be the percentage set forth in Exhibit 1. --------- 5 11. Shareholder Representative as Agent. ----------------------------------- (a) Appointment. Each Significant PEI Shareholder hereby designates ----------- and appoints the Shareholder Representative as its Shareholder Representative and agent under this Agreement, and each Significant PEI Shareholder hereby irrevocably authorizes Shareholder Representative to execute and deliver the documents and to take such action or to refrain from taking such action on its behalf under the provisions of this Agreement and to exercise such powers as are set forth herein or therein, together with such other powers as are reasonably incidental thereto. In performing its functions and duties under this Agreement, Shareholder Representative shall act solely as agent of the Significant PEI Shareholders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for Parent or Purchaser. (b) Nature of Duties. The duties of the Shareholder Representative ---------------- shall be mechanical and administrative in nature. The Shareholder Representative shall not have by reason of this Agreement a fiduciary relationship in respect of any Significant PEI Shareholder. Nothing in this Agreement, express or implied, is intended to or shall be construed to impose upon Shareholder Representative any obligations in respect of this Agreement except as expressly set forth herein or therein. If Shareholder Representative seeks the consent or approval of any Significant PEI Shareholder to the taking or refraining from taking any action hereunder, then Shareholder Representative shall send notice thereof to each Significant PEI Shareholder. Shareholder Representative shall promptly notify each Significant PEI Shareholder any time that the Requisite Shareholders have instructed Shareholder Representative to act or refrain from acting pursuant hereto. (c) Rights, Exculpation, Etc. Neither Shareholder Representative ------------------------ nor any of his agents shall be liable to any Significant PEI Shareholder for any action taken or omitted by them hereunder or under the Merger Agreement, or in connection herewith or therewith, except that Shareholder Representative shall be liable to the extent of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction. Shareholder Representative may at any time request instructions from the Significant PEI Shareholders with respect to any actions or approvals which by the terms of this Agreement, Shareholder Representative is permitted or required to take or to grant, and if such instructions are promptly requested, Shareholder Representative shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any person or entity for refraining from any action or withholding any approval under this Agreement until it shall have received such instructions from Requisite Shareholders or all or such other portion of the Significant PEI Shareholders as shall be prescribed by this Agreement. Without limiting the foregoing, no Significant PEI Shareholder shall have any right of action whatsoever against Shareholder Representative as a result of Shareholder Representative acting or refraining from acting under this Agreement in accordance with the instructions of Requisite Shareholders and, notwithstanding the instructions of Requisite Shareholders, the Shareholder Representative shall have no obligation to take any action if it believes, in good faith, that such action exposes Shareholder Representative to any liability for which it has not received satisfactory indemnification in accordance with Section 11(d). 6 (d) Indemnification. Significant PEI Shareholders will reimburse --------------- and indemnify Shareholder Representative for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, reasonable attorneys' fees and expenses), advances or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Shareholder Representative in any way relating to or arising out of this Agreement or any action taken or omitted by Shareholder Representative under this Agreement, in proportion to each Significant PEI Shareholders' Pro Rata Share, but only to the extent that any of the foregoing is not reimbursed by Parent or Purchaser; provided, -------- however, that no Significant PEI Shareholders shall be liable for any portion of - ------- such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements to the extent resulting from Shareholder Representative's gross negligence or willful misconduct as determined by a court of competent jurisdiction. If any indemnity furnished to Shareholder Representative for any purpose shall, in the opinion of Shareholder Representative, be insufficient or become impaired, Shareholder Representative may call for additional indemnity and cease, or not commence, to do the acts indemnified against even if so directed by Requisite Shareholders until such additional indemnity is furnished. The obligations of the Significant PEI Shareholders under this 11(d) shall survive the termination of this Agreement. (e) Successor Shareholder Representative. ------------------------------------ (1) Resignation. Shareholder Representative may resign from ----------- the performance of all its agency functions and duties hereunder at any time by giving at least 30 days prior written notice to the Significant PEI Shareholders. Such resignation shall take effect upon the acceptance by a successor Shareholder Representative of appointment pursuant to Section 11(e)(2) or as otherwise provided below. (2) Appointment of Successor. Upon any such notice of resignation ------------------------ pursuant to Section 11(e)(1) above or the death or disability of the Shareholder Representative, Requisite Shareholders shall appoint a successor Shareholder Representative. If, with respect to a retiring Shareholder Representative, a successor Shareholder Representative shall not have been so appointed within the 30-day period referred to in Section 11(e)(1), the retiring Shareholder Representative, upon notice to the Escrow Agent, may petition any court of competent jurisdiction to appoint a successor escrow agent. (3) Successor Shareholder Representative. Upon the acceptance ------------------------------------ of any appointment as Shareholder Representative under the Agreement by a successor Shareholder Representative, such successor Shareholder Representative shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Shareholder Representative, and the retiring Shareholder Representative shall be discharged from its duties and obligations under this Agreement. After any retiring Shareholder Representative's resignation as Shareholder Representative or upon the death or disability of the Shareholder Representative, the provisions of this Section 11(e)(3) shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Shareholder Representative. 12. Share Certificates. In connection with any issuance of Escrow Shares ------------------ to Parent or to any Significant PEI Shareholder, Escrow Agent and Parent agree to take any and all actions 7 necessary to cause a stock certificate evidencing the number of shares to be delivered to Parent, delivered to the Significant PEI Shareholders or to Escrow Agent, as the case may be, as required or specified in this Agreement, including the issuance of stock certificates to each Significant PEI Shareholder evidencing the Pro Rata Share of such Significant PEI Shareholder with respect to any distribution to the Significant PEI Shareholders required by this Agreement. 13. Notices. All notices (including Objection Notices), certificates ------- (including Parent's Claim Certificates and Shareholder Claim Certificates), payment, and distributions required or permitted to be given or delivered hereunder shall be deemed to have been properly given or delivered to the following addresses, if delivered in person, or, if mailed, on the second business day following the date when mailed by registered or certified mail, postage prepaid and addressed as follows: If to Purchaser: PEI Acquisition, Inc. Attn: William A. Coskey 600 Century Plaza Drive, Building 140 Houston, Texas 77073 With a copy (which shall not constitute notice) to: Jenkens & Gilchrist A Professional Corporation Attn: Kathryn K. Lindauer 600 Congress Avenue, Suite 2200 Austin, Texas 78701 If to Parent: Industrial Data Systems Corporation Attn: William A. Coskey 600 Century Plaza Drive, Building 140 Houston, Texas 77073 With a copy (which shall not constitute notice) to: Jenkens & Gilchrist A Professional Corporation Attn: Kathryn K. Lindauer 600 Congress Avenue, Suite 2200 Austin, Texas 78701 If to Shareholder Representative: Mr. Michael L. Burrow 3155 Executive Blvd. Beaumont, Texas 77705 With a copy (which shall not constitute notice) to: Gardere Wynne Sewell LLP Attn: Gary B. Clark 1601 Elm Street, Suite 3000 Dallas, Texas 75201 8 If to Escrow Agent: Johnny J. Williams 13831 Northwest Freeway, Suite 155 Houston, Texas 77040 or to such other address as a party shall designate by written notice to all other parties to the Agreement. 14. Escrow Agent. ------------ (a) Reliance. The Escrow Agent may act upon any instrument or other -------- writing believed by it in good faith to be genuine and to be signed or presented by the proper person or persons and shall not be liable in connection with the performance by it of its duties pursuant to the provisions hereof, except for its own willful misconduct or gross negligence. Parent, Purchaser, and each Significant PEI Shareholder shall, jointly and severally, indemnify and hold harmless the Escrow Agent pursuant to Section 17 of the Agreement. (b) Successor Agent. --------------- (1) Resignation. Escrow Agent may resign from the performance ----------- of all its agency functions and duties hereunder at any time by giving at least 30 days prior written notice to Parent and the Shareholder Representative. Such resignation shall take effect upon the acceptance by a successor Escrow Agent of appointment pursuant to Section 14(b)(2) or as otherwise provided below. (2) Appointment of Successor. Upon any such notice of ------------------------ resignation pursuant to Section 14(b)(1) or the death or disability of the Escrow Agent, Parent and the Shareholder Representative shall, by mutual agreement, appoint a successor Escrow Agent. If, with respect to a retiring Escrow Agent, a successor Escrow Agent shall not have been so appointed within the 30 day period referred to in Section 14(b)(1), the retiring Escrow Agent, upon notice to Parent and the Shareholder Representative, may petition any court of competent jurisdiction to appoint a successor Escrow Agent. The retiring Escrow Agent shall continue to serve until his successor is duly appointed and accepts such service. (3) Successor Escrow Agent. Upon the acceptance of any ---------------------- appointment as Escrow Agent under the Agreement by a successor Escrow Agent, such successor Escrow Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Escrow Agent, and the retiring Escrow Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Escrow Agent's resignation as Escrow Agent or upon the death or disability of the Escrow Agent, the provisions of this Section 14(b)(3) shall inure to its benefit as to any actions taken or omitted to be taken by him while he was Escrow Agent. 15. Termination of Escrow. Upon the expiration, termination or --------------------- cancellation of all Surviving Options, the Escrow Shares and any Consideration received with respect thereto held by Escrow Agent pursuant to the terms of this Agreement, less a reasonable reserve (as determined by mutual agreement of Parent and the Shareholder Representative, but if they cannot agree, then by the Escrow Agent) to cover Disputed Claims shall be distributed by 9 Escrow Agent to the Significant PEI Shareholders or their respective successors or assigns. With respect to Shares reserved to cover Disputed Claims, upon settlement of such Disputed Claim, this escrow shall terminate, and all remaining Escrow Shares held by Escrow Agent shall be distributed by Escrow Agent to the Significant PEI Shareholders. 16. Fees and Expenses. The Escrow Agent shall not be entitled to ----------------- compensation for his services. The Escrow Agent shall be reasonably compensated for services and reimbursed for all costs and expenses, including reasonable attorney's fees and expenses, occasioned by any delay, controversy, litigation or event, and the same shall be recoverable one-half from the Significant PEI Shareholders (with each Significant PEI Shareholder being responsible for its Pro Rata Share of such one-half) and one-half from Purchaser. 17. Indemnification of Escrow Agent. Parent, Purchaser, and each ------------------------------- Significant PEI Shareholder hereby agrees to jointly and severally indemnify and hold harmless Escrow Agent from and against, any and all loss, liability, cost, damage and expense, including, without limitation, reasonable counsel fees, which Escrow Agent may suffer or incur by reason of any action, claim or proceeding brought against Escrow Agent arising out of or relating in any way to this Agreement or any transaction to which this Agreement relates unless such action, claim or proceeding is the result of the willful misconduct or gross negligence of Escrow Agent. Escrow Agent may consult counsel in respect of any question arising under this Agreement or the Merger Agreement, and Escrow Agent shall not be liable for any action taken or omitted in good faith upon advice of such counsel. The Significant PEI Shareholders' portion of any indemnity pursuant to this Agreement shall be deducted from the Escrow Shares. 18. Resignation of Escrow Agent. Escrow Agent may resign upon 30 days --------------------------- advance written notice to the Shareholder Representative, Parent, and Purchaser. If a successor escrow agent is not appointed within the 30-day period following such notice, Escrow Agent may petition any court of competent jurisdiction to name a successor escrow agent. 19. Counterparts. This Agreement may be executed by facsimile and in two ------------ or more counterparts, each of which shall be deemed an original and all of which taken together shall constitute one agreement. Signatures transmitted via facsimile shall be deemed originals for purposes of this Agreement. 20. Governing Law. This Agreement shall be construed, performed, and ------------- enforced in accordance with, and governed by, the internal laws of the State of Texas, without giving effect to the principles of conflict of laws thereof that direct the application of the laws of a different state. Venue for any disputes pursuant to this Agreement shall be in Harris County, Texas, and the parties agree to submit to the jurisdiction of the state and federal courts in Harris county, Texas. 21. Amendments. This Agreement may be amended or modified, and any of the ---------- terms, covenants, representations, warranties, or conditions hereof may be waived, only by a written instrument executed by the parties hereto, or in the case of a waiver, by the party waiving compliance. Any waiver by any party of any condition, or of the breach of any provision, term, covenant, representation, or warranty contained in this Agreement, in any one or more instances, shall not be deemed to be nor construed as further or continuing waiver of any such conditions, 10 or of the breach of any other provision, term, covenant, representation, or warranty of this Agreement. 22. Section Headings. The section headings in this Agreement are for ---------------- reference purposes only and shall not affect the meaning or interpretation of this Agreement. 23. Severability. If any provision of this Agreement is held by final ------------ judgment of a court of competent jurisdiction to be invalid, illegal or unenforceable, such invalid, illegal or unenforceable provision shall be severed from the remainder of this Agreement, and the remainder of this Agreement shall be enforced. In addition, the invalid, illegal or unenforceable provision shall be deemed to be automatically modified, and, as so modified, to be included in this Agreement, such modification being made to the minimum extent necessary to render the provision valid, legal and enforceable. Notwithstanding the foregoing, however, if the severed or modified provision concerns all or a portion of the essential consideration to be delivered under this Agreement by one party to the other, the remaining provisions of this Agreement shall also be modified to the extent necessary to equitably adjust the parties' respective rights and obligations hereunder. [The Remainder of this Page is Intentionally Left Blank] 11 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed the day and year first above written. PETROCON ENGINEERING, INC. By:_________________________________ Michael L. Burrow, President and Chief Executive Officer INDUSTRIAL DATA SYSTEMS CORPORATION By:_________________________________ William A. Coskey, President PEI ACQUISITION, INC. By:_________________________________ William A. Coskey, President SHAREHOLDER REPRESENTATIVE _________________________________ Michael L. Burrow ESCROW AGENT _________________________________ Johnny J. Williams, Esq. Signature Page to Option Escrow Agreement SIGNIFICANT PEI SHAREHOLDERS: EQUUS II INCORPORATED, a Delaware corporation By: _________________________________ Randall B. Hale, Vice President M.L. Burrow Family Partnership, Ltd.* Michael L. Burrow* Fahad Al-Tamimi* Norbert C. Roobaert* David L. Hopson* Jimmie N. Carpenter* Thomas H. Noble* Douglas W. Eckols Family Partnership, Ltd.* The Olan Weeks Family Limited Partnership, Ltd.* Olan B. Weeks* Terry D. Allen* Lowell J. Walker, Sr.* Mills Group, Ltd.* Robert W. Raiford* Robert G. Chapman Family Partnership, Ltd.* Owen G. Vaughn, Jr.* The Lawrence J. Bradford Family Partnership, Ltd.* Robert A. Knost* David Smith* William or Carolyn Miller* Willie E. Rigsby* Byron P. Walker, Sr.* * Indicates that the Shareholder has executed this Option Escrow Agreement by execution of a Master Signature Page. Signature Page to Option Escrow Agreement SCHEDULE 1 SIGNIFICANT PEI SHAREHOLDERS ---------------------------- Name Pro Rata Share ---- -------------- M.L. Burrow Family Partnership, Ltd. 10.759% Michael L. Burrow 8.967% Equus II Incorporated 13.208% Fahad Al-Tamimi 9.051% Norbert C. Roobaert 8.627% David L. Hopson 7.780% Jimmie N. Carpenter 4.766% Thomas H. Noble 3.830% Douglas W. Eckols Family Partnership, Ltd. 3.666% The Olan Weeks Family Limited Partnership, Ltd. 3.370% Olan B. Weeks 1.628% Terry D. Allen 3.346% Lowell J. Walker, Sr. 2.803% Mills Group, Ltd. 2.298% Robert W. Raiford 2.162% Robert G. Chapman Family Partnership, Ltd. 2.073% Owen G. Vaughn, Jr. 2.036% The Lawrence J. Bradford Family Partnership, Ltd. 2.022% Robert A. Knost 1.755% David Smith 1.594% William or Carolyn Miller 1.460% Willie E. Rigsby 1.628% Byron P. Walker, Sr. 1.169% EX-10.51 14 dex1051.txt FORM OF LOCK-UP AGREEMENT LETTER EXHIBIT 10.51 Name:______________________________________________ Lock-Up Agreement Form December 21, 2001 Industrial Data Systems Corporation 600 Century Plaza Drive Suite 140 Houston, Texas 77073-6013 Re: Industrial Data Systems Corporation (the "Company") Ladies and Gentlemen: The undersigned is an owner of record or beneficially of certain shares of common stock of Petrocon Engineering, Inc. ("PEI Common Stock") or securities convertible into or exchangeable or exercisable for the PEI Common Stock. Petrocon Engineering, Inc. ("PEI") proposes to enter into a merger whereby PEI Acquisition, Inc., a wholly owned, indirect subsidiary of the Company, will merge with and into PEI (the "Merger") with PEI as the surviving corporation. As consideration for their PEI Common Stock and securities convertible into or exchangeable or exercisable for the PEI Common Stock, each of the shareholders of PEI will receive shares of common stock, par value $.001 per share, of the Company ("Company Common Stock") and/or securities convertible into or exchangeable or exercisable for Company Common Stock ("Company Options" and together with Company Common Stock, "Securities"). The undersigned recognizes that the Merger will be of benefit to the undersigned and will benefit PEI and the Company. The undersigned acknowledges that the Company is relying on the representations and agreements of the undersigned contained in this letter in closing the Merger and in issuing Company Common Stock to the undersigned in connection with the Merger. In consideration of the foregoing, the undersigned hereby agrees that the undersigned will not offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with respect to (collectively, a "Disposition") any shares of Company Common Stock, any options or warrants to purchase any shares of Company Common Stock or any securities convertible into or exchangeable or exercisable for shares of Company Common Stock (collectively, "Securities") now owned or hereafter acquired directly by such person or with respect to which such person has or hereafter acquires the power of disposition, otherwise than (i) as a bona fide gift or gifts, provided the donee or donees thereof agree in writing to be bound by this restriction, (ii) as a distribution to partners, beneficiaries or shareholders of such person, provided that the distributees thereof agree in writing to be bound by the terms of this restriction, (iii) with respect to sales or purchases of Securities acquired on the open market, (iv) with respect to sales or purchases of Securities between the undersigned and any other person who is subject to a lockup agreement which is essentially identical to this Lockup Agreement, (v) as a contribution by the undersigned to any escrow account established pursuant to the terms of the Merger or any distribution by the escrow agent of any Securities to the undersigned or the Company pursuant to the terms of the agreements governing such escrow accounts, or (vi) with the prior written consent of the Company, which may be granted or withheld in the sole discretion of the Company. In addition, notwithstanding the foregoing, if the undersigned is a corporation, partnership or trust, the corporation, partnership or trust may transfer Securities to any affiliate of such corporation, partnership or trust and if the undersigned is an individual, such individual may transfer such Securities by gift, will or intestacy to a member or members of his or her immediate family, or to a trust or partnership, the beneficiaries or partners of which are exclusively the undersigned and/or a member or members of his or her immediate family; provided, however, that in -------- ------- such case it shall be a condition to the transfer that the transferee execute an agreement stating that the transferee is receiving and holding such Securities subject to the provisions of this Lock-Up Agreement, and provided further that such transfer not involve a disposition for value. For purposes of this Lock-Up Agreement, "immediate family" shall mean any relationship by blood, marriage or adoption, not more remote than first cousins. The foregoing restrictions will terminate upon the earlier of (i) a Sale of the Company, or (ii) the close of trading of the Company Common Stock on the second anniversary of (and including) the day of the Merger (the "Lock-Up Period"). "Sale of ------- Company" shall mean (i) a sale of substantially all of the assets of Company to - ------- a person or entity that is not an affiliate of Company, (ii) any sale in a single transaction or in a series of related and substantially similar contemporaneous transactions of the Company Common Stock, representing 50% or more of the total number of shares of Company Common Stock then outstanding (determined on a fully diluted basis) to any person or entity which is not an affiliate of the selling shareholders, or (iii) any merger, consolidation or reorganization of the Company with or into one or more entities which are not Subsidiaries or affiliates of the Company, as a result of which less than 50% of the outstanding voting securities or partnership interests of the surviving or resulting entity are, or are to be, owned by the holders of Company Common Stock immediately prior to such merger, consolidation or reorganization. The foregoing restriction has been expressly agreed upon to preclude the holder of the Securities from engaging in any hedging or other transaction which is designed to or reasonably expected to lead to or result in a disposition of Securities subject to this Lock-Up Agreement during the Lock-Up Period, even if such Securities would be disposed of by someone other than such holder. Such prohibited hedging or other transactions would include, without limitation, any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any Securities or with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from the Securities. The foregoing restrictions do not, however, preclude any exercise of a warrant or options to purchase Company Common Stock during the Lock-Up Period or the disposition of any Securities which are not subject to this Lock-Up Agreement. The undersigned also agrees and consents to the entry of stop transfer instructions with the Company's transfer agent and registrar against the transfer of Securities subject to this Lock-Up Agreement except in compliance with the foregoing restrictions. The undersigned hereby agrees that the certificate or certificates evidencing the Securities subject to this agreement shall, for the duration of the Lock-Up Period, have the following legend: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CONTRACTUAL RESTRICTION ON TRANSFER AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT AS SET FORTH IN THAT CERTAIN LOCKUP AGREEMENT BETWEEN THE COMPANY AND THE HOLDER HEREOF, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY Notwithstanding the foregoing, the legend set forth above shall, at the request of the holder, be removed from the certificate or certificates evidencing the Securities released from this Lock-Up Agreement upon the termination of the Lock-Up Period. This agreement is irrevocable and will be binding on the undersigned and the respective successors, heirs, personal representatives, and assigns of the undersigned. Nothing in this Lock-Up Agreement shall constitute an offer by the Company to sell, or create any right or obligation for the undersigned to purchase any Securities. In the event the Merger has not occurred on or before December 31, 2001, this Lock-Up Agreement shall be of no further force or effect. Date: December 21, 2001 _________________________________________* * Indicates that the Shareholder has executed this Lock-Up Agreement by execution of a Master Signature Page. EX-10.52 15 dex1052.txt VOTING AGREEMENT EXHIBIT 10.52 VOTING AGREEMENT THIS VOTING AGREEMENT (this "Agreement") is made as of December 21, 2001 (the "Effective Date"), by and among Industrial Data Systems Corporation, a Nevada corporation (the "Company"), Equus II Incorporated, a Delaware corporation ("Equus"), Alliance 2000, Ltd., a Texas limited partnership ("Alliance"), and the individuals and entities listed on the attached Schedule -------- 1 (collectively referred to as the "Significant PEI Shareholders"). Equus, - - Alliance, and the Significant PEI Shareholders are current or prospective holders of the Common Stock, par value $.001 per share (the "Common Stock"), of the Company and the Series A Preferred Stock, par value $.001 per share (together with any shares issued or issuable upon conversion of the Series A Preferred Stock, the "Series A Preferred Stock"), of the Company. Equus, Alliance, and the Significant PEI Shareholders are referred to herein individually as a "Voting Party," and collectively, as the "Voting Parties." RECITALS -------- The Company and Petrocon Engineering, Inc., a Texas corporation ("Petrocon"), entered into that certain Agreement and Plan of Merger dated as of July 31, 2001 (the "Merger Agreement"), which requires that Equus, Alliance, and the Significant PEI Shareholders enter into this Agreement at the closing of the transactions contemplated by the Merger Agreement. AGREEMENT --------- NOW, THEREFORE, in consideration of the mutual promises herein contained, and other consideration, the receipt and adequacy of which hereby is acknowledged, the parties agree as follows: ARTICLE 1 ELECTION OF DIRECTORS 1.1 Board of Directors. From and after the date of this Agreement ------------------ and until the provisions of this Article 1 cease to be effective, each of the Voting Parties shall vote, or cause the vote of, all shares of Common Stock and other voting securities of the Company over which such Voting Party has voting control, and will take all other necessary or desirable actions within his, her or its control (whether in his, her or its capacity as a stockholder, director or officer of the Company or otherwise) to ensure that the size of the Board of Directors (the "Board") shall be no more than seven and to cause the election to the Board of: (a) Three representatives designated by Alliance until the earlier of (i) the date that William A. Coskey and Hulda L. Coskey or their heirs, individually or collectively, no longer serve as or control the general partner of Alliance; and (ii) the date that William A. Coskey and Hulda L. Coskey or their heirs, individually or collectively, own less than 51% of the partnership interests in Alliance, except to the extent they have made transfers in connection with income, gift and estate tax planning to charitable or other non-profit organizations, or to family members; 1 (b) One representative designated by Equus, until the later of (i) the date that certain promissory note dated on the Effective Date from Petrocon payable to the order of Equus in the original principal amount of $3,000,000 (the "Equus Note") is paid in full; (ii) the date on which Equus owns less than 1,000,000 shares of Company Common Stock on an as-converted basis; (c) Two representatives (one of whom shall be Michael L. Burrow) designated by the Shareholder Representative until the date that Equus no longer has the right to designate a representative pursuant to Section 1.1(b), and thereafter, three representatives (one of whom shall be Michael L. Burrow) designated by the Shareholder Representative; and (d) One representative designated by agreement among Alliance (so long as Alliance has the right to designate directors pursuant to Section 1.1(a)) and the holders of a majority of the Common Stock held by the Shareholder Representative (the "Independent Director"). Each party to this Agreement agrees to vote in favor of the removal and replacement of any director if requested to do so by the parties entitled to name such director to the Board of Directors under this Agreement. If any director designated for election by an Voting Party or Voting Parties pursuant to the foregoing provisions of this Section 1.1 dies or resigns as director, or otherwise ceases to be a director for any other reason, then, subject to Section 1.2, such Voting Party or Voting Parties which designated such director, shall have the right to designate a director to fill the resulting vacancy. 1.2 Replacement of Certain Directors. If any Voting Party shall lose -------------------------------- the right to designate a director, such Voting Party shall cause such director to immediately resign and the resulting vacancy shall, in the case of the loss by Equus of a right to designate a director, be filled by the person designated by the Shareholder Representative, and in the case of the loss by any other Voting Party of a right to designate a director, by a majority of the remaining directors. In each case, the replacement director shall serve pending the next annual meeting of shareholders of the Company, and thereafter as provided by this Agreement and the vote of such shareholders. 1.3 Removal of Certain Board Representatives and Officers of the ------------------------------------------------------------ Company. As more fully set forth in their respective employment agreements, - ------- William A. Coskey and Michael L. Burrow shall not be removed as officers of the Company absent their death, disability, dismissal for cause, resignation, or the affirmative vote of at least five members of the Board. 1.4 Vacancies. If any representative designated as provided in Section --------- 1.1 for any reason ceases to serve as a member of the Board during his or her term of office, the parties hereto shall cause the resulting vacancy to be filled by a representative designated as provided in Section 1.1 by the respective person or persons who designated the vacating representative. Each of the Voting Parties shall give a proxy to vote its securities in accordance with this Agreement or shall attend, and vote its voting securities of the Company in accordance with this Agreement at, each special meeting of the stockholders of the Company involving the election of directors of the Company. 2 1.5 Legends on Stock Certificates. The certificates representing ----------------------------- shares held by the Voting Parties shall bear the following legend (together with any other legends required by separate agreement and applicable laws): THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN VOTING LIMITATIONS AND RESTRICTIONS SET FORTH IN A VOTING AGREEMENT AMONG THE COMPANY, THE HOLDER HEREOF AND CERTAIN OTHER STOCKHOLDERS OF THE COMPANY, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY. The legend on the certificates representing shares held by the Voting Parties shall be removed immediately prior to any sales permitted by applicable securities laws and the Lock-Up Agreement of even date herewith, and the provisions of this Voting Agreement shall not be binding on the transferee of such shares. 1.6 Application of Agreement to After-Acquired Securities. All of the ----------------------------------------------------- provisions of this Article 1 shall apply to all voting securities held by the Voting Parties, whether issued before or after the date of this Agreement, and all securities issued as a replacement for the securities or with respect to the securities as a result of any stock dividend, stock split or other similar event. 1.7 Covenants of the Company. The Company agrees to ensure that the ------------------------ rights granted hereunder are effective and that the parties hereto enjoy the benefits thereof. Such actions include, without limitation, the use of the Company's best efforts to assist in the nomination and election of the directors as provided above. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all of the provisions of this Agreement and in the taking of all such actions as may be necessary, appropriate or reasonably requested by the holders of a majority of the outstanding voting securities held by the parties hereto assuming conversion of all outstanding securities in order to protect the rights of the parties hereunder against impairment. 1.8 Nontransferability. Each party to this Agreement hereby agrees ------------------ that the obligations and covenants contained in this Article 1 are unique to the original parties hereto and that no party may donate, transfer, sell, assign, pledge, hypothecate or otherwise dispose of (other than to an agent, wholly-owned subsidiary or other person or entity that such party controls either directly or indirectly), any of its rights and obligations under this Agreement unless its transferee signs a joinder agreement agreeing to be bound by the terms of this Agreement. Any such transfer not effected in accordance with this Section 1.7 shall be null and void ab initio. 1.9 Representations of Alliance. Alliance hereby represents and --------------------------- warrants to each other party to this Agreement that, as of the date hereof, William A. Coskey and Hulda L. Coskey are the sole general partners of Alliance. 3 ARTICLE 2 ADDITIONAL TERMS 2.1 No Heightened Duties. Each party hereby acknowledges and agrees --------------------------------------------------------------- that no fiduciary duty, duty of care, duty of loyalty or other heightened duty - ------------------------------------------------------------------------------ shall be created or imposed upon any party to any other party, the Company or - ----------------------------------------------------------------------------- other stockholder of the Company, by reason of this Agreement and/or any right - ------------------------------------------------------------------------------ or obligation hereunder. - ------------------------ 2.2 Amendments; Waiver. Any term in this Agreement may be amended or ------------------ waived only by the written consent of each of the Company, Equus (so long as it has a right to designate a director under Section 1.1(b)), Alliance, and holders of a majority of the Common Stock held by the Significant PEI Shareholders at the time of the amendment or waiver. Any amendment or waiver not effected in accordance with this Section 2.2 shall be null and void and non-binding upon the Voting Parties and their respective successors and assigns. No waivers of any breach of this Agreement extended by any party hereto and any other party shall be construed as a waiver of any rights or remedies of such party or any other party hereto with respect to any subsequent breach. 2.3 Notices. Any notice required or permitted by this Agreement shall ------- be in writing and shall be deemed delivered on the date of delivery, when delivered personally, by overnight courier or sent by telegram or confirmed fax, or 48 hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, to the Voting Parties at the address below their signature below, or at such other address as the Voting Parties shall have furnished in writing to the other parties hereto. 2.4 Severability. If any provision of this Agreement is held by final ------------ judgment of a court of competent jurisdiction to be invalid, illegal or unenforceable, such invalid, illegal or unenforceable provision shall be severed from the remainder of this Agreement, and the remainder of this Agreement shall be enforced. In addition, the invalid, illegal or unenforceable provision shall be deemed to be automatically modified, and, as so modified, to be included in this Agreement, such modification being made to the minimum extent necessary to render the provision valid, legal and enforceable. Notwithstanding the foregoing, however, if the severed or modified provision concerns all or a portion of the essential consideration to be delivered under this Agreement by one party to the other, the remaining provisions of this Agreement shall also be modified to the extent necessary to equitably adjust the parties= respective rights and obligations hereunder. 2.5 Governing Law. This Agreement and all acts and transactions ------------- pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Texas, without giving effect to principles of conflicts of law. Venue for any disputes pursuant to this Agreement shall be in Harris County, Texas, and the parties agree to submit to the jurisdiction of the state and federal courts in Harris County, Texas. 4 2.6 Counterparts; Facsimile Signatures. This Agreement may be executed ---------------------------------- by facsimile and in two or more counterparts, each of which shall be deemed an original and all of which taken together shall constitute one agreement. Signatures transmitted via facsimile shall be deemed originals for purposes of this Agreement. 2.7 Successors and Assigns. Subject to Section 1.7, the terms and ---------------------- conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 2.8 Specific Performance. The parties hereby acknowledge that it is -------------------- impossible to measure in money the damages which will accrue to a party hereto or to its heirs, personal representatives, or assign by reason of a party's failure to perform its obligations under this Agreement and therefore agree that, in addition to and without limiting any remedies available at law, each of the parties hereto shall have full equitable remedies available to such party. 2.9 Termination. This Agreement shall terminate and the rights and ----------- obligations of the parties hereunder shall cease upon the earliest of: (i) the written consent of each of the Company, Equus (as long as it has a right to elect a director hereunder), Alliance, the Shareholder Representative, and holders of a majority of the shares of Common Stock held by the Significant PEI Shareholders, or (ii) the fifth anniversary of the Effective Date. [Remainder of Page Intentionally Left Blank] 5 IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of the Effective Date. THE COMPANY: INDUSTRIAL DATA SYSTEMS CORPORATION, a Nevada corporation By:__________________________________________ William A. Coskey, President Address: 600 Century Plaza Drive, Building 140 Houston, Texas 77073 EQUUS: EQUUS II INCORPORATED, a Delaware corporation By:__________________________________________ Randall Hale, Vice President Address: 2929 Allen Parkway, Suite 2500 Houston, Texas 77019 ALLIANCE: ALLIANCE 2000, LTD., a Texas limited partnership By:__________________________________________ William A. Coskey, Its General Partner By:__________________________________________ Hulda L. Coskey, Its General Partner Address: 600 Century Plaza Drive, Building 140 Houston, Texas 77073 SIGNIFICANT PEI SHAREHOLDERS: EQUUS II INCORPORATED, a Delaware corporation By:__________________________________________ Randall B. Hale, Vice President M.L. Burrow Family Partnership, Ltd.* Michael L. Burrow* Fahad Al-Tamimi* Norbert C. Roobaert* David L. Hopson* Jimmie N. Carpenter* Thomas H. Noble* Douglas W. Eckols Family Partnership, Ltd.* The Olan Weeks Family Limited Partnership, Ltd.* Olan B. Weeks* Terry D. Allen* Lowell J. Walker, Sr.* Mills Group, Ltd.* Robert W. Raiford* Robert G. Chapman Family Partnership, Ltd.* Owen G. Vaughn, Jr.* The Lawrence J. Bradford Family Partnership, Ltd.* Robert A. Knost* David Smith* William or Carolyn Miller* Willie E. Rigsby* Byron P. Walker, Sr.* * Indicates that the Shareholder has executed this Voting Agreement by execution of a Master Signature Page. EX-10.53 16 dex1053.txt SECOND AMENDED AND RESTATED LOAN AND SEC. AGRMT EXHIBIT 10.53 SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT BY AND AMONG IDS ENGINEERING, INC., THERMAIRE, INC., CONSTANT POWER MANUFACTURING, INC., INDUSTRIAL DATA SYSTEMS, INC., IDS ENGINEERING MANAGEMENT, LC, PETROCON ENGINEERING, INC., TRIANGLE ENGINEERS AND CONSTRUCTORS, INC., PETROCON SYSTEMS, INC., PETROCON ENGINEERING OF LOUISIANA, INC., R.P.M. ENGINEERING, INC., PETROCON CONSTRUCTION RESOURCES, INC., PETROCON TECHNOLOGIES, INC., AND ALLIANCE ENGINEERING ASSOCIATES, INC., AS BORROWER, FLEET CAPITAL CORPORATION, AS AGENT AND AS A LENDER, AND THE OTHER LENDERS PARTY THERETO DATED: DECEMBER 21, 2001 TABLE OF CONTENTS Page SECTION 1. CREDIT FACILITY.......................................... 3 1.1 Revolving Credit Loans....................................... 3 1.1.1 Loans and Reserves.................................... 3 1.1.2 Use of Proceeds....................................... 4 1.2 Term Loan.................................................... 4 1.3 Notes........................................................ 4 1.4 Letters of Credit; LC Guaranties............................. 4 1.5 All Loans to Constitute One Obligation....................... 5 1.6 Joint and Several Liability; Rights of Contribution.......... 5 1.7 Original Borrowers' Obligations.............................. 6 1.8 Structure of Credit Facility................................. 7 SECTION 2. INTEREST, FEES AND CHARGES............................... 7 2.1 Interest..................................................... 7 2.1.1 Rates of Interest..................................... 7 2.1.2 Default Rate of Interest.............................. 7 2.1.3 Maximum Interest...................................... 8 2.1.4 This Section is intentionally omitted................. 9 2.2 Computation of Interest and Fees............................. 9 2.3 Closing Fee.................................................. 9 2.4 Letter of Credit and LC Guaranty Fees........................ 9 2.5 Commitment Fees.............................................. 10 2.6 Audit and Appraisal Fees; Annual Servicing Fee............... 10 2.7 Reimbursement of Expenses.................................... 10 2.8 Bank Charges................................................. 11 SECTION 3. LOAN ADMINISTRATION...................................... 11 3.1 Manner of Borrowing Loans.................................... 11 3.1.1. Loan Requests......................................... 12 3.1.2. Disbursement.......................................... 12 3.1.3 Authorization......................................... 12 3.2 Payments..................................................... 12 3.2.1 Principal............................................. 12 3.2.2 Interest.............................................. 12 3.2.3 Costs, Fees and Charges............................... 13 3.2.4 Other Obligations..................................... 13 3.3 Mandatory Prepayments........................................ 13 3.3.1 Proceeds of Sale, Loss, Destruction or Condemnation of Collateral........................................... 13 3.3.2 Excess Cash Flow Recapture............................ 13 3.4 Application of Payments and Collections...................... 13 3.5 Loan Account................................................. 14 i 3.6 Statements of Account........................................ 14 3.7 Additional Provisions Regarding Eurodollar Loans............. 14 3.8 Capital Adequacy and Other Adjustments....................... 15 3.9 Taxes........................................................ 15 3.10 Required Termination and Prepayment.......................... 17 3.11 Compensation................................................. 17 3.12 Booking of Eurodollar Loans.................................. 17 3.13 Assumptions Concerning Funding of Eurodollar Loans........... 17 3.14 Optional Prepayment/Replacement of Agent or Lenders in Respect of Increased Costs.................................. 17 SECTION 4. TERM AND TERMINATION..................................... 18 4.1 Term of Agreement............................................ 18 4.2 Termination.................................................. 18 4.2.1 Termination by Requisite Lenders...................... 18 4.2.2 Termination by Borrower............................... 18 4.2.3 Termination Charges................................... 19 4.2.4 Effect of Termination................................. 19 SECTION 5. SECURITY INTERESTS....................................... 19 5.1 Security Interest in Collateral.............................. 19 5.2 Other Collateral............................................. 21 5.3 Lien Perfection; Further Assurances.......................... 21 5.4 Lien on Realty............................................... 22 5.5 Representations, Warranties and Covenants -- Collateral...... 23 5.6 Real Property Lien Documentation............................. 23 SECTION 6. COLLATERAL ADMINISTRATION................................ 24 6.1 General...................................................... 24 6.1.1 Location of Collateral................................ 24 6.1.2 Insurance of Collateral............................... 24 6.1.3 Protection of Collateral.............................. 24 6.2 Administration of Accounts................................... 25 6.2.1 Records, Schedules and Assignments of Accounts........ 25 6.2.2 Discounts, Allowances, Disputes....................... 25 6.2.3 Taxes................................................. 25 6.2.4 Account Verification.................................. 26 6.2.5 Maintenance of Dominion Account....................... 26 6.2.6 Collection of Accounts, Proceeds of Collateral........ 26 6.3 Administration of Equipment.................................. 26 6.3.1 Records and Schedules of Equipment.................... 26 6.3.2 Dispositions of Equipment............................. 26 6.3.3 Condition of Equipment................................ 27 6.4 Payment of Charges........................................... 27 ii SECTION 7. REPRESENTATIONS AND WARRANTIES........................... 27 7.1 General Representations and Warranties....................... 27 7.1.1 Organization and Qualification........................ 27 7.1.2 Power and Authority................................... 27 7.1.3 Legally Enforceable Agreement......................... 28 7.1.4 Capital Structure..................................... 28 7.1.5 Names................................................. 28 7.1.6 Business Locations; Agent for Process................. 29 7.1.7 Title to Properties; Priority of Liens................ 29 7.1.8 Accounts.............................................. 29 7.1.9 Financial Statements; Fiscal Year..................... 30 7.1.10 Full Disclosure....................................... 30 7.1.11 Solvent Financial Condition........................... 30 7.1.12 Surety Obligations.................................... 30 7.1.13 Taxes................................................. 31 7.1.14 Brokers............................................... 31 7.1.15 Patents, Trademarks, Copyrights and Licenses.......... 31 7.1.16 Governmental Consents................................. 31 7.1.17 Compliance with Laws.................................. 31 7.1.18 Restrictions.......................................... 31 7.1.19 Litigation............................................ 32 7.1.20 No Defaults........................................... 32 7.1.21 Leases................................................ 32 7.1.22 Pension Plans......................................... 32 7.1.23 Trade Relations....................................... 32 7.1.24 Labor Relations....................................... 32 7.1.25 Information Supplied by Borrower...................... 33 7.1.26 Alliance.............................................. 33 7.2 Continuous Nature of Representations and Warranties.......... 33 7.3 Survival of Representations and Warranties................... 33 SECTION 8. COVENANTS AND CONTINUING AGREEMENTS...................... 33 8.1 Affirmative Covenants........................................ 33 8.1.1 Visits and Inspections................................ 33 8.1.2 Notices............................................... 34 8.1.3 Financial Statements.................................. 34 8.1.4 Landlord and Storage Agreements....................... 36 8.1.5 Projections........................................... 36 8.1.6 Taxes................................................. 36 8.1.7 Compliance with Laws.................................. 36 8.1.8 Insurance............................................. 36 8.1.9 Dissolution of Petrocon FSC Ltd....................... 36 8.1.10 Deposit and Brokerage Accounts........................ 36 8.2 Negative Covenants........................................... 36 8.2.1 Mergers; Consolidations; Acquisitions................. 37 8.2.2 Loans................................................. 37 iii 8.2.3 Total Indebtedness.................................... 37 8.2.4 Affiliate Transactions................................ 38 8.2.5 Limitation on Liens................................... 39 8.2.6 Subordinated Debt; Management Fees.................... 39 8.2.7 Distributions......................................... 40 8.2.8 Capital Expenditures.................................. 40 8.2.9 Disposition of Assets................................. 40 8.2.10 Stock of Subsidiaries................................. 40 8.2.11 Bill-and-Hold Sales, Etc.............................. 40 8.2.12 Restricted Investment................................. 40 8.2.13 Operating Leases...................................... 40 8.2.14 Tax Consolidation..................................... 41 8.2.15 RPM Earnout Payment................................... 41 8.3 Specific Financial Covenants................................. 41 8.3.1 Fixed Charge Ratio.................................... 41 8.3.2 Ratio of Senior Debt and Equus Term Note to EBITDA.... 41 8.3.3 Costs in Excess of Billings Amount.................... 42 SECTION 9. CONDITIONS PRECEDENT..................................... 42 9.1 Documentation................................................ 42 9.2 No Default................................................... 42 9.3 Availability................................................. 42 9.4 Organizational and Governing Documents....................... 42 9.5 Good Standing Certificates................................... 42 9.6 Opinion Letters.............................................. 43 9.7 Insurance.................................................... 43 9.8 Dominion Account............................................. 43 9.9 Landlord Agreements.......................................... 43 9.10 No Litigation................................................ 43 9.11 Evidence of Perfection and Priority of Liens in Collateral... 43 9.12 Evidence of Consummation of IDSC Merger and Equus Subordinated Debt Restructuring.............................. 43 9.13 Documentation Relating to Transactions....................... 43 9.14 No Material Adverse Effect................................... 44 9.15 Average Daily Availability................................... 44 9.16 Closing Fee.................................................. 44 SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT...... 44 10.1 Events of Default............................................ 44 10.1.1 Payment of Note...................................... 44 10.1.2 Payment of Other Obligations......................... 44 10.1.3 Misrepresentations................................... 44 10.1.4 Breach of Specific Covenants......................... 44 10.1.5 Breach of Other Covenants............................ 44 10.1.6 Default Under Other Agreements....................... 44 10.1.7 Other Defaults....................................... 45 iv 10.1.8 Uninsured Losses.................................... 45 10.1.9 Adverse Changes..................................... 45 10.1.10 Insolvency and Related Proceedings.................. 45 10.1.11 Business Disruption; Condemnation................... 45 10.1.12 Change of Ownership................................. 45 10.1.13 ERISA............................................... 46 10.1.14 Challenge to Agreement.............................. 46 10.1.15 Criminal Forfeiture................................. 46 10.1.16 Judgments........................................... 46 10.1.17 Repudiation of or Default Under Guaranty Agreements. 46 10.2 Acceleration of the Obligations............................... 46 10.3 Other Remedies................................................ 46 10.4 Remedies Cumulative; No Waiver................................ 48 10.5 Power of Attorney............................................. 48 SECTION 11. ASSIGNMENT AND PARTICIPATION........................... 49 11.1 Assignments and Participations in Loans....................... 49 11.2 Agent......................................................... 51 11.3 Consents...................................................... 55 11.4 Set Off and Sharing of Payments............................... 55 11.5 Disbursement of Funds......................................... 55 11.6 Settlements, Payments and Information......................... 56 11.7 Dissemination of Information.................................. 57 11.8 Discretionary Advances........................................ 58 SECTION 12. MISCELLANEOUS.......................................... 58 12.1 Indemnity.................................................... 58 12.2 Amendments and Waivers....................................... 59 12.3 Severability................................................. 60 12.4 Successors and Assigns....................................... 60 12.5 Cumulative Effect; Conflict of Terms......................... 60 12.6 Execution in Counterparts.................................... 60 12.7 Notice....................................................... 60 12.8 Agent's or Lenders' Consent.................................. 61 12.9 Credit Inquiries............................................. 61 12.10 Time of Essence.............................................. 62 12.11 Entire Agreement; Appendix A and Exhibits and Schedules...... 62 12.12 Interpretation............................................... 62 12.13 GOVERNING LAW; CONSENT TO FORUM.............................. 62 12.14 WAIVERS BY BORROWER.......................................... 63 12.15 WAIVER OF CONSUMER RIGHTS.................................... 63 12.16 ORAL AGREEMENTS INEFFECTIVE.................................. 64 12.17 Nonapplicability of Chapter 346 of the Texas Finance Code.... 64 12.18 Certain Matters of Construction.............................. 64 12.19 Confidentiality.............................................. 64 12.20 Amendment and Restatement.................................... 64 v SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this "Agreement") is made this 21st day of December 2001, by and among IDS ENGINEERING, INC., a Texas corporation ("IDS Engineering"), THERMAIRE, INC., a Texas corporation ("Thermaire"), CONSTANT POWER MANUFACTURING, INC., a Texas corporation ("Constant Power"), INDUSTRIAL DATA SYSTEMS, INC., a Texas corporation ("Data"), IDS ENGINEERING MANAGEMENT, LC, a Texas limited liability company ("Management", and collectively with IDS Engineering, Thermaire, Data and Constant Power, "New Borrowers"), PETROCON ENGINEERING, INC., a Texas corporation ("Petrocon"), TRIANGLE ENGINEERS AND CONSTRUCTORS, INC., a Texas corporation ("Triangle"), PETROCON SYSTEMS, INC., a Texas corporation ("Petrocon Systems"), PETROCON ENGINEERING OF LOUISIANA, INC., a Louisiana corporation ("Petrocon Louisiana"), R.P.M. ENGINEERING, INC., a Louisiana corporation ("RPM"), PETROCON CONSTRUCTION RESOURCES, INC., a Texas corporation ("Petrocon Construction"), PETROCON TECHNOLOGIES, INC., a Texas corporation ("Petrocon Technologies"), ALLIANCE ENGINEERING ASSOCIATES, INC., a Texas corporation ("Alliance", and collectively with Petrocon, Triangle, Petrocon Systems, Petrocon Louisiana, RPM, Petrocon Construction and Petrocon Technologies "Original Borrowers") (New Borrowers and Original Borrowers are hereinafter sometimes referred to individually and collectively as "Borrower" or "Borrowers"), each with its chief executive office at 3155 Executive Boulevard, Beaumont, Texas 77705, FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Fleet") with an office at 5950 Sherry Lane, Suite 300, Dallas, Texas 75225, as Agent (Fleet, in such capacity, the "Agent"), and the financial institution(s) listed on the signature pages hereof and their respective successors and assigns (each individually a "Lender" and collectively "Lenders"). Capitalized terms used in this Agreement have the meanings assigned to them in Appendix A, General Definitions. Accounting terms not otherwise specifically defined herein shall be construed in accordance with GAAP consistently applied. A. Original Borrowers, Agent and Lenders have entered into that certain Loan and Security Agreement dated June 15, 1999, as amended by that certain (i) Forbearance Agreement and First Amendment to Amended and Restated Loan and Security Agreement, entered into as of January 31, 2000, (ii) Forbearance Agreement and Second Amendment to Amended and Restated Loan and Security Agreement, entered into as of June 30, 2000, (iii) Forbearance Agreement and Third Amendment to Amended and Restated Loan and Security Agreement, entered into as of March 30, 2001 and (iv) Fourth Amendment to Amended and Restated Loan Agreement, entered into as of May 14, 2001 (as amended, the "Original Loan Agreement"). B. The Borrowers desire to enter into and close the following simultaneous transactions (collectively, the "Transactions"), as of the Closing Date: (i) The stock merger (hereinafter, the "IDSC Merger") by and between Petrocon and PEI Acquisition, Inc., a Texas corporation ("PEI Acquisition"), with Petrocon as the surviving corporation, pursuant to the terms, conditions and provisions of 1 that certain Agreement and Plan of Merger, dated July 31, 2001, executed by Petrocon, PEI Acquisition, Management, and Industrial Data Systems Corporation, a Nevada corporation ("IDSC") (as thereafter amended, the "IDSC Merger Agreement"); (ii) The inclusion of all Subsidiaries of IDSC (a) as co-borrowers to the revolving credit facility provided for by the Original Loan Agreement, (b) as guarantors of the term loan provided for in the Original Loan Agreement, and (c) as parties to the Original Loan Agreement; (iii) The restructuring (hereinafter, the "Equus Subordinated Debt Restructuring") of the existing "Subordinated Debt" (as defined in the Original Loan Agreement) of Petrocon to Equus II Incorporated, a Delaware corporation ("Equus") (hereinafter, the "Existing Equus Subordinated Debt"), pursuant to the terms, conditions and provisions of that certain Settlement Agreement and Plan of Reorganization dated as of July 31, 2001, executed by Equus, Petrocon, PEI Acquisition and IDSC (the "Equus Settlement Agreement"), whereby in exchange for the cancellation of the Existing Equus Subordinated Debt and forgiveness of approximately $2,000,000 in payment-in-kind interest on the Existing Equus Subordinated Debt: (a) Equus receives on the Closing Date a $2,000,000 payment in cash from Petrocon, as payment in full of the First Replacement Notes (as defined in the Equus Settlement Agreement); (b) Equus receives a new term note dated on or about the Closing Date in the original principal amount of $3,000,000, executed by Petrocon and payable to the order of Equus (the "Equus Term Note"), such Equus Term Note to be subordinated to the prior payment of the Obligations in the manner and to the extent specified in the Equus Intercreditor Agreement (as hereinafter defined in Appendix A); and (c) Equus is issued 2,500,000 shares of the Series A Convertible Preferred Stock $0.001 par value of IDSC, as payment in full of the Remainder Note (as defined in the Equus Settlement Agreement); (iv) The settlement (hereinafter, the "Coury/Berry Settlement") of existing lawsuits brought by and against Gary Coury, a former chief executive officer of Petrocon ("Coury") and Rick Berry, a former chief financial officer of Petrocon ("Berry") pursuant to the terms, conditions and provisions of those certain settlement agreements executed by Coury, Berry and Petrocon (the "Coury/Berry Settlement Agreements") whereby Petrocon agrees to pay to Coury and Berry the aggregate maximum amount of $475,000, payable in 24 monthly installments in the aggregate amount of $12,500 each, with an aggregate balloon payment of $175,000, payable 25 months after the date of the Coury/Berry Settlement; 2 (v) The redemption (hereinafter, the "Coury Subordinated Debt Redemption") by Petrocon of all existing "Subordinated Debt" (as defined in the Original Loan Agreement) of Petrocon to Coury for an amount of no more than $72,034.00; and (vi) The purchase (hereinafter, the "Coury/Berry Stock Purchase") whereby Coury and Berry sell 288,565 shares of capital stock of Petrocon for $0.79 a share, Equus paying Coury and Berry $0.67 a share for and being transferred each such share of capital stock of Petrocon owned by Coury and Berry, and Petrocon paying Coury and Berry in cash the amount necessary so that when added to the payment by Equus to Coury and Berry in connection with the Coury/Berry Stock Purchase, Coury and Berry receive in total an aggregate amount equal to $227,966.60 (such payment by Petrocon being hereinafter referred to as the "Coury/Berry Distribution"); and obtain the consent of Agent and Lenders to the consummation of the Transactions. C. As a result of and in connection with the permitted closing of the Transactions, the parties hereto desire to extend the maturity of the Original Loan Agreement and make certain revisions to the Original Loan Agreement. D. To effectuate the foregoing, Borrower, Lenders and Agent desire to amend, restate and modify (but not extinguish) the Original Loan Agreement as hereinafter set forth. SECTION 1. CREDIT FACILITY Subject to the terms and conditions of, and in reliance upon the representations and warranties made in, this Agreement and the other Loan Documents, Lenders agree to continue to provide a $15,000,000 revolving credit facility available upon Borrower's request therefor, and to continue an existing $522,285.70 term loan, as follows: 1.1 Revolving Credit Loans. 1.1.1 Loans and Reserves. Lenders agree, during the term of this Agreement and for so long as no Default or Event of Default exists, to make Revolving Credit Loans to Borrower from time to time, as requested by Borrower in the manner set forth in Section 3.1.1 hereof, up to a maximum principal amount at any time outstanding equal to the Borrowing Base at such time; provided, however, that each Lender's obligation to make Revolving Credit Loans hereunder is several and not joint in nature, and, except as otherwise specifically provided herein, no Lender shall be obligated to make more than its Pro Rata Share of any Revolving Credit Loan. Agent shall have the right to establish reserves in such amounts, and with respect to such matters, as Agent shall, in its reasonable credit judgment, deem necessary or appropriate, against the amount of Revolving Credit Loans which Borrower may otherwise request under this Section 1.1.1, including, without limitation, with respect to (i) other sums chargeable against Borrower's Loan Account as Revolving Credit Loans under any section of this Agreement; (ii) amounts owing by Borrower to any Person to the extent secured by a Lien on, or trust over, any Property of Borrower; (iii) all amounts of past due rent or other charges owing at such time by Borrower 3 to any landlord of any premises where any of the Collateral is located; and (iv) such other matters, events, conditions or contingencies as to which Agent, in its sole credit judgment, determines reserves should be established from time to time hereunder. Subject to the terms and conditions of this Agreement, Borrower shall have the right to borrow, repay and reborrow Revolving Credit Loans. 1.1.2 Use of Proceeds. The Revolving Credit Loans shall be used solely for the purpose of payments to be made and costs incurred in connection with the Transactions, the payoff of the Chase Term Note, for Borrower's Capital Expenditures, and for Borrower's general operating capital needs and general corporate purposes in a manner consistent with the provisions of this Agreement and Applicable Law. In no event shall any proceeds of any Revolving Credit Loans be used to purchase or to carry, reduce, retire or refinance any Indebtedness incurred to purchase or carry any margin stock (within the meaning of Regulation U of the Federal Reserve Board). 1.2 Term Loan. The Borrowers hereby agree and acknowledge that on or about June 15, 1999, Lenders made a term loan (referred to in this Agreement as the Term Loan), to Original Borrowers in the amount of $5,000,000, and that on the date hereof the unpaid principal balance of the Term Loan is $522,285.70, and that such amount is unconditionally owed by Original Borrowers to Lenders without offset, defense or counterclaim of any kind, nature or description whatsoever. The Term Loan shall continue to be repayable in accordance with the terms of the Term Note and shall continue to be secured by all of the Collateral. Borrower may not reborrow any amount repaid with respect to the Term Loan. No further amounts are available for advance with respect to the Term Loan. 1.3 Notes. On the Closing Date, Borrower shall execute and deliver to each Lender with appropriate insertions a Revolving Note to evidence such Lender's Revolving Loan Commitment. Each Lender's Term Loan Commitment shall continue to be evidenced by the existing Term Note. In the event of an assignment under Section 11.1, Borrower shall, upon surrender of the assigning Lender's Notes, issue new Notes to reflect the interest held by the assigning Lender and its assignee. Each Revolving Credit Loan shall be evidenced by this Agreement, the Revolving Note and notations made from time to time by Agent in its books and records, including computer records. Agent shall record in its books and records, including computer records, the principal amount of the Revolving Credit Loans owing to each Lender from time to time. Agent's books and records shall constitute presumptive evidence, absent manifest error, of the accuracy of the information contained therein. Failure by Agent to make any such notation or record shall not affect the obligations of Borrower to Lenders with respect to the Revolving Credit Loans. 1.4 Letters of Credit; LC Guaranties. Agent agrees, for so long as no Default or Event of Default exists and if requested by Borrower, to (i) issue its, or cause to be issued its Affiliate's, standby Letters of Credit for the account of Borrower and/or (ii) execute LC Guaranties by which Agent or its Affiliate shall guaranty the payment or performance by Borrower of its reimbursement obligations with respect to standby Letters of Credit, provided that the LC Amount at any time shall not exceed Three Million Dollars ($3,000,000). No Letter of Credit 4 or LC Guaranty may have an expiration date that is after the last day of the Original Term. Any amounts paid by Agent under any LC Guaranty or in connection with any Letter of Credit shall be treated as Revolving Credit Loans, shall be secured by all of the Collateral and shall bear interest and be payable at the same rate and in the same manner as Revolving Credit Loans. Each Lender shall be deemed to have purchased a participation in each Letter of Credit and each LC Guaranty that is issued by Agent or its Affiliate on behalf of Borrower in an amount equal to its Pro Rata Share thereof. 1.5 All Loans to Constitute One Obligation. All Loans shall constitute one general joint and several obligation of Borrowers, and shall be secured by Agent's security interest in and Lien upon all of the Collateral, for the benefit of Lenders, and by all other security interests and Liens heretofore, now or at any time or times hereafter granted by Borrower to Agent for the benefit of Lenders. 1.6 Joint and Several Liability; Rights of Contribution. (A) Each Borrower states and acknowledges that: (i) pursuant to this Agreement, Borrowers desire to utilize their borrowing potential on a consolidated basis to the same extent possible if they were merged into a single corporate entity and that this Agreement reflects the establishment of credit facilities which would not otherwise be available to such Borrower if each Borrower were not jointly and severally liable for payment of all of the Obligations; (ii) it has determined that it will benefit specifically and materially from the advances of credit contemplated by this Agreement; (iii) it is both a condition precedent to the obligations of each Lender hereunder and a desire of the Borrowers that each Borrower execute and deliver to Lenders this Agreement; and (iv) Borrowers have requested and bargained for the structure and terms of and security for the advances contemplated by this Agreement. (B) Each Borrower hereby irrevocably and unconditionally: (i) agrees that it is jointly and severally liable to Agent and Lenders for the full and prompt payment of the Obligations and the performance by each Borrower of its obligations hereunder in accordance with the terms hereof; (ii) agrees to fully and promptly perform all of its obligations hereunder with respect to each advance of credit hereunder as if such advance had been made directly to it; and (iii) agrees as a primary obligation to indemnify Agent and Lenders on demand for and against any loss incurred by Agent or Lenders as a result of any of the obligations of any one or more of the Borrowers being or becoming void, voidable, unenforceable or ineffective for any reason whatsoever, whether or not known to Agent or Lenders or any Person, the amount of such loss being the amount which Agent and/or Lenders would otherwise have been entitled to recover from any one or more of the Borrowers whose obligation becomes void, voidable, unenforceable or ineffective. (C) It is the intent of each Borrower that the indebtedness, obligations and liability hereunder of no one of them be subject to challenge on any basis, including, without limitation, pursuant to any applicable fraudulent conveyance or fraudulent transfer laws. Accordingly, as of the date hereof, the liability of each Borrower under this Section 1.6, together with all of its other liabilities to all Persons as of the date hereof and as of any other date on 5 which a transfer or conveyance is deemed to occur by virtue of this Agreement, calculated in amount sufficient to pay its probable net liabilities on its existing Indebtedness as the same become absolute and matured ("Dated Liabilities") is, and is to be, less than the amount of the aggregate of a fair valuation of its property as of such corresponding date ("Dated Assets"). To this end, each Borrower under this Section 1.6, (i) grants to and recognizes in each other Borrower, ratably, rights of subrogation and contribution in the amount, if any, by which the Dated Assets of such Borrower, but for the aggregate of subrogation and contribution in its favor recognized herein, would exceed the Dated Liabilities of such Borrower or, as the case may be, (ii) acknowledges receipt of and recognizes its right to subrogation and contribution ratably from each of the other Borrowers in the amount, if any, by which the Dated Liabilities of such Borrower, but for the aggregate of subrogation and contribution in its favor recognized herein, would exceed the Dated Assets of such Borrower under this Section 1.6. In recognizing the value of the Dated Assets and the Dated Liabilities, it is understood that Borrowers will recognize, to at least the same extent of their aggregate recognition of liabilities hereunder, their rights to subrogation and contribution hereunder. It is a material objective of this Section 1.6 that each Borrower recognizes rights to subrogation and contribution rather than be deemed to be insolvent (or in contemplation thereof) by reason of an arbitrary interpretation of its joint and several obligations hereunder. In addition to and not in limitation of the foregoing provisions of this Section 1.6, the Borrowers, Agent and Lenders hereby agree and acknowledge that it is the intent of each Borrower and of Agent and each Lender that the obligations of each Borrower hereunder be in all respects in compliance with, and not be voidable pursuant to, applicable fraudulent conveyance and fraudulent transfer laws. 1.7 Original Borrowers' Obligations. Notwithstanding any other provision of the Revolving Note or Term Note or this Agreement to the contrary, the parties hereto agree and acknowledge that New Borrowers shall not be directly liable for the payment of any of the Obligations incurred by the Original Borrowers prior to the date of execution of this Agreement (collectively, the "Original Borrowers' Obligations"). However, the parties hereto agree and acknowledge that the preceding sentence shall not (i) limit any contingent liability of any New Borrower for payment of any of the Original Borrowers' Obligations which arises pursuant to its respective Guaranty Agreement, or (ii) limit the security interest and Liens in favor of Lenders granted by any New Borrower against the assets of such New Borrower as a result of such New Borrower becoming an additional named `Borrower', which Liens shall secure payment of all Obligations arising in connection with this Agreement, whether currently existing or hereafter arising. For purposes of determining on or after the date of this Agreement which Obligations outstanding constitute Original Borrowers' Obligations and how payments are applied to Original Borrowers' Obligations, (x) all payments received by Agent from the Original Borrowers on account of the Obligations shall be deemed to be applied first in payment of all then due and payable Original Borrowers' Obligations (until such time as the Original Borrowers' Obligations shall have been reduced to zero), and thereafter to the other Obligations as hereinafter set forth, and unless Borrower specifically indicates to the contrary in writing to Agent, all payments received by Agent through the Dominion Account (with the sole exception of any New Borrower's Dominion Account) shall be deemed to be payments received by Agent from the Original Borrowers and (y) all payments received by Agent from New Borrowers shall be deemed to be applied on account of Obligations which are not Original Borrowers' 6 Obligations, and to the extent that, notwithstanding the foregoing, for any reason any payment received by Agent from any New Borrower shall instead be determined to have been applied on account of any Original Borrowers' Obligations, such payment shall be deemed to have been made by any New Borrower pursuant to the relevant Guaranty Agreement executed by such New Borrower. 1.8 Structure of Credit Facility. Each Borrower agrees and acknowledges that the present structure of the credit facilities detailed in this Agreement is based in part upon the financial and other information presently known to Agent and Lenders regarding each Borrower, the corporate structure of Borrowers, and the present financial condition of each Borrower. Each Borrower hereby agrees that Agent shall have the right, in its reasonable credit judgment, to require that any or all of the following changes be made to these credit facilities: (i) upon and after the occurrence of an Event of Default, establish separate lockbox and/or dominion accounts for each Borrower, (ii) upon and after the occurrence of an Event of Default, separate the Term Loan into separate term loans to such of the Borrowers as shall be determined by Agent, and (iii) establish such other procedures as shall be reasonably deemed by Agent to be useful in tracking where Loans are made under this Agreement and the source of payments received by Agent on such Loans. SECTION 2. INTEREST, FEES AND CHARGES 2.1 Interest. 2.1.1 Rates of Interest. Subject to the terms of Section 2.1.4, the outstanding principal amount of the Loans shall bear interest at the following rates per annum (individually called, as applicable, an "Applicable Annual Rate"): (i) with respect to Revolving Credit Loans, (x) each Eurodollar Loan shall bear interest at a rate per annum equal to two and three-quarters percent (2.75%) above LIBOR for the LIBOR Interest Period applicable thereto, and (y) each Base Rate Loan shall bear interest at a rate per annum equal to one-quarter of one percent (0.25%) above the Base Rate and (ii) with respect to the Term Loan, (x) each Eurodollar Loan shall bear interest at a rate per annum equal to three percent (3.00%) above LIBOR for the LIBOR Interest Period applicable thereto, and (y) each Base Rate Loan shall bear interest at a rate per annum equal to one-half of one percent (0.50%) above the Base Rate. Unless Borrower delivers a Borrowing Notice to Agent in accordance with Section 3.1.1(A) hereof irrevocably electing that all or any portion of the Loans are to bear interest at a rate based upon LIBOR, all of the Loans shall bear interest at a rate based upon the Base Rate as provided in clause (ii) of this Section 2.1.1. The rate of interest applicable to Base Rate Loans shall increase or decrease by an amount equal to any increase or decrease in the Base Rate, effective as of the opening of business on the day that any such change in the Base Rate occurs. 2.1.2 Default Rate of Interest. While an Event of Default exists, the principal amount of all Loans shall bear interest at a rate per annum equal to two percent (2.00%) above the Applicable Annual Rate or at such other rate per annum above the Applicable Annual Rate (not to exceed two percent (2.00%)) as Agent shall, in its sole discretion, elect (the "Default Rate"). 7 2.1.3 Maximum Interest. (A) Notwithstanding anything to the contrary in this Agreement or otherwise, (i) if at any time the amount of interest computed on the basis of an Applicable Annual Rate or a Default Rate would exceed the amount of such interest computed upon the basis of the maximum rate of interest permitted by applicable state or federal law in effect from time to time hereafter (the "Maximum Legal Rate"), the interest payable under this Agreement shall be computed upon the basis of the Maximum Legal Rate, but any subsequent reduction in such Applicable Annual Rate or Default Rate, as applicable, shall not reduce such interest thereafter payable hereunder below the amount computed on the basis of the Maximum Legal Rate until the aggregate amount of such interest accrued and payable under this Agreement equals the total amount of interest which would have accrued if such interest had been at all times computed solely on the basis of an Applicable Annual Rate or Default Rate, as applicable; and (ii) unless preempted by federal law, an Applicable Annual Rate or Default Rate, as applicable, from time to time in effect hereunder may not exceed the "monthly ceiling" from time to time in effect under Chapter 303 of the Texas Finance Code. If the applicable state or federal law is amended in the future to allow a greater rate of interest to be charged under this Agreement than is presently allowed by applicable state or federal law, then the limitation of interest hereunder shall be increased to the maximum rate of interest allowed by applicable state or federal law as amended, which increase shall be effective hereunder on the effective date of such amendment, and all interest charges owing to Agent and/or Lenders by reason thereof shall be payable in accordance with Section 3.2.2 hereof. (B) Excess Interest. No agreements, conditions, provisions or stipulations contained in this Agreement or any other instrument, document or agreement between Borrower, Agent and/or any Lender, or default of Borrower, or the exercise by Agent or Lenders of the right to accelerate the payment of the maturity of principal and interest, or to exercise any option whatsoever contained in this Agreement or any other Loan Document, or the arising of any contingency whatsoever, shall entitle Agent or any Lender to contract for, charge, or receive, in any event, interest exceeding an amount calculated at the Maximum Legal Rate. In no event shall Borrower be obligated to pay interest exceeding an amount calculated at such Maximum Legal Rate and all agreements, conditions or stipulations, if any, which may in any event or contingency whatsoever operate to bind, obligate or compel Borrower to pay a rate of interest exceeding the Maximum Legal Rate, shall be without binding force or effect, at law or in equity, to the extent only of the excess of interest over such Maximum Legal Rate. In the event any interest is contracted for, charged or received in excess of an amount calculated at the Maximum Legal Rate ("Excess Interest"), Borrower acknowledges and stipulates that any such Excess Interest received by Agent and/or any Lender shall be applied, first, to reduce the principal then unpaid hereunder; second, to reduce the other Obligations; and third, returned to Borrower, it being the intention of the parties hereto not to enter at any time into a usurious or otherwise illegal relationship. Borrower recognizes that, with fluctuations in the Base Rate and the Maximum Legal Rate, such a result could inadvertently occur. By the execution of this Agreement, Borrower covenants that (i) the credit or return of any Excess Interest shall constitute the acceptance by Borrower of such Excess Interest, and (ii) in the event such Excess Interest is credited or returned to Borrower, Borrower shall not seek or pursue any other remedy, legal or equitable, against Agent or Lenders, based in whole or in part upon contracting for, charging or 8 receiving of any interest in excess of the maximum authorized by applicable law. For the purpose of determining whether or not any Excess Interest has been contracted for, charged or received by Agent and/or any Lender, all interest at any time contracted for, charged or received by Agent and/or any Lender in connection with this Agreement shall be amortized, prorated, allocated and spread in equal parts during the entire term of this Agreement. (C) Incorporation by this Reference. The provisions of Section 2.1.3(B) shall be deemed to be incorporated into every document or communication relating to the Obligations which sets forth or prescribes any account, right or claim or alleged account, right or claim of Agent and/or Lender with respect to Borrower (or any other obligor in respect of Obligations), whether or not any provision of Section 2.1.3(B) is referred to therein. All such documents and communications and all figures set forth therein shall, for the sole purpose of computing the extent of the Obligations of Borrower (or any other obligor) asserted by Agent and/or any Lender thereunder, be automatically re-computed by Borrower or any such obligor, and by any court considering the same, to give effect to the adjustments or credits required by Section 2.1.3(B). 2.1.4 [This Section is intentionally omitted.]. 2.2 Computation of Interest and Fees. Interest, Letter of Credit and LC Guaranty fees and commitment fees hereunder shall be calculated daily and shall be computed on the actual number of days elapsed over a year of three hundred sixty (360) days. For the purpose of computing interest hereunder, all items of payment received by Agent shall be deemed applied by Agent on account of the Obligations (subject to final payment of such items) one (1) Business Day after receipt by Agent of such items in Agent's account located in Providence, Rhode Island, and Agent shall be deemed to have received such items of payment on the date specified in Section 3.4 hereof. 2.3 Closing Fee. Borrower shall pay to Agent, for the account of Lenders, a closing fee of $30,000, which shall be fully earned and (except to the extent otherwise required by Applicable Law) nonrefundable on the Closing Date, and shall be paid concurrently with the initial Loan hereunder. 2.4 Letter of Credit and LC Guaranty Fees. Borrower shall pay to Agent, for the account of Lenders, for standby Letters of Credit and LC Guaranties of standby Letters of Credit, one and one-half percent (1.50%) per annum of the aggregate face amount of such Letters of Credit and LC Guaranties outstanding from time to time during the term of this Agreement, which fee shall be due and payable and shall be deemed fully earned and nonrefundable on the date of issuance of each such Letter of Credit or LC Guaranty, plus Borrower shall pay to Agent, for its own account, all normal and customary charges associated with the issuance of each such Letter of Credit or LC Guaranty in accordance with Fleet National Bank's standard fee schedule, which fees and charges shall be deemed fully earned upon issuance of each such Letter of Credit or LC Guaranty, shall be due and payable on the first Business Day of each month and shall not be subject to rebate or proration upon the termination of this Agreement for any reason. 9 2.5 Commitment Fees. Borrower shall pay to Agent, for the account of Lenders, a commitment fee equal to three-eighths percent (0.375%) per annum of the amount by which the Average Monthly Revolving Credit Loan Balance is less than the Total Revolving Credit Facility. The commitment fees shall be payable monthly, in arrears, on the first day of each calendar month hereafter. 2.6 Audit and Appraisal Fees; Annual Servicing Fee. Borrower shall reimburse Agent for all reasonable out-of-pocket costs and expenses incurred by Agent in connection with audits and appraisals of Borrower's books and records and such other matters as Agent shall deem appropriate. In connection with any audit by Agent of Borrower's books and records, Borrower shall also pay Agent a per diem fee of Six Hundred Fifty Dollars ($650). In addition to the foregoing, Borrower shall pay to Agent an annual servicing fee of Ten Thousand Dollars ($10,000), which fee shall be paid on June 15th of each year during the term of this Agreement. All such out-of-pocket costs, fees and expenses shall be payable on demand. 2.7 Reimbursement of Expenses. If, at any time or times regardless of whether or not an Event of Default then exists, Agent or any Lender incurs reasonable legal or accounting expenses or any other costs or out-of-pocket expenses in connection with (i) the negotiation and preparation of this Agreement or any of the other Loan Documents, any amendment of or modification of this Agreement or any of the other Loan Documents, any waiver of any provisions of this Agreement or any of the other Loan Documents; (ii) the administration of this Agreement or any of the other Loan Documents and the transactions contemplated hereby and thereby (provided that the Borrower shall not be obligated to pay (a) Agent or any Lender for any general overhead costs of Agent or any Lender, including (I) the salaries of Agent's and/or any Lender's officers and employees or (II) any contribution by Borrower to Agent's and/or any Lender's general overhead costs or (b) Agent for any administration costs associated with the communication and/or dissemination of documentation and/or information regarding Borrower to the Lenders, or the receipt or disbursement of funds, as a routine part of Agent's duties as Agent hereunder); (iii) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Agent, any Lender, Borrower or any other Person) in any way relating to the Collateral, this Agreement or any of the other Loan Documents or Borrower's affairs; (iv) any attempt to enforce any rights of Agent or any Lender against Borrower or any other Person which may be obligated to Agent and/or Lender by virtue of this Agreement or any of the other Loan Documents, including the Account Debtors; or (v) any attempt to inspect, verify, protect, preserve, restore, collect, sell, liquidate or otherwise dispose of or realize upon the Collateral (including, without limitation, the costs of any periodic lien searches conducted by Agent); then all such legal and accounting expenses, other costs and out of pocket expenses of Agent and/or any Lender shall be charged to Borrower. In addition, at any time that an Event of Default exists hereunder, Borrower shall reimburse Agent and/or any Lender for any and all costs or out-of-pocket expenses incurred in connection with any sale or attempted sale of any interest herein to any other Person. All amounts chargeable to Borrower under this Section 2.7 shall be Obligations secured by all of the Collateral, shall be payable on demand to Agent or to such Lender, as the case may be, and shall bear interest from the date such demand is made until paid in full at the rate applicable to Revolving Credit Loans from time to time. Borrower shall also 10 reimburse Agent for expenses incurred by Agent in its administration of the Collateral to the extent and in the manner provided in Section 6 hereof. 2.8 Bank Charges. Borrower shall pay to Agent and/or Lenders, on demand, any and all normal and customary fees, costs or expenses which Agent or any Lender pays to a bank or other similar institution arising out of or in connection with (i) the forwarding to Borrower or any other Person on behalf of Borrower, by Agent or any Lender, of proceeds of loans made by any Lender to Borrower pursuant to this Agreement and (ii) the depositing for collection, by Agent or any Lender, of any check or item of payment received or delivered to Agent or any Lender on account of the Obligations. SECTION 3. LOAN ADMINISTRATION 3.1 Manner of Borrowing Loans. Borrowings under the credit facility established pursuant to Section 1 hereof shall be as follows: 3.1.1. Loan Requests. (A) A request for a Eurodollar Loan shall be made, or shall be deemed to be made, if Borrower gives Agent notice of its intention to borrow in the form of Exhibit Q hereto (a "Borrowing Notice"), in which notice Borrower shall specify (i) the aggregate amount of such Eurodollar Loan, (ii) the requested date of such Eurodollar Loan, (iii) the Applicable Annual Rate selected in accordance with Section 2.1.1, and (iv) the LIBOR Interest Period applicable thereto. If Borrower selects a Eurodollar Loan, Borrower shall give Agent the Borrowing Notice no later than 11:00 a.m. Dallas, Texas time at least two (2) Business Days prior to the requested date of the Eurodollar Loan. Notwithstanding anything herein to the contrary, Agent shall have the right to refuse to accept a request for a Eurodollar Loan and to refuse to make a Eurodollar Loan if at the date such request is made or such Eurodollar Loan is to be made there exists a Default or an Event of Default. (B) A request for a Base Rate Loan shall be made, or shall be deemed to be made, in the following manner: (i) Borrower shall give Agent notice of its intention to borrow, in which notice Borrower shall specify the amount of the proposed borrowing and the proposed borrowing date, no later than 11:00 a.m. Dallas, Texas time on the proposed borrowing date; provided, however, Agent shall have the right to refuse to accept such a request or make such a Loan if at such time there exists a Default or an Event of Default; and (ii) the becoming due of any amount required to be paid under this Agreement, under the Notes or any of the other Loan Documents, whether as principal, accrued interest, fees or other charges, shall be deemed irrevocably to be a request by Borrower from Lender for a Revolving Credit Loan on the due date of, and in an aggregate amount required to pay, such principal, accrued interest, fees or other charges and the proceeds of each such Revolving Credit Loan may be disbursed by Lender by way of direct payment of the relevant Obligation and shall bear interest at the rate of interest applicable to Revolving Credit Loans (whether or not any Default, Event of Default or Out-of-Formula Condition exists at the time of or would result from such Revolving Credit Loan). As an accommodation to Borrower, Agent may permit telephonic requests for loans and electronic 11 transmittal of instructions, authorizations, agreements or reports to Agent by any individual from time to time designated by Borrower as an authorized agent of Borrower. Unless Borrower specifically directs Agent in writing not to accept or act upon telephonic or electronic communications from Borrower, Agent shall have no liability to Borrower for any loss or damage suffered by Borrower as a result of Agent's honoring of any requests, execution of any instructions, authorizations or agreements or reliance on any reports communicated to Agent telephonically or electronically and purporting to have been sent to Agent by any individual from time to time designated by Borrower as an authorized officer, and Lender shall have no duty to verify the origin or authenticity of any such communication. 3.1.2 Disbursement. Borrower hereby irrevocably authorizes Agent to disburse the proceeds of each Loan requested, or deemed to be requested, pursuant to this Section 3.1.2 as follows: (i) the proceeds of each Loan requested under Section 3.1.1(A) or Section 3.1.1(B)(i) shall be disbursed by Agent in lawful money of the United States of America in immediately available funds, in the case of the initial borrowing, in accordance with the terms of the written disbursement letter from Borrower, and in the case of each subsequent borrowing, by wire transfer to such bank account as may be agreed upon by Borrower and Agent from time to time or elsewhere if pursuant to a written direction from Borrower; and (ii) the proceeds of each Revolving Credit Loan requested under Section 3.1.1(B)(ii) shall be disbursed by Agent by way of direct payment of the relevant interest or other Obligation. 3.1.3 Authorization. Borrower hereby irrevocably authorizes Agent, in Agent's sole discretion, to advance to Borrower, and to charge to Borrower's Loan Account hereunder as a Revolving Credit Loan, a sum sufficient to pay all principal when due in respect of the Term Loan, all interest accrued on the Obligations during the immediately preceding month and all costs, fees and expenses at any time owed by Borrower to Agent and/or any Lender hereunder. 3.2 Payments. All payments with respect to any of the Obligations shall be made to Agent and/or Lenders on the date when due, in Dollars and in immediately available funds, without any offset or counterclaim. Except as otherwise provided in the Term Notes (with respect to principal payments due on account of the Term Loan), the Obligations shall be payable as follows: 3.2.1 Principal. Principal payable on account of Revolving Credit Loans shall be payable by Borrower to Agent, for the account of Lenders, immediately upon the earliest of (i) except as otherwise provided in Section 3.3 hereof, the receipt by Agent or Borrower of any proceeds of any of the Collateral, to the extent of said proceeds, (ii) the occurrence of an Event of Default in consequence of which Agent or Requisite Lenders elect to accelerate the maturity and payment of the Obligations, or (iii) termination of this Agreement pursuant to Section 4 hereof; provided, however, that if an Out-of- Formula Condition shall exist at any time, Borrower shall, on demand by Agent, repay the Obligations to the extent necessary to eliminate the Out-of-Formula Condition. 3.2.2 Interest. Interest accrued on the Loans shall be due on the earliest of (i) the first calendar day of each month (for the immediately preceding month), computed 12 through the last calendar day of the preceding month, (ii) the occurrence of an Event of Default in consequence of which Agent or Requisite Lenders elect to accelerate the maturity and payment of the Obligations, or (iii) termination of this Agreement pursuant to Section 4 hereof. 3.2.3 Costs, Fees and Charges. Costs, fees and charges payable pursuant to this Agreement shall be payable by Borrower as and when provided in Section 2 hereof, to Agent, for its account and for the account of Lenders, as the case may be, or to any other Person designated by Requisite Lenders in writing. 3.2.4 Other Obligations. The balance of the Obligations requiring the payment of money, if any, shall be payable by Borrower to Agent and/or Lenders as and when provided in this Agreement or the Other Agreements, or, if no date of payment is otherwise specified in the Loan Documents, on demand. 3.3 Mandatory Prepayments. 3.3.1 Proceeds of Sale, Loss, Destruction or Condemnation of Collateral. If Borrower sells any of the Equipment (except as permitted under Section 6.3.2(ii) hereof) or real Property, or if any of the Collateral is lost or destroyed or taken by condemnation, Borrower shall pay to Agent, for the account of Lenders, unless otherwise agreed by Requisite Lenders, as and when received by Borrower and as a mandatory prepayment of the Term Loan (or, at Requisite Lender's option, such of the other Obligations as Requisite Lenders may elect), a sum equal to the net proceeds (including insurance payments) received by Borrower from such sale, loss, destruction or condemnation. Nothing in this Section 3.3 shall authorize Borrower to sell any of the Collateral without Agent's or Requisite Lender's prior written consent, as the case may be, except as otherwise expressly provided elsewhere in this Agreement. 3.3.2 Excess Cash Flow Recapture. Borrower shall prepay the Term Loan in an amount equal to twenty-five percent (25%) of Borrower's Excess Cash Flow with respect to each fiscal year of Borrower, commencing with the fiscal year of Borrower ending on December 31, 2001, with such payment being made within two (2) Business Days following the earlier to occur of (i) the due date for delivery by Borrower to Agent and Lenders of its annual audited financial statements required by Section 8.1.3(i) hereof and (ii) Agent and Lender's receipt of such annual audited financial statements. Each such prepayment shall be applied first to the installments of principal due under the Term Loan in the inverse order of their maturities until payment thereof in full, and thereafter to the outstanding principal balance of the Revolving Credit Loans. 3.4 Application of Payments and Collections. All items of payment received by Agent, for the benefit of Lenders, by 12:00 noon, Dallas, Texas time, on any Business Day shall be deemed received on that Business Day. All items of payment received after 1:00 p.m., Providence, Rhode Island time, on any Business Day shall be deemed received on the following Business Day. Borrower irrevocably waives the right to direct the application of any and all payments and collections at any time or times hereafter received by Agent or any Lender from or on behalf of Borrower, and Borrower does hereby irrevocably agree that Agent shall have the continuing exclusive right to apply and reapply any and all such payments and collections 13 received at any time or times hereafter by Agent or its agent against the Obligations, in such manner as Agent may deem advisable, notwithstanding any entry by Agent upon any of its books and records. If as the result of collections of Accounts as authorized by Section 6.2.6 hereof a credit balance exists in the Loan Account, such credit balance shall not accrue interest in favor of Borrower, but shall be available to Borrower at any time or times for so long as no Default or Event of Default exists. Such credit balance shall not be applied or be deemed to have been applied as a prepayment of the Term Loan, except that Agent may, at its option, offset such credit balance against any of the Obligations upon and after the occurrence of an Event of Default. 3.5 Loan Account. Agent shall establish an account on its books (the "Loan Account") and shall enter all Loans as debits to the Loan Account and shall also record in the Loan Account all payments made by Borrower on any Obligations and all proceeds of Collateral which are finally paid to Agent, and may record therein, in accordance with customary accounting practice, other debits and credits, including interest and all charges and expenses properly chargeable to Borrower. 3.6 Statements of Account. Agent will account to Borrower monthly with a statement of Loans, charges and payments made pursuant to this Agreement, and such account rendered by Agent shall be deemed final, binding and conclusive upon Borrower unless Agent is notified by Borrower in writing to the contrary within thirty (30) days after the date any such accounting is sent to Borrower. Such notice shall only be deemed an objection to those items specifically objected to therein. 3.7 Additional Provisions Regarding Eurodollar Loans. (A) Borrower may select LIBOR with respect to all or any portion of the Loans in accordance with the provisions of Section 3.1.1(A) hereof and of this Section 3.7; provided, however, that (i) each Eurodollar Loan shall be in a principal amount of not less than One Million Dollars ($1,000,000) and, if greater than One Million Dollars ($1,000,000), in integral multiples of One Hundred Thousand Dollars ($100,000), and (ii) no more than five (5) LIBOR Interest Periods in the aggregate may be in existence at any one time. Borrower shall select LIBOR Interest Periods with respect to Eurodollar Loans so that no LIBOR Interest Period expires after the end of the Original Term or any then applicable Renewal Term. An outstanding Base Rate Loan may be converted to a Eurodollar Loan at any time subject to the provisions of this Section 3.7. (B) Each Eurodollar Loan shall bear interest from and including the first day of the LIBOR Interest Period applicable thereto (but not including the last day of such LIBOR Interest Period) at the interest rate determined as applicable to such Eurodollar Loan, but interest on such Eurodollar Loan shall be payable as provided in the Term Note and in Section 3.2.2 hereof. If at the end of a LIBOR Interest Period for an outstanding Eurodollar Loan, Borrower has failed to deliver to Agent a new Borrowing Notice with respect to such Eurodollar Loan or to pay such Eurodollar Loan, then such Eurodollar Loan shall be converted to a Base Rate Loan on and after the last day of such LIBOR Interest Period and shall remain a Base Rate Loan until paid or until the effective date of a new Borrowing Notice with respect thereto. 14 3.8 Capital Adequacy and Other Adjustments. In the event Agent or any Lender shall have determined that the adoption after the date hereof of any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order regarding capital adequacy, reserve requirements or similar requirements or compliance by Agent or such Lender or any corporation controlling Agent or such Lender with any request or directive regarding capital adequacy, reserve requirements or similar requirements (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) from any central bank or governmental agency or body having jurisdiction does or shall have the effect of increasing the amount of capital, reserves or other funds required to be maintained by Agent or such Lender or any corporation controlling Agent or such Lender and thereby reducing the rate of return on Agent's or such Lender's or such corporation's capital as a consequence of its obligations hereunder, then Borrower shall from time to time within fifteen (15) days after notice and demand from such Lender (with a copy to Agent) or Agent (together with the certificate referred to in the next sentence) pay to Agent or such Lender additional amounts sufficient to compensate Agent or such Lender for such reduction. A certificate as to the amount of such cost and showing the basis of the computation of such cost submitted by Agent or any Lender to Borrower shall constitute presumptive evidence, absent manifest error, of the accuracy of such computation. 3.9 Taxes. (A) No Deductions. Any and all payments or reimbursements made hereunder or under the Notes shall be made free and clear of and without deduction for any and all taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto; excluding, however, the following: taxes imposed on the net income or the capital or net worth of any Lender or Agent by the jurisdiction under the laws of which Agent or such Lender is organized or doing business or any political subdivision thereof and taxes imposed on its net income, capital or net worth by the jurisdiction of Agent's or such Lender's applicable lending office or any political subdivision thereof (all such taxes, levies, imposts, deductions, charges or withholdings and all liabilities with respect thereto excluding such taxes imposed on net income, herein "Tax Liabilities"). If Borrower shall be required by law to deduct any such Tax Liabilities from or in respect of any sum payable hereunder to Agent or any Lender, then the sum payable hereunder shall be increased as may be necessary so that, after making all required deductions, Agent or such Lender receives an amount equal to the sum it would have received had no such deductions been made. (B) Changes in Tax Laws. In the event that, subsequent to the Closing Date, (i) any changes in any existing law, regulation, treaty or directive or in the interpretation or application thereof, (ii) any new law, regulation, treaty or directive enacted or any interpretation or application thereof, or (iii) compliance by Lender with any request or directive (whether or not having the force of law) from any governmental authority, agency or instrumentality: (1) does or shall subject Agent or any Lender to any tax of any kind whatsoever with respect to this Agreement, the other Loan Documents or any Loans made or Letters of Credit issued hereunder, or changes the basis of taxation of payments to Agent or such 15 Lender of principal, fees, interest or any other amount payable hereunder (except for net income taxes, or franchise taxes imposed in lieu of net income taxes, imposed generally by federal, state or local taxing authorities with respect to interest or commitment or other fees payable hereunder or changes in the rate of tax on the overall net income of or in the calculation of the franchise taxes of Agent or such Lender); or (2) does or shall impose on Agent or any Lender any other condition or increased cost in connection with the transactions contemplated hereby or participations herein; and the result of any of the foregoing is to increase the cost to Agent or such Lender of issuing any Letter of Credit or making or continuing any Loan hereunder, as the case may be, or to reduce any amount receivable hereunder, then, in any such case, Borrower shall promptly pay to Agent or such Lender, upon its demand, any additional amounts necessary to compensate Agent or such Lender, on an after-tax basis, for such additional cost or reduced amount receivable, as determined by Agent or such Lender with respect to this Agreement or the other Loan Documents. If Agent or any Lender becomes entitled to claim any additional amounts pursuant to this Section, it shall promptly notify Borrower of the event by reason of which Agent or such Lender has become so entitled. A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by Agent or any Lender to Borrower shall, absent manifest error, be final, conclusive and binding for all purposes. (C) Foreign Lenders. Each Lender organized under the laws of a jurisdiction outside the United States (a "Foreign Lender") as to which payments to be made under this Agreement or under the Notes are exempt from United States withholding tax or are subject to United States withholding tax at a reduced rate under an applicable statute or tax treaty shall provide to Borrower and Agent (i) a properly completed and executed Internal Revenue Service Form 4224 or Form 1001 or other applicable form, certificate or document prescribed by the Internal Revenue Service of the United States certifying as to such Foreign Lender's entitlement to such exemption or reduced rate of withholding with respect to payments to be made to such Foreign Lender under this Agreement, or under the Notes (a "Certificate of Exemption"), or (ii) a letter from any such Foreign Lender stating that it is not entitled to any such exemption or reduced rate of withholding (a "Letter of Non-Exemption"). Prior to becoming a Lender under this Agreement and within fifteen (15) days after a reasonable written request of Borrower or Agent from time to time thereafter, each Foreign Lender that becomes a Lender under this Agreement shall provide a Certificate of Exemption or a Letter of Non-Exemption to Borrower and Agent. If a Foreign Lender is entitled to an exemption with respect to payments to be made to such Foreign Lender under this Agreement (or to a reduced rate of withholding) and does not provide a Certificate of Exemption to Borrower and Agent within the time periods set forth in the preceding paragraph, Borrower shall withhold taxes from payments to such Foreign Lender at the applicable statutory rates and Borrower shall not be required to pay any additional amounts as a result of such withholding; provided, however, that all such withholding shall cease upon delivery by such Foreign Lender of a Certificate of Exemption to Borrower and Agent. 16 3.10 Required Termination and Prepayment. If on any date any Lender shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties) that the making or continuation of its Eurodollar Loans has become unlawful or impossible by compliance by Lender in good faith with any law, governmental rule, regulation or order (whether or not having the force of law and whether or not failure to comply therewith would be unlawful), then, and in any such event, that Lender shall promptly give notice (by telephone confirmed in writing) to Borrower and Agent of that determination. Subject to prior withdrawal of a Borrowing Notice or prepayment of Eurodollar Loans as contemplated by Section 3.14, the obligation of Lender to make or maintain its Eurodollar Loans during any such period shall be terminated at the earlier of the termination of the LIBOR Interest Period then in effect or when required by law and Borrower shall no later than the termination of the LIBOR Interest Period in effect at the time any such determination pursuant to this Section 3.10 is made or, earlier when required by law, repay or prepay Eurodollar Loans together with all interest accrued thereon or convert Eurodollar Loans to Base Rate Loans. 3.11 Compensation. Borrower shall compensate each Lender, upon written request by such Lender (which request shall set forth in reasonable detail the basis for requesting such amounts and which shall, absent manifest error, be conclusive and binding upon all parties hereto), for all reasonable actual losses, expenses and liabilities including, without limitation, any loss sustained by such Lender in connection with the re-employment of such funds: (i) if for any reason (other than a default by such Lender) a borrowing of any Eurodollar Loan does not occur on a date specified therefor in a Borrowing Notice or a telephonic request for borrowing or conversion/continuation; (ii) if any prepayment of any of its Eurodollar Loans occurs on a date that is not the last day of LIBOR Interest Period applicable to that Loan; (iii) if any prepayment of any of its Eurodollar Loans is not made on any date specified in a notice of prepayment given by Borrower; or (iv) as a consequence of any other default by Borrower to repay its Eurodollar Loans when required by the terms of this Agreement; provided, that, during the period while any such amounts have not been paid, such Lender shall reserve an equal amount from amounts otherwise available to be borrowed under the Revolving Credit Loans. 3.12 Booking of Eurodollar Loans. Each Lender may make, carry or transfer Eurodollar Loans at, to, or for the account of, any of its branch offices or the office of an affiliate of such Lender. 3.13 Assumptions Concerning Funding of Eurodollar Loans. Calculation of all amounts payable to each Lender under Section 3.11 shall be made as though each Lender had actually funded its relevant Eurodollar Loan through the purchase of a deposit bearing interest in an amount equal to the amount of that Eurodollar Loan and having maturity comparable to the relevant LIBOR Interest Period and through the transfer of such deposit from an offshore office to a domestic office in the United States of America; provided, however, that each Lender may fund each of its Eurodollar Loans in any manner it sees fit and the foregoing assumption shall be utilized only for the calculation of amounts payable under Section 3.11. 3.14 Optional Prepayment/Replacement of Agent or Lenders in Respect of Increased Costs. Within fifteen (15) days after receipt by Borrower of written notice and demand from 17 Agent or any Lender (an "Affected Lender") for payment of additional costs as provided in Section 3.8 or 3.9, Borrower may, at its option, notify Agent and such Affected Lender of its intention to do one of the following: (A) Borrower may obtain, at Borrower's expense, a replacement Lender ("Replacement Lender") for such Affected Lender, which Replacement Lender shall be reasonably satisfactory to Agent. In the event Borrower obtains a Replacement Lender within ninety (90) days following notice of its intention to do so, the Affected Lender shall sell and assign its Loans and Commitments to such Replacement Lender; provided, that, Borrower has reimbursed such Affected Lender for its increased costs for which it is entitled to reimbursement under this Agreement through the date of such sale and assignment. (B) Borrower may prepay in full all outstanding Obligations owed to such Affected Lender and terminate such Affected Lender's Commitments. Borrower shall, within ninety (90) days following notice of its intention to do so, prepay in full all outstanding Obligations owed to such Affected Lender (including such Affected Lender's increased costs for which it is entitled to reimbursement under this Agreement through the date of such prepayment) and terminate such Affected Lender's Commitments. SECTION 4. TERM AND TERMINATION 4.1 Term of Agreement. Subject to Section 4.2 hereof and Lenders' right to cease making Loans to Borrower upon or after the occurrence of any Default or Event of Default, this Agreement shall be in, through and including June 14, 2003 (the "Original Term"). 4.2 Termination. 4.2.1 Termination by Requisite Lenders. Requisite Lenders may terminate this Agreement without notice as of the last day of the Original Term and Requisite Lenders may terminate this Agreement without notice upon or after the occurrence and during the continuance of an Event of Default. 4.2.2 Termination by Borrower. Upon at least thirty (30) days prior written notice to Agent, Borrower may, at its option, terminate this Agreement; provided, however, no such termination shall be effective until Borrower has paid all of the Obligations in immediately available funds and all Letters of Credit and LC Guaranties have expired or have been cash collateralized to Agent's satisfaction. Any notice of termination given by Borrower shall be irrevocable unless Agent otherwise agrees in writing, and Agent and/or Lenders shall have no obligation to make any Loans or issue or procure any Letters of Credit or LC Guaranties on or after the termination date stated in such notice. Borrower may elect to terminate this Agreement in its entirety only. No section of this Agreement or type of Loan available hereunder may be terminated singly. 18 4.2.3 Termination Charges. On the effective date of termination of this Agreement for any reason, Borrower shall pay to Agent, for the account of Lenders (in addition to the then outstanding principal, accrued interest and other charges owing under the terms of this Agreement and any of the other Loan Documents), as liquidated damages for the loss of the bargain and not as a penalty, an amount equal to one percent (1.0%) of the Total Credit Facility. Notwithstanding the foregoing, if termination occurs after June 14, 2003, no termination charge shall be payable. 4.2.4 Effect of Termination. All of the Obligations shall be immediately due and payable upon the termination date stated in any notice of termination of this Agreement. All undertakings, agreements, covenants, warranties and representations of Borrower contained in the Loan Documents shall survive any such termination and Agent shall retain its Liens in the Collateral, for the benefit of Lenders, and all of its rights and remedies under the Loan Documents notwithstanding such termination until Borrower has paid the Obligations to Agent and/or Lenders, in full, in immediately available funds, together with the applicable termination charge, if any. Notwithstanding the payment in full of the Obligations, Agent shall not be required to terminate its security interests in the Collateral unless, with respect to any loss or damage Agent and/or Lenders may incur as a result of dishonored checks or other items of payment received by Agent from Borrower or any Account Debtor and applied to the Obligations, Agent shall, at its option, (i) have received a written agreement, executed by Borrower and by any Person whose loans or other advances to Borrower are used in whole or in part to satisfy the Obligations, indemnifying Agent and Lenders from any such loss or damage; or (ii) have retained such monetary reserves and Liens on the Collateral for such period of time as Agent, in its discretion, may deem necessary to protect Agent and/or Lenders from any such loss or damage. SECTION 5. SECURITY INTERESTS 5.1 Security Interest in Collateral. To secure the prompt payment and performance to Lenders of all of the Obligations, Borrower hereby grants to Agent, for the benefit of Lenders, a continuing security interest and Lien upon all of Borrower's assets (except as specifically excluded herein), including all of the following Property and interests in Property of Borrower, whether now owned or existing or hereafter created, acquired or arising and wheresoever located: (a) Accounts; (b) Certified Securities; (c) Chattel paper; (d) Computer Hardware and Software and all rights with respect thereto, including, any and all licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications, and any substitutions, replacements, additions or model conversions of any of the foregoing; 19 (e) Contract Rights; (f) Deposit Accounts; (g) Documents; (h) Equipment; (i) Financial Assets; (j) Fixtures; (k) General Intangibles, including Payment Intangibles and Software; (l) Goods (including all of its Equipment, Fixtures and Inventory), and all accessions, additions, attachments, improvements, substitutions and replacements thereto and therefor; (m) Instruments; (n) Intellectual Property; (o) Inventory; (p) Investment Property; (q) money (of every jurisdiction whatsoever); (r) Letter of Credit Rights; (s) Payment Intangibles; (t) Security Entitlements; (u) Software; (v) Supporting Obligations; (w) Uncertified Securities; and (x) to the extent not included in the foregoing, all other personal property of any kind or description; 20 together with all books, records, writings, data bases, information and other property relating to, used or useful in connection with, or evidencing, embodying, incorporating or referring to any of the foregoing, and all Proceeds, products, offspring, rents, issues, profits and returns of and from any of the foregoing; provided, that, to the extent that the provisions of any lease or license of Computer Hardware and Software or Intellectual Property expressly prohibit (which prohibition is enforceable under applicable law) any assignment thereof and the grant of a security interest therein, Agent will not enforce its security interest in Borrower's rights under such lease or license (other than in respect of the Proceeds thereof) for so long as such prohibition continues, it being understood that upon request of Agent, Borrower will in good faith use reasonable efforts to obtain consent for the creation of a security interest in favor of Agent, for the benefit of Lenders (and to Agent's enforcement of such security interest) in the Lenders' rights under such lease or license. As to Original Borrowers, the security interests granted by Original Borrowers in the Collateral are given in renewal, extension and modification of the security interests previously granted to Agent, for the benefit of Lenders, by Original Borrowers, such prior security interests are not extinguished hereby; and the ranking, perfection and priority of such prior security interests shall continue in full force and effect. 5.2 Other Collateral. (A) Commercial Tort Claims. Borrower shall promptly notify Agent in writing upon incurring or otherwise obtaining a Commercial Tort Claim after the Closing Date against any third party and, upon request of Agent in its reasonable credit judgment, promptly enter into an amendment to this Agreement and do such other acts or things reasonably deemed appropriate by Agent to give Agent, for the benefit of Lenders, a security interest in any such Commercial Tort Claim. (B) Other Collateral. Borrower shall promptly notify Agent in writing upon acquiring or otherwise obtaining any Collateral after the date hereof consisting of Deposit Accounts, Investment Property, Letter of Credit Rights or Electronic Chattel Paper and, upon the request of Agent, promptly execute such other documents, and do such other acts or things reasonably deemed appropriate by Agent to deliver to Agent, for the benefit of Lenders, control with respect to such Collateral; promptly notify Agent in writing upon acquiring or otherwise obtaining any Collateral after the date hereof consisting of Documents or Instruments and, upon the request of Agent, will promptly execute such other documents, and do such other acts or things deemed appropriate by Agent to deliver to Agent, for the benefit of Lenders, possession of such Documents which are negotiable and Instruments, and, with respect to nonnegotiable Documents, to have such nonnegotiable Documents issued in the name of Agent; and with respect to Collateral in the possession of a third party, other than Certificated Securities and Goods covered by a Document and obtain an acknowledgement from the third party that it is holding the Collateral for the benefit of Lenders. 5.3 Lien Perfection; Further Assurances. Borrower agrees to execute the UCC-1 financing statements provided for by the UCC or otherwise together with any and all other 21 instruments, assignments or documents and shall take such other action as may be required to perfect or to continue the perfection of Agent's security interest, for the benefit of the Lenders, in the Collateral, including, without limitation, the execution at Agent's request of all documents deemed necessary by Agent to cause Agent's Lien , for the benefit of Lenders, to be noted on any motor vehicle title certificates for motor vehicles forming a part of the Collateral. Unless prohibited by applicable law, Borrower hereby authorizes Agent to execute and file any such financing statements, including, without limitation, financing statements that indicate the Collateral (a) as all assets of Borrower or words of similar effect, or (b) as being of an equal or lesser scope, or with greater or lesser detail, than as set forth in Section 5.1, on Borrower's behalf. Borrower also hereby ratifies its authorization for Agent to have filed in any jurisdiction any like financing statements or amendments thereto if filed prior to the date hereof. The parties agree that a photographic or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed in any appropriate office in lieu thereof. At Agents' request, Borrower shall also promptly execute or cause to be executed and shall deliver to Agent, for the benefit of Lenders, any and all documents, instruments and agreements deemed necessary by Agents to give effect to or carry out the terms or intent of the Loan Documents. 5.4 Lien on Realty. The due and punctual payment and performance of the Obligations shall also be secured by the Lien created by the Mortgages upon all real Property of Borrower described therein. If Borrower shall acquire at any time or times hereafter any interest in other real Property, or in the case of the IDSC Houston Real Property, by the sixtieth day after the date of this Agreement Borrower has not either sold the IDSC Houston Real Property (whether as an outright sale of the IDSC Houston Real Property or pursuant to a sale of Thermaire otherwise consented to by Agent) and paid the net proceeds from such sale to Agent for application on the Obligations (which net proceeds must be at least equal to the payoff amount of the Chase Term Note) or obtained Indebtedness secured by the IDSC Houston Real Property incurred to take the place of the Chase Term Note and paid the net proceeds from such Indebtedness to Agent for application on the Obligations (which net proceeds must be at least equal to the payoff amount of the Chase Term Note), Borrower agrees promptly to execute and deliver to Agent, as additional security and Collateral for the Obligations, deeds of trust, security deeds, mortgages or other collateral assignments reasonably satisfactory in form and substance to Agent and its counsel (herein collectively referred to as "New Mortgages") covering such real Property or the IDSC Houston Real Property, as the case may be. The Mortgages and each New Mortgage shall be duly recorded in each office where such recording is required to constitute a valid Lien on the real Property covered thereby. Borrower shall deliver to Agent, at Borrower's expense, mortgagee title insurance policies issued by a title insurance company satisfactory to Agents insuring Agent, for the benefit of Lenders, as mortgagee; such policies shall be in form and substance reasonably satisfactory to Agent and shall insure a valid first Lien in favor of Agent, for the benefit of Lenders, on the Property covered thereby, subject only to Permitted Liens and those exceptions acceptable to Agent and its counsel. Borrower shall deliver to Agent such other documents, including, without limitation, as-built survey prints of the real Property, as Agent and its counsel may reasonably request relating to the real Property subject to the Mortgages. Notwithstanding the foregoing, if the requirements in this Section 5.4 as to New Mortgage, mortgagee title insurance policy, etc., become applicable to the IDSC Houston Real 22 Property, Borrower shall be required to satisfy such requirements by the sixtieth day after the date of this Agreement. 5.5 Representations, Warranties and Covenants -- Collateral. To induce Agent and Lenders to enter into this Agreement, Borrower represents, warrants, and covenants to Agent and Lenders: (A) The Collateral (other than any capital stock owned by IDSC) is now and, so long as any of the Obligations are outstanding, will continue to be owned solely by Borrower. No other Person has or will have any right, title, interest, claim, or Lien therein, thereof or thereto other than a Permitted Lien. (B) Except as specifically consented to in writing by Majority Lenders or for Permitted Liens, the Liens granted to Agent, for the benefit of Lenders, shall be first and prior on the Collateral and as to the Accounts and proceeds, including insurance proceeds, resulting from the sale, disposition, or loss thereof. No further action need be taken to perfect the Liens (except Liens in any Intellectual Property of any Borrower which is registered under the laws of a country other than the United States) granted to Agent, for the benefit of Lenders, other than the filing of continuation statements under the UCC or other applicable law, continued possession by Agent, for the benefit of Lenders, of that portion of the Collateral constituting instruments or documents, the processing of Lien notations on motor vehicle title certificates, the recording of the Mortgages and the filing in the applicable federal office of the Patent Assignment, Trademark Assignment and Copyright Assignment, except Liens in any Intellectual Property of any Borrower which is registered under the laws of a country other than the United States. (C) All goods evidenced by the Collateral constituting chattel paper, documents or instruments, the possession of which has been given to Agent, are owned by Borrower and the same are free and clear of any prior Lien, except Permitted Liens. Borrower shall pay and discharge when due all taxes, levies, and other charges upon said Collateral and upon the goods evidenced by any documents constituting Collateral (except and to the extent that such taxes, levies, and other charges are being actively contested in good faith and by appropriate proceedings, Borrower maintains adequate reserves on its books therefor and the nonpayment thereof does not result in a lien upon any of the Collateral other than a Permitted Lien), and BORROWER SHALL DEFEND AGENT AND LENDERS AGAINST AND SAVE EACH OF THEM HARMLESS FROM ALL CLAIMS OF ANY PERSON WITH RESPECT TO THE COLLATERAL. THIS INDEMNITY SHALL INCLUDE REASONABLE ATTORNEYS' FEES AND LEGAL EXPENSES. 5.6 Real Property Lien Documentation. Borrower agrees to execute for Agent's and Lenders' benefit the Mortgages and such leasehold mortgages, deeds of trust or other documents evidencing a collateral assignment of Borrower's interest in the real Property and any additional real Property now or hereafter owned or leased by Borrower as Agent may request. Such documents shall be recorded, at the expense of Borrower, with such filing offices as may be required to evidence Agent's Lien, for the benefit of Lenders, upon the real Property owned or hereafter acquired by Borrower. 23 SECTION 6. COLLATERAL ADMINISTRATION 6.1 General 6.1.1 Location of Collateral. All tangible items of Collateral, other than Inventory in transit, motor vehicles and investment property held in an account with a securities intermediary, shall at all times be kept by Borrower and its Subsidiaries at one or more of the business locations set forth on Exhibit B hereto and shall not, without giving Agent prior notice thereof, be moved therefrom except, prior to an Event of Default, for (i) sales of Inventory in the ordinary course of business; (ii) removals in connection with dispositions of Equipment that are authorized by Section 6.3.2 hereof; and (iii) the relocation of assets from one location set forth on Exhibit B to another location set forth on Exhibit B. Notwithstanding anything to the contrary contained in this Section 6.1.1 or elsewhere in this Agreement, no tangible items of Collateral may be moved by Borrower to a location outside the continental United States without the prior written approval of Agent. 6.1.2 Insurance of Collateral. Borrower shall maintain and pay for insurance upon all Collateral wherever located and with respect to Borrower's business, covering casualty, hazard, public liability and such other risks in such amounts and with such insurance companies as are reasonably satisfactory to Agent. Borrower shall deliver the originals or certified copies of such policies to Agent with satisfactory lender's loss payable endorsements, which policies shall name Agent as sole loss payee, assignee or additional insured, as appropriate, in each case, for the benefit of the Lenders. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than thirty (30) days prior written notice to Agent in the event of cancellation of the policy for any reason whatsoever and a clause specifying that the interest of Agent shall not be impaired or invalidated by any act or neglect of Borrower or the owner of the Property or by the occupation of the premises for purposes more hazardous than are permitted by said policy. If Borrower fails to provide and pay for such insurance, Agent may, at its option, but shall not be required to, procure the same and charge Borrower therefor. Borrower agrees to deliver to Agent, promptly as rendered, true copies of all reports made in any reporting forms to insurance companies. 6.1.3 Protection of Collateral. All expenses of protecting, storing, warehousing, insuring, handling, maintaining and shipping the Collateral, any and all excise, property, sales, and use taxes imposed by any Applicable Law on any of the Collateral or in respect of the sale thereof, and all other payments required to be made by Agent and/or Lenders to any Person to realize upon any Collateral shall be borne and paid by Borrower. If Borrower fails to promptly pay any portion thereof when due, Agent may, at its option, but shall not be required to, pay the same and charge Borrower therefor. Neither Agent nor any Lender shall be liable or responsible in any way for the safekeeping of any of the Collateral or for any loss or damage thereto (except for reasonable care in the custody thereof while any Collateral is in Agent's or any Lender's actual possession) or for any diminution in the value thereof, or for any act or default of any warehouseman, carrier, forwarding agency, or other Person whomsoever, but the same shall be at Borrower's sole risk. 24 6.2 Administration of Accounts. 6.2.1 Records, Schedules and Assignments of Accounts. Borrower shall keep accurate and complete records of its Accounts and all payments and collections thereon and shall submit to Agent on such periodic basis as Agent shall reasonably request a sales and collections report for the preceding period, in form satisfactory to Agent. On or before the twentieth day of each month from and after the date hereof, Borrower shall deliver to Agent, in form acceptable to Agent, a detailed aged trial balance of all Accounts existing as of the last day of the preceding month, specifying the names, addresses, face value, dates of invoices and due dates for each Account Debtor obligated on an Account so listed ("Schedule of Accounts"), and, upon Agent's request therefor, copies of proof of delivery and the original copy of all documents, including, without limitation, repayment histories and present status reports relating to the Accounts so scheduled and such other matters and information relating to the status of then existing Accounts as Agent shall reasonably request. In addition, if Accounts in an aggregate face amount in excess of Fifty Thousand Dollars ($50,000) become ineligible because they fall within one of the specified categories of ineligibility set forth in the definition of Eligible Accounts, the Borrowing Base shall thereupon be adjusted to reflect such occurrence. If Borrower becomes aware that any of its Accounts have become ineligible because they fall within one of the specified categories of ineligibility set forth in the definition of Eligible Accounts, Borrower shall provide Agent with written notice of such ineligible Accounts at the time of submission of the next Schedule of Accounts, explaining in detail the nature of such ineligible Accounts and the amounts thereof. If requested by Agent, Borrower shall execute and deliver to Agent agings and formal written assignments of all of its Accounts weekly or daily, which shall include all Accounts that have been created since the date of the last assignment, together with copies of invoices or invoice registers related thereto. 6.2.2 Discounts, Allowances, Disputes. If Borrower grants any discounts, allowances or credits that are not shown on the face of the invoice for the Account involved, Borrower shall report such discounts, allowances or credits, as the case may be, to Agent as part of the next required Schedule of Accounts. If any amounts due and owing in excess of Fifty Thousand Dollars ($50,000) are in dispute between Borrower and any Account Debtor, Borrower shall provide Agent with written notice thereof at the time of submission of the next Schedule of Accounts, explaining in detail the reason for the dispute, all claims related thereto and the amount in controversy. Upon and after the occurrence and during the continuance of an Event of Default, Agent shall have the right to settle or adjust all disputes and claims directly with the Account Debtor and to compromise the amount or extend the time for payment of the Accounts upon such terms and conditions as Agent may deem advisable, and to charge the deficiencies, costs and expenses thereof, including attorney's fees, to Borrower. 6.2.3 Taxes. If an Account includes a charge for any tax payable to any governmental taxing authority that is not being diligently contested by appropriate proceedings, Agent is authorized, in its sole discretion, to pay the amount thereof to the proper taxing authority for the account of Borrower and to charge Borrower therefor; provided, however, that 25 Agent shall not be liable for any such taxes to any governmental taxing authority that may be due by Borrower. 6.2.4 Account Verification. Whether or not a Default or an Event of Default has occurred, any of Agent's officers, employees or agents shall have the right, at any time or times hereafter, in the name of Agent, any designee of Agent or Borrower, to verify the validity, amount or any other matter relating to any Accounts by mail, telephone, facsimile transmission or otherwise. Borrower shall cooperate fully with Agent in an effort to facilitate and promptly conclude any such verification process. 6.2.5 Maintenance of Dominion Account. Borrower shall maintain one or more Dominion Accounts acceptable to Agent with such banks as may be selected by Borrower and be acceptable to Agent. Borrower shall deposit all payments or other remittances received by Borrower in the Dominion Accounts for application on account of the Obligations. All funds deposited in the Dominion Accounts shall immediately become the property of Agent, for the benefit of Lenders, and Borrower shall obtain the agreement by such banks in favor of Agent to waive any offset rights against the funds so deposited. 6.2.6 Collection of Accounts, Proceeds of Collateral. To expedite collection, Borrower shall endeavor in the first instance to make collection of its Accounts for Agent and Lenders. All remittances received by Borrower in respect of Accounts, together with the proceeds of any other Collateral, shall be held as Lenders' property by Borrower as trustee of an express trust for Lenders' benefit and Borrower shall immediately deposit same in kind in the Dominion Account. Agent retains the right at all times while an Event of Default exists to notify Account Debtors that Accounts have been assigned to Agent and Lenders and to collect Accounts directly in its own name and to charge the collection costs and expenses, including reasonable attorneys' fees to Borrower. 6.3 Administration of Equipment. 6.3.1 Records and Schedules of Equipment. Borrower shall keep accurate records itemizing and describing the kind, type, quality, quantity and value (both cost and book) of its Equipment and all dispositions made in accordance with Section 6.3.2 hereof, and shall furnish Agent with a current schedule containing the foregoing information on at least an annual basis and more often if requested by Agent. Within five (5) Business Days after any request therefor by Agent, Borrower shall deliver to Agent any and all evidence of ownership, if any, of any of the Equipment. 6.3.2 Dispositions of Equipment. Borrower will not sell, lease or otherwise dispose of or transfer any of the Equipment or any part thereof without the prior written consent of Agent; provided, however, that the foregoing restriction shall not apply, for so long as no Default or Event of Default exists, to (i) dispositions of Equipment which, in the aggregate during any consecutive twelve-month period, has a fair market value or book value, whichever is less, of One Hundred Fifty Thousand Dollars ($150,000) or less, provided that all proceeds thereof are remitted to Agent for application to the Loans, or (ii) replacements of Equipment that 26 is substantially worn, damaged or obsolete with Equipment of like kind, function and value, provided that the replacement Equipment shall be acquired within thirty (30) days of any disposition of the Equipment that is to be replaced, the replacement Equipment shall be free and clear of Liens other than Permitted Liens that are not Purchase Money Liens, or (iii) lease (as lessor) Equipment, so long as the Equipment subject to any such lease is not necessary for the conduct of Borrower's business, provided, further, however, that no such disposition or lease shall be permitted unless Borrower shall have given Agent at least five (5) days' prior written notice of such disposition or lease. 6.3.3 Condition of Equipment. Borrower represents and warrants to Agent and Lenders that the Equipment is in good operating condition and repair (normal wear and tear excepted), and all necessary replacements of and repairs thereto shall be made so that the value and operating efficiency of the Equipment shall be maintained and preserved, reasonable wear and tear excepted. Borrower will not permit any of the Equipment to become affixed to any real Property leased to Borrower so that an interest arises therein under the real estate laws of the applicable jurisdiction unless the landlord of such real Property has executed a landlord waiver or leasehold mortgage in favor of and in form reasonably acceptable to Agent, and Borrower will not knowingly permit any of the Equipment to become an accession to any personal Property that is subject to a Lien unless the Lien is a Permitted Lien (other than a Purchase Money Lien). 6.4 Payment of Charges. All amounts chargeable to Borrower under Section 6 hereof shall be Obligations secured by all of the Collateral, shall be payable on demand and shall bear interest from the date such advance was made until paid in full at the rate then applicable to Revolving Credit Loans. SECTION 7. REPRESENTATIONS AND WARRANTIES 7.1 General Representations and Warranties. To induce Agent and Lenders to enter into this Agreement and to make advances hereunder, each applicable Borrower warrants and represents to Agent and Lenders that: 7.1.1 Organization and Qualification. Each of IDSC and its Subsidiaries is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Each of IDSC and its Subsidiaries is duly qualified and is authorized to do business and is in good standing as a foreign corporation in each state or jurisdiction listed on Exhibit C hereto and in all other states and jurisdictions where the character of its Properties or the nature of its activities make such qualification necessary, except where the failure to be so qualified would not have a Material Adverse Effect. 7.1.2 Power and Authority. Each of Borrower and its Subsidiaries is duly authorized and empowered to enter into, execute, deliver and perform this Agreement and each of the other Loan Documents to which it is a party and IDSC is duly authorized and empowered to enter into, execute, deliver and perform each of the Loan Documents to which it is a party. The execution, delivery and performance of this Agreement and each of the other Loan Documents have been duly authorized by all necessary organizational action and do not (i) 27 require any consent or approval of the shareholders or members of IDSC or any of its Subsidiaries that has not been obtained; (ii) contravene IDSC's or any of its Subsidiaries' organizational or governing documents; (iii) to Borrower's knowledge, violate, or cause IDSC or any of its Subsidiaries to be in default under, any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award in effect having applicability to IDSC or any of its Subsidiaries; (iv) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which IDSC or any of its Subsidiaries is a party or by which it or its Properties may be bound or affected; or (v) result in, or require, the creation or imposition of any Lien (other than Permitted Liens) upon or with respect to any of the Properties owned by IDSC or any of its Subsidiaries. 7.1.3 Legally Enforceable Agreement. This Agreement is, and each of the other Loan Documents when delivered under this Agreement will be, a legal, valid and binding obligation of each of Borrower and its Subsidiaries (and of IDSC to the extent it is a party thereto) enforceable against them in accordance with its respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or by principles of equity pertaining to the availability of equitable remedies. 7.1.4 Capital Structure. Exhibit D hereto states (i) the correct name of each of the Subsidiaries of IDSC, its jurisdiction of organization and the percentage of its Voting Stock owned by IDSC or a Subsidiary of IDSC, (ii) the name of each of IDSC's and each Borrower's corporate or joint venture Affiliates and the nature of the affiliation, (iii) the number, nature and holder of all outstanding Securities of Borrower and each Subsidiary of Borrower and (iv) the number of authorized, issued and treasury shares of Borrower and each Subsidiary of Borrower. IDSC or Borrower, as the case may be, has good title to all of the shares it purports to own of the stock of each of its Subsidiaries, free and clear in each case of any Lien other than Permitted Liens. All such shares have been duly issued and are fully paid and non- assessable. Except as set forth on Exhibit D, there are no outstanding options to purchase, or any rights or warrants to subscribe for, or any commitments or agreements to issue or sell, or any Securities or obligations convertible into, or any powers of attorney relating to, shares of the capital stock of IDSC or any of its Subsidiaries. Except as set forth on Exhibit D, there are no outstanding agreements or instruments binding upon any of Borrower's shareholders or member relating to the ownership of its shares of capital stock or member interests. 7.1.5 Names. Since January 1, 1993, neither IDSC nor any of its Subsidiaries has been known as or used any corporate, fictitious or trade names except those listed on Exhibit E hereto. Except (i) pursuant to the IDSC Merger and (ii) as set forth on Exhibit E, neither IDSC nor any of its Subsidiaries has been the surviving corporation of a merger or consolidation or acquired all or substantially all of the assets of any Person since January 1, 1993. Each of IDSC's and its Subsidiaries' states of incorporation or organization, Type of Organization and Organizational I.D. Number is set forth on Exhibit E. The exact legal name of IDSC and each of its Subsidiaries is set forth on Exhibit E. 28 7.1.6 Business Locations; Agent for Process. Each of IDSC's and its Subsidiaries' chief executive office and other places of business are as listed on Exhibit B hereto. Since January 1, 1993, neither IDSC nor any of its Subsidiaries has had an office, place of business or agent for service of process other than as listed on Exhibit B. Except as shown on Exhibit B, no Inventory of Borrower or any of its Subsidiaries is stored with a bailee, warehouseman or similar Person, nor is any Inventory consigned to or from any Person. 7.1.7 Title to Properties; Priority of Liens. Each of IDSC and its Subsidiaries has good and indefeasible title to and fee simple ownership of, or valid and subsisting leasehold interests in, all of the real Property owned or leased by it, and good title to all other Property owned or leased by it (including, without limitation, the Collateral), in each case, free and clear of all Liens except Permitted Liens. Except as set forth on Exhibit E, neither IDSC nor any of its Subsidiaries has acquired any of the Collateral from any Person (other than purchases of Equipment in the ordinary course of business from the seller thereof within the five-year period immediately preceding the Closing Date. IDSC or Borrower has paid or discharged all lawful claims which, if unpaid, might become a Lien against any of IDSC's or Borrower's Properties that is not a Permitted Lien. The Liens granted to Agent under Section 5 hereof are first priority Liens, subject only to Permitted Liens or except as otherwise set forth herein. 7.1.8 Accounts. Agent and Lenders may rely, in determining which Accounts of Borrower are Eligible Accounts, on all statements and representations made by Borrower with respect to any Account or Accounts. Unless otherwise indicated in writing to Agent, with respect to each Account: (i) It is genuine and in all respects what it purports to be, and it is not evidenced by a judgment; (ii) It arises out of a completed, bona fide sale and delivery of goods or rendition of services by Borrower in the ordinary course of its business and in accordance with the terms and conditions of all purchase orders, contracts or other documents relating thereto and forming a part of the contract between Borrower and the Account Debtor; (iii) It is for a liquidated amount maturing as stated in the invoice covering such sale or rendition of services, a copy of which has been furnished or is available to Agent; (iv) Such Account, and Agent's security interest therein, for the benefit of Lenders, is not subject to any offset, Lien, deduction, defense, dispute, counterclaim or any other adverse condition, except for disputes resulting in returned goods where the amount in controversy is deemed by Agent to be immaterial, and each such Account is absolutely owing to Borrower and is not contingent in any respect or for any reason; (v) Borrower has made no agreement with any Account Debtor thereunder for any extension, compromise, settlement or modification of any such Account or 29 any deduction therefrom, except discounts or allowances which are granted by Borrower in the ordinary course of its business for prompt payment and which are reflected in the calculation of the net amount of each respective invoice related thereto and are reflected in the Schedules of Accounts submitted to Agent pursuant to Section 6.2.1 hereof; (vi) There are no facts, events or occurrences which in any way impair the validity or enforceability of any Accounts or tend to reduce the amount payable thereunder from the face amount of the invoice and statements delivered to Agent with respect thereto; (vii) To the best of Borrower's knowledge, the Account Debtor thereunder (a) had the capacity to contract at the time any contract or other document giving rise to the Account was executed and (b) such Account Debtor is Solvent; and (viii) To the best of Borrower's knowledge, there are no proceedings or actions which are threatened or pending against any Account Debtor thereunder which might result in any material adverse change in such Account Debtor's financial condition or the collectibility of such Account. 7.1.9 Financial Statements; Fiscal Year. The respective Consolidated balance sheets of Petrocon and its Subsidiaries as of October 31, 2001, and Consolidated balance sheet of IDSC and the New Borrowers as of October 31, 2001, and the related statements of income and changes in financial position for the period ended on such dates, have been prepared substantially in accordance with GAAP, and present fairly the respective financial position of Petrocon and its Subsidiaries and of IDSC and New Borrowers at such date and the results of Petrocon's and its Subsidiaries' operations and of IDSC's and New Borrowers' operations for such period. Since October 31, 2001, there has been no material change in the condition, financial or otherwise, of IDSC and its Subsidiaries and since such date there has been no change in the aggregate value of Equipment and real Property owned by IDSC and its Subsidiaries, except changes in the ordinary course of business, none of which individually or in the aggregate has had a Material Adverse Effect. The fiscal year of IDSC's and each of its Subsidiaries ends on December 31 of each year. 7.1.10 Full Disclosure. The financial statements referred to in Section 7.1.9 hereof do not, nor does this Agreement or any other written statement of IDSC or any of its Subsidiaries to Agent, contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading. There is no fact or circumstance which Borrower has failed to disclose to Agent and Lenders in writing which could reasonably be expected to have a Material Adverse Effect. 7.1.11 Solvent Financial Condition. Each of IDSC and its Subsidiaries is now and, after giving effect to the Loans to be made and the Letters of Credit and LC Guaranties to be issued hereunder, at all times will be, Solvent. 7.1.12 Surety Obligations. Neither IDSC nor any of its Subsidiaries is obligated as surety or indemnitor under any surety or similar bond or other contract issued or entered into 30 any agreement to assure payment, performance or completion of performance of any undertaking or obligation of any Person, other than in the ordinary course of business. 7.1.13 Taxes. The federal tax identification number of IDSC and each Borrower and of each of Borrower's Subsidiaries is shown on Exhibit F hereto. Except as set forth on Exhibit F, IDSC and each of its Subsidiaries has filed all federal, state and local tax returns and other reports it is required by law to file and has paid, or made provision for the payment of, all Taxes upon it, its income and Properties as and when such Taxes are due and payable, except to the extent any such Taxes are being Properly Contested. The provision for Taxes on the books of IDSC and its Subsidiaries are adequate for all years not closed by applicable statutes, and for its current fiscal year. 7.1.14 Brokers. There are no claims for brokerage commissions, finder's fees or investment banking fees in connection with the transactions contemplated by this Agreement. 7.1.15 Patents, Trademarks, Copyrights and Licenses. Each of Borrower and its Subsidiaries owns or possesses all the patents, trademarks, service marks, trade names, copyrights and licenses material to the present and planned future conduct of its business without, except as set forth on Exhibit G, any known conflict with the rights of others. All such patents, trademarks, service marks, trade names, copyrights, licenses and other similar rights are listed on Exhibit G hereto. 7.1.16 Governmental Consents. Each of Borrower and its Subsidiaries has, and is in good standing with respect to, all governmental consents, approvals, licenses, authorizations, permits, certificates, inspections and franchises necessary to continue to conduct its business as heretofore or proposed to be conducted by it and to own or lease and operate its Properties as now owned or leased by it. 7.1.17 Compliance with Laws. Except as set forth on Exhibit R, each of IDSC and its Subsidiaries has duly complied with, and its Properties, business operations and leaseholds are in compliance in all material respects with, the provisions of all Applicable Laws (except where the failure to so comply would not have a Material Adverse Effect), and, to Borrower's knowledge, there have been no citations, notices or orders of noncompliance issued to IDSC or any of its Subsidiaries under any such law, rule or regulation. No Inventory has been produced in violation of the Fair Labor Standards Act (29 U.S.C. (S) 201 et seq.), as amended. 7.1.18 Restrictions. Neither IDSC nor any of its Subsidiaries is a party or subject to any contract, agreement, or charter or other corporate restriction, which has, or could reasonably be expected to have, a Material Adverse Effect. Neither IDSC nor any of its Subsidiaries is a party or subject to any contract or agreement which restricts its right or ability to incur Indebtedness, other than as set forth on Exhibit H hereto, none of which prohibit the execution of or compliance with this Agreement or the other Loan Documents by Borrower or any of its Subsidiaries, as applicable, or by IDSC. 31 7.1.19 Litigation. Except as set forth on Exhibit I hereto, there are no actions, suits, proceedings or investigations pending in respect of which IDSC or Borrower has been served with process or notice, or to the knowledge of Borrower, threatened, against or affecting IDSC or any of its Subsidiaries, or the business, operations, Properties, prospects, profits or condition of IDSC or any of its Subsidiaries. Neither IDSC nor any of its Subsidiaries is in default with respect to any order, writ, injunction, judgment, decree or rule of any court, governmental authority or arbitration board or tribunal in respect of a proceeding to which it is a party. 7.1.20 No Defaults. No event has occurred and no condition exists which would, upon or after the execution and delivery of this Agreement or Borrower's performance hereunder, constitute a Default or an Event of Default. Neither IDSC nor any of its Subsidiaries is in default, and, to Borrower's knowledge, no event has occurred and no condition exists which constitutes, or which with the passage of time or the giving of notice or both would constitute, a default in the payment of any Indebtedness to any Person for Money Borrowed by IDSC or any Subsidiary of IDSC. 7.1.21 Leases. Exhibit J hereto sets forth a complete listing of all capitalized leases of IDSC and its Subsidiaries and Exhibit K hereto sets forth a complete listing of all operating leases of IDSC and its Subsidiaries. Each of IDSC and its Subsidiaries is in compliance in all material respects with all of the terms of each of its respective capitalized and operating leases. 7.1.22 Pension Plans. Except as disclosed on Exhibit L hereto, neither IDSC nor any of its Subsidiaries has any Plan. IDSC and each of its Subsidiaries is in full compliance in all material respects with the requirements of ERISA and the regulations promulgated thereunder with respect to each Plan. To Borrower's knowledge, no fact or situation that could result in a material adverse change in the financial condition of IDSC or any of its Subsidiaries exists in connection with any Plan. Neither IDSC nor any of its Subsidiaries has any withdrawal liability in connection with a Multiemployer Plan. 7.1.23 Trade Relations. There exists no actual or, to Borrower's knowledge, threatened termination, cancellation or limitation of, or any modification or change in, the business relationship between IDSC or any of its Subsidiaries and any customer or any group of customers whose purchases individually or in the aggregate are material to the business of IDSC or any of its Subsidiaries, or with any material supplier, and there exists no present condition or state of facts or circumstances which would have a Material Adverse Effect or prevent IDSC or any of its Subsidiaries from conducting such business after the consummation of the transaction contemplated by this Agreement in substantially the same manner in which it has heretofore been conducted. 7.1.24 Labor Relations. Except as described on Exhibit M hereto, neither IDSC nor any of its Subsidiaries is a party to any collective bargaining agreement. There are no material grievances, disputes or controversies with any union or any other organization of Borrower's or any of its Subsidiaries' employees, or to IDSC's knowledge, threats of strikes, 32 work stoppages or any asserted pending demands for collective bargaining by any union or organization. 7.1.25 Information Supplied by Borrower. All information, reports, papers and data given by or on behalf of Borrower to Agent and Lenders with respect to the Property are accurate, complete and correct in all material respects and do not omit any fact the inclusion of which is necessary to prevent the facts contained therein from being materially misleading. 7.1.26 Alliance. Alliance is currently and shall remain an inactive Subsidiary of Petrocon. Alliance currently owns no Property and shall not at any time own any Property or engage in any transaction with any other Person including, without limitation, IDSC or any other Subsidiary of IDSC. 7.2 Continuous Nature of Representations and Warranties. Each representation and warranty contained in this Agreement and the other Loan Documents shall be continuous in nature and shall remain accurate, complete and not misleading at all times during the term of this Agreement, except for changes in the nature of IDSC's or its Subsidiaries' business or operations that would render the information in any exhibit attached hereto either inaccurate, incomplete or misleading, so long as Requisite Lenders have consented to such changes or such changes are expressly permitted by this Agreement, and except for such representations and warranties that by their nature are limited only to a specific date in time. 7.3 Survival of Representations and Warranties. All representations and warranties of Borrower contained in this Agreement or any of the other Loan Documents shall (i) survive the execution, delivery and acceptance thereof by Agent and/or Lenders and the parties thereto and the closing of the transactions described therein or related thereto, and (ii) expire the later to occur of (a) the date of termination of this Agreement, (b) the date that the Obligations have been paid in full in immediately available funds and all Letters of Credit and LC Guaranties have expired or have been cash collateralized to Agent's satisfaction, and (c) the date that the Commitments have been terminated and the Lenders no longer have any obligation to make any Loans hereunder. SECTION 8. COVENANTS AND CONTINUING AGREEMENTS 8.1 Affirmative Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to Agent or any Lender, Borrower covenants that, unless otherwise consented to by Requisite Lenders in writing, it shall: 8.1.1 Visits and Inspections. Permit representatives of Agent and Lenders, from time to time, as often as may be reasonably requested, but only during normal business hours, to (i) visit and inspect its Properties and the Properties of each of its Subsidiaries, and (ii) inspect, audit and make extracts from its books and records, and discuss with its officers, its employees and its independent accountants, Borrower's and each of its Subsidiaries' business, assets, liabilities, financial condition, business prospects and results of operations. Notwithstanding anything to the contrary contained in this Section 8.1.1 or elsewhere in this Agreement, no 33 Lender shall be permitted to visit and inspect the Properties of Borrower or its Subsidiaries at a time that Agent is not also visiting and inspecting such Properties. 8.1.2 Notices. Notify Agent and each Lender in writing (i) of the occurrence of any event or the existence of any fact which renders any representation or warranty in this Agreement or any of the other Loan Documents inaccurate, incomplete or misleading; (ii) promptly after Borrower's learning thereof, of the commencement of any litigation affecting IDSC, any Subsidiary of IDSC or any of their respective Properties, whether or not the claim is considered by Borrower to be covered by insurance, and of the institution of any administrative proceeding, in each case which if determined adversely to IDSC or any of its Subsidiaries, would have a Material Adverse Effect; (iii) at least sixty (60) days prior thereto, of Borrower's opening of any new office or place of business or Borrower's closing of any existing office or place of business; (iv) promptly after Borrower's learning thereof, of any labor dispute to which IDSC or any of its Subsidiaries may become a party, any strikes or walkouts relating to any of their respective plants or other facilities, and the expiration of any labor contract to which any of them is a party or by which any of them is bound; (v) promptly after Borrower's learning thereof, of any material default by any Loan Party under any note, indenture, loan agreement, mortgage, lease, deed, guaranty or other similar agreement relating to any Indebtedness exceeding Fifty Thousand Dollars ($50,000); (vi) promptly after the occurrence thereof, of any Default or Event of Default; (vii) promptly after the occurrence thereof, of any default by any obligor under any note or other evidence of Indebtedness of Fifty Thousand Dollars ($50,000) or more payable to Borrower or any of its Subsidiaries; and (viii) promptly after the rendition thereof, of any judgment rendered against any Loan Party in an amount exceeding One Hundred Thousand Dollars ($100,000). 8.1.3 Financial Statements. Keep, and cause IDSC and each Subsidiary of IDSC to keep, adequate records and books of account with respect to its business activities in which proper entries are made in accordance with GAAP reflecting all its financial transactions; and cause to be prepared and furnished to Agent and each Lender the following (all to be prepared in accordance with GAAP applied on a consistent basis, unless Borrower's certified public accountants concur in any change therein and such change is disclosed to Agent and each Lender and is consistent with GAAP, provided that interim financial statements will not be required to contain footnotes and will continue to follow the format of the interim financial statements supplied pursuant to the Original Loan Agreement): (i) as soon as available, but not later than one hundred twenty (120) days after the close of each fiscal year of IDSC, unqualified audited financial statements of IDSC and its Subsidiaries as of the end of such year, on a Consolidated basis, consisting of a balance sheet, income statement and statement of cash flows, certified by a firm of independent certified public accountants of recognized standing selected by IDSC but acceptable to Agent and each Lender (except for a qualification for a change in accounting principles with which the accountant concurs); (ii) as soon as available, but not later than thirty (30) days after the end of each month hereafter, including the last month of IDSC's fiscal year, unaudited interim 34 financial statements of IDSC and its Subsidiaries as of the end of such month and of the portion of IDSC's financial year then elapsed, on a Consolidated basis, consisting of a balance sheet, income statement and statement of cash flows, certified by the principal financial officer of IDSC as prepared in accordance with GAAP and fairly presenting the Consolidated financial position and results of operations of IDSC and its Subsidiaries for such month and period subject only to changes from audit and year-end adjustments and except that such statements need not contain footnotes; (iii) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which IDSC and/or its Subsidiaries has made available to its shareholders and copies of any regular, periodic and special reports or registration statements which IDSC and/or its Subsidiaries files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or any national securities exchange; (iv) promptly after the filing thereof, copies of any annual report to be filed with ERISA in connection with each Plan; (v) as soon as possible, but not later than the twenty (20) days after the end of each month hereafter, an accounts payable aging schedule, in form and content reasonably satisfactory to Agent; and (vi) such other data and information (financial and otherwise) as Agent, from time to time, may reasonably request, bearing upon or related to the Collateral or IDSC's and each of its Subsidiaries' accounts payable, accounts receivable, financial condition or results of operations. Concurrently with the delivery of the financial statements described in clause (i) of this Section 8.1.3, Borrower shall forward to Agent and each Lender a copy of the accountants' letter to IDSC's management that is prepared in connection with such audited financial statements and also shall cause to be prepared and shall furnish to Agent and each Lender a report of the aforesaid certified public accountants reporting to Agent and each Lender that, based upon their examination of the financial statements of IDSC and its Subsidiaries performed in connection with their examination of said financial statements, they are not aware of any Default or Event of Default, or, if they are aware of such Default or Event of Default, specifying the nature thereof, and acknowledging, in a manner satisfactory to Agent and each Lender, that they are aware that Agent and each Lender is relying on such financial statements in making its decisions with respect to the Loans. Concurrently with the delivery of the financial statements described in clauses (i) and (ii) of this Section 8.1.3, or more frequently if requested by Agent, Borrower shall cause to be prepared and furnished to Agent and each Lender a Compliance Certificate in the form of Exhibit N hereto executed by the Chief Financial Officer of Borrower. 35 8.1.4 Landlord and Storage Agreements. Provide Agent with copies of all agreements between IDSC or any of its Subsidiaries and any landlord or warehouseman which owns any premises at which any Inventory may, from time to time, be kept. 8.1.5 Projections. No later than fifteen (15) days prior to the end of each fiscal year of IDSC beginning December 31, 2001, deliver to Agent and each Lender projections of IDSC and its Subsidiaries (consisting of Consolidated balance sheets, income statements and cash flow statements, together with appropriate supporting details and underlying assumptions) for the forthcoming fiscal year, month by month, the form of which shall be consistent with those furnished by Existing Borrowers to Agent and each Lender under the Original Loan Agreement. 8.1.6 Taxes. Pay and discharge, and cause IDSC and each Subsidiary of IDSC to pay and discharge, all Taxes prior to the date on which such Taxes become delinquent or penalties attach thereto, except and only to the extent that such Taxes are being Properly Contested. 8.1.7 Compliance with Laws. Comply and cause IDSC and each Subsidiary of IDSC to comply, with all Applicable Laws, including all laws, statutes, regulations and ordinances regarding the collection, payment and deposit of all Taxes, and all ERISA and Environmental Laws, and obtain and keep in force any and all licenses, permits, franchises, or other governmental authorizations material to the ownership of its Properties or to the conduct of its business, which noncompliance or failure to obtain could reasonably be expected to have a Material Adverse Effect. 8.1.8 Insurance. In addition to the insurance required herein with respect to the Collateral, Borrower and each of its Subsidiaries shall maintain, with financially sound and reputable insurers, insurance with respect to its Properties and business against such casualties and contingencies of such type (including product liability, business interruption, larceny, embezzlement, or other criminal misappropriation insurance) as is customary in its business and in such amounts as is reasonably acceptable to Agent. 8.1.9 Dissolution of Petrocon FSC Ltd. Provide to Agent within 90 days of the Closing Date, evidence satisfactory to Agent that Petrocon FSC Ltd. has been dissolved. 8.1.10 Deposit and Brokerage Accounts. For each deposit account or brokerage account that Borrower at any time opens or maintains, Borrower shall, at Agent's request and option, pursuant to an agreement in form and substance satisfactory to Agent, cause the depository bank or securities intermediary, as applicable, to agree to comply at any time with instructions from Agent to such depository bank or securities intermediary, as applicable, directing the disposition of funds from time to time credited to such deposit or brokerage account, without further consent of Borrower. 8.2 Negative Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to Agent or any Lender, Borrower covenants that, unless Requisite Lenders have first consented thereto in writing, it will not: 36 8.2.1 Mergers; Consolidations; Acquisitions. Except pursuant to the IDS Merger, (i) merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any Person; nor (ii) acquire, nor permit any of its Subsidiaries to acquire, all or any substantial part of the Properties of any Person, or (iii) change its or any of its Subsidiaries' state of incorporation or organization or Type of Organization, nor (iv) change its or any of its Subsidiaries' legal names (provided, however, that notwithstanding the above, one or more Borrowers may merge with and into any other Borrower). 8.2.2 Loans. Make, or permit IDSC or any of IDSC's Subsidiaries to make, any loans or other advances of money to any Person, except for (i) travel advances, advances against commissions and other similar advances in the ordinary course of business, (ii) such loans or other advances as are outstanding on the Closing Date and disclosed in writing to Agent, (iii) extensions of trade credit in the ordinary course of business, (iv) prior to the occurrence of any Default or Event of Default, intercompany loans and advances from one Borrower to another Borrower, (v) prior to the occurrence of any Default or Event of Default, payments of scheduled principal and interest when due in respect of the PAL Note in accordance with its terms, and (vi) the remittance to PAL of Accounts arising out of services performed by PAL's employees in PAL's capacity as a subcontractor to Borrower; provided, however, that Borrower shall give Agent prompt written notice of any such payment or remittance that is made to PAL under clause (v) or (vi) of this Section 8.2.2 (and, if requested by Agent, Borrower shall furnish Agent with such supporting information as Agent shall reasonably request regarding any such loan or remittance). 8.2.3 Total Indebtedness. Create, incur, assume, or suffer to exist, or permit any of its Subsidiaries to create, incur or suffer to exist, any Indebtedness, except: (i) Obligations owing to Agent or any Lender; (ii) Subordinated Debt; (iii) Indebtedness of any Subsidiary of Borrower to Borrower or between Borrowers (to the extent permitted under Section 8.2.2(ii)); (iv) accounts payable to trade creditors and current operating expenses (other than for (a) Money Borrowed and (b) accounts payable owing by Borrower to PAL) which are not aged more than sixty (60) days from the due date, in each case incurred in the ordinary course of business and paid within such time period, unless the same are being Properly Contested; (v) Obligations to pay Rentals permitted by Section 8.2.13; (vi) Permitted Purchase Money Indebtedness; 37 (vii) contingent liabilities arising out of endorsements of checks and other negotiable instruments for deposit or collection in the ordinary course of business; (viii) Indebtedness existing on the date hereof and described on Exhibit O hereto (including Loans to PAL), and any extensions, renewals or refinancings thereof so long as (i) the principal amount thereof does not exceed the then outstanding principal amount of the Indebtedness being so extended, renewed or refinanced, and (ii) the amortization of principal on any such refinancings shall be for no shorter period, and for no greater annual amounts, than the original amortization established for such Indebtedness; and (ix) contingent obligations under any guarantee by Borrower or its Subsidiaries of any of the obligations of any other Subsidiary as lessee under any lease which is otherwise permitted under this Agreement; (x) Indebtedness constituting deposits to secure the performance of bids, trade contracts (other than for Money Borrowed), leases, statutory obligations, surety and appeal bonds and performance bonds under other obligations of a like nature that are incurred in the ordinary course of business, not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate at any time outstanding; (xi) indemnities arising under agreements entered into by Borrower or any of its Subsidiaries in the ordinary course of business; (xii) Indebtedness arising on account of deferred taxes, deferred workers' compensation liabilities, or deferred employee medical liabilities; (xiii) Indebtedness owing to Coury and Berry not to exceed $475,000 and paid pursuant to the Coury/Berry Settlement; (xiv) Indebtedness owing to Equus pursuant to the Equus Term Note; and (xv) Indebtedness not included in paragraphs (i) through (xii) above which does not exceed at any time, in the aggregate, the sum of One Hundred Thousand Dollars ($100,000). 8.2.4 Affiliate Transactions. Enter into or be a party to, or permit any of its Subsidiaries to enter into or be a party to, any transaction with any Affiliate or stockholder, except (i) those in existence on the Closing Date and fully disclosed to Agent, or (ii) in the ordinary course of and pursuant to the reasonable requirements of Borrower's or such Subsidiary's business and upon fair and reasonable terms which are fully disclosed to Agent and are no less favorable than would be obtained in a comparable arm's length transaction with a Person not an Affiliate or stockholder of Borrower or such Subsidiary. 38 8.2.5 Limitation on Liens. Create or suffer to exist, or permit any its Subsidiaries to create or suffer to exist, any Lien upon any of its Property, income or profits, whether now owned or hereafter acquired, except: (i) Liens at any time granted in favor of Agent or any Lender; (ii) Liens for taxes (excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet due or being Properly Contested; (iii) Liens arising in the ordinary course of its business by operation of law or regulation in favor of materialmen, mechanics, carriers, warehousemen, landlords and similar Persons, but only if (a) payment in respect of any such Lien is not at the time required or (b) the Indebtedness secured by such Lien is being Properly Contested and such Lien does not materially detract from the value of the Property or materially impair the use thereof in the operation of its business; (iv) Purchase Money Liens securing Permitted Purchase Money Indebtedness; (v) Liens securing Indebtedness of one of Borrower's Subsidiaries to Borrower or another such Subsidiary; (vi) such other Liens as appear on Exhibit P hereto; (vii) with respect to any real Property of Borrower or any of its Subsidiaries, such other easements or encumbrances or other imperfections of title to the extent they do not materially affect the value of, interfere with the use of, or materially impair the business or operations of, Borrower or any of its Subsidiaries; (viii) Liens securing the Equus Term Note which are subordinated to the Agent's Liens in a manner and pursuant to documentation satisfactory to Agent; and (ix) such other Liens as Requisite Lenders may hereafter approve in writing. 8.2.6 Subordinated Debt; Management Fees. Make, or permit any of its Subsidiaries to make, any payment of all or any part of any (a) Subordinated Debt or take any other action or omit to take any other action in respect of any Subordinated Debt (including, but not limited to, any amendment, supplement or modification of any agreement, instrument or document evidencing any such Subordinated Debt), and (b) management fees, consulting fees or similar payments (excluding ordinary and reasonable fees and reimbursable expenses which are payable by Borrower to members of its Board of Directors as remuneration for serving as a board member) to any Person, including, without limitation, Equus or any Affiliate of Equus. Absent the prior written consent of Requisite Lenders, Borrower shall not make, and shall not permit any of its Subsidiaries to make, a prepayment of all or any part of any Subordinated Debt. 39 Notwithstanding the foregoing, so long as no Default or Event of Default has occurred and is continuing, or would result therefrom, Borrower may make and pay all regularly scheduled (x) principal and interest payments when due on the PAL Note and (y) consulting fees due pursuant to the terms of the Consultant Agreement, as in effect on July 1, 2001, by and between Petrocon and Fahad Al- Tamimi, an individual domiciled in Riyadh, Saudi Arabia. In addition, Borrower shall be permitted to make payments on the Equus Term Note to the extent permitted under the Equus Intercreditor Agreement. 8.2.7 Distributions. Declare or make, or permit any of its Subsidiaries to declare or make, any Distributions, except the Coury/Berry Distribution. 8.2.8 Capital Expenditures. Make Capital Expenditures (including Capitalized Lease Obligations) which, in the aggregate, as to Borrower and its Subsidiaries, exceed Six Hundred Thousand Dollars ($600,000) during any fiscal year. 8.2.9 Disposition of Assets. Sell, lease or otherwise dispose of, or permit IDSC or any of its Subsidiaries to sell, lease or otherwise dispose of, any of its Properties, including any disposition of Property as part of a sale and leaseback transaction, to or in favor of any Person, except for (i) sales of Inventory in the ordinary course of business for so long as no Event of Default exists hereunder, (ii) a transfer of Property to Borrower by a Subsidiary of Borrower, (iii) the sale, lease or other disposition of Equipment to the extent permitted under Section 6.3.2, (iv) the lease (as lessor) of any real Property, so long as (a) the real Property subject to any such lease is not necessary for the conduct of Borrower's or any Subsidiary's business and (b) any such lease is collaterally assigned to Agent, for the benefit of Lenders, as collateral security for the Obligations, (v) the sale, assignment, lease, transfer or other disposition of Property by a Borrower to another Borrower so long as (a) no Default or Event of Default then exists or would exist after giving effect to any such transfer, (b) the transferee Borrower is organized under the laws of the United States or any state thereof and conducts its operations within the United States, (c) the Property so transferred will continue to be located at a business location of Borrower listed on Exhibit B hereto and (d) such transfer is otherwise permitted under Section 8.2.4 hereof, or (vi) dispositions expressly authorized by this Agreement. 8.2.10 Stock of Subsidiaries. Permit Borrower or any of its Subsidiaries to issue any additional shares of its capital stock, except director's qualifying shares. 8.2.11 Bill-and-Hold Sales, Etc. During any calendar year make sales on a bill-and-hold, guaranteed sale, sale and return, sale on approval or consignment basis, or on a repurchase or return basis, in excess of $5,000,000 in the aggregate for all Borrowers. 8.2.12 Restricted Investment. Make or have, or permit IDSC or any of its Subsidiaries to make or have, any Restricted Investment. 8.2.13 Operating Leases. Become, or permit IDSC or any of its Subsidiaries to become, a lessee under any operating lease (other than a lease under which Borrower or any of its Subsidiaries is lessor) of Property if the aggregate Rentals payable during any current or future 40 period of twelve (12) consecutive months under the lease in question and all other leases under which IDSC or any of its Subsidiaries is then lessee would exceed Three Million Five Hundred Thousand Dollars ($3,500,000). The term "Rentals" means, as of the date of determination, all payments which the lessee is required to make by the terms of any operating lease. 8.2.14 Tax Consolidation. File or consent to the filing of any consolidated income tax return with any Person other than its Subsidiaries or another Borrower. 8.2.15 RPM Earnout Payment. Make, or permit IDSC or any of its Subsidiaries to make, any payment of all or any part of any RPM Earnout Payment or take any other action or omit to take any other action in respect of any RPM Earnout Payment (including, but not limited to, any amendment, supplement or modification of any agreement, instrument, or document evidencing any such RPM Earnout Payment); provided, however, that so long as no Default or Event of Default has occurred and is continuing, Borrower may make and pay the RPM Earnout Payments when due in accordance with the RPM Stock Purchase Agreement. 8.3 Specific Financial Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to Agent or any Lenders, Borrower covenants that, unless otherwise consented to by Requisite Lenders in writing, it shall: 8.3.1 Fixed Charge Ratio. Maintain, on a Consolidated basis, as of the last day of each calendar month set forth below, for the twelve- (12) calendar month period ending on such date, a Fixed Charge Ratio equal to or greater than the ratio set forth below for the period corresponding thereto: Period Ratio - ------------------------------------- ------- September 31, 2001 - December 31, 2001 1.00 to 1:00 January 31, 2002 - May 31, 2002 1.1 to 1:00 June 30, 2002 and thereafter 1.15 to 1.00 8.3.2 Ratio of Senior Debt and Equus Term Note to EBITDA. Maintain, on a Consolidated basis, as of the end of each calendar month set forth below, a ratio of (i) the sum of (a) Borrower's Senior Debt on such date and (b) the unpaid principal amount of the Equus Term Note on such date, to (ii) Borrower's EBITDA for the twelve- (12) calendar month period ending on such date, equal to or greater than the ratio set forth below for the period corresponding thereto: Period Ratio - -------------------------------------- ------- September 31, 2001 - December 31, 2001 2.50 to 1:00 January 31, 2002 - February 28, 2002 3.50 to 1:00 41 March 31, 2002 - May 31, 2002 3.25 to 1.00 June 30, 2002 - August 31, 2002 3.00 to 1.00 September 30, 2002 - November 30, 2002 2.75 to 1.00 December 31, 2002 and thereafter 2.50 to 1.00 8.3.3 Costs in Excess of Billings Amount Maintain, on a Consolidated basis, as of the last day of each calendar month, a Costs in Excess of Billings Amount of not greater than $5,500,000. SECTION 9. CONDITIONS PRECEDENT Subject to the satisfaction in a manner and pursuant to documentation satisfactory to Agent of the conditions specified in this Section 9, Agent and Lenders hereby consent to the consummation of the Transactions. Notwithstanding any other provision of this Agreement or any of the other Loan Documents, and without affecting in any manner the rights of Agent or any Lender under the other sections of this Agreement, no Lender shall be required to make any Loan under this Agreement unless and until each of the following conditions has been and continues to be satisfied: 9.1 Documentation. Agent shall have received, in form and substance satisfactory to Agent and its counsel, a duly executed copy of this Agreement and the other Loan Documents, together with such additional documents, instruments and certificates as Agent and its counsel shall reasonably require in connection therewith from time to time, all in form and substance satisfactory to Agent and its counsel, including, without limitation, the Stock Pledge Agreement, the Equus Intercreditor Agreement, and the Guaranty Agreements. 9.2 No Default. No Default or Event of Default shall exist. 9.3 Availability. Agent shall have determined that immediately after consummation of the Transactions and the making by Lenders on the Closing Date of the Loans contemplated hereby, and payment (or provisions made for payment of) all closing costs incurred in connection with the transactions contemplated hereby, including, without limitation, the Transactions, Availability shall not be less than Two Million Dollars ($2,000,000). 9.4 Organizational and Governing Documents. Agent shall have received a copy of the organizational and governing documents of IDSC and each of its Subsidiaries, and all amendments thereto, certified where relevant by the Secretary of State or other appropriate official of the jurisdiction of IDSC's and each Subsidiary's organization. 9.5 Good Standing Certificates. Agent shall have received good standing certificates for IDSC and each of its Subsidiaries, issued by the Secretary of State or other appropriate official of IDSC's and each Subsidiary's jurisdiction of organization and each jurisdiction where 42 the conduct of IDSC's or any of its Subsidiary's business activities or ownership of its Property necessitates qualification. 9.6 Opinion Letters. Agent shall have received a favorable, written opinion of counsel to Borrower, as to the transactions contemplated by this Agreement, including, without limitation, the Transactions, to be in form and substance satisfactory to Agent and Agent's counsel. 9.7 Insurance. Agent shall have received binders with respect to the casualty insurance policies of IDSC and each of its Subsidiaries, together with loss payable endorsements on Agent's standard form of loss payee endorsement naming Agent as loss payee and binders with respect to IDSC's and each such Subsidiary's liability insurance policies, together with endorsements naming Agent as a co-insured. 9.8 Dominion Account. Agent shall have received the duly executed agreements establishing the Dominion Accounts with one or more financial institutions acceptable to Agent for the collection or servicing of the Accounts. 9.9 Landlord Agreements. Agent shall have received all landlord or warehouseman agreements with respect to all premises leased by IDSC and its Subsidiaries and which are disclosed on Exhibit K hereto. 9.10 No Litigation. No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of this Agreement or the consummation of the transactions contemplated hereby. 9.11 Evidence of Perfection and Priority of Liens in Collateral. Agent shall have received copies of all filing receipts or acknowledgments issued by any governmental authority to evidence any filing or recordation necessary to perfect the Liens of Agent in the Collateral and evidence in form satisfactory to Agent that such Liens constitute valid and perfected security interests and Liens, and that there are no other Liens upon any Collateral except for Permitted Liens. 9.12 Evidence of Consummation of IDSC Merger and Equus Subordinated Debt Restructuring. Agent shall have received evidence satisfactory to Agent, in its sole discretion, of the consummation of the IDSC Merger and the Equus Subordinated Debt Restructuring in conformity with the terms, conditions and provisions described in the recitals of this Agreement, pursuant to documentation and related materials satisfactory to Agent, and Agent shall have received copies of all such documentation and materials. 9.13 Documentation Relating to Transactions. Agent shall have received all other documentation and materials relating to the Transactions as shall be required by Agent, all of which shall be in form and substance satisfactory to Agent. 43 9.14 No Material Adverse Effect. No Material Adverse Effect shall have occurred with respect to IDSC or any Subsidiary of IDSC between October 31, 2001 and the Closing Date. 9.15 Average Daily Availability. For the thirty days prior to the Closing Date, Average Daily Availability shall have been not less than $2,000,000. 9.16 Closing Fee. Agent shall have received for the account of Lenders payment by Borrower of the closing fee provided for in Section 2.3 of this Agreement. SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT 10.1 Events of Default. The occurrence of one or more of the following events shall constitute an "Event of Default": 10.1.1 Payment of Note. Borrower shall fail to pay any installment of principal, interest or premium, if any, owing on the Notes on the due date of such installment. 10.1.2 Payment of Other Obligations. Borrower shall fail to pay any of the Obligations that are not evidenced by the Notes on the due date thereof (whether due at stated maturity, on demand, upon acceleration or otherwise). 10.1.3 Misrepresentations. Any representation, warranty or other statement made or furnished to Agent or any Lender by or on behalf of Borrower, any Subsidiary of Borrower or any other Loan Party in this Agreement, any of the other Loan Documents or any instrument, certificate or financial statement furnished in compliance with or in reference thereto proves to have been false or misleading in any material respect when made or furnished or when reaffirmed pursuant to Section 7.2 hereof. 10.1.4 Breach of Specific Covenants. Borrower shall fail to perform, keep or observe any covenant contained in Sections 5.2, 5.3, 5.4, 6.1.1, 6.1.2, 6.2, 8.1.1, 8.1.3, 8.2 or 8.3 hereof on the date that Borrower is required to perform, keep or observe such covenant. 10.1.5 Breach of Other Covenants. Borrower shall fail to perform, keep or observe any covenant contained in this Agreement (other than a covenant which is dealt with specifically elsewhere in Section 10.1 hereof) and the breach of such other covenant is not cured to Requisite Lenders' satisfaction within ten (10) days after the sooner to occur of Borrower's receipt of notice of such breach from Agent or the date on which such failure first becomes known to any officer of Borrower. 10.1.6 Default Under Other Agreements. Any event of default shall occur under, or any Loan Party shall default in the performance or observance of any term, covenant, condition or agreement contained in, the Other Agreements and such default shall continue beyond any applicable grace period. 44 10.1.7 Other Defaults. There shall occur any default or event of default on the part of Borrower or any of its Subsidiaries under any agreement, document or instrument to which Borrower or any such Subsidiary is a party or by which Borrower or any of its Subsidiaries or any of their respective Property is bound, creating or relating to any Indebtedness (other than the Obligations) having an outstanding principal amount (individually or in the aggregate) of One Hundred Thousand Dollars ($100,000) or more, if the payment or maturity of such Indebtedness is or may be accelerated in consequence of such event of default or demand for payment of such Indebtedness is made. 10.1.8 Uninsured Losses. Any material loss, theft, damage or destruction of any of the Collateral not fully covered (subject to such deductibles as Agent shall have permitted) by insurance. 10.1.9 Adverse Changes. There shall occur any material adverse change in the financial condition or business prospects of Borrower or any Loan Party which has a Material Adverse Effect. 10.1.10 Insolvency and Related Proceedings. Any Loan Party shall cease to be Solvent or shall suffer the appointment of a receiver, trustee, custodian or similar fiduciary, or shall make an assignment for the benefit of creditors, or any petition for an order for relief shall be filed by or against a Loan Party under the Bankruptcy Code (and if, with respect to any petition filed against any Loan Party, such proceeding shall continue for more than thirty (30) days), or any Loan Party shall make any offer of settlement, extension or compromise to such Loan Party's unsecured creditors generally. 10.1.11 Business Disruption; Condemnation. There shall occur a cessation of a substantial part of the business of Borrower or any Subsidiary of Borrower for a period which significantly affects Borrower's or such Subsidiary's capacity to continue its business, on a profitable basis; or Borrower or any Subsidiary of Borrower shall suffer the loss or revocation of any license or permit now held or hereafter acquired by Borrower or such Subsidiary which is necessary to the continued or lawful operation of its business; or Borrower or any Subsidiary of Borrower shall be enjoined, restrained or in any way prevented by court, governmental or administrative order from conducting all or any material part of its business affairs; or any material lease or agreement pursuant to which Borrower or any Subsidiary of Borrower leases, uses or occupies any Property shall be canceled or terminated prior to the expiration of its stated term; or any part of the Collateral shall be taken through condemnation or the value of such Property shall be impaired through condemnation and the fair market value of such Collateral exceeds Fifty Thousand Dollars ($50,000). 10.1.12 Change of Ownership. (i) The occurrence of any transaction or event by which (a) a majority of the Board of Directors of IDSC shall consist of Persons who are not Continuing Directors, or (b) a majority of the Board of Directors of Petrocon shall consist of Persons who are not Continuing Directors; or (ii) (a) Equus shall sell, transfer or otherwise dispose of any Voting Stock and/or Voting Stock Equivalents of Petrocon owned by it on the Closing Date, or (b) Equus or its designees shall cease to maintain the number of seats on the 45 Board of Directors of Petrocon or IDSC held by it/them on the Closing Date; or (iii) Petrocon shall cease to own and control, beneficially and of record, all of the issued and outstanding capital stock of each of its Subsidiaries that is a Borrower; or (iv) IDSC shall cease to own and control, beneficially and of record, all of the issued and outstanding equity ownership interests of IDS Engineering, Thermaire, Data, Management and Constant Power; or (v) Management shall cease to own and control, beneficially and of record, all of the issued and outstanding capital stock of Petrocon. 10.1.13 ERISA. A Reportable Event shall occur which Agent, in its sole discretion, shall determine in good faith constitutes grounds for the termination by the Pension Benefit Guaranty Corporation of any Plan or for the appointment by the appropriate United States district court of a trustee for any Plan, or if any Plan shall be terminated or any such trustee shall be requested or appointed, or if IDSC or any Subsidiary of IDSC is in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan resulting from IDSC's or such Subsidiary's complete or partial withdrawal from such Plan. 10.1.14 Challenge to Agreement. Borrower, any Subsidiary of Borrower or any other Loan Party, or any Affiliate of any of them, shall challenge or contest in any action, suit or proceeding the validity or enforceability of this Agreement, or any of the other Loan Documents, the legality or enforceability of any of the Obligations or the perfection or priority of any Lien granted to Agent. 10.1.15 Criminal Forfeiture. IDSC or any Subsidiary of IDSC shall be criminally indicted or convicted under any law that could lead to a forfeiture of any Property of IDSC or any Subsidiary of Borrower. 10.1.16 Judgments. Any (i) money judgment(s) in excess of One Hundred Thousand Dollars ($100,000) is/are filed against IDSC or any Subsidiary of IDSC or any of their respective Property, and such judgment(s) shall remain unpaid, unsatisfied by insurance, and unstayed for more than thirty (30) days, whether or not consecutive, or (ii) writ of attachment or similar process is filed against IDSC or any Subsidiary of IDSC, or any of their respective Property, and such writ of attachment or similar process is not bonded or secured in an amount and manner reasonably satisfactory to Agent. 10.1.17 Repudiation of or Default Under Guaranty Agreements. Any Guarantor shall revoke or attempt to revoke the Guaranty Agreement signed by such Guarantor, or shall repudiate such Guarantor's liability thereunder or shall be in default under the terms thereof. 10.2 Acceleration of the Obligations. Without in any way limiting the right of Agent and/or Lenders to demand payment of any portion of the Obligations payable on demand in accordance with Section 3.2 hereof, upon or at any time after the occurrence and during the continuance of an Event of Default, all or any portion of the Obligations shall, at the option of Agent and/or Requisite Lenders and without presentment, demand, protest, notice of intent to accelerate, notice of acceleration, or any other further notice by Agent or any Lender, become at once due and payable and Borrower shall forthwith pay to Lenders, the full amount of such 46 Obligations; provided, however, that upon the occurrence of an Event of Default specified in Section 10.1.10 hereof, all of the Obligations shall become automatically due and payable without declaration, notice or demand by Agent or Lenders. 10.3 Other Remedies. Upon and after the occurrence and during the continuance of an Event of Default, Lender may or upon demand by Requisite Lenders shall, exercise from time to time the following rights and remedies: 10.3.1 All of the rights and remedies of a secured party under the Code or under other Applicable Law, and all other legal and equitable rights to which Agent or any Lender may be entitled, all of which rights and remedies shall be cumulative and shall be in addition to any other rights or remedies contained in this Agreement or any of the other Loan Documents, and none of which shall be exclusive. 10.3.2 The right to take immediate possession of the Collateral, and to (i) require Borrower to assemble the Collateral, at Borrower's expense, and make it available to Agent at a place designated by Agent which is reasonably convenient to both parties, and (ii) enter any premises where any of the Collateral shall be located and to keep and store the Collateral on said premises until sold (and if said premises be the Property of Borrower, Borrower agrees not to charge Agent for storage thereof). 10.3.3 The right to sell or otherwise dispose of all or any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale or sales, with such notice as may be required by law, in lots or in bulk, for cash or on credit, all as Agent, in its sole discretion, may deem advisable. Borrower agrees that any requirement of notice to Borrower of any proposed public or private sale or other disposition of Collateral by Agent shall be deemed reasonable notice thereof if given at least ten (10) days prior thereto, and any such sale may be held at such locations as Agent may designate in said notice. Agent shall have the right to conduct such sales on Borrower's premises, without charge therefor, and such sales may be adjourned from time to time in accordance with Applicable Law. Agent shall have the right to sell, lease or otherwise dispose of the Collateral, or any part thereof, for cash, credit or any combination thereof, and Agent or any Lender may purchase all or any part of the Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Obligations. The proceeds realized from the sale of any Collateral may be applied, after allowing two (2) Business Days for collection, first to the reasonable costs, expenses and attorneys' fees incurred by Agent or any Lender in collecting the Obligations, in enforcing the rights of Agent or any Lender under the Loan Documents and in collecting, retaking, completing, protecting, removing, storing, advertising for sale, selling and delivering any Collateral; second to the interest due upon any of the Obligations; third, to the principal of the Obligations, and fourth, to Borrower. If any deficiency shall arise, Borrower shall remain liable to Agent and Lenders therefor. 10.3.4 The right to exercise all of Agent's rights and remedies under any mortgage/deed of trust with respect to any real Property forming a part of the Collateral. 47 10.3.5 For the limited purpose of exercising their rights under this Section 10, Lenders are hereby granted a license or other right to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any Property of a similar nature, as it pertains to the Collateral, in advertising for sale and selling any Collateral and Borrower's rights under all licenses and all franchise agreements shall inure to Agent's and Lenders' benefit. 10.3.6 Agent may, at its option, require Borrower to deposit with Agent funds equal to the LC Amount and, if Borrower fails to promptly make such deposit, Agent may advance such amount as a Revolving Credit Loan (whether or not an Out-of-Formula Condition is created thereby). Any such deposit or advance shall be held by Agent as a reserve to fund future payments on such LC Guaranties and future drawings against such Letters of Credit. At such time as all LC Guaranties have been paid or terminated and all Letters of Credit have been drawn upon or expired, any amounts remaining in such reserve shall be applied against any outstanding Obligations, or, if all Obligations have been indefeasibly paid in full, returned to Borrower. 10.4 Remedies Cumulative; No Waiver. All covenants, conditions, provisions, warranties, guaranties, indemnities, and other undertakings of Borrower contained in this Agreement and the other Loan Documents, or in any document referred to herein or contained in any agreement supplementary hereto or in any schedule given to Agent or contained in any other agreement between Agent and/or any Lender and Borrower, heretofore, concurrently, or hereafter entered into, shall be deemed cumulative to and not in derogation or substitution of any of the terms, covenants, conditions, or agreements of Borrower herein contained. The failure or delay of Agent and/or any Lender to require strict performance by Borrower of any provision of this Agreement or to exercise or enforce any rights, Liens, powers, or remedies hereunder or under any of the aforesaid agreements or other documents or security or Collateral shall not operate as a waiver of such performance, Liens, rights, powers and remedies, but all such requirements, Liens, rights, powers, and remedies shall continue in full force and effect until all Loans and all other Obligations owing or to become owing from Borrower to Agent and/or any Lender shall have been fully satisfied. None of the undertakings, agreements, warranties, covenants and representations of Borrower contained in this Agreement or any of the other Loan Documents and no Event of Default by Borrower under this Agreement or any other Loan Documents shall be deemed to have been suspended or waived by Agent and/or any Lender, unless such suspension or waiver is by an instrument in writing specifying such suspension or waiver and is signed by a duly authorized representative of Agent and Requisite Lenders and directed to Borrower. 10.5 Power of Attorney. Borrower hereby irrevocably designates, makes, constitutes and appoints Agent (and all Persons designated by Agent) as Borrower's true and lawful attorney (and agent-in-fact) and Agent, or Agent's agent, may, without notice to Borrower and in either Borrower's or Agent's name, but at the cost and expense of Borrower: 10.5.1 At such time or times as Agent or said agent, in its sole discretion, may determine, upon the occurrence and during the continuance of an Event of Default, endorse 48 Borrower's name on any checks, notes, acceptances, drafts, money orders or any other evidence of payment or proceeds of the Collateral which come into the possession of Agent or any Lender or under Agent's or any Lender's control. 10.5.2 At such time or times upon or after the occurrence and during the continuance of an Event of Default as Agent or its agent in its sole discretion may determine: (i) demand payment of the Accounts from the Account Debtors, enforce payment of the Accounts by legal proceedings or otherwise, and generally exercise all of Borrower's rights and remedies with respect to the collection of the Accounts; (ii) settle, adjust, compromise, discharge or release any of the Accounts or other Collateral or any legal proceedings brought to collect any of the Accounts or other Collateral; (iii) sell or assign any of the Accounts and other Collateral upon such terms, for such amounts and at such time or times as Agent deems advisable; (iv) take control, in any manner, of any item of payment or proceeds relating to any Collateral; (v) prepare, file and sign Borrower's name to a proof of claim in bankruptcy or similar document against any Account Debtor or to any notice of lien, assignment or satisfaction of lien or similar document in connection with any of the Collateral; (vi) receive, open and dispose of all mail addressed to Borrower and to notify postal authorities to change the address for delivery thereof to such address as Agent may designate; (vii) endorse the name of Borrower upon any of the items of payment or proceeds relating to any Collateral and deposit the same to the account of Agent on account of the Obligations; (viii) endorse the name of Borrower upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Accounts, Inventory and any other Collateral; (ix) use Borrower's stationery and sign the name of Borrower to verifications of the Accounts and notices thereof to Account Debtors; (x) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Accounts, Inventory, Equipment and any other Collateral; (xi) make and adjust claims under policies of insurance; and (xii) do all other acts and things necessary, in Agent's determination, to fulfill Borrower's obligations under this Agreement. SECTION 11. ASSIGNMENT AND PARTICIPATION 11.1 Assignments and Participations in Loans. (A) Each Lender may assign its rights and delegate its obligations under this Agreement to another Person; provided, that (a) such Lender shall first obtain the written consent of Agent, and, while no Default or Event of Default exists, Borrower, in each case which shall not be unreasonably withheld, (b) the amount of Commitments and Loans of the assigning Lender being assigned shall in no event be less than the lesser of (i) $5,000,000 or (ii) the entire amount of the Commitments and Loans of such assigning Lender and (c)(i) each such assignment shall be of a pro rata portion of all such assigning Lender's Loans and Commitments hereunder, and (ii) the parties to such assignment shall execute and deliver to Agent for acceptance and recording a Lender Addition Agreement together with (x) a processing and recording fee of $2,500 payable to Agent and (y) the Notes originally delivered to the assigning Lender. Upon receipt of all of the foregoing, Agent shall notify Borrower of such assignment and Borrower shall comply with its obligations under the second sentence of Section 1.3. In the case of an 49 assignment authorized under this Section 11.1, the assignee shall have, to the extent of such assignment, the same rights, benefits and obligations as it would if it were a Lender hereunder. The assigning Lender shall be relieved of its obligations hereunder with respect to its Commitment or assigned portion thereof. Borrower hereby acknowledges and agrees that any assignment will give rise to a direct obligation of Borrower to the assignee and that the assignee shall be considered to be a "Lender". Borrower may not sell, assign or transfer any interest in this Agreement, any of the other Loan Documents, or any of the Obligations, or any portion thereof, including Borrower's rights, title, interests, remedies, powers, and duties hereunder or thereunder. (B) Each Lender may sell participations in all or any part of any Loans made by it to another Person; provided, that any such participation shall be in a minimum amount of $5,000,000, and provided, further, that all amounts payable by Borrower hereunder shall be determined as if that Lender had not sold such participation and the holder of any such participation shall not be entitled to require such Lender to take or omit to take any action hereunder except action directly effecting (a) any reduction in the principal amount, interest rate or fees payable with respect to any Loan in which such holder participates; (b) any extension of the Original Term or the date fixed for any payment of principal, interest or fees payable with respect to any Loan in which such holder participates; and (c) any release of substantially all of the Collateral (other than in accordance with the terms of this Agreement or the Loan Documents). Borrower hereby acknowledges and agrees that the participant under each participation shall for purposes of Sections 3.8, 3.9, 3.10, 11.4 and 12.1 be considered to be a "Lender". (C) Except as otherwise provided in this Section 11.1 no Lender shall, as between Borrower and that Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or granting of participation in, all or any part of the Loans or other Obligations owed to such Lender. Each Lender may furnish any information concerning Borrower and its Subsidiaries in the possession of that Lender from time to time to assignees and participants (including prospective assignees and participants) provided that the Persons obtaining such information agrees to maintain the confidentiality of such information to the extent required by Section 12.19. (D) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Loans owing to it and the Notes held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System). (E) Borrower agrees to use its best efforts to assist any Lender in assigning or selling participations in all or any part of any Loans made by such Lender to another Person. 50 11.2 Agent. (A) Appointment. Each Lender hereby designates and appoints Fleet as its agent under this Agreement and the Loan Documents, and each Lender hereby irrevocably authorizes Agent to take such action or to refrain from taking such action on its behalf under the provisions of this Agreement and the Loan Documents and to exercise such powers as are set forth herein or therein, together with such other powers as are reasonably incidental thereto. Agent is authorized and empowered to amend, modify, or waive any provisions of this Agreement or the other Loan Documents on behalf of Lenders subject to the requirement that certain of Lenders' consent be obtained in certain instances as provided in Section 11.3. Agent agrees to act as such on the express conditions contained in this Section 11.2. The provisions of this Section 11.2 are solely for the benefit of Agent and Lenders and neither Borrower nor any Loan Party shall have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement, Agent shall act solely as an administrative representative of Lenders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for Lenders, Borrower or any Loan Party. Agent may perform any of its duties hereunder, or under the Loan Documents, by or through its agents or employees. (B) Nature of Duties. Agent shall have no duties, obligations or responsibilities except those expressly set forth in this Agreement or in the Loan Documents. The duties of Agent shall be mechanical and administrative in nature. Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender. Each Lender shall make its own independent investigation of the financial condition and affairs of Borrower in connection with the extension of credit hereunder and shall make its own appraisal of the credit worthiness of Borrower, and Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the Closing Date or at any time or times thereafter. If Agent seeks the consent or approval of any Lenders to the taking or refraining from taking any action hereunder, then Agent shall send notice thereof to each Lender. Agent shall promptly notify each Lender any time that the applicable percentage of Lenders have instructed Agent to act or refrain from acting pursuant hereto. (C) Rights, Exculpation, Etc. Neither Agent nor any of its officers, directors, employees or agents shall be liable to any Lender for any action taken or omitted by them hereunder or under any of the Loan Documents, or in connection herewith or therewith, except that Agent shall be obligated on the terms set forth herein for performance of its express obligations hereunder, and except that Agent shall be liable with respect to its own gross negligence or willful misconduct. Agent shall not be liable for any apportionment or distribution of payments made by it in good faith and if any such apportionment or distribution is subsequently determined to have been made in error the sole recourse of any Lender to whom payment was due but not made, shall be to recover from other Lenders any payment in excess of the amount to which they are determined to be entitled (and such other Lenders hereby agree to return to such Lender any such erroneous payments received by them). In performing its functions and duties hereunder, Agent shall exercise the same care which it would in dealing 51 with loans for its own account, but Agent shall not be responsible to any Lender for any recitals, statements, representations or warranties herein or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, or sufficiency of this Agreement or any of the Loan Documents or the transactions contemplated thereby, or for the financial condition of any Loan Party. Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the Loan Documents or the financial condition of any Loan Party, or the existence or possible existence of any Default or Event of Default. Agent may at any time request instructions from Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the Loan Documents Agent is permitted or required to take or to grant, and Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under any of the Loan Documents until it shall have received such instructions from the applicable percentage of the Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the applicable percentage of the Lenders and notwithstanding the instructions of Lenders, Agent shall have no obligation to take any action if it, in good faith believes that such action exposes Agent to any liability. (D) Reliance. Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message or other communication (including any writing, telex, telecopy or telegram) believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the Loan Documents and its duties hereunder or thereunder, upon advice of counsel selected by it. Agent shall be entitled to rely upon the advice of legal counsel, independent accountants, and other experts selected by Agent in its sole discretion. (E) Indemnification. Each Lender, severally, agrees to reimburse and indemnify Agent for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent in any way relating to or arising out of this Agreement or any of the Loan Documents or any action taken or omitted by Agent under this Agreement for any of the Loan Documents, in proportion to each Lender's Pro Rata Share; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements resulting from Agent's gross negligence or willful misconduct. The obligations of Lenders under this Section 11.2(E) shall survive the payment in full of the Obligations and the termination of this Agreement. (F) Fleet Individually. With respect to its Commitments and the Loans made by it, and the Notes issued to it, Fleet shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender. The terms "Lenders" or "Requisite Lenders" or any similar terms 52 shall, unless the context clearly otherwise indicates, include Fleet in its individual capacity as a Lender or one of the Requisite Lenders. Fleet may lend money to, and generally engage in any kind of banking, trust or other business with any Loan Party as if it were not acting as Agent pursuant hereto. (G) Successor Agent. (1) Resignation. Agent may resign from the performance of all its functions and duties hereunder at any time by giving at least thirty (30) Business Days' prior written notice to Borrower and the Lenders. Such resignation shall take effect upon the acceptance by a successor Agent of appointment pursuant to clause (2) below or as otherwise provided below. (2) Appointment of Successor. Upon any such notice of resignation pursuant to clause (G)(1) above, Requisite Lenders shall, upon receipt of Borrower's prior consent which shall not unreasonably be withheld, appoint a successor Agent. If a successor Agent shall not have been so appointed within said thirty (30) Business Day period, the retiring Agent, upon notice to Borrower, shall then appoint a successor Agent who shall serve as Agent until such time, as Requisite Lenders, upon receipt of Borrower's prior written consent which shall not be unreasonably withheld, appoint a successor Agent as provided above. (3) Successor Agent. Upon the acceptance of any appointment as Agent under the Loan Documents by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Loan Documents. After any retiring Agent's resignation as Agent under the Loan Documents, the provisions of this Section 11.2 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under the Loan Documents. (H) Collateral Matters. (1) Release of Collateral. Lenders hereby irrevocably authorize Agent, at its option and in its discretion, to release any Lien granted to or held by Agent upon any property covered by this Agreement or the Loan Documents (i) upon termination of the Commitments and payment and satisfaction of all Obligations; (ii) constituting property being sold or disposed of if Borrower certifies to Agent that the sale or disposition is made in compliance with the provisions of this Agreement (and Agent may rely in good faith conclusively on any such certificate, without further inquiry); or (iii) constituting property leased to Borrower under a lease which has expired or been terminated in a transaction permitted under this Agreement or is about to expire and which has not been, and is not intended by Borrower to be, renewed or extended. In addition during any fiscal year of Borrower (x) Agent may release Collateral having a book value of not more than 10% of the book value of all Collateral, (y) Agent, with the consent of Requisite Lenders, may release Collateral having a book value of not more than 25% of the book value of all Collateral and (z) Agent, with the consent of Lenders having 90% of (i) the Total Loan Commitments and (ii) Loans, may release all the Collateral. 53 (2) Confirmation of Authority; Execution of Releases. Without in any manner limiting Agent's authority to act without any specific or further authorization or consent by Lenders (as set forth in Section 11.2(H)(1)), each Lender agrees to confirm in writing, upon request by Borrower, the authority to release any property covered by this Agreement or the Loan Documents conferred upon Agent under Section 11.2(H)(1). So long as no Event of Default is then continuing, upon receipt by Agent of confirmation from the requisite percentage of Lenders, of its authority to release any particular item or types of property covered by this Agreement or the Loan Documents, and upon at least five (5) Business Days prior written request by Borrower, Agent shall (and is hereby irrevocably authorized by Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to Agent for the benefit of Lenders herein or pursuant hereto upon such Collateral; provided, however, that (i) Agent shall not be required to execute any such document on terms which, in Agent's opinion, would expose Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Liens upon (or obligations of any Loan Party, in respect of), all interests retained by any Loan Party, including, without limitation, the proceeds of any sale, all of which shall continue to constitute part of the property covered by this Agreement or the Loan Documents. (3) Absence of Duty. Agent shall have no obligation whatsoever to any Lender or any other Person to assure that the property covered by this Agreement or the Loan Documents exists or is owned by Borrower or is cared for, protected or insured or has been encumbered or that the Liens granted to Agent on behalf of Lenders herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent in this Section 11.2(H) or in any of the Loan Documents, it being understood and agreed that in respect of the property covered by this Agreement or the Loan Documents or any act, omission or event related thereto, Agent may act in any manner it may deem appropriate, in its discretion, given Agent's own interest in property covered by this Agreement or the Loan Documents as one of the Lenders and that Agent shall have no duty or liability whatsoever to any of the other Lenders; provided, that Agent shall exercise the same care which it would in dealing with loans for its own account. (I) Agency for Perfection. Each Lender hereby appoints each other Lender as agent for the purpose of perfecting Lenders' security interest in Collateral which, in accordance with Article 9 of the Uniform Commercial Code in any applicable jurisdiction, can be perfected only by possession. Should any Lender (other than Agent) obtain possession of any such Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent's request therefor, shall deliver such Collateral to Agent or in accordance with Agent's instructions. (J) Exercise of Remedies. Each Lender agrees that it will not have any right individually to enforce or seek to enforce this Agreement or any Loan Document or to realize 54 upon any collateral security for the Loans, it being understood and agreed that such rights and remedies may be exercised only by Agent. 11.3 Consents. (A) In the event Agent requests the consent of a Lender and does not receive a written denial thereof within five (5) Business Days after such Lender's receipt of such request, then such Lender will be deemed to have given such consent. (B) In the event Agent requests the consent of a Lender and such consent is denied, then Fleet may, at its option, require such Lender to assign its interest in the Loans to Fleet for a price equal to the then outstanding principal amount thereof plus accrued and unpaid interest and fees due such Lender, which interest and fees will be paid when collected from Borrower. In the event that Fleet elects to require any Lender to assign its interest to Fleet, Fleet will so notify such Lender in writing within forty-five (45) days following such Lender's denial, and such Lender will assign its interest to Fleet no later than five (5) days following receipt of such notice. 11.4 Set Off and Sharing of Payments. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Lender is hereby authorized by Borrower at any time or from time to time, with reasonably prompt subsequent notice to Borrower or to any other Person (any prior or contemporaneous notice being hereby expressly waived) to set off and to appropriate and to apply any and all (A) balances held by such Lender or such holder at any of its offices for the account of Borrower or any of its Subsidiaries (regardless of whether such balances are then due to Borrower or its Subsidiaries), and (B) other property at any time held or owing by such Lender or such holder to or for the credit or for the account of Borrower or any of its Subsidiaries, against and on account of any of the Obligations which are not paid when due; except that no Lender or any such holder shall exercise any such right without the prior written consent of Agent. Any Lender which has exercised its right to set off shall, to the extent the amount of any such set off exceeds its Pro Rata Share of the Obligations, purchase for cash (and the other Lenders or holders shall sell) participations in each such other Lender's or holder's Pro Rata Share of the Obligations as would be necessary to cause such Lender to share such excess with each other Lender or holder in accordance with their respective Pro Rata Shares. Borrower agrees, to the fullest extent permitted by law, that (a) any Lender or holder may exercise its right to set off with respect to amounts in excess of its Pro Rata Share of the Obligations and may sell participations in such excess to other Lenders and holders, and (b) any Lender or holder so purchasing a participation in the Loans made or other Obligations held by other Lenders or holders may exercise all rights of set-off, bankers' lien, counterclaim or similar rights with respect to such participation as fully as if such Lender or holder were a direct holder of Loans and other Obligations in the amount of such participation. 11.5 Disbursement of Funds. Agent may, on behalf of Lenders, disburse funds to Borrower for Loans requested. Each Lender shall reimburse Agent on demand for all funds disbursed on its behalf by Agent, or if Agent so requests, each Lender will remit to Agent its Pro 55 Rata Share of any Loan before Agent disburses same to Borrower. If Agent elects to require that funds be made available prior to disbursement to Borrower, Agent shall advise each Lender by telephone, telex or telecopy of the amount of such Lender's Pro Rata Share of such requested Loan no later than (a) one (1) Business Day prior to the funding date applicable thereto for Eurodollar Loans and (b) by 1:00 p.m. Dallas, Texas time on the funding date for Base Rate Loans, and each such Lender shall pay Agent such Lender's Pro Rata Share of such requested Loan, in same day funds, by wire transfer to Agent's account not later than 10:00 a.m. Dallas, Texas time on such funding date for Eurodollar Loans and 3:00 p.m. Dallas, Texas time for Base Rate Loans. If any Lender fails to pay the amount of its Pro Rata Share forthwith upon Agent's demand, Agent shall promptly notify Borrower, and Borrower shall immediately repay such amount to Agent. Any repayment required pursuant to this Section 11.5 shall be without premium or penalty. Nothing in this Section 11.5 or elsewhere in this Agreement or the other Loan Documents, including without limitation the provisions of Section 11.6, shall be deemed to require Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that Agent or Borrower may have against any Lender as a result of any default by such Lender hereunder. 11.6 Settlements, Payments and Information. (A) Revolving Credit Loans and Payments; Fee Payments. (1) The Revolving Credit Loans may fluctuate from day to day through Agent's disbursement of funds to, and receipt of funds from, Borrower. In order to minimize the frequency of transfers of funds between Agent and each Lender notwithstanding terms to the contrary set forth in Section 3 and Section 11.5, Revolving Credit Loans and repayments may be settled according to the procedures described in Sections 11.6(A)(2) and 11.6(A)(3) of this Agreement. Payments of principal, interest and fees in respect of the Term Loans will be settled on the Business Day received in accordance with the provisions of Section 2. Notwithstanding these procedures, each Lender's obligation to fund its Pro Rata Share of any advances made by Agent to Borrower will commence on the date such advances are made by Agent. Such payments will be made by such Lender without set-off, counterclaim or reduction of any kind. (2) Once each week, or more frequently (including daily), if Agent so elects (each such day being a "Settlement Date"), Agent will advise each Lender by 1 p.m. Dallas, Texas time by telephone, telex, or telecopy of the amount of each such Lender's Pro Rata Share of the Revolving Credit Loans. In the event payments are necessary to adjust the amount of such Lender's share of the Revolving Credit Loans to such Lender's Pro Rata Share of the Revolving Credit Loans, the party from which such payment is due will pay the other, in same day funds, by wire transfer to the other's account not later than 3:00 p.m. Dallas, Texas time on the Business Day following the Settlement Date. (3) On the first Business Day of each month ("Interest Settlement Date"), Agent will advise each Lender by telephone, telefax or telecopy of the amount of interest and fees charged to and collected from Borrower for the proceeding month. Provided that such Lender has made all payments required to be made by it under this Agreement, Agent will pay to 56 such Lender, by wire transfer to such Lender's account (as specified by such Lender on the signature page of this Agreement as amended by such Lender from time to time after the date hereof pursuant to the notice provisions contained herein or in the applicable Lender Addition Agreement) not later than 3 p.m. Dallas, Texas time on the next Business Day following the Interest Settlement Date such Lender's share of such interest and fees. (B) Availability of Lender's Pro Rata Share. (1) Unless Agent has been notified by a Lender prior to any proposed funding date of such Lender's intention not to fund its Pro Rata Share of the Loan amount requested by Borrower, Agent may assume that such Lender will make such amount available to Agent on the proposed funding date or the Business Day following the next Settlement Date, as applicable. If such amount is not, in fact, made available to Agent by such Lender when due, Agent will be entitled to recover such amount on demand from such Lender without set-off, counterclaim or deduction of any kind. (2) Nothing contained in this Section 11.6(B) will be deemed to relieve a Lender of its obligation to fulfill its Commitments or to prejudice any rights Agent or Borrower may have against such Lender as a result of any default by such Lender under this Agreement. (3) Without limiting the generality of the foregoing, each Lender shall be obligated to fund its Pro Rata Share of any Revolving Credit Loans made with respect to any draw on a Lender Letter of Credit. (C) Return of Payments. (1) If Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received by Agent from Borrower and such related payment is not received by Agent, then Agent will be entitled to recover such amount from such Lender without set-off, counterclaim or deduction of any kind. (2) If Agent determines at any time that any amount received by Agent under this Agreement must be returned to Borrower or paid to any other person pursuant to any solvency law or otherwise, then, notwithstanding any other term or condition of this Agreement, Agent will not be required to distribute any portion thereof to any Lender. In addition, each Lender will repay to Agent on demand any portion of such amount that Agent has distributed to such Lender, together with interest at such rate, if any, as Agent is required to pay to Borrower or such other Person, without set-off, counterclaim or deduction of any kind. 11.7 Dissemination of Information. Agent will provide Lenders with any information received by Agent from Borrower which is required to be provided to a Lender hereunder; provided, however, that Agent shall not be liable to Lenders for any failure to do so, except to the extent that such failure is attributable to Agent's gross negligence or willful misconduct. 57 11.8 Discretionary Advances. Agent may, in its sole discretion, (i) provided that no Event of Default exists, make Revolving Credit Loans of up to 10% in excess of the Borrowing Base for a period of not more than 30 consecutive days and (ii) during the continuance of an Event of Default, make Revolving Credit Loans in excess of the Borrowing Base for the purpose of preserving or protection the Collateral. SECTION 12. MISCELLANEOUS 12.1 Indemnity. BORROWER HEREBY INDEMNIFIES, HOLDS HARMLESS, AND SHALL DEFEND AGENT, EACH LENDER AND THEIR RESPECTIVE DIRECTORS, OFFICERS, AGENTS, COUNSEL AND EMPLOYEES ("INDEMNIFIED PERSONS") FROM AND AGAINST ANY AND ALL LOSSES, LIABILITIES, DAMAGES, COSTS, EXPENSES, SUITS, ACTIONS AND PROCEEDINGS ("LOSSES") EVER SUFFERED OR INCURRED BY ANY INDEMNIFIED PERSON ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION CONTEMPLATED HEREBY, INCLUDING, WITHOUT LIMITATION, ANY LOSSES CAUSED BY THE NEGLIGENCE OF ANY SUCH INDEMNIFIED PERSON, BUT NOT INCLUDING ANY LOSSES CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY SUCH INDEMNIFIED PERSON, AND BORROWER SHALL REIMBURSE AGENT, EACH LENDER AND EACH OTHER INDEMNIFIED PERSON FOR ANY EXPENSES (INCLUDING IN CONNECTION WITH THE INVESTIGATION OF, PREPARATION FOR OR DEFENSE OF ANY ACTUAL OR THREATENED CLAIM, ACTION OR PROCEEDING ARISING THEREFROM, INCLUDING ANY SUCH COSTS OF RESPONDING TO DISCOVERY REQUESTS OR SUBPOENAS, REGARDLESS OF WHETHER AGENT, LENDER OR SUCH OTHER INDEMNIFIED PERSON IS A PARTY THERETO). WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THIS INDEMNITY SHALL EXTEND TO ANY CLAIMS ASSERTED AGAINST AGENT, LENDER OR ANY OTHER INDEMNIFIED PERSON BY ANY PERSON UNDER ANY ENVIRONMENTAL LAWS OR SIMILAR LAWS BY REASON OF BORROWER'S OR ANY OTHER PERSON'S FAILURE TO COMPLY WITH LAWS APPLICABLE TO SOLID OR HAZARDOUS WASTE MATERIALS OR OTHER TOXIC SUBSTANCES AND WHICH AFFECT THE BORROWER AND/OR ITS PROPERTIES. BORROWER MAY SELECT COUNSEL WITH RESPECT TO ANY LOSSES; PROVIDED, HOWEVER, EACH INDEMNIFIED PERSON SHALL HAVE THE RIGHT TO MONITOR THE PROGRESS OF ANY CLAIMS, SUITS AND ADMINISTRATIVE PROCEEDINGS DEFENDED BY BORROWER HEREUNDER WITH COUNSEL OF SUCH INDEMNIFIED PERSON'S CHOICE, OR CONDUCT ITS DEFENSE THROUGH COUNSEL OF SUCH INDEMNIFIED PERSON'S CHOICE, IN THE EVENT THAT (I) SUCH INDEMNIFIED PERSON DETERMINES IN GOOD FAITH THAT THE CONDUCT OF ITS DEFENSE BY BORROWER COULD BE MATERIALLY PREJUDICIAL TO SUCH INDEMNIFIED PERSON'S INTERESTS OR THAT OTHER REASONABLE GROUNDS EXIST WHICH DEMONSTRATE A LACK OF EFFECTIVENESS OR HIGH LEVEL OF QUALITY IN THE CONDUCT OF SUCH DEFENSE BY BORROWER, AND (II) PRIOR TO RETAINING SUCH COUNSEL FOR SUCH PURPOSE, SUCH INDEMNIFIED PERSON SHALL CONSULT WITH BORROWER AND SHALL ATTEMPT IN GOOD FAITH TO AGREE UPON COUNSEL TO CONDUCT THE DEFENSE ON BEHALF OF 58 BORROWER AND SUCH INDEMNIFIED PERSON, AND IN EACH CASE THE FEES AND DISBURSEMENTS OF SUCH COUNSEL SHALL BE PAID BY BORROWER; PROVIDED, HOWEVER, THAT IF SUCH MUTUAL AGREEMENT IS NOT REACHED WITHIN A REASONABLE TIME ON SELECTING COUNSEL, THEN SUCH INDEMNIFIED PERSON MAY RETAIN ITS OWN COUNSEL AT BORROWER'S EXPENSE; PROVIDED FURTHER, HOWEVER, THAT BORROWER SHALL NOT BE OBLIGATED TO PAY THE FEES AND EXPENSES OF MORE THAN ONE (1) COUNSEL FOR ALL INDEMNIFIED PERSONS IN ANY PARTICULAR ACTION OR PROCEEDING. NOTWITHSTANDING ANY CONTRARY PROVISION OF THIS AGREEMENT, THE OBLIGATION OF BORROWER UNDER THIS SECTION 12.1 SHALL SURVIVE THE PAYMENT IN FULL OF THE OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT. 12.2 Amendments and Waivers. (A) Except as otherwise provided herein, no amendment, modification, termination or waiver of any provision of this Agreement or any Loan Document, or consent to any departure by any Loan Party therefrom, shall in any event be effective unless the same shall be in writing and signed by Requisite Lenders or Agent, as applicable; provided, that no amendment, modification, termination or waiver shall, unless in writing and signed by all Lenders, do any of the following: (i) increase the Commitment of any Lender; (ii) reduce the principal of, rate of interest on or fees payable with respect to any Loan; (iii) extend the scheduled due date of any installment of principal of the Loans; (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans, or the percentage of Lenders which shall be required for Lenders or any of them to take any action hereunder; (v) amend or waive this Section 12.2 or the definitions of the terms used in this Section 12.2 insofar as the definitions affect the substance of this Section 12.2; (vi) consent to the assignment or other transfer by any Loan Party of any of its rights and obligations under any Loan Document; and (vii) increase the percentages contained in the definition of Borrowing Base and provided, further, that no amendment, modification, termination or waiver affecting the rights or duties of Agent under any Loan Document shall in any event be effective, unless in writing and signed by Agent, in addition to the Lenders required herein above to take such action. (B) Each amendment, modification, termination or waiver shall be effective only in the specific instance and for the specific purpose for which it was given. No amendment, modification, termination or waiver shall be required for Agent to take additional Collateral pursuant to any Loan Document. (C) No amendment, modification or waiver of any provision of any Lender Letter of Credit shall be applicable without the written concurrence of the issuer of such Lender Letter of Credit. No notice to or demand on Borrower or any other Loan Party in any case shall entitle Borrower or any other Loan Party to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 12.2 shall be binding upon each Lender, and, if signed by a Loan Party, on such Loan Party. 59 (D) In the event Agent waives (1) any Default arising under Section 10.1.5 as a result of the breach of any of the provisions of Section 8 of this Agreement (other than any such breach which constitutes an Event of Default) or (2) any Default constituting a condition to the funding of any Revolving Credit Loan or issuance of any Lender Letter of Credit, such waiver shall expire on the date upon which the Default which was the subject of such waiver matures into an Event of Default pursuant to the terms of this Agreement. 12.3 Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under Applicable Law, but if any provision of this Agreement shall be prohibited by or invalid under Applicable Law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 12.4 Successors and Assigns. This Agreement and the Other Agreements shall be binding upon and inure to the benefit of the successors and assigns of Borrower, Agent and each Lender permitted under Section 11 hereof. No Person other than a successor or assign of Borrower, Agent or Lender permitted under Section 11 hereof shall have any right, benefit, priority or other interest under, or because of the existence of, this Agreement. 12.5 Cumulative Effect; Conflict of Terms. The provisions of the Other Agreements are hereby made cumulative with the provisions of this Agreement. Except as otherwise provided in Section 3.2 hereof and except as otherwise provided in any of the other Loan Documents by specific reference to the applicable provision of this Agreement, if any provision contained in this Agreement is in direct conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Agreement shall govern and control. 12.6 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. 12.7 Notice. All notices, requests and demands to or upon a party hereto shall be in writing and shall be sent by certified or registered mail, return receipt requested, by personal delivery against receipt, by overnight courier or by facsimile transmissions and shall be deemed to have been validly served, given or delivered immediately when delivered against receipt or three (3) Business Days after deposit in the mail, postage prepaid, or with an overnight courier or, in the case of facsimile transmission, when sent, answerback received, in each case addressed as follows: 60 If to Agent: Fleet Capital Corporation 5950 Sherry Lane Suite 300 Dallas, Texas 75225 Attention: Loan Administration Manager Facsimile No.: (214) 706-7066 With a copy to: Patton Boggs, L.L.P. 2001 Ross Avenue, Suite 3000 Dallas, Texas 75201 Attention: Mr. R. Jeffery Cole Facsimile No.: (214) 758-1550 If to Borrower: Petrocon Engineering, Inc. 3155 Executive Boulevard Beaumont, Texas 77705 Attention: Mr. Robert W. Raiford Facsimile No.: (409) 840-2400 With a copy to: Gardere Wynne Sewell LLP 3000 Thanksgiving Tower 1601 Elm Street Dallas, Texas 75201 Attention: Mr. Gary Clark Fax: (214) 999-4667 If to any Lender: To the address set forth below such Lender's name on the signature pages hereto, or to such other address as each party may designate for itself by notice given in accordance with this Section 12.7; provided, however, that any notice, request or demand to or upon Agent or any Lender pursuant to Section 3.1.1 or 4.2.2 hereof shall not be effective until received by Agent or such Lender. Any written notice or demand that is not sent in conformity with the provisions hereof shall nevertheless be effective on the date that such notice is actually received by the noticed party. 12.8 Agent's or Lenders' Consent. Whenever Agent's or Lenders' consent is required to be obtained under this Agreement or any of the Other Agreements as a condition to any action, inaction, condition or event, Agent or Lenders shall be authorized to give or withhold such consent in its sole and absolute discretion. 12.9 Credit Inquiries. Borrower hereby authorizes and permits Agent and each Lender (but neither Agent nor any Lender shall have any obligation) to respond to usual and customary credit inquiries from third parties concerning Borrower or any of its Subsidiaries. 61 12.10 Time of Essence. Time is of the essence of this Agreement and the Other Agreements. 12.11 Entire Agreement; Appendix A and Exhibits and Schedules. This Agreement and the other Loan Documents, together with all other instruments, agreements and certificates executed by the parties in connection therewith or with reference thereto, embody the entire understanding and agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings and inducements, whether express or implied, oral or written. Appendix A and each of the Exhibits and Schedules attached hereto are incorporated into this Agreement and by this reference made a part hereof. 12.12 Interpretation. No provision of this Agreement or any of the other Loan Documents shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision. 12.13 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN DALLAS, DALLAS COUNTY, TEXAS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS: PROVIDED, HOWEVER, THAT IF ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN TEXAS, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF TEXAS. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER, AGENT OR LENDER, BORROWER HEREBY CONSENTS AND AGREES THAT THE DISTRICT COURT OF DALLAS COUNTY, TEXAS, OR, AT AGENT'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION, SHALL HAVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND AGENT AND/OR ANY LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT 62 AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION. 12.14 WAIVERS BY BORROWER. BORROWER WAIVES (I) THE RIGHT TO TRIAL BY JURY (WHICH AGENT AND EACH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL; (II) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON-PAYMENT, INTENT TO ACCELERATE, ACCELERATION, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY AGENT OR LENDERS ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER AGENT OR ANY LENDER MAY DO IN THIS REGARD; (III) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING AGENT OR ANY LENDER TO EXERCISE ANY OF AGENT'S OR ANY LENDER'S REMEDIES; (IV) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; AND (V) NOTICE OF ACCEPTANCE HEREOF. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO AGENT'S AND LENDERS' ENTERING INTO THIS AGREEMENT AND THAT AGENT AND EACH LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 12.15 WAIVER OF CONSUMER RIGHTS. BORROWER HEREBY WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT SECTION 17.41 ET. SEQ. BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER 63 CONSULTATION WITH AN ATTORNEY OF BORROWER'S OWN SELECTION, BORROWER VOLUNTARILY CONSENTS TO THIS WAIVER. BORROWER EXPRESSLY WARRANTS AND REPRESENTS THAT BORROWER (I) IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION RELATIVE TO AGENT AND LENDERS, AND (II) HAS BEEN REPRESENTED BY LEGAL COUNSEL IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. 12.16 ORAL AGREEMENTS INEFFECTIVE. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES, AND THE SAME MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 12.17 Nonapplicability of Chapter 346 of the Texas Finance Code. Borrower, Agent and Lenders hereby agree that, except for Section 346.004 thereof, the provisions of Chapter 346 of the Texas Finance Code (regulating certain revolving credit loans and revolving tri-party accounts) shall not apply to this Agreement or any of the other Loan Documents. 12.18 Certain Matters of Construction. All references to statutes and related regulations in this Agreement and the Other Agreements shall include any amendments of same and any successor statutes and regulations. All references in this Agreement and the Other Agreements to any of the Loan Documents shall include any and all modifications thereto and any and all extensions or renewals thereof. 12.19 Confidentiality. Agent and Lenders shall hold all nonpublic information obtained pursuant to the requirements hereof and identified as such by Borrower in accordance with such Person's customary procedures for handling confidential information of this nature and in accordance with safe and sound business practices and in any event may make disclosure to such of its respective Affiliates, officers, directors, employees, agents and representatives as need to know such information in connection with the Loans. If any Lender is otherwise a creditor of a Borrower, such Lender may use the information in connection with its other credits. Agent and Lenders may also make disclosures reasonably required by a bona fide offeree or assignee (or participation), or as required or requested by any governmental authority or representative thereof, or pursuant to legal process, or to its accountants, lawyers and other advisors, and shall require any such offeree or assignee (or participant) to agree (and require any of its offerees, assignees or participants to agree) to comply with this Section 12.19. In no event shall Agent or any Lender be obligated or required to return any materials furnished by Borrower; provided, however, each offeree shall be required to agree that if it does not become a assignee (or participant) it shall return all materials furnished to it by Borrower in connection herewith. 12.20 Amendment and Restatement. This Agreement is an amendment, modification, extension and restatement, and not an extinguishment or novation, of the Original Loan 64 Agreement and the liens, the security interests and other obligations arising thereunder or evidenced thereby. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 65 IN WITNESS WHEREOF, this Agreement has been duly executed in Dallas, Texas, on the day and year specified at the beginning of this Agreement. BORROWER: IDS ENGINEERING, INC. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- THERMAIRE, INC. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- CONSTANT POWER MANUFACTURING, INC. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- INDUSTRIAL DATA SYSTEMS, INC. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- IDS ENGINEERING MANAGEMENT, LC By: ------------------------------- Name: ------------------------------- Title: ------------------------------- 66 PETROCON ENGINEERING, INC. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- TRIANGLE ENGINEERS AND CONSTRUCTORS, INC. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- PETROCON SYSTEMS, INC. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- PETROCON ENGINEERING OF LOUISIANA, INC. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- R.P.M. ENGINEERING, INC. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- PETROCON CONSTRUCTION RESOURCES, INC. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- 67 PETROCON TECHNOLOGIES, INC. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- ALLIANCE ENGINEERING ASSOCIATES, INC. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- Accepted in Dallas, Dallas County, Texas: AGENT: FLEET CAPITAL CORPORATION By: -------------------------------- Dan A. Hughes Vice President LENDERS: FLEET CAPITAL CORPORATION By: -------------------------------- Dan A. Hughes Vice President Revolving Loan Commitment: $15,000,000 Term Loan Commitment: $522,285.70 68 APPENDIX A GENERAL DEFINITIONS When used in the Second Amended and Restated Loan and Security Agreement dated December 21, 2001, by and among IDS Engineering, Inc., Thermaire, Inc., Constant Power Manufacturing, Inc., Industrial Data Systems, Inc., IDS Engineering Management, LC, Petrocon Engineering, Inc., Triangle Engineers and Constructors, Inc., Petrocon Systems, Inc., Petrocon Engineering of Louisiana, Inc., R.P.M. Engineering, Inc., Petrocon Construction Resources, Inc., Petrocon Technologies, Inc., and Alliance Engineering Associates, Inc., as Borrower, Fleet Capital Corporation, as Agent, and the financial institutions from time to time listed on the signature pages thereto, as Lenders, the following terms shall have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): Account Debtor - any Person who is or may become obligated under or on account of an Account. Accounts - has the meaning thereto under the UCC. Adjusted Net Earnings From Operations - with respect to any fiscal period, means the net earnings (or loss) after provision for income taxes for such fiscal period of Borrower, as reflected on the financial statement of Borrower supplied to Agent and Lenders pursuant to Section 8.1.3 of the Agreement, but excluding: (i) any gain or loss arising from the sale of capital assets; (ii) any gain or loss arising from any write-up of assets (provided that any such loss is (a) determined in accordance with GAAP and (b) approved by Agent); (iii) earnings of any Subsidiary of a Borrower accrued prior to the date it becomes a Subsidiary; (iv) earnings of any corporation, substantially all the assets of which have been acquired in any manner by a Borrower, realized by such corporation prior to the date of such acquisition; (v) net earnings of any business entity (other than a Subsidiary of a Borrower) in which such Borrower has an ownership interest, unless such net earnings shall have actually been received by Borrower in the form of cash distributions; (vi) any portion of the net earnings of any Subsidiary of a Borrower which for any reason is unavailable for payment of dividends to such Borrower; (vii) the earnings of any Person to which any assets of a Borrower shall have been sold, transferred or disposed of, or into which such Borrower shall have A-1-1 merged, or been a party to any consolidation or other form of reorganization, prior to the date of such transactions; (viii) any gain arising from the acquisition of any Securities of a Borrower; and (ix) any gain arising from extraordinary or non-recurring items. Affected Lender - as defined in Section 3.14 of the Agreement. Affiliate - means, as to any specified Person, any other Person who, directly or indirectly through one or more intermediaries or otherwise, controls, is controlled by or is under common control with the specified Person. As used in this definition, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person (whether through ownership of capital stock of the Person, by contract, or otherwise). Agreement - the Second Amended and Restated Loan and Security Agreement referred to in the first sentence of this Appendix A, all Exhibits and Schedules thereto and this Appendix A, as amended, renewed, extended and restated from time to time. Applicable Annual Rate - as defined in Section 2.1.1 of the Agreement. Applicable Law - all laws, rules and regulations applicable to the Person, conduct, transaction, covenant or Loan Documents in question, including all applicable common law and equitable principles; all provisions of all applicable state and federal constitutions, statutes, rules, regulations and orders of governmental bodies; and orders, judgments and decrees of all courts and arbitrators. Availability - the amount of money which Borrower is entitled to borrow from time to time as Revolving Credit Loans, such amount being the difference derived when the sum of the principal amount of Revolving Credit Loans then outstanding (including any amounts which Agent and/or any Lender may have paid for the account of Borrower pursuant to any of the Loan Documents and which have not been reimbursed by Borrower) and the LC Amount is subtracted from the Borrowing Base. If the amount outstanding is equal to or greater than the Borrowing Base, Availability is zero (0). Average Daily Availability - means the amount determined by adding the Availability at the end of each Business Day for each Business Day during the period in question and by dividing such sum by the number of Business Days in such period. Average Monthly Revolving Credit Loan Balance - the amount obtained by adding the aggregate unpaid principal amount of Revolving Credit Loans plus the LC Amount at the end of each day during the month in question and by dividing such sum by the number of days in such month. Bank - Fleet National Bank, and its successors or assigns. A-1-2 Base Rate - the rate of interest announced or quoted by Bank from time to time as its prime rate for commercial loans, whether or not such rate is the lowest rate charged by Bank to its most preferred borrowers; and, if such prime rate for commercial loans is discontinued by Bank as a standard, a comparable reference rate designated by Bank as a substitute therefor shall be the Base Rate. Base Rate Loan - a Loan which bears interest based upon the Base Rate. Berry - as defined in the recitals to the Agreement. Borrowing Base - as at any date of determination thereof, an amount equal to the lesser of: (a) Total Revolving Credit Facility; or (b) an amount equal to the sum of (i) up to eighty-five percent (85%) of the net amount of Eligible Accounts that are not Performance Accounts outstanding at such date and (ii) the lesser of (A) $3,500,000 or (B) up to eighty-five percent (85%) of the net amount of Eligible Accounts that are Performance Accounts outstanding at such date; MINUS (subtract from each of clauses (a) and (b) above) (c) the LC Amount; and (d) the amount of any reserves established by Agent pursuant to Section 1.1.1 at such date. For purposes of clause (b) hereof, the net amount of Eligible Accounts at any time shall be the face amount of such Eligible Accounts less any and all returns, rebates, discounts (which may, at Agent's option, be calculated on shortest terms), credits, allowances or sales, excise or withholding taxes of any nature at any time issued, owing, claimed by Account Debtors, granted, outstanding or payable in connection with such Accounts at such time. Borrowing Notice - as defined in Section 3.1.1 of this Agreement. Business Day - any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of Texas or is a day on which banking institutions located in such state are closed; provided, however, if any determination of a "Business Day" shall relate to a Eurodollar Loan, the term "Business Day" shall in addition exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. Capex Limit - as defined in Section 8.2.8 of this Agreement. A-1-3 Capital Expenditures - expenditures made or liabilities incurred for the acquisition of any fixed assets or improvements, replacements, substitutions or additions thereto which have a useful life of more than one year, including the total principal portion of Capitalized Lease Obligations. Capitalized Lease Obligation - any Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. Cash Flow - for any fiscal period of Borrower, means an amount equal to (a) the sum of (i) Adjusted Net Earnings from Operations for such period, plus (ii) income tax expense for such period, plus (iii) Interest Expense for such period, plus (iv) depreciation and amortization for such period, minus (b) Capital Expenditures incurred during such period. Certificate of Exemption - as defined in Section 3.9(C) of the Agreement. Certificated Security - has the meaning assigned thereto under the UCC. Chase - The Chase Manhattan Bank. Chase Term Note - that certain promissory note dated February 28, 1997, in the original principal amount of $450,000.00, payable to the order of Texas Commerce Bank National Association, and executed by Thermaire. Chattel Paper - has the meaning assigned thereto under the UCC. Closing Date - the date on which all of the conditions precedent in Section 9 of the Agreement are satisfied and the initial Loan is made or the initial Letter of Credit or LC Guaranty is issued under the Agreement and the Transactions are consummated. Code - the Uniform Commercial Code as adopted and in force in the State of Texas, as from time to time in effect. Collateral - all of the Property and interests in Property described in Section 5 of the Agreement, and all other Property and interests in Property, that now or hereafter secure the payment and performance of any of the Obligations. Commercial Tort Claim - has the meaning assigned thereto in the UCC Revisions. Commitment or Commitments - means the commitment or commitments of Lenders to make Loans as set forth in Sections 1.1 and/or 1.2 and to participate in any Letters of Credit issued by Agent as set forth in Section 1.4. A-1-4 Computer Hardware and Software - all of Borrower's rights (including rights as licensee and lessee) with respect to (i) computer and other electronic data processing hardware, including all integrated computer systems, central processing units, memory units, display terminals, printers, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories, peripheral devices and other related computer hardware; (ii) all Software and all software programs designed for use on the computers and electronic data processing hardware described in clause (i) above, including all operating system software, utilities and application programs in any form (source code and object code in magnetic tape, disk or hard copy format or any other listings whatsoever); (iii) any firmware associated with any of the foregoing; and (iv) any documentation for hardware, Software and firmware described in clauses (i), (ii) and (iii) above, including flow charts, logic diagrams, manuals, specifications, training materials, charts and pseudo codes. Consolidated - the consolidation in accordance with GAAP of the accounts or other items as to which such term applies. Contract Right - any right of Borrower to payment under a contract for the sale or lease of goods or the rendering of services, which right is at the time not yet earned by performance. Continuing Director - means (i) as to Petrocon, at any date, any individual who (a) was a member of the Board of Directors of Petrocon on the Closing Date or (b) was nominated for election or elected to the Board of Directors of Petrocon with the affirmative vote of a majority of the Continuing Directors who were members of the Board of Directors at the time of such nomination or election, and (ii) as to IDSC, at any date, any individual who (a) was a member of the Board of Directors of IDSC on the Closing Date, or (b) was nominated for election or elected to the Board of Directors of IDSC with the affirmative vote of a majority of the Continuing Directors who were members of the Board of Directors at the time of such nomination or election. Costs in Excess of Billings Amount - means the total amount of costs in excess of the billings of Borrower in respect of fixed-price contracts. Coury - as defined in the recitals to the Agreement. Coury/Berry Settlement - as defined in the recitals to the Agreement. Coury/Berry Settlement Agreements - as defined in the recitals to the Agreement. Coury/Berry Distribution - as defined in the recitals to the Agreement. Coury/Berry Stock Purchase - as defined in the recitals to the Agreement. Coury Subordinated Debt Redemption - as defined in the recitals to the Agreement. A-1-5 Current Assets - at any date means the amount at which all of the current assets of a Person would be properly classified as current assets shown on a balance sheet at such date in accordance with GAAP except that amounts due from Affiliates and investments in Affiliates shall be excluded therefrom. Default - an event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, become an Event of Default. Default Rate - as defined in Section 2.1.2 of the Agreement. Deposit Account - has the meaning assigned thereto under the UCC. Distribution - in respect of any corporation means and includes: (i) the payment of any dividends or other distributions on capital stock of the corporation (except distributions in such stock) and (ii) the redemption or acquisition of Securities unless made contemporaneously from the net proceeds of the sale of Securities. Document - has the meaning assigned thereto under the UCC. Dollars and the sign "$"- lawful money of the United States of America. Dominion Account - a special account of Agent established by Borrower pursuant to the Agreement at a bank selected by Borrower, but acceptable to Agent in its reasonable discretion, and over which Agent shall have sole and exclusive access and control for withdrawal purposes. EBIT - for any fiscal period of Borrower, means an amount equal to (a) the sum of (i) Adjusted Net Earnings From Operations for such period, plus (ii) Interest Expense for such period, plus (iii) income tax expense for such period. EBITDA - for any fiscal period of Borrower, means an amount equal to (a) the sum of (i) Adjusted Net Earnings From Operations for such period, plus (ii) Interest Expense for such period, plus (iii) income tax expense for such period, plus, (iv) depreciation and amortization for such period. Electronic Chattel Paper - has the meaning assigned thereto in the UCC Revisions. Eligible Account - an Account or Performance Account arising in the ordinary course of Borrower's business from the sale of goods or rendition of services which is payable in Dollars and which Agent, in its sole discretion, deems to be an Eligible Account. Without limiting the generality of the foregoing, no Account or Performance Account shall be an Eligible Account if: (i) it arises out of a sale made by Borrower to a Subsidiary or an Affiliate of Borrower or to a Person controlled by an Affiliate of Borrower; (ii) with respect to any Account, it is due or unpaid more than 90 days after the original invoice date; (iii) fifty percent (50%) or more of the Accounts and/or Performance Accounts from the Account Debtor are not deemed Eligible Accounts A-1-6 hereunder; (iv) the total unpaid Accounts and/or Performance Accounts of the Account Debtor exceed twenty percent (20%) of the net amount of all Eligible Accounts, to the extent of such excess; (v) any covenant, representation or warranty contained in the Agreement with respect to such Account or such Performance Account has been breached; (vi) the Account Debtor is also Borrower's creditor or supplier, or the Account Debtor has disputed liability with respect to such Account or such Performance Account, or the Account Debtor has made any claim with respect to any other Account due from such Account Debtor to Borrower, or the Account otherwise is or may become subject to any right of setoff, counterclaim, reserve, retention or chargeback, provided that, in any event, the Accounts and/or Performance Accounts of such Account Debtor shall be ineligible only to the extent of the amount owing by Borrower to such creditor or supplier or to the extent of such offset, counterclaim, disputed amount, reserve, retention or chargeback; (vii) the Account Debtor has commenced a voluntary case under the federal bankruptcy laws or made an assignment for the benefit of creditors, or a decree or order for relief has been entered by a court having jurisdiction in the proceedings in respect of the Account Debtor in an involuntary case under the federal bankruptcy laws or any other petition or other application for relief under the federal bankruptcy laws has been filed against the Account Debtor, or if the Account Debtor has failed, suspended business, ceased to be Solvent, or consented to or suffered a receiver, trustee, liquidator or custodian to be appointed for it or for all or a significant portion of its assets or affairs; (viii) it arises from a sale to an Account Debtor with its principal office, assets or place of business outside the United States, unless the sale (a) is backed by an irrevocable letter of credit issued or confirmed by Bank and is in form and substance acceptable to Agent, payable in the full amount of the Account and/or Performance Account in freely convertible Dollars at a place of payment within the United States or (b) is covered by foreign credit insurance in form and substance acceptable to Agent; (ix) with respect to any Account, it arises from a sale to the Account Debtor on a bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval, consignment or any other repurchase or return basis; (x) (a) the Account Debtor is the United States of America or any department, agency or instrumentality thereof, unless Borrower assigns its right to payment of such Account or Performance Account to Agent, in a manner satisfactory to Agent, so as to comply with the Assignment of Claims Act of 1940 (31 U.S.C. (S)203 et seq.) or (b) the Account Debtor is a state, county or municipality, or a political subdivision or agency thereof, which is subject to any Applicable Law that would disallow an assignment of Accounts on which it is the Account Debtor; (xi) the Account Debtor is located in New Jersey, Minnesota, Indiana, West Virginia or any other state imposing similar conditions on the right of a creditor to collect accounts receivable unless Borrower has either qualified to transact business in such state as a foreign corporation or filed a Notice of Business Activities Report or other required report with the appropriate officials in those states for the then current year; (xii) the Account or Performance Account is subject to a Lien other than a Permitted Lien; (xiii) the goods giving rise to such Account or Performance Account have not been delivered to and accepted by the Account Debtor or the services giving rise to such Account or Performance Account have not been performed by Borrower and accepted by the Account Debtor or the Account and/or Performance Account otherwise does not represent a final sale; (xiv) with respect to any Performance Account, it remains uninvoiced for more than 30 days; (xv) the Account or Performance Account is evidenced by chattel paper or an instrument of any kind, or has A-1-7 been reduced to judgment; (xvi) Borrower has made any agreement with the Account Debtor for any deduction therefrom, except for discounts or allowances which are made in the ordinary course of business for prompt payment and which discounts or allowances are reflected in the calculation of the face value of each invoice related to such Account and/or Performance Account; (xvii) Borrower has made an agreement with the Account Debtor to extend the time of payment thereof to any date that is more than 90 days after the original invoice date; or (xviii) with respect to any Accounts and/or Performance Accounts arising out of fixed cost contracts, the total unpaid amount of all such Accounts and/or Performance Accounts exceeds $2,352,941, to the extent of such excess. Environmental Laws - all federal, state and local laws, rules, regulations, ordinances, programs, permits, guidances, orders and consent decrees relating to health, safety or environmental matters applicable to Borrower or its Subsidiaries. Equipment - has the meaning assigned thereto under the UCC. Equus - as defined in the recitals to the Agreement. Equus Intercreditor Agreement - that certain Intercreditor Agreement executed on or about the Closing Date by Equus, Agent and Lenders. Equus Settlement Agreement - as defined in the recitals to the Agreement. Equus Subordinated Debt Restructuring - as defined in the recitals to the Agreement. Equus Term Note - as defined in the recitals to the Agreement. ERISA - the Employee Retirement Income Security Act of 1974, as amended, and all rules and regulations from time to time promulgated thereunder. Eurodollar Loan - a Loan which bears interest based upon LIBOR. Event of Default - as defined in Section 10.1 of the Agreement. Excess Cash Flow - with respect to any fiscal period of Borrower, the amount derived by subtracting regularly scheduled payments of principal on Indebtedness for Money Borrowed and Capital Expenditures which are not financed for such fiscal period from Borrower's consolidated net earnings (or loss) before depreciation, amortization and other non-cash charges for said period (but excluding any extraordinary items for such fiscal period) as determined in accordance with GAAP. Excess Interest - as defined in Section 2.1.3(B) of the Agreement. Existing Equus Subordinated Debt - as defined in the recitals to the Agreement. Financial Asset - has the meaning assigned thereto under the UCC. A-1-8 Fixed Charge Ratio - means, with respect to Borrower, the ratio of (a) EBITDA, to (b) the sum of (i) all scheduled principal and interest payments due in respect of the Loans during such period, (ii) all scheduled payments due in respect of the Trade Creditor Term Debt (as hereinafter defined) during such period (excluding any payments made in respect of such Trade Creditor Term Debt from monies received from ARAMCO Services Company to the extent that such monies relate to change orders associated with ARAMCO Services Company's Saudi Arabian project), (iii) any payments actually made in cash on any Senior Debt (other than the Loans) or Subordinated Debt during such period, (iv) any payments made in respect of the PAL Note during such period, if and to the extent permitted by Agent, (v) the amount of any unfinanced Capital Expenditures incurred by Borrower and its Subsidiaries during such period, and (vi) payments made in cash during such period with respect to the income tax expense of Borrower and/or its Subsidiaries. Fixture - has the meaning assigned thereto under the UCC. Foreign Lender - as defined in Section 3.9(C) of the Agreement. GAAP - generally accepted accounting principles in the United States of America in effect from time to time. General Intangibles - has the meaning assigned thereto under the UCC. Goods - has the meaning assigned thereto under the UCC. Guarantor - individually and collectively, IDSC, each of the New Borrowers and any other Person who may hereafter guarantee payment or performance of the whole or any part of the Obligations. Guaranty Agreement - those certain Guaranty Agreements, each dated as of the date hereof, executed by IDSC and each of the New Borrowers, in form and substance satisfactory to Lenders. Hedging Agreement - any interest rate or currency swap, rate cap, rate floor, rate collar, forward agreement or other exchange or rate protection agreement or any option with respect to such transaction. IDSC - as defined in the recitals to the Agreement. IDSC Merger - as defined in the recitals to the Agreement. IDSC Merger Agreement - as defined in the recitals to the Agreement. IDSC Houston Real Property - real estate and building situated at 10500 Windfern Road, Houston, Texas 77064, presently used as a manufacturing facility for Thermaire. A-1-9 Indebtedness - as applied to a Person means, without duplication: (i) all items which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as at the date as of which Indebtedness is to be determined, including Capitalized Lease Obligations; (ii) all obligations of other Persons which such Person has guaranteed; (iii) all reimbursement obligations in connection with letters of credit or letter of credit guaranties issued for the account of such Person; and (iv) in the case of Borrower (without duplication), the Obligations. Indemnified Persons - as defined in Section 11.2 of the Agreement. Instrument - has the meaning assigned thereto under the UCC. Intellectual Property - all past, present and future: trade secrets, know-how and other proprietary information; trademarks, internet domain names, service marks, trade dress, trade names, business names, designs, logos, slogans (and all translations, adaptations, derivations and combinations of the foregoing) indicia and other source and/or business identifiers, and the goodwill of the business relating thereto and all registrations or applications for registrations which have heretofore been or may hereafter be issued thereon throughout the world; copyrights (including copyrights for computer programs) and copyright registrations or applications for registrations which have heretofore been or may hereafter be issued throughout the world and all tangible property embodying the copyrights, unpatented inventions (whether or not patentable); patent applications and patents; industrial design applications and registered industrial designs; license agreements related to any of the foregoing and income therefrom; books, records, writings, computer tapes or disks, flow diagrams, specification sheets, computer software, source codes, object codes, executable code, data, databases and other physical manifestations, embodiments or incorporations of any of the foregoing; the right to sue for all past, present and future infringements of any of the foregoing; all other intellectual property; and all common law and other rights throughout the world in and to all of the foregoing. Interest Expense - with respect to any fiscal period, the interest expense incurred for such period as determined in accordance with GAAP plus Letter of Credit and LC Guaranty fees owing for such period. Inventory - has the meaning assigned thereto under the UCC. Investment Property - has the meaning assigned thereto under the UCC. LC Amount - at any time, the aggregate undrawn face amount of all Letters of Credit and LC Guaranties then outstanding. LC Guaranty - any guaranty pursuant to which Agent or any Affiliate of Agent shall guaranty the payment or performance by Borrower of its reimbursement obligation under any letter of credit. A-1-10 Lender Addition Agreement - means an agreement among Agent, a Lender and such Lender's assignee regarding their respective rights and obligations with respect to assignments of the Loans, the Commitments and other interests under this Agreement and the other Loan Documents substantially in the form of Exhibit S hereto. Letter of Credit - any letter of credit issued by Agent or any of Agent's Affiliates for the account of Borrower. Letter of Credit Rights - has the meaning assigned thereto under the UCC Revisions. Letter of Non-Exemption - as defined in Section 3.9(C) of the Agreement. LIBOR - with respect to a Eurodollar Loan for the relevant LIBOR Interest Period, a rate per annum equal to the quotient of the following: (i) the rate at which deposits in U.S. dollars in immediately available funds are offered by Agent or Bank to first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of such LIBOR Interest Period, in the approximate amount of the Eurodollar Loan and having a maturity approximately equal to the LIBOR Interest Period, divided by (ii) the difference of one (1) minus the Reserve Requirement. LIBOR Interest Period - with respect to a Eurodollar Loan, a period of one (1), two (2), or three (3) months commencing on a Business Day selected by Borrower pursuant to this Agreement; provided, that (i) any LIBOR Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such LIBOR Interest Period shall end on the immediately preceding Business Day; and (ii) any LIBOR Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such LIBOR Interest Period) shall, subject to clauses (iii) below and (i) above, end on the last Business Day of a calendar month; and (iii) any LIBOR Interest Period which would otherwise end after the termination of the Agreement, shall end on the termination of the Agreement. No LIBOR Interest Period for the Term Loan shall extend beyond a date on which Borrower is required to make a scheduled payment of principal on the Term Note unless the sum of the aggregate Revolving Credit Loans consisting of Base Rate Loans equals or exceeds the principal amount required to be paid on the Term Note on such date. Lien - any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on common law, statute or contract. The term "Lien" shall also include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purpose of the Agreement, Borrower shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to A-1-11 which title to the Property has been retained by or vested in some other Person for security purposes. Loan Account - the loan account established on the books of Agent pursuant to Section 3.5 of the Agreement. Loan Documents - the Agreement and the Other Agreements. Loan Party - Borrower and Guarantor and each other Person (other than Agent or any Lender) who is (i) at any time a party to any Loan Document, and (ii) obligated with respect to payment of the Obligations. Loans - all loans and advances of any kind made by Lenders pursuant to the Agreement. Losses - as defined in Section 11.2 of the Agreement. Material Adverse Effect - the effect of any event or condition which, alone or when taken together with other events or conditions occurring or existing concurrently therewith, (a) has a material adverse effect upon the business, operations, Properties, condition (financial or otherwise) or business prospects of IDSC and its Subsidiaries taken as a whole; (b) has any material adverse effect whatsoever upon the validity or enforceability of the Agreement or any of the other Loan Documents; (c) has or may be reasonably expected to have any material adverse effect upon the value of the whole or any material part of the Collateral, the Liens of Agent with respect to the Collateral or any material part thereof or the priority of such Liens; (d) materially impairs the ability of IDSC or any Subsidiary of IDSC or any other Loan Party to perform its obligations under this Agreement or any of the other Loan Documents, including repayment of the Obligations when due; or (e) materially impairs the ability of Agent or any Lender to enforce or collect the Obligations or realize upon any of the Collateral in accordance with the Loan Documents and Applicable Law. Maximum Legal Rate - as defined in Section 2.1.3(A) of the Agreement. Money Borrowed - means (i) Indebtedness arising from the lending of money by any Person to Borrower; (ii) Indebtedness, whether or not in any such case arising from the lending by any Person of money to Borrower, (A) which is represented by notes payable or drafts accepted that evidence extensions of credit, (B) which constitutes obligations evidenced by bonds, debentures, notes or similar instruments, or (C) upon which interest charges are customarily paid (other than accounts payable) or that was issued or assumed as full or partial payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease Obligation; (iv) reimbursement obligations with respect to letters of credit or guaranties of letters of credit and (v) Indebtedness of Borrower under any guaranty of obligations that would constitute Indebtedness for Money Borrowed under clauses (i) through (iii) hereof, if owed directly by Borrower. A-1-12 Mortgages - each respective mortgage or deed of trust executed or to be executed by Borrower in favor of Agent, and by which Borrower shall grant and convey to Agent, as security for the Obligations, a Lien upon all real Property owned in fee by Borrower, including, without limitation, the real Property owned in fee by Borrower and located in Beaumont, Texas, Houston, Texas and Baton Rouge, Louisiana. Multiemployer Plan - has the meaning set forth in Section 4001(a)(3) of ERISA. New Mortgages - has the meaning set forth in Section 5.4 of this Agreement. Notes collectively, the Term Notes and the Revolving Notes. Obligations - all Loans, and all other advances, debts, liabilities, obligations, covenants and duties (including, without limitation, amounts owing by any Loan Party to Fleet or to Agent or to Bank or any other Affiliate of Agent under or otherwise in connection with any Hedging Agreement or in relation to or otherwise arising in connection with cash management services and related functions provided by such Person to such Loan Party), together with all interest, fees and other charges thereon, owing, arising, due or payable from any Loan Party to Agent or any Lender or Bank or any other Affiliate of Agent or Lender of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, arising under the Agreement or any of the other Loan Documents, and whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising and however acquired. Organizational ID Number - with respect to IDSC and each Subsidiary of IDSC, the organizational identification number assigned to such Person by the applicable governmental unit or agency of the jurisdiction of organization of such Person. Original Borrower Obligations - as defined in Section 1.7 of the Agreement. Original Loan Agreement - as defined in the recitals to the Agreement. Original Term - as defined in Section 4.1 of the Agreement. Other Agreements - any and all agreements, instruments and documents (other than this Agreement), heretofore, now or hereafter executed by Borrower, any Subsidiary of Borrower or any other third party and delivered to Agent or any Lender in respect of the transactions contemplated by the Agreement. Out-of-Formula Condition - at any date of determination thereof, a condition such that the outstanding principal amount of Revolving Credit Loans plus the LC Amount on such date exceeds the Borrowing Base on such date. PAL - Petrocon Arabia Ltd., a limited liability company organized under the laws of Saudi Arabia. A-1-13 PAL Note - the Non-Negotiable Subordinated Promissory Note, dated March 9, 2000, in the original principal amount of $937,230, executed by Petrocon in favor of PAL, as in effect on the Closing Date. Participant - each Person who shall be granted the right by any Lender to participate in any of the Loans described in the Agreement and who shall have entered into a participation agreement in form and substance satisfactory to Agent and such Lender. Payment Intangibles - has the meaning assigned thereto under the UCC Revisions. PEI Acquisition - as defined in the recitals to the Agreement. Performance Accounts - means the amount to be payable to Borrower, without duplication, with respect to unbilled accrued time of Borrowers' employees which, but for the presentment of a billing statement, is absolutely and unconditionally due and payable to Borrower. A Performance Account shall be deemed converted to an Account upon the invoicing thereof. Permitted Lien - a Lien of a kind specified in Section 8.2.5 of the Agreement. Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of Borrower incurred after the date hereof which is secured by a Purchase Money Lien and which, when aggregated with the principal amount of all other such Indebtedness and Capitalized Lease Obligations of Borrower at the time outstanding, does not exceed Two Hundred Thousand Dollars ($200,000). For the purposes of this definition, the principal amount of any Purchase Money Indebtedness consisting of capitalized leases shall be computed as a Capitalized Lease Obligation. Person - an individual, partnership, corporation, limited liability company, joint stock company, land trust, business trust, or unincorporated organization, or a government or agency or political subdivision thereof. Plan - an employee benefit plan now or hereafter maintained for employees of Borrower that is covered by Title IV of ERISA. Pro Rata Share - means (a) with respect to matters relating to a particular Commitment of a Lender, the percentage obtained by dividing (i) such Commitment of that Lender by (ii) all such Commitments of all Lenders and (b) with respect to all other matters, the percentage obtained by dividing (i) the Total Loan Commitment of a Lender by (ii) the Total Loan Commitments of all Lenders, in either case as such percentage may be adjusted by assignments permitted pursuant to Section 11.1; provided, however, if any Commitment is terminated pursuant to the terms hereof, then "Pro Rata Share" means the percentage obtained by dividing (x) the aggregate amount of such Lender's outstanding Loans related to such Commitment by (y) the aggregate amount of all outstanding Loans related to such Commitment. A-1-14 Proceeds - has the meaning assigned thereto under the UCC. Properly Contested - in the case of any Indebtedness of a Loan Party (including any Taxes) that is not paid as and when due or payable by reason of such Loan Party's bona fide dispute concerning its liability to pay same or concerning the amount thereof, that (i) such Indebtedness and any Liens securing same are being properly contested in good faith by appropriate proceedings promptly instituted and diligently conducted, (ii) such Loan Party has established appropriate reserves as shall be required in conformity with GAAP, (iii) the non-payment of such Indebtedness will not have a Material Adverse Effect and will not result in a forfeiture of any assets of such Loan Party; (iv) no Lien is imposed upon any of such Loan Party's assets with respect to such Indebtedness unless such Lien is at all times junior and subordinate in priority to the Liens in favor of Lender (except only with respect to property taxes that have priority as a matter of applicable state law); (v) if the Indebtedness results from the entry, rendition or issuance against a Loan Party or any of its assets of a judgment, writ, order or decree, such judgment, writ, order or decree is stayed or bonded pending a timely appeal or other judicial review; and (vi) if such contest is abandoned, settled or determined adversely to such Loan Party, such Loan Party forthwith pays such Indebtedness and all penalties and interest in connection therewith. Property - any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. Purchase Money Indebtedness - means and includes (i) Indebtedness (other than the Obligations) for the payment of all or any part of the purchase price of any fixed assets, (ii) any Indebtedness (other than the Obligations) incurred at the time of or within ten (10) days prior to or after the acquisition of any fixed assets for the purpose of financing all or any part of the purchase price thereof, and (iii) any renewals, extensions or refinancings thereof, but not any increases in the principal amounts thereof outstanding at the time. Purchase Money Lien - a Lien upon fixed assets which secures Purchase Money Indebtedness, but only if such Lien shall at all times be confined solely to the fixed assets the purchase price of which was financed through the incurrence of the Purchase Money Indebtedness secured by such Lien. Rentals - as defined in Section 8.2.13 of the Agreement. Replacement Lender - as defined in Section 3.14(A) of the Agreement. Reportable Event - any of the events set forth in Section 4043(b) of ERISA. Requisite Lenders - means Lenders holding or being responsible for sixty-six and two-thirds percent (66.66%) or more of the sum of (a) all outstanding Loans (b) the outstanding LC Amount and (c) all unutilized Commitments. A-1-15 Reserve Requirement - at any date of determination, that percentage (expressed as a decimal fraction), if any, which is in effect on such day, as provided by the Board of Governors of the Federal Reserve System (or any successor governmental body) applied for determining the maximum reserve requirements (including without limitation, basic, supplemental, marginal and emergency reserves) under Regulation D with respect to "eurocurrency liabilities" as currently defined in Regulation D, or under any similar or successor regulation with respect to eurocurrency liabilities or eurocurrency funding. Each determination by Lender of the Reserve Requirement shall be provided to Borrower and, in the absence of manifest error, be conclusive and binding. Any Reserve Requirement shall be determined in accordance with Lender's customary practice and applied on a consistent basis. Restricted Investment - any investment made in cash or by delivery of Property to any Person, whether by acquisition of stock, Indebtedness or other obligation or Security, or by loan, advance or capital contribution, or otherwise, or in any Property except the following: (i) investments in one or more Subsidiaries of IDSC to the extent existing on the Closing Date; (ii) Property to be used in the ordinary course of business; (iii) Current Assets arising from the sale of goods and services in the ordinary course of business of Borrower and its Subsidiaries; (iv) investments in direct obligations of the United States of America, or any agency thereof or obligations guaranteed by the United States of America, provided that such obligations mature within one year from the date of acquisition thereof; (v) investments in certificates of deposit maturing within one year from the date of acquisition issued by a bank or trust company organized under the laws of the United States or any state thereof having capital surplus and undivided profits aggregating at least $100,000,000; and (vi) investments in commercial paper given the highest rating by a national credit rating agency and maturing not more than 270 days from the date of creation thereof. Revolving Credit Loan - a Loan made by Lenders as provided in Section 1.1 of the Agreement. Revolving Loan Commitment - means (a) as to any Lender, the commitment of such Lender to make Revolving Credit Loans pursuant to Section 1.1.1, and to purchase participations in Letters of Credit pursuant to Section 1.4 in the aggregate amount set forth on the signature page of this Agreement opposite such Lender's signature or in the most recent Lender Addition Agreement, if any, executed by such Lender and (b) as to all A-1-16 Lenders, the aggregate commitment of all Lenders to make Revolving Credit Loans and to purchase participations in Letters of Credit. Revolving Note - the Amended and Restated Secured Promissory Note(s) (Revolving Credit Loan) to be executed by Borrower on or about the Closing Date in favor of Lenders to evidence the Revolving Credit Loans, which shall be in the form of Exhibit A-1 to the Agreement. RPM Earnout Payment - means those certain earnout payments to be made by Petrocon to Willie E. Rigsby and Robert A,. Marks pursuant to (i) Section 1.6 of the Stock Purchase Agreement or (ii) as otherwise agreed by the parties; provided, that (x) the principal amount of the earnout payments are not increased above the principal amount set forth in Section 1.6 of the Stock Purchase Agreement and (y) the scheduled date of such earnout payments are not accelerated as compared to the payment dates set forth in Section 1.6 of the Stock Purchase Agreement. RPM Stock Purchase Agreement - means that certain Stock Purchase Agreement, dated as of October 17, 1996, by and among Petrocon, Willie E. Rigsby and Robert A. Marks, as in effect on the Closing Date. Schedule of Accounts - as defined in Section 6.2.1 of the Agreement. Scheduled Accounts Payable - means those certain accounts payable of Borrower listed on Exhibit T attached hereto and made a part hereof. Security - shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. Security Entitlement - has the meaning assigned thereto under the UCC. Senior Debt - all Indebtedness for Money Borrowed, excluding any Subordinated Debt. Software - has the meaning assigned thereto under the UCC Revisions. Solvent - as to any Person, such Person (i) owns Property whose fair salable value is greater than the amount required to pay all of such Person's Indebtedness (including contingent debts), (ii) is able to pay all of its Indebtedness as such Indebtedness matures and (iii) has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage. Stock Pledge Agreements - Collectively, (i) the Stock Pledge Agreement which is to be executed by Petrocon on the Closing Date, in favor of Agent, for the benefit of Lenders, in form and substance satisfactory to Agent, pursuant to which Petrocon shall pledge all of its right, title and interest in and to the capital stock of each of its Subsidiaries (whether wholly or partially owned), and (ii) the Stock Pledge Agreement which is to be executed by Petrocon on the Closing Date, in favor of Agent, for the A-1-17 benefit of Lenders, in form and substance satisfactory to Agent, pursuant to which Petrocon shall pledge all of its right, title and interest in and to its equity interest in PAL (whether wholly or partially owned), and (iii) the Stock Pledge Agreement which is to be executed by IDSC on the Closing Date, in favor of Agent, for the benefit of Lenders, in form and substance satisfactory to Agent, pursuant to which IDSC shall pledge all of its right, title and interest in and to the capital stock of each of IDS Engineering, Thermaire, Data, and Constant Power and (iv) the Stock Pledge Agreement, or equivalent document, which is to be executed by IDSC on the Closing Date, in favor of Agent, for the benefit of Lenders, in form and substance satisfactory to Agent, pursuant to which IDSC shall pledge all its right, title and interest in and to the equity ownership of Management, and (v) the Stock Pledge Agreement, which is to be executed by Management on the Closing Date, in favor of Agent, for the benefit of Lenders, in form and substance satisfactory to Agent, pursuant to which Management shall pledge all of its right, title and interest in and to all capital stock of Petrocon. Subordinated Debt - Indebtedness of Borrower that is subordinated to the Obligations in a manner satisfactory to Agent, including without limitation, any Indebtedness owing to Equus which is covered by the provisions of the Equus Intercreditor Agreement. Subordination Agreements - means, collectively, (a) the Equus Intercreditor Agreement, and (b) a subordination agreement in form and substance satisfactory to Agent and its counsel in connection with any and all Indebtedness now or hereafter owing by Borrower to any officer or shareholder of Borrower. Subsidiary - any corporation of which a Person owns, directly or indirectly through one or more intermediaries, 50% or more of the Voting Stock at the time of determination. For purposes of this Agreement, PAL and Petrocon FSC, Ltd. shall not be deemed to be Subsidiaries of any Borrower. Supporting Obligation - has the meaning assigned thereto under the UCC Revisions. Taxes - any present or future taxes, levies, imposts, duties, fees, assessments, deductions, withholdings or other charges of whatever nature, including, without limitation, income, receipts, excise, property, sales, transfer, license, payroll, withholding, social security and franchise taxes now or hereafter imposed or levied by the United States, or any state, local or foreign government or by any department, agency or other political subdivision or taxing authority thereof or therein and all interest, penalties, additions to tax and similar liabilities with respect thereto. Tax Liabilities - as defined in Section 3.9(A) of the Agreement. Term Loan - the Loan described in Section 1.2 of the Agreement. Term Loan Commitment - means (a) as to any Lender, such Lender's Pro Rata share of the Term Loan in the amount set forth on the signature page of this Agreement A-1-18 opposite such Lender's signature or in the most recent Lender Addition Agreement, if any, executed by such Lender and (b) as to all Lenders, the aggregate amount of the Term Loan. Term Note - that certain Term Note, dated June 15, 1999, in the original principal amount of $5,000,000, executed by the Original Borrowers, in favor of Lenders, as renewed, modified, supplemented and restated from time to time. Total Credit Facility - on any date, $15,522,285.70, less the amount of any principal payments made from time to time after the Closing Date in respect of the Term Loan. Total Loan Commitment - means as to any Lender the aggregate commitments of such Lender with respect to its Revolving Loan Commitment and Term Loan Commitment. Total Revolving Credit Facility - Fifteen Million Dollars ($15,000,000). Trade Creditor Term Debt - means any trade credit that has been converted into term Indebtedness and which provides for payment terms of twelve (12) months or more. Transactions - as defined in the recitals to the Agreement. Type of Organization - with respect to IDSC or any Subsidiary of IDSC, the kind or type or type of entity by which such Person is organized, such as a corporation or limited liability company. UCC - the Uniform Commercial Code as in effect in the State of Texas on the date of this Agreement, as the UCC may be amended or otherwise modified, including by the UCC Revisions. UCC Revisions - the revisions to Article 9 and other Articles of the Uniform Commercial Code, as adopted by the State of Texas, effective July 1, 2001. Uncertificated Security - has the meaning assigned thereto under the UCC. Voting Stock - Securities of any class or classes of a corporation the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). Voting Stock Equivalents - Any option, warrant, right or similar security immediately exercisable into, exchangeable for, or convertible into Voting Stock. OTHER TERMS. All other terms contained in the Agreement shall have, when the context so indicates, the meanings provided for by the Code to the extent the same are used or defined therein. A-1-19 CERTAIN MATTERS OF CONSTRUCTION. The terms "herein", "hereof" and "hereunder" and other words of similar import refer to the Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to cover all genders. In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." The section titles, table of contents and list of exhibits appear as a matter of convenience only and shall not affect the interpretation of the Agreement. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. All references to any of the Loan Documents shall include any and all modifications thereto and any and all extensions or renewals thereof. Wherever the phrase "including" shall appear in the Agreement, such word shall be understood to mean "including, without limitation." THE TERM "BORROWER" OR "BORROWERS". All references to "Borrower" or "Borrowers" herein shall refer to and include each of IDS Engineering, Thermaire, Constant Power, Data, Management, Petrocon, Triangle, Petrocon Systems, Petrocon Louisiana, RPM, Petrocon Construction, Petrocon Technologies and Alliance separately and all representations contained in the Agreement shall be deemed to be separately made by each of them, and each of the covenants, agreements and obligations set forth in the Agreement shall be deemed to be the joint and several covenants, agreements and obligations of them. Any notice, request, consent, report or other information or agreement delivered to Agent and/or Lenders by any Borrower shall be deemed to be ratified by, consented to and also delivered by the other Borrower. Each Borrower recognizes and agrees that each covenant and agreement of "Borrower" or "Borrowers" under the Agreement and the other Loan Documents shall create a joint and several obligation of the Borrowers, which may be enforced against Borrowers, jointly, or against each Borrower separately. Without limiting the terms of the Agreement and the other Loan Documents, security interests granted under the Agreement and other Loan Documents in properties, interests, assets and collateral shall extend to the properties, interests, assets and collateral of each Borrower. Similarly, the term "Obligations" shall include, without limitation, all obligations, liabilities and indebtedness of such Persons, or any one of them, to Agent and/or Lenders, whether such obligations, liabilities and indebtedness shall be joint, several, joint and several or individual. Also, without limiting the terms of the Agreement and for clarification, unless the context indicates otherwise, all obligations for the payment of fees, principal and interest, and the requirements to make deliveries to Agent and Lenders, shall apply to the Borrowers collectively without duplication, and all financial covenants under the Agreement, amounts set forth in the Agreement, and financial statements delivered pursuant to the Agreement shall apply to the Borrowers on a consolidated basis. Furthermore, with respect to any reference to an agreement or document to which Borrower is a party, "Borrower" shall mean any one of the Borrowers under the Agreement and shall not be deemed an inaccurate reference because another Borrower fails to be a party thereto. Notwithstanding the foregoing, the provisions of this paragraph are subject to and limited by the provisions of Section 1.7 of the Agreement. A-1-20 LIST OF EXHIBITS Exhibit A-1 Revolving Note Exhibit B IDSC's and each Subsidiary's Business Locations Exhibit C Jurisdictions in which IDSC and Its Subsidiaries are Authorized to do Business Exhibit D Capital Structure of IDSC Exhibit E Names Exhibit F Tax Identification Numbers of IDSC and IDSC's Subsidiaries Exhibit G Patents, Trademarks, Copyrights and Licenses Exhibit H Contracts Restricting IDSC's and its Subsidiaries Right to Incur Debts Exhibit I Litigation Exhibit J Capitalized Leases Exhibit K Operating Leases Exhibit L Pension Plans Exhibit M Collective Bargaining Agreements; Labor Controversies Exhibit N Compliance Certificate Exhibit O Permitted Indebtedness Exhibit P Permitted Liens Exhibit Q Borrowing Notice Exhibit R Compliance with Laws Exhibit S Lender Addition Agreement Exhibit T Scheduled Accounts Payable A-1-21 EX-10.54 17 dex1054.txt AMENDED AND RESTATED REVOLVING NOTE EXHIBIT 10.54 AMENDED AND RESTATED REVOLVING NOTE U.S. $15,000,000 Dallas, Texas December 21, 2001 FOR VALUE RECEIVED, the undersigned (hereinafter, collectively, "Borrower"), HEREBY JOINTLY AND SEVERALLY PROMISE TO PAY to the order of FLEET -------- CAPITAL CORPORATION, a Rhode Island corporation ("Lender"), for the account of ------ its lending office specified on the signature pages to the Loan Agreement referred to below (or, if applicable, on the signature page of the most recent Lender Addition Agreement executed by such Lender), in lawful money of the United States of America and in immediately available funds, the lesser of (i) the principal sum of FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000), or (ii) the aggregate unpaid principal amount of all Revolving Credit Loans made by Lender to Borrower under the Loan Agreement. All capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Loan Agreement. Borrower promises to pay interest on the unpaid principal amount of each Revolving Credit Loan from the date of such Revolving Credit Loan until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Loan Agreement. The principal amount of this Amended and Restated Revolving Note (this "Revolving Note") shall be due and -------------- payable at such times as are specified in the Loan Agreement. Both principal and interest are payable in lawful money of the United States of America and in immediately available funds to Fleet Capital Corporation, a Rhode Island corporation, as Agent, at its account at Fleet National Bank (Providence, Rhode Island), ABA No.: 0115-0001-0, Account No.: 936-933-7800-00-101; Name of Account: Fleet Capital Southwest, Re: Petrocon Engineering, Inc.. The date, amount, type (i.e. Eurodollar Loan or Base Rate Loan), interest rate and duration of LIBOR Interest Period (if applicable) of each Revolving Credit Loan made by Lender to Borrower, and each payment made on account of the principal thereof, shall be recorded by Lender on its books and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Revolving Note, provided, however, that failure of Lender to make such -------- ------- notation or any error therein shall not in any manner affect the obligation of Borrower to repay such Revolving Credit Loans in accordance with the terms of this Revolving Note. This Revolving Note is the Revolving Note referred to in, and is subject to and entitled to the benefits of, that certain Second Amended and Restated Loan and Security Agreement dated as of the date hereof, by and among Borrower, Fleet Capital Corporation, as Agent, Lender and the other financial institutions from time to time a party thereto (as amended from time to time, the "Loan ---- Agreement"). This Revolving Note is secured by the Collateral described in the - --------- Loan Documents. The Loan Agreement, among other things, (i) provides for the making of Revolving Credit Loans by Lender to Borrower from time to time pursuant to Section 1.1 of the Loan Agreement in an aggregate outstanding amount ----------- not to exceed at any time the U.S. dollar amount first above mentioned, the indebtedness of Borrower resulting from each such Revolving Credit 1 Revolving Note Loan being evidenced by this Revolving Note, and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. Borrower hereby waives presentment, demand, protest, notice of intent to accelerate, notice of acceleration and any other notice of any kind, except as provided in the Loan Agreement. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights. This Note is given in amendment, restatement, modification and increase and not in extinguishment or novation) of that certain Revolving Note, in the stated principal amount of $15,000,000, dated June 15, 1999, executed by Original Borrowers and payable to the order of Fleet. THIS REVOLVING NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS (EXCEPT THAT THE PROVISIONS OF CHAPTER 346 OF THE TEXAS FINANCE CODE, WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS, SHALL NOT APPLY TO THIS REVOLVING NOTE) . [Remainder of Page Intentionally Left Blank] 2 IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed and delivered in Dallas, Texas, on the date first above written. IDS ENGINEERING, INC. By:________________________________________________________ Name:______________________________________________________ Title:_____________________________________________________ THERMAIRE, INC. By:________________________________________________________ Name:______________________________________________________ Title:_____________________________________________________ CONSTANT POWER MANUFACTURING, INC. By:________________________________________________________ Name:______________________________________________________ Title:_____________________________________________________ INDUSTRIAL DATA SYSTEMS, INC. By:________________________________________________________ Name:______________________________________________________ Title:_____________________________________________________ IDS ENGINEERING MANAGEMENT, LC By:________________________________________________________ Name:______________________________________________________ Title:_____________________________________________________ PETROCON ENGINEERING, INC. By:________________________________________________________ Name:______________________________________________________ Title:_____________________________________________________ Revolving Note TRIANGLE ENGINEERS AND CONSTRUCTORS, INC. By:________________________________________________________ Name:______________________________________________________ Title:_____________________________________________________ PETROCON SYSTEMS, INC. By:________________________________________________________ Name:______________________________________________________ Title:_____________________________________________________ PETROCON TECHNOLOGIES, INC. By:________________________________________________________ Name:______________________________________________________ Title:_____________________________________________________ PETROCON ENGINEERING OF LOUISIANA, INC. By:________________________________________________________ Name:______________________________________________________ Title:_____________________________________________________ R.P.M. ENGINEERING, INC. By:________________________________________________________ Name:______________________________________________________ Title:_____________________________________________________ ALLIANCE ENGINEERING ASSOCIATES, INC. By:________________________________________________________ Name:______________________________________________________ Title:_____________________________________________________ Revolving Note PETROCON CONSTRUCTION RESOURCES, INC. By:________________________________________________________ Name:______________________________________________________ Title:_____________________________________________________ Revolving Note LOANS, MATURITIES AND PAYMENTS OF PRINCIPAL AND INTEREST
===================================================================================================== Type of Loan Date Made, (Eurodollar Duration of Amount Paid, Continued Principal Loan or LIBOR Prepaid, Unpaid or Amount of Base Rate Interest Continued or Principal Notation Converted Loan Loan) Interest Rate Period Converted Amount Made By ===================================================================================================== - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- =====================================================================================================
EX-10.55 18 dex1055.txt STOCK PLEDGE AGREEMENT BETWEEN IDS AND FLEET EXHIBIT 10.55 STOCK PLEDGE AGREEMENT THIS STOCK PLEDGE AGREEMENT (this "Agreement") is entered into on December --------- ___, 2001, by and between INDUSTRIAL DATA SYSTEMS CORPORATION, a Nevada corporation ("Pledgor"), and FLEET CAPITAL CORPORATION, a Rhode Island ------- corporation, as Agent for itself and the other financial institution(s) from time to time a party to the Loan Agreement (as hereinafter defined) ("Pledgee"). ------- All capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement. 1. For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and as collateral security for and to secure the prompt payment and performance in full of the Secured Obligations (hereinafter defined), Pledgor hereby assigns to Pledgee and grants to Pledgee, for the benefit of Lenders, a continuing security interest in all issued and outstanding shares of capital stock (including, without limitation, all shares of capital stock represented by the stock certificates identified on Schedule I attached ---------- hereto) of each of IDS Engineering, Inc., a Texas corporation ("IDS --- Engineering"), Thermaire, Inc., a Texas corporation ("Thermaire"), Constant - ----------- --------- Power Manufacturing, Inc., a Texas corporation ("Constant Power"), IDS -------------- Engineering Management, LC, a Texas limited liability company ("Management"), ---------- and Industrial Data Systems, Inc., a Texas corporation ("Data") (IDS ---- Engineering, Thermaire, Constant Power, Management and Data are sometimes hereinafter referred to individually and collectively as "Borrower"), whether -------- now or hereafter issued by Borrower, together with all proceeds, products and increases thereof and substitutions and replacements therefor (collectively, the "Collateral"). ---------- As used in this Agreement, the term "Secured Obligations" shall mean ------------------- any and all (i) Obligations of Pledgor or Borrower to Pledgee and/or Lenders, pursuant to that certain Second Amended and Restated Loan and Security Agreement, dated as of the date hereof, by and among Pledgor, Borrower, Petrocon Engineering, Inc., a Texas corporation, Triangle Engineers and Constructors, Inc., a Texas corporation, Petrocon Systems, Inc., a Texas corporation, Petrocon Technologies, Inc., a Texas corporation, Petrocon Engineering of Louisiana, Inc., a Louisiana corporation, R.P.M. Engineering, Inc., a Louisiana corporation, Alliance Engineering Associates, Inc., a Texas corporation, Petrocon Construction Resources, Inc., a Texas corporation, Pledgee and Lenders (as amended from time to time, the "Loan Agreement") and (ii) extensions, -------------- renewals, modifications, increases and replacements of the foregoing. The term "Secured Obligations" shall include, without limitation, all unpaid accrued ------------------- interest thereon and all costs and expenses payable as hereinafter provided: (i) whether now existing or hereafter incurred; (ii) whether direct, indirect, primary, absolute, secondary, contingent, secured, unsecured, matured, or unmatured; (iii) whether such indebtedness is from time to time reduced and thereafter increased, or entirely extinguished and thereafter reincurred; (iv) whether such indebtedness was originally contracted with Pledgee or with another or others; (v) whether or not such indebtedness is evidenced by a negotiable or nonnegotiable instrument or any other writing; and (vi) whether such indebtedness is contracted by Pledgor or Borrower individually or jointly or severally with another or others. 2. Pledgor represents and warrants that (i) Pledgor is the legal and beneficial owner of the Collateral, free and clear of all liens and encumbrances; (ii) there are no restrictions upon the 1 Stock Pledge Agreement (IDS Corp.) transfer of any of the Collateral, other than as may appear and may be referenced on the face of the certificates, those arising under applicable state or federal securities laws and those existing on the date hereof and disclosed to Pledgee in writing; (iii) Pledgor owns 100% of the issued and outstanding capital stock of Borrower; (iv) except as disclosed to Pledgee in writing, there are no existing obligations to issue capital stock or securities convertible into capital stock of Borrower. 3. In furtherance of Pledgee's security interest in the Collateral, Pledgor agrees to deliver to Pledgee, on the date of this Agreement, the stock certificates identified on Schedule I attached hereto, together with stock ---------- powers duly executed in blank by Pledgor. 4. With respect to the Collateral, Pledgor hereby appoints Pledgee its attorney-in-fact to arrange for the transfer of the Collateral on the books of Borrower to the name of Pledgee during the continuance of any Event of Default; provided, however, that Pledgee shall be under no obligation to do so. - -------- ------- 5. During the term of this Agreement, provided no Event of Default then exists, Pledgor shall have the right, where applicable, to vote the Collateral on all corporate questions, and Pledgee shall, if necessary, execute due and timely proxies in favor of Pledgor for this purpose. 6. While an Event of Default exists, Pledgee may exercise all of the rights and privileges in connection with the Collateral to which a transferee may be entitled as the record holder thereof, together with the rights and privileges otherwise granted hereunder. Pledgee shall be under no obligation to exercise any of such rights or privileges. 7. If, with the consent of Pledgee, Pledgor shall substitute or exchange other securities in place of those herein mentioned, all of the rights and privileges of Pledgee and all of the obligations of Pledgor with respect to the securities originally pledged or held as Collateral hereunder shall be forthwith applicable to such substituted or exchanged securities. 8. While an Event of Default exists, Pledgee shall be authorized to collect all dividends, interest payments, and other amounts (including amounts received or receivable upon redemption or repurchase) that may be, or become, due on any of the Collateral. If Pledgor receives any such dividends, payments or amounts after the occurrence and during the continuance of an Event of Default, it shall immediately endorse and deliver the same to Pledgee in the form received. All such amounts which Pledgee receives and retains in accordance with the terms of this paragraph 8 shall be applied to reduce the principal amount outstanding on the Secured Obligations in the inverse order of maturity. Pledgee is, furthermore, authorized to give receipts in the name of Pledgor for any amounts so received. Pledgee shall be under no obligation to collect any such amounts. 9. In the event that, during the term of this Agreement, subscription warrants or any other rights or options shall be issued in connection with the Collateral, such warrants, rights or options shall be immediately assigned, if necessary, by Pledgor to Pledgee. If any such warrants, rights or options are exercised by Pledgor, all new securities so acquired by Pledgor shall be immediately assigned to Pledgee, shall become part of the Collateral and shall be endorsed to, 2 Stock Pledge Agreement (IDS Corp.) delivered to and held by Pledgee under the terms of this Agreement in the same manner as the securities originally pledged. 10. In the event that, during the term of this Agreement, any share, dividend, reclassification, readjustment or other change is declared or made in the capital structure of Borrower, all new, substituted and additional shares, or other securities, issued by reason of any such change shall become part of the Collateral and shall be endorsed to, delivered to and held by Pledgee under the terms of this Agreement in the same manner as the securities originally pledged. 11. Pledgor authorizes Pledgee, without notice or demand, and without affecting the liability of Pledgor hereunder, from time to time to: (A) hold security in addition to and other than the Collateral for the payment of the Secured Obligations or any part thereof, and exchange, enforce, waive and release any Collateral or any part thereof, or any other such security, or part thereof; (B) release any of the endorsers or guarantors of the Secured Obligations secured hereunder or any part thereof, or any other person whomsoever liable for or on account of such Secured Obligations; (C) on the transfer of all or any part of the Secured Obligations secured hereunder, Pledgee may assign all or any part of Pledgee's security interest in the Collateral and shall be fully discharged thereafter from all liability and responsibility with respect to the Collateral so transferred; provided, however, that in no event shall Pledgee be liable for any act or - -------- ------- omission or negligent act or negligent omission with respect to the Collateral, other than acts or omissions constituting gross negligence, willful misconduct, tortious breach of contract or violation of law. The transferee of the Collateral shall be vested with the rights, powers and remedies of Pledgee hereunder, and with respect to any Collateral not so transferred, Pledgee shall retain all rights, powers and remedies hereby given; and (D) Pledgor hereby waives any right to require Pledgee to proceed against Pledgor, Borrower or any other person whomsoever, to proceed against or exhaust any collateral or any other security held by Pledgee, or to pursue any other remedy available to Pledgee. Pledgor further waives any defense arising by reason of any liability or other defense of Pledgor or of any other person. Pledgor shall have no right to require Pledgee to marshal collateral. 12. It shall not be necessary for Pledgee to inquire into the powers of Pledgor or the officers, directors or agents acting or purporting to act on behalf of Pledgor, and any obligations made or created in reliance on the professed exercise of such powers shall be secured hereunder. 13. To the extent permitted by applicable law and in the Loan Agreement, Pledgee shall be under no duty or obligation whatsoever to make or give any presentments, demands for performance, notices of non-performance, protests, notices of protest, or notices of dishonor in connection with the Secured Obligations. 3 Stock Pledge Agreement (IDS Corp.) 14. The occurrence of an "Event of Default" under the Loan Agreement shall, at the option of Pledgee, constitute an "Event of Default" under this ---------------- Agreement. 15. While an Event of Default exists, Pledgee shall have the right to exercise all rights and remedies afforded to it under the Loan Agreement and, in this connection, the Pledgee may sell all or any part of the Collateral in such manner as provided in the Loan Agreement. Pledgee shall apply the proceeds of any such sale or sales of the Collateral in the manner provided in the Loan Agreement. 16. Upon the indefeasible repayment in full in cash of the Secured Obligations, Pledgee will promptly, at Pledgor's expense, deliver all of the Collateral to Pledgor along with all instruments of assignment executed in connection therewith, and execute and deliver to Pledgor such documents as Pledgor shall reasonably request to evidence Pledgee's release of Pledgee's security interest hereunder. 17. THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LOCAL LAW OF THE STATE OF TEXAS EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT OTHERWISE REFER CONSTRUCTION OR INTERPRETATION OF THIS AGREEMENT TO THE SUBSTANTIVE LAW OF ANOTHER JURISDICTION. [Remainder of Page Intentionally Left Blank] 4 Stock Pledge Agreement (IDS Corp.) IN WITNESS WHEREOF, Pledgor and Pledgee have executed this Agreement as of the date first above written. PLEDGOR: ------- INDUSTRIAL DATA SYSTEMS CORPORATION By:_______________________________________________________ Name:_____________________________________________________ Title:____________________________________________________ PLEDGEE: ------- FLEET CAPITAL CORPORATION, as Agent By:_______________________________________________________ Dan A. Hughes Vice President Stock Pledge Agreement (IDS Corp.) SCHEDULE I ---------- Capital Stock Pledged by Industrial Data Systems Corporation
Name Class of Certificate Record Holder Number Security Number of Shares IDS Engineering, Inc. Common 1 Industrial Data Systems Corporation 1,000 Thermaire, Inc. Class A C3 Industrial Data Systems Corporation 8,000 Thermaire, Inc. Class B C3 Industrial Data Systems Corporation 2,000 Thermaire, Inc. Class C C3 Industrial Data Systems Corporation 316,855 Thermaire, Inc. Class C C4 Industrial Data Systems Corporation 134,437 Constant Power Common 2 Industrial Data Systems Corporation 1,000 Manufacturing, Inc. Industrial Data Systems, Inc. Common 005 Industrial Data Systems Corporation 200,000
Membership Interest Pledged by Industrial Data Systems Corporation
Name Record Holder Percentage of Interests IDS Engineering Management, LC Industrial Data Systems Corporation 100%
Schedule 1 SCHEDULE II ----------- Original Stock Certificates with Stock Power SCHEDULE II EX-10.56 19 dex1056.txt STOCK PLEDGE AGREEMENT BETWEEN IDS ENG. AND FLEET EXHIBIT 10.56 STOCK PLEDGE AGREEMENT THIS STOCK PLEDGE AGREEMENT (this "Agreement") is entered into on December 21, 2001, by and between IDS ENGINEERING MANAGEMENT, LC, a Texas company ("Pledgor"), and FLEET CAPITAL CORPORATION, a Rhode Island corporation, as Agent for itself and the other financial institution(s) from time to time a party to the Loan Agreement (as hereinafter defined) ("Pledgee"). All capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement. 1. For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and as collateral security for and to secure the prompt payment and performance in full of the Secured Obligations (hereinafter defined), Pledgor hereby assigns to Pledgee and grants to Pledgee, for the benefit of Lenders, a continuing security interest in all issued and outstanding shares of capital stock (including, without limitation, all shares of capital stock represented by the stock certificates identified on Schedule I attached hereto) of Petrocon Engineering, Inc., a Texas corporation ("Borrower"), whether now or hereafter issued by Borrower, together with all proceeds, products and increases thereof and substitutions and replacements therefor (collectively, the "Collateral"). As used in this Agreement, the term "Secured Obligations" shall mean any and all (i) Obligations of Pledgor or Borrower to Pledgee and/or Lenders, pursuant to that certain Second Amended and Restated Loan and Security Agreement, dated as of the date hereof, by and among Pledgor, Borrower, IDS Engineering, Inc., a Texas corporation, Thermaire, Inc., a Texas corporation, Constant Power Manufacturing, Inc., a Texas corporation, Industrial Data Systems, Inc., a Texas corporation, Triangle Engineers and Constructors, Inc., a Texas corporation, Petrocon Systems, Inc., a Texas corporation, Petrocon Technologies, Inc., a Texas corporation, Petrocon Engineering of Louisiana, Inc., a Louisiana corporation, R.P.M. Engineering, Inc., a Louisiana corporation, Alliance Engineering Associates, Inc., a Texas corporation, Petrocon Construction Resources, Inc., a Texas corporation, Pledgee and Lenders (as amended from time to time, the "Loan Agreement") and (ii) extensions, renewals, modifications, increases and replacements of the foregoing. The term "Secured Obligations" shall include, without limitation, all unpaid accrued interest thereon and all costs and expenses payable as hereinafter provided: (i) whether now existing or hereafter incurred; (ii) whether direct, indirect, primary, absolute, secondary, contingent, secured, unsecured, matured, or unmatured; (iii) whether such indebtedness is from time to time reduced and thereafter increased, or entirely extinguished and thereafter reincurred; (iv) whether such indebtedness was originally contracted with Pledgee or with another or others; (v) whether or not such indebtedness is evidenced by a negotiable or nonnegotiable instrument or any other writing; and (vi) whether such indebtedness is contracted by Pledgor or Borrower individually or jointly or severally with another or others. 2. Pledgor represents and warrants that (i) Pledgor is the legal and beneficial owner of the Collateral, free and clear of all liens and encumbrances; (ii) there are no restrictions upon the transfer of any of the Collateral, other than as may appear and may be referenced on the face of the certificates, those arising under applicable state or federal securities laws and those existing on the date hereof and disclosed to Pledgee in writing; (iii) Pledgor owns 100% of the issued and 1 outstanding capital stock of Borrower; (iv) except as disclosed to Pledgee in writing, there are no existing obligations to issue capital stock or securities convertible into capital stock of Borrower. 3. In furtherance of Pledgee's security interest in the Collateral, Pledgor agrees to deliver to Pledgee, on the date of this Agreement, the stock certificates identified on Schedule I attached hereto, together with stock powers duly executed in blank by Pledgor. 4. With respect to the Collateral, Pledgor hereby appoints Pledgee its attorney-in-fact to arrange for the transfer of the Collateral on the books of Borrower to the name of Pledgee during the continuance of any Event of Default; provided, however, that Pledgee shall be under no obligation to do so. 5. During the term of this Agreement, provided no Event of Default then exists, Pledgor shall have the right, where applicable, to vote the Collateral on all corporate questions, and Pledgee shall, if necessary, execute due and timely proxies in favor of Pledgor for this purpose. 6. While an Event of Default exists, Pledgee may exercise all of the rights and privileges in connection with the Collateral to which a transferee may be entitled as the record holder thereof, together with the rights and privileges otherwise granted hereunder. Pledgee shall be under no obligation to exercise any of such rights or privileges. 7. If, with the consent of Pledgee, Pledgor shall substitute or exchange other securities in place of those herein mentioned, all of the rights and privileges of Pledgee and all of the obligations of Pledgor with respect to the securities originally pledged or held as Collateral hereunder shall be forthwith applicable to such substituted or exchanged securities. 8. While an Event of Default exists, Pledgee shall be authorized to collect all dividends, interest payments, and other amounts (including amounts received or receivable upon redemption or repurchase) that may be, or become, due on any of the Collateral. If Pledgor receives any such dividends, payments or amounts after the occurrence and during the continuance of an Event of Default, it shall immediately endorse and deliver the same to Pledgee in the form received. All such amounts which Pledgee receives and retains in accordance with the terms of this paragraph 8 shall be applied to reduce the principal amount outstanding on the Secured Obligations in the inverse order of maturity. Pledgee is, furthermore, authorized to give receipts in the name of Pledgor for any amounts so received. Pledgee shall be under no obligation to collect any such amounts. 9. In the event that, during the term of this Agreement, subscription warrants or any other rights or options shall be issued in connection with the Collateral, such warrants, rights or options shall be immediately assigned, if necessary, by Pledgor to Pledgee. If any such warrants, rights or options are exercised by Pledgor, all new securities so acquired by Pledgor shall be immediately assigned to Pledgee, shall become part of the Collateral and shall be endorsed to, delivered to and held by Pledgee under the terms of this Agreement in the same manner as the securities originally pledged. 2 10. In the event that, during the term of this Agreement, any share, dividend, reclassification, readjustment or other change is declared or made in the capital structure of Borrower, all new, substituted and additional shares, or other securities, issued by reason of any such change shall become part of the Collateral and shall be endorsed to, delivered to and held by Pledgee under the terms of this Agreement in the same manner as the securities originally pledged. 11. Pledgor authorizes Pledgee, without notice or demand, and without affecting the liability of Pledgor hereunder, from time to time to: (A) hold security in addition to and other than the Collateral for the payment of the Secured Obligations or any part thereof, and exchange, enforce, waive and release any Collateral or any part thereof, or any other such security, or part thereof; (B) release any of the endorsers or guarantors of the Secured Obligations secured hereunder or any part thereof, or any other person whomsoever liable for or on account of such Secured Obligations; (C) on the transfer of all or any part of the Secured Obligations secured hereunder, Pledgee may assign all or any part of Pledgee's security interest in the Collateral and shall be fully discharged thereafter from all liability and responsibility with respect to the Collateral so transferred; provided, however, that in no event shall Pledgee be liable for any act or omission or negligent act or negligent omission with respect to the Collateral, other than acts or omissions constituting gross negligence, willful misconduct, tortious breach of contract or violation of law. The transferee of the Collateral shall be vested with the rights, powers and remedies of Pledgee hereunder, and with respect to any Collateral not so transferred, Pledgee shall retain all rights, powers and remedies hereby given; and (D) Pledgor hereby waives any right to require Pledgee to proceed against Pledgor, Borrower or any other person whomsoever, to proceed against or exhaust any collateral or any other security held by Pledgee, or to pursue any other remedy available to Pledgee. Pledgor further waives any defense arising by reason of any liability or other defense of Pledgor or of any other person. Pledgor shall have no right to require Pledgee to marshal collateral. 12. It shall not be necessary for Pledgee to inquire into the powers of Pledgor or the officers, directors or agents acting or purporting to act on behalf of Pledgor, and any obligations made or created in reliance on the professed exercise of such powers shall be secured hereunder. 13. To the extent permitted by applicable law and in the Loan Agreement, Pledgee shall be under no duty or obligation whatsoever to make or give any presentments, demands for performance, notices of non-performance, protests, notices of protest, or notices of dishonor in connection with the Secured Obligations. 14. The occurrence of an "Event of Default" under the Loan Agreement shall, at the option of Pledgee, constitute an "Event of Default" under this Agreement. 3 15. While an Event of Default exists, Pledgee shall have the right to exercise all rights and remedies afforded to it under the Loan Agreement and, in this connection, the Pledgee may sell all or any part of the Collateral in such manner as provided in the Loan Agreement. Pledgee shall apply the proceeds of any such sale or sales of the Collateral in the manner provided in the Loan Agreement. 16. Upon the indefeasible repayment in full in cash of the Secured Obligations, Pledgee will promptly, at Pledgor's expense, deliver all of the Collateral to Pledgor along with all instruments of assignment executed in connection therewith, and execute and deliver to Pledgor such documents as Pledgor shall reasonably request to evidence Pledgee's release of Pledgee's security interest hereunder. 17. THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LOCAL LAW OF THE STATE OF TEXAS EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT OTHERWISE REFER CONSTRUCTION OR INTERPRETATION OF THIS AGREEMENT TO THE SUBSTANTIVE LAW OF ANOTHER JURISDICTION. [Remainder of Page Intentionally Left Blank] 4 IN WITNESS WHEREOF, Pledgor and Pledgee have executed this Agreement as of the date first above written. PLEDGOR: IDS ENGINEERING MANAGEMENT, LC By: ----------------------------- Name: Title: PLEDGEE: FLEET CAPITAL CORPORATION, as Agent By: ----------------------------- Dan A. Hughes Vice President SCHEDULE I Capital Stock Pledged by IDS Engineering Management, LC
Name Certificate Record Holder Number of Number Shares Petrocon Engineering, Inc. IDS Engineering Management, LC
SCHEDULE II ----------- Original Stock Certificates with Stock Power EX-10.57 20 dex1057.txt STOCK PLEDGE AGREEMENT BETWEEN PETROCON AND FLEET EXHIBIT 10.57 AMENDED AND RESTATED STOCK PLEDGE AGREEMENT THIS AMENDED AND RESTATED STOCK PLEDGE AGREEMENT (this "Agreement") is --------- entered into on December 21, 2001, by and between PETROCON ENGINEERING, INC., a Texas corporation ("Pledgor"), and FLEET CAPITAL CORPORATION, a Rhode Island ------- corporation, as Agent for itself and the other financial institution(s) from time to time a party to the Loan Agreement (as hereinafter defined) ("Pledgee"). All capitalized terms used but not otherwise defined herein shall ------- have the meanings ascribed to such terms in the Loan Agreement. 1. For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and as collateral security for and to secure the prompt payment and performance in full of the Secured Obligations (hereinafter defined), Pledgor hereby assigns to Pledgee and grants to Pledgee, for the benefit of Lenders, a continuing security interest in all issued and outstanding shares of capital stock (including, without limitation, all shares of capital stock represented by the stock certificates identified on Schedule I ---------- attached hereto) of each of Triangle Engineers and Constructors, Inc., a Texas corporation ("Triangle"), Petrocon Systems, Inc., a Texas corporation -------- ("Petrocon Systems"), Petrocon Technologies, Inc., a Texas corporation ---------------- ("Petrocon Technologies"), Petrocon Engineering of Louisiana, Inc., a Louisiana --------------------- corporation ("Petrocon Louisiana"), R.P.M. Engineering, Inc., a Louisiana ------------------ corporation ("RPM"), Alliance Engineering Associates, Inc., a Texas corporation --- ("Alliance"), and Petrocon Construction Resources, Inc., a Texas corporation -------- ("Petrocon Construction") (Triangle, Petrocon Systems, Petrocon Technologies, --------------------- Petrocon Louisiana, RPM, Alliance and Petrocon Construction are sometimes hereinafter referred to individually and collectively as "Borrower") whether -------- now or hereafter issued by Borrower, together with all proceeds, products and increases thereof and substitutions and replacements therefor (collectively, the "Collateral"). ---------- As used in this Agreement, the term "Secured Obligations" shall mean ------------------- any and all (i) Obligations of Pledgor or Borrower to Pledgee and/or Lenders, pursuant to that certain Second Amended and Restated Loan and Security Agreement, dated as of the date hereof, by and among Pledgor, Borrower, IDS Engineering, Inc., a Texas corporation, Thermaire, Inc., a Texas corporation, Constant Power Manufacturing, Inc., a Texas corporation, ISD Engineering Management, LC, a Texas limited liability company, Industrial Data Systems, Inc., a Texas corporation, Pledgee and Lenders (as amended from time to time, the "Loan Agreement") and (ii) extensions, renewals, modifications, increases -------------- and replacements of the foregoing. The term "Secured Obligations" shall ------------------- include, without limitation, all unpaid accrued interest thereon and all costs and expenses payable as hereinafter provided: (i) whether now existing or hereafter incurred; (ii) whether direct, indirect, primary, absolute, secondary, contingent, secured, unsecured, matured, or unmatured; (iii) whether such indebtedness is from time to time reduced and thereafter increased, or entirely extinguished and thereafter reincurred; (iv) whether such indebtedness was originally contracted with Pledgee or with another or others; (v) whether or not such indebtedness is evidenced by a negotiable or nonnegotiable instrument or any other writing; and (vi) whether such indebtedness is contracted by Pledgor or Borrower individually or jointly or severally with another or others. Stock Pledge Agreement (Petrocon) A&R 1 2. Pledgor represents and warrants that (i) Pledgor is the legal and beneficial owner of the Collateral, free and clear of all liens and encumbrances; (ii) there are no restrictions upon the transfer of any of the Collateral, other than as may appear and may be referenced on the face of the certificates, those arising under applicable state or federal securities laws and those existing on the date hereof and disclosed to Pledgee in writing; (iii) Pledgor owns 100% of the issued and outstanding capital stock of Borrower; (iv) except as disclosed to Pledgee in writing, there are no existing obligations to issue capital stock or securities convertible into capital stock of Borrower. 3. In furtherance of Pledgee's security interest in the Collateral, Pledgor agrees to deliver to Pledgee, on the date of this Agreement, the stock certificates identified on Schedule I attached hereto, together with stock ---------- powers duly executed in blank by Pledgor. 4. With respect to the Collateral, Pledgor hereby appoints Pledgee its attorney-in-fact to arrange for the transfer of the Collateral on the books of Borrower to the name of Pledgee during the continuance of any Event of Default; provided, however, that Pledgee shall be under no obligation to do so. - -------- ------- 5. During the term of this Agreement, provided no Event of Default then exists, Pledgor shall have the right, where applicable, to vote the Collateral on all corporate questions, and Pledgee shall, if necessary, execute due and timely proxies in favor of Pledgor for this purpose. 6. While an Event of Default exists, Pledgee may exercise all of the rights and privileges in connection with the Collateral to which a transferee may be entitled as the record holder thereof, together with the rights and privileges otherwise granted hereunder. Pledgee shall be under no obligation to exercise any of such rights or privileges. 7. If, with the consent of Pledgee, Pledgor shall substitute or exchange other securities in place of those herein mentioned, all of the rights and privileges of Pledgee and all of the obligations of Pledgor with respect to the securities originally pledged or held as Collateral hereunder shall be forthwith applicable to such substituted or exchanged securities. 8. While an Event of Default exists, Pledgee shall be authorized to collect all dividends, interest payments, and other amounts (including amounts received or receivable upon redemption or repurchase) that may be, or become, due on any of the Collateral. If Pledgor receives any such dividends, payments or amounts after the occurrence and during the continuance of an Event of Default, it shall immediately endorse and deliver the same to Pledgee in the form received. All such amounts which Pledgee receives and retains in accordance with the terms of this paragraph 8 shall be applied to reduce the ----------- principal amount outstanding on the Secured Obligations in the inverse order of maturity. Pledgee is, furthermore, authorized to give receipts in the name of Pledgor for any amounts so received. Pledgee shall be under no obligation to collect any such amounts. 9. In the event that, during the term of this Agreement, subscription warrants or any other rights or options shall be issued in connection with the Collateral, such warrants, rights or Stock Pledge Agreement (Petrocon) A&R 2 options shall be immediately assigned, if necessary, by Pledgor to Pledgee. If any such warrants, rights or options are exercised by Pledgor, all new securities so acquired by Pledgor shall be immediately assigned to Pledgee, shall become part of the Collateral and shall be endorsed to, delivered to and held by Pledgee under the terms of this Agreement in the same manner as the securities originally pledged. 10. In the event that, during the term of this Agreement, any share, dividend, reclassification, readjustment or other change is declared or made in the capital structure of Borrower, all new, substituted and additional shares, or other securities, issued by reason of any such change shall become part of the Collateral and shall be endorsed to, delivered to and held by Pledgee under the terms of this Agreement in the same manner as the securities originally pledged. 11. Pledgor authorizes Pledgee, without notice or demand, and without affecting the liability of Pledgor hereunder, from time to time to: (A) hold security in addition to and other than the Collateral for the payment of the Secured Obligations or any part thereof, and exchange, enforce, waive and release any Collateral or any part thereof, or any other such security, or part thereof; (B) release any of the endorsers or guarantors of the Secured Obligations secured hereunder or any part thereof, or any other person whomsoever liable for or on account of such Secured Obligations; (C) on the transfer of all or any part of the Secured Obligations secured hereunder, Pledgee may assign all or any part of Pledgee's security interest in the Collateral and shall be fully discharged thereafter from all liability and responsibility with respect to the Collateral so transferred; provided, however, that in no event shall Pledgee be liable for any act or omission or negligent act or negligent omission with respect to the Collateral, other than acts or omissions constituting gross negligence, willful misconduct, tortious breach of contract or violation of law. The transferee of the Collateral shall be vested with the rights, powers and remedies of Pledgee hereunder, and with respect to any Collateral not so transferred, Pledgee shall retain all rights, powers and remedies hereby given; and (D) Pledgor hereby waives any right to require Pledgee to proceed against Pledgor, Borrower or any other person whomsoever, to proceed against or exhaust any collateral or any other security held by Pledgee, or to pursue any other remedy available to Pledgee. Pledgor further waives any defense arising by reason of any liability or other defense of Pledgor or of any other person. Pledgor shall have no right to require Pledgee to marshal collateral. 12. It shall not be necessary for Pledgee to inquire into the powers of Pledgor or the officers, directors or agents acting or purporting to act on behalf of Pledgor, and any obligations made or created in reliance on the professed exercise of such powers shall be secured hereunder. 13. To the extent permitted by applicable law and in the Loan Agreement, Pledgee shall be under no duty or obligation whatsoever to make or give any presentments, demands for Stock Pledge Agreement (Petrocon) A&R 3 performance, notices of non-performance, protests, notices of protest, or notices of dishonor in connection with the Secured Obligations. 14. The occurrence of an "Event of Default" under the Loan Agreement shall, at the option of Pledgee, constitute an "Event of Default" under this ---------------- Agreement. 15. While an Event of Default exists, Pledgee shall have the right to exercise all rights and remedies afforded to it under the Loan Agreement and, in this connection, the Pledgee may sell all or any part of the Collateral in such manner as provided in the Loan Agreement. Pledgee shall apply the proceeds of any such sale or sales of the Collateral in the manner provided in the Loan Agreement. 16. Upon the indefeasible repayment in full in cash of the Secured Obligations, Pledgee will promptly, at Pledgor's expense, deliver all of the Collateral to Pledgor along with all instruments of assignment executed in connection therewith, and execute and deliver to Pledgor such documents as Pledgor shall reasonably request to evidence Pledgee's release of Pledgee's security interest hereunder. 17. THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LOCAL LAW OF THE STATE OF TEXAS EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT OTHERWISE REFER CONSTRUCTION OR INTERPRETATION OF THIS AGREEMENT TO THE SUBSTANTIVE LAW OF ANOTHER JURISDICTION. 18. This Agreement is given in renewal, extension, modification and amendment (and not in extinguishment or novation) of that certain Stock Pledge Agreement (the "Original Agreement"), dated June 15, 1999, by and between ------------------ Pledgor and Pledgee. 19. The security interests and liens in the Collateral granted to Pledgee by Pledgor hereunder are given in renewal, extension and modification of the security interests and liens previously granted to Pledgee by Pledgor in the Original Agreement. Such prior security interests and liens are not extinguished hereby, and the making, perfection and priority of such prior security interests shall continue in full force and effect. [Remainder of Page Intentionally Left Blank] Stock Pledge Agreement (Petrocon) A&R 4 IN WITNESS WHEREOF, Pledgor and Pledgee have executed this Agreement as of the date first above written. PLEDGOR: ------- PETROCON ENGINEERING, INC. By: _________________________________ Name: _______________________________ Title: ______________________________ PLEDGEE: ------- FLEET CAPITAL CORPORATION, as Agent By: _________________________________ Dan A. Hughes Vice President Stock Pledge Agreement (Petrocon) A&R SCHEDULE I ---------- Capital Stock Pledged by Petrocon Engineering, Inc. Name Certificate Record Holder Number Number of Shares Triangle Engineers and Constructors, Inc. A8 Petrocon Engineering, Inc. 50,100 Petrocon Systems, Inc. 1 Petrocon Engineering, Inc. 1,000 Petrocon Engineering of Louisiana, Inc./1/ 1 Petrocon Engineering, Inc. 100 R.P.M. Engineering, Inc. 10 Petrocon Engineering, Inc. 3,000 Petrocon Construction Resources, Inc. 1 Petrocon Engineering, Inc. 1,000 Petrocon Technologies, Inc. 1 Petrocon Engineering, Inc. 1,000 Alliance Engineering Associates, Inc. 1 Petrocon Engineering, Inc. 1,000 - ---------------------------- /1/ Stock certificate in the name of Petrocon of Sulphur, Inc. which changed its name to Petrocon Engineering of Louisiana, Inc. Schedule I SCHEDULE II ----------- Original Stock Certificates with Stock Power Schedule II STOCK PLEDGE AGREEMENT THIS STOCK PLEDGE AGREEMENT (this "Agreement") is entered into on December --------- 21, 2001, by and between IDS ENGINEERING MANAGEMENT, LC, a Texas company ("Pledgor"), and FLEET CAPITAL CORPORATION, a Rhode Island corporation, as ------- Agent for itself and the other financial institution(s) from time to time a party to the Loan Agreement (as hereinafter defined) ("Pledgee"). All ------- capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement. 1. For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and as collateral security for and to secure the prompt payment and performance in full of the Secured Obligations (hereinafter defined), Pledgor hereby assigns to Pledgee and grants to Pledgee, for the benefit of Lenders, a continuing security interest in all issued and outstanding shares of capital stock (including, without limitation, all shares of capital stock represented by the stock certificates identified on Schedule I ---------- attached hereto) of Petrocon Engineering, Inc., a Texas corporation ("Borrower"), whether now or hereafter issued by Borrower, together with all -------- proceeds, products and increases thereof and substitutions and replacements therefor (collectively, the "Collateral"). ---------- As used in this Agreement, the term "Secured Obligations" shall mean ------------------- any and all (i) Obligations of Pledgor or Borrower to Pledgee and/or Lenders, pursuant to that certain Second Amended and Restated Loan and Security Agreement, dated as of the date hereof, by and among Pledgor, Borrower, IDS Engineering, Inc., a Texas corporation, Thermaire, Inc., a Texas corporation, Constant Power Manufacturing, Inc., a Texas corporation, Industrial Data Systems, Inc., a Texas corporation, Triangle Engineers and Constructors, Inc., a Texas corporation, Petrocon Systems, Inc., a Texas corporation, Petrocon Technologies, Inc., a Texas corporation, Petrocon Engineering of Louisiana, Inc., a Louisiana corporation, R.P.M. Engineering, Inc., a Louisiana corporation, Alliance Engineering Associates, Inc., a Texas corporation, Petrocon Construction Resources, Inc., a Texas corporation, Pledgee and Lenders (as amended from time to time, the "Loan Agreement") and (ii) extensions, -------------- renewals, modifications, increases and replacements of the foregoing. The term "Secured Obligations" shall include, without limitation, all unpaid accrued ------------------- interest thereon and all costs and expenses payable as hereinafter provided: (i) whether now existing or hereafter incurred; (ii) whether direct, indirect, primary, absolute, secondary, contingent, secured, unsecured, matured, or unmatured; (iii) whether such indebtedness is from time to time reduced and thereafter increased, or entirely extinguished and thereafter reincurred; (iv) whether such indebtedness was originally contracted with Pledgee or with another or others; (v) whether or not such indebtedness is evidenced by a negotiable or nonnegotiable instrument or any other writing; and (vi) whether such indebtedness is contracted by Pledgor or Borrower individually or jointly or severally with another or others. 2. Pledgor represents and warrants that (i) Pledgor is the legal and beneficial owner of the Collateral, free and clear of all liens and encumbrances; (ii) there are no restrictions upon the transfer of any of the Collateral, other than as may appear and may be referenced on the face of the certificates, those arising under applicable state or federal securities laws and those existing on the date hereof and disclosed to Pledgee in writing; (iii) Pledgor owns 100% of the issued and Stock Pledge Agreement (IDSEM) 1 outstanding capital stock of Borrower; (iv) except as disclosed to Pledgee in writing, there are no existing obligations to issue capital stock or securities convertible into capital stock of Borrower. 3. In furtherance of Pledgee's security interest in the Collateral, Pledgor agrees to deliver to Pledgee, on the date of this Agreement, the stock certificates identified on Schedule I attached hereto, together with stock ---------- powers duly executed in blank by Pledgor. 4. With respect to the Collateral, Pledgor hereby appoints Pledgee its attorney-in-fact to arrange for the transfer of the Collateral on the books of Borrower to the name of Pledgee during the continuance of any Event of Default; provided, however, that Pledgee shall be under no obligation to do so. - -------- ------- 5. During the term of this Agreement, provided no Event of Default then exists, Pledgor shall have the right, where applicable, to vote the Collateral on all corporate questions, and Pledgee shall, if necessary, execute due and timely proxies in favor of Pledgor for this purpose. 6. While an Event of Default exists, Pledgee may exercise all of the rights and privileges in connection with the Collateral to which a transferee may be entitled as the record holder thereof, together with the rights and privileges otherwise granted hereunder. Pledgee shall be under no obligation to exercise any of such rights or privileges. 7. If, with the consent of Pledgee, Pledgor shall substitute or exchange other securities in place of those herein mentioned, all of the rights and privileges of Pledgee and all of the obligations of Pledgor with respect to the securities originally pledged or held as Collateral hereunder shall be forthwith applicable to such substituted or exchanged securities. 8. While an Event of Default exists, Pledgee shall be authorized to collect all dividends, interest payments, and other amounts (including amounts received or receivable upon redemption or repurchase) that may be, or become, due on any of the Collateral. If Pledgor receives any such dividends, payments or amounts after the occurrence and during the continuance of an Event of Default, it shall immediately endorse and deliver the same to Pledgee in the form received. All such amounts which Pledgee receives and retains in accordance with the terms of this paragraph 8 shall be applied to reduce the ----------- principal amount outstanding on the Secured Obligations in the inverse order of maturity. Pledgee is, furthermore, authorized to give receipts in the name of Pledgor for any amounts so received. Pledgee shall be under no obligation to collect any such amounts. 9. In the event that, during the term of this Agreement, subscription warrants or any other rights or options shall be issued in connection with the Collateral, such warrants, rights or options shall be immediately assigned, if necessary, by Pledgor to Pledgee. If any such warrants, rights or options are exercised by Pledgor, all new securities so acquired by Pledgor shall be immediately assigned to Pledgee, shall become part of the Collateral and shall be endorsed to, delivered to and held by Pledgee under the terms of this Agreement in the same manner as the securities originally pledged. Stock Pledge Agreement (IDSEM) 2 10. In the event that, during the term of this Agreement, any share, dividend, reclassification, readjustment or other change is declared or made in the capital structure of Borrower, all new, substituted and additional shares, or other securities, issued by reason of any such change shall become part of the Collateral and shall be endorsed to, delivered to and held by Pledgee under the terms of this Agreement in the same manner as the securities originally pledged. 11. Pledgor authorizes Pledgee, without notice or demand, and without affecting the liability of Pledgor hereunder, from time to time to: (A) hold security in addition to and other than the Collateral for the payment of the Secured Obligations or any part thereof, and exchange, enforce, waive and release any Collateral or any part thereof, or any other such security, or part thereof; (B) release any of the endorsers or guarantors of the Secured Obligations secured hereunder or any part thereof, or any other person whomsoever liable for or on account of such Secured Obligations; (C) on the transfer of all or any part of the Secured Obligations secured hereunder, Pledgee may assign all or any part of Pledgee's security interest in the Collateral and shall be fully discharged thereafter from all liability and responsibility with respect to the Collateral so transferred; provided, however, that in no event shall Pledgee be liable for any act or - -------- ------- omission or negligent act or negligent omission with respect to the Collateral, other than acts or omissions constituting gross negligence, willful misconduct, tortious breach of contract or violation of law. The transferee of the Collateral shall be vested with the rights, powers and remedies of Pledgee hereunder, and with respect to any Collateral not so transferred, Pledgee shall retain all rights, powers and remedies hereby given; and (D) Pledgor hereby waives any right to require Pledgee to proceed against Pledgor, Borrower or any other person whomsoever, to proceed against or exhaust any collateral or any other security held by Pledgee, or to pursue any other remedy available to Pledgee. Pledgor further waives any defense arising by reason of any liability or other defense of Pledgor or of any other person. Pledgor shall have no right to require Pledgee to marshal collateral. 12. It shall not be necessary for Pledgee to inquire into the powers of Pledgor or the officers, directors or agents acting or purporting to act on behalf of Pledgor, and any obligations made or created in reliance on the professed exercise of such powers shall be secured hereunder. 13. To the extent permitted by applicable law and in the Loan Agreement, Pledgee shall be under no duty or obligation whatsoever to make or give any presentments, demands for performance, notices of non-performance, protests, notices of protest, or notices of dishonor in connection with the Secured Obligations. 14. The occurrence of an "Event of Default" under the Loan Agreement shall, at the option of Pledgee, constitute an "Event of Default" under this ---------------- Agreement. Stock Pledge Agreement (IDSEM) 3 15. While an Event of Default exists, Pledgee shall have the right to exercise all rights and remedies afforded to it under the Loan Agreement and, in this connection, the Pledgee may sell all or any part of the Collateral in such manner as provided in the Loan Agreement. Pledgee shall apply the proceeds of any such sale or sales of the Collateral in the manner provided in the Loan Agreement. 16. Upon the indefeasible repayment in full in cash of the Secured Obligations, Pledgee will promptly, at Pledgor's expense, deliver all of the Collateral to Pledgor along with all instruments of assignment executed in connection therewith, and execute and deliver to Pledgor such documents as Pledgor shall reasonably request to evidence Pledgee's release of Pledgee's security interest hereunder. 17. THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LOCAL LAW OF THE STATE OF TEXAS EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT OTHERWISE REFER CONSTRUCTION OR INTERPRETATION OF THIS AGREEMENT TO THE SUBSTANTIVE LAW OF ANOTHER JURISDICTION. [Remainder of Page Intentionally Left Blank] Stock Pledge Agreement (IDSEM) 4 IN WITNESS WHEREOF, Pledgor and Pledgee have executed this Agreement as of the date first above written. PLEDGOR: ------- IDS ENGINEERING MANAGEMENT, LC By:__________________________________ Name: _______________________________ Title: ______________________________ PLEDGEE: ------- FLEET CAPITAL CORPORATION, as Agent By:__________________________________ Dan A. Hughes Vice President Stock Pledge Agreement (IDSEM) SCHEDULE I ---------- Capital Stock Pledged by IDS Engineering Management, LC Name Certificate Record Holder Number of Number Shares Petrocon Engineering, Inc. IDS Engineering Management, LC Schedule I SCHEDULE II ----------- Original Stock Certificates with Stock Power EX-10.58 21 dex1058.txt CONTINUING GUARANTY AGREEMENT BETWEEN FLEET /IDS EXHIBIT 10.58 CONTINUING GUARANTY AGREEMENT FOR VALUE RECEIVED as of this 21ST day of December, 2001, the undersigned (hereinafter referred to as "Guarantor") guarantees unconditionally the full and prompt payment and performance to FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Fleet", and collectively with the other financial institution(s) from time to time a party to the Loan Agreement defined below, "Lenders"), and Fleet, as agent for Lenders ("Agent"), at Agent's office in Dallas County, Texas, upon demand, of the following obligations and indebtedness of each of the following (individually, a "Borrower" and collectively, the "Borrowers"): IDS ENGINEERING, INC., a Texas corporation ("IDS Engineering"), THERMAIRE, INC., a Texas corporation ("Thermaire"), CONSTANT POWER MANUFACTURING, INC., a Texas corporation ("Constant Power"), INDUSTRIAL DATA SYSTEMS, INC., a Texas corporation ("Data"), IDS ENGINEERING MANAGEMENT, LC, a Texas limited liability company ("Management", and collectively with IDS Engineering, Thermaire, Data and Constant Power, "New Borrowers"), PETROCON ENGINEERING, INC., a Texas corporation ("Petrocon"), TRIANGLE ENGINEERS AND CONSTRUCTORS, INC., a Texas corporation ("Triangle"), PETROCON SYSTEMS, INC., a Texas corporation ("Petrocon Systems"), PETROCON ENGINEERING OF LOUISIANA, INC., a Louisiana corporation ("Petrocon Louisiana"), R.P.M. ENGINEERING, INC., a Louisiana corporation ("RPM"), PETROCON CONSTRUCTION RESOURCES, INC., a Texas corporation ("Petrocon Construction"), PETROCON TECHNOLOGIES, INC., a Texas corporation ("Petrocon Technologies"), and ALLIANCE ENGINEERING ASSOCIATES, INC., a Texas corporation ("Alliance", and collectively with Petrocon, Triangle, Petrocon Systems, Petrocon Louisiana, RPM, Petrocon Construction and Petrocon Technologies, "Original Borrowers"). Any and all indebtedness and obligations, whether direct or indirect, absolute or contingent, primary or secondary, joint or several, and all renewals, modifications and extensions thereof for which Borrower is now or hereafter may become liable or indebted to Lenders, whether arising by loan agreements, notes, drafts, acceptances, letters of credit, overdrafts, assignments, participations, discounts or otherwise, and all interest accruing thereon (including, without limitation, interest which would accrue but for the commencement of a bankruptcy proceeding), fees charged in connection therewith and reimbursable expenses incurred in connection therewith, whether by lapse of time, acceleration of maturity, or otherwise, including such indebtedness and obligations now or hereafter arising on account of (i) the Obligations, as defined in that certain Second Amended and Restated Loan and Security Agreement, dated as of the date hereof (as the same may be renewed, extended, modified or replaced from time to time, the "Loan Agreement"), by and between Agent, Lenders and Borrowers, as governed by the provisions of Section 1.7 of the Loan Agreement, (ii) any document executed in connection with or as security for payment of the Obligations or any renewal, extension, or modification thereof, including, without limitation, that certain (A) Term Note, dated as of June 15, 1999, in the principal amount of $522,285.70, executed by Original Borrowers and payable to the order of Fleet (as the same may be renewed, extended, modified, or replaced from time to time) and (B) Amended and Restated Revolving Note, dated as of the date hereof, in the principal amount of $15,000,000, executed by Borrowers and payable to the order of Fleet (as the same may be renewed, extended, modified, or replaced from time to time); and (iii) all costs, reasonable 1 attorneys' fees, and other expenses incurred by Lenders by reason of any default by Borrower under any of the foregoing (all of the foregoing are hereinafter referred to as the "Obligations"). At the time Guarantor pays any sum which may become due Lenders under the terms of this Guaranty Agreement (this "Guaranty"), written notice of such payment shall be delivered to Lenders by Guarantor, and in the absence of such notice, any sum received by Lenders on account of any of the Obligations shall be conclusively deemed paid by Borrower. All sums paid Lenders by Guarantor may be applied by Lenders at their discretion upon any of the Obligations. To further secure payment of the Obligations, Guarantor grants to Lenders, in addition to all other contractual, legal, and equitable rights of Lenders, the right to offset against any account, certificate of deposit, or other funds of Guarantor in the possession of or under the control of Lenders. Guarantor hereby waives notice of acceptance of this Guaranty and all other notices in connection herewith or in connection with the Obligations, including without limitation, notice of intent to accelerate and notice of acceleration, and waives diligence, presentment, demand, protest, and suit on the part of Lenders in the collection of any of the Obligations, and agrees that Lenders shall not be required to first endeavor to collect any of the Obligations from Borrower, or any other party liable for payment of the Obligations (hereinafter referred to as an "Obligated Party"), before requiring Guarantor to pay the full amount of the Obligations to the extent due. Without impairing the rights of Lenders against Guarantor, any Obligated Party, or Borrower, suit may be brought and maintained against Guarantor at the election of Lenders with or without joinder of Borrower or any Obligated Party, any right to any such joinder being hereby waived by Guarantor. Guarantor acknowledges and represents to Lenders it is receiving a direct and/or indirect benefit as a result of this Guaranty and the Obligations; represents to Lenders that after giving effect to this Guaranty and the contingent obligations evidenced hereby it is, and will be, solvent; acknowledges that this Guaranty is operative and binding as to it without reference to whether it is signed by a person under any legal disability; acknowledges that its liability hereunder shall be cumulative and in addition to any other liability or obligation to Lenders, whether the same is incurred through the execution of a note, a similar guaranty, through endorsement, or otherwise; and acknowledges that neither Lenders nor any officer, employee, agent, attorney, or other representative of Lenders has made any representation, warranty, or statement to Guarantor to induce it to execute this Guaranty. Guarantor hereby agrees that, except as hereinafter provided, its obligations under this Guaranty shall be continuing, absolute and unconditional, irrespective of (i) the validity or enforceability of the Obligations or of any promissory note or other document evidencing all or any part of the Obligations, (ii) the absence of any attempt to collect the Obligations from Borrower or any other Obligated Party or other action to enforce the same, (iii) the waiver or amendment by Lenders with respect to any provision of any instrument evidencing the Obligations, or any part thereof, or any other agreement now or hereafter executed by Borrower and delivered to Lenders, (iv) failure by Lenders to take any steps to perfect and maintain its security interest in, or to preserve its rights to, any security or collateral for the Obligations, (v) 2 the surrender, release, exchange, or alteration by Lenders of any security or collateral for the Obligations, (vi) Lenders' election, in any proceeding instituted under Chapter 11 of Title 11 of the United States Code (11 U.S.C. (S)101 et seq.) (as amended from time to time, the "Bankruptcy Code"), of the application of Section 1111(b)(2) of the Bankruptcy Code, (vii) any borrowing or grant of a security interest by Borrower, as debtor-in-possession, under Section 364 of the Bankruptcy Code, (viii) the disallowance of all or any portion of Lenders' claim(s) for repayment of the Obligations under Section 502 of the Bankruptcy Code, or (ix) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. No release, waiver, or discharge of Borrower or any Obligated Party from liability for payment of any of the Obligations nor any renewal, supplementation, modification, rearrangement or acceleration of any of the Obligations, nor any amendment of any document evidencing any of the Obligations, either express or implied, shall relieve Guarantor from liability for payment of the full amount of the Obligations then or thereafter outstanding; and Guarantor will immediately pay all Obligations, to the extent due, to Lenders or other person entitled thereto, regardless of any defense (other than payment), right of set-off, or counterclaim which Borrower or any Obligated Party may have or assert, and regardless of whether Lenders or any other party shall have taken any steps to enforce any rights against Borrower, any Obligated Party, or any other party to collect such sum, and regardless of any other condition or contingency, including, without limitation, any neglect, delay, or omission of Lenders. Lenders are hereby authorized, without notice or demand and without affecting the liability of Guarantor, to, from time to time: (i) accept partial payments on the Obligations; (ii) take and hold security or collateral for the payment of this Guaranty or any other guarantees of the Obligations, and exchange, enforce, waive and release any such security or collateral; and (iii) apply such security or collateral therefor in any manner, without affecting or impairing the obligations of Guarantor hereunder. Notwithstanding anything to the contrary contained herein, until the Obligations shall have been indefeasibly paid in full as determined by Lenders, Guarantor shall not have any right, claim or action, now or hereafter, against Borrower or any other Obligated Party arising out of or in connection with this Guaranty or any other document evidencing or securing the Obligations, including, without limitation, any right or claim of subrogation, contribution, reimbursement, exoneration, or indemnity, all such rights and claims being hereby expressly and absolutely waived. Guarantor is familiar with, and has independently reviewed the financial condition of, Borrower and hereby assumes responsibility for keeping itself informed of the financial condition of Borrower, and any and all endorsers and/or other guarantors of any instrument or document evidencing all or any part of the Obligations and of all other circumstances bearing upon the risk of nonpayment of the Obligations or any part thereof that diligent inquiry would reveal. Guarantor hereby agrees that Lenders shall have no duty to advise Guarantor of information known to Lenders regarding such condition or any such circumstances. Guarantor is not relying on the financial condition of Borrower or the value of any collateral for the Obligations as an inducement to enter into this Guaranty. If Lenders, in their sole discretion, undertake at any time or from time to time to provide any such information to Guarantor, Lenders shall be under no 3 obligation (i) to undertake any investigation not a part of its regular business routine, (ii) to disclose any information which, pursuant to accepted or reasonable commercial finance practices, Lenders wish to maintain confidential, or (iii) to make any other or future disclosures of such information or any other information to Guarantor. Guarantor consents and agrees that Lenders shall be under no obligation to marshal any assets in favor of Guarantor or against or in payment of any or all of the Obligations. Guarantor further agrees that, to the extent that Borrower makes a payment or payments to Lenders, or Lenders receive any proceeds of collateral, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to Borrower, its estate(s), trustee(s), receiver(s) or any other party, including, without limitation, Guarantor, under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such payment or repayment, the Obligations or part thereof which has been paid, reduced or satisfied by such amount shall be reinstated and continued in full force and effect as of the date such initial payment, reduction or satisfaction occurred, and this Guaranty, if previously terminated, shall be reinstated for the benefit of Lenders. Lenders may, without notice to Guarantor or any other party, assign their rights hereunder to any holder of the Obligations, in whole or in part, and upon any such assignment all the terms and provisions of this Guaranty shall inure to the benefit of such assignee, to the extent so assigned. Lenders are relying and are entitled to rely upon each and all of the provisions of this Guaranty; and, accordingly, if any provision of this Guaranty should be held to be invalid or ineffective, then all other provisions shall continue in full force and effect notwithstanding. Any and all notices, requests and demands to or upon Guarantor to be effective shall be in writing, and shall be sent by certified or registered mail, return receipt requested, by personal delivery against receipt, or by overnight courier or by facsimile transmission and, unless otherwise expressly provided herein, shall be deemed to have been validly served, given, or delivered immediately when delivered against receipt, or three (3) business days after deposit in the mail, postage prepaid, or with an overnight courier or, in the case of facsimile transmission, when sent, answerback received, in each case addressed to the address set forth opposite Guarantor's signature below. It is the intention of Borrower, Guarantor, and Lenders to conform strictly to applicable usury laws. Accordingly, no agreements, conditions, provisions or stipulations contained in this Guaranty or any other instrument, document or agreement between Guarantor or Borrower and Lenders or default of Guarantor or Borrower, or the exercise by Lenders of the right to accelerate the payment of the maturity of principal and interest, or to exercise any option whatsoever contained in this Guaranty or any other agreement between Guarantor or Borrower and Lenders, or the arising of any contingency whatsoever, shall entitle Lenders to charge or collect, in any event, interest exceeding the maximum rate of interest permitted by applicable state or federal law in effect from time to time hereafter (the "Maximum Legal Rate") and in no event shall Guarantor be obligated to pay interest exceeding such Maximum Legal Rate and all agreements, 4 conditions or stipulations, if any, which may in any event or contingency whatsoever operate to bind, obligate or compel Guarantor to pay a rate of interest exceeding the Maximum Legal Rate, shall be without binding force or effect, at law or in equity, to the extent only of the excess of interest over such Maximum Legal Rate. In the event any interest is charged or collected in excess of the Maximum Legal Rate ("Excess Interest"), Guarantor acknowledges and stipulates that any such charge or collection shall be the result of an accident and bona fide error, and such Excess Interest shall be, first, applied to reduce the Obligations; and second, returned to Guarantor, it being the intention of the parties hereto not to enter at any time into a usurious or otherwise illegal relationship. Guarantor recognizes that, with fluctuations in the applicable rate on the Obligations and the Maximum Legal Rate, such an unintentional result could inadvertently occur. By the execution of this Guaranty, Guarantor covenants that (i) the credit or return of any Excess Interest shall constitute the acceptance by Guarantor of such Excess Interest, and (ii) Guarantor shall not seek or pursue any other remedy, legal or equitable, against Lenders, based in whole or in part upon the contracting, charging or receiving of any interest in excess of the maximum rate authorized by applicable law. For the purpose of determining whether or not any Excess Interest has been contracted for, charged or received by Lenders, all interest at any time contracted for, charged or received by Lenders in connection with this Guaranty shall be amortized, prorated, allocated and spread in equal parts during the entire term of this Guaranty. Anything contained in this Guaranty to the contrary notwithstanding, the obligations of Guarantor hereunder shall be limited to a maximum aggregate amount equal to the largest amount that would not render Guarantor's obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any applicable provisions of comparable state law (collectively, the "Fraudulent Transfer Laws"), in each case after giving effect to all other liabilities of Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws and after giving effect as assets to the value (as determined under the applicable provisions the Fraudulent Transfer Laws) of any rights to subrogation or contribution of Guarantor pursuant to (i) applicable law or (ii) any agreement providing for an equitable allocation among Guarantor and other affiliates of Borrower of obligations under guaranties by such parties. If the Indebtedness or any portion thereof is guaranteed by two or more guarantors, the obligation of Guarantor shall be several and also joint, each with all and also each with any one or more of the others, and may be enforced at the option of Lenders against each severally, any two or more jointly, or some severally and some jointly. Lenders, in their sole discretion, may release any one or more of such guarantors for any consideration which it deems adequate, and may fail or elect not to prove a claim against the estate of any bankrupt, insolvent, incompetent or deceased guarantor; and thereafter without notice to any other guarantor, Lenders may extend or renew any part or all of any Obligations and may permit the Borrower to incur additional Obligations, without affecting in any manner the unconditional obligation of the remaining guarantor(s). Such action by Lenders shall not, however, be deemed to affect any right to contribution which may exist among the guarantors. If any sum due Lenders by Guarantor hereunder is placed in the hands of an attorney for collection, or is collected through probate, bankruptcy, or other court proceeding, then Guarantor 5 promises to pay Lenders all reasonable costs, attorneys' fees, and other expenses incurred by Lenders pursuant to such collection efforts. The value of the consideration received and to be received by Guarantor as a result of Lenders making extensions of credit to Borrower, and Guarantor executing and delivering this Guaranty, is reasonably worth at least as much as the liability and obligation of Guarantor hereunder, and such liability and obligation and such extensions of credit may reasonably be expected to benefit Guarantor directly or indirectly. This Guaranty shall be terminated at such time as the Obligations are fully, finally and irrevocably satisfied in full. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF TEXAS AND NOT THE LAWS OF CONFLICTS OF THE STATE OF TEXAS. AS PART OF THE CONSIDERATION FOR NEW VALUE AND BENEFIT THIS DAY RECEIVED BY GUARANTOR, GUARANTOR HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN DALLAS COUNTY OF THE STATE OF TEXAS AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO GUARANTOR AT THE ADDRESS STATED HEREIN AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. GUARANTOR WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE IN ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS GUARANTY, GUARANTOR WAIVES THE RIGHT TO TRIAL BY JURY (WHICH LENDERS HEREBY ALSO WAIVE) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS GUARANTY OR THE OBLIGATIONS. THIS WRITTEN GUARANTY, TOGETHER WITH ALL OTHER INSTRUMENTS, AGREEMENTS AND -------------------------------------------------------------------------- CERTIFICATES EXECUTED BY THE PARTIES IN CONNECTION WITH THE OBLIGATIONS OR WITH - ------------------------------------------------------------------------------- REFERENCE HERETO OR THERETO, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES - ------------------------------------------------------------------------------ AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT - -------------------------------------------------------------------------------- ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN - ------------------------------------------------------------------------------- THE PARTIES. - ------------ 6 IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date first above written. INDUSTRIAL DATA SYSTEMS CORPORATION, a Nevada corporation By: --------------------------------- Name: --------------------------------- Title: --------------------------------- 7 EX-10.59 22 dex1059.txt AMENDED AND RESTATED PATENT SECURITY AGREEMENT EXHIBIT 10.59 AMENDED AND RESTATED PATENT SECURITY AGREEMENT WHEREAS, PETROCON TECHNOLOGIES, INC., a Texas corporation ("Grantor"), ------- owns the patents, patent registrations, and patent applications listed on Schedule 1 annexed hereto, and is a party to, or has been assigned the rights - ---------- by the party to, the patent licenses listed on Schedule 1 annexed hereto; and ---------- WHEREAS, Grantor, IDS Engineering, Inc., Thermaire, Inc., Constant Power Manufacturing, Inc., IDS Engineering Management, LC, Industrial Data Systems, Inc., Petrocon Engineering, Inc., Triangle Engineers and Constructors, Inc, Petrocon Systems, Inc., Petrocon Engineering of Louisiana, Inc., R.P.M. Engineering, Inc., Alliance Engineering Associates, Inc. and Petrocon Construction Resources, Inc. (collectively, "Borrowers"), have entered into --------- that certain Second Amended and Restated Loan and Security Agreement dated as of the date hereof (as amended, modified and in effect from time to time, the "Loan Agreement") with Fleet Capital Corporation, a Rhode Island corporation, -------------- as Agent (in such capacity, "Agent"), for itself and the other financial ----- institution(s) from time to time a party thereto (collectively, together with their respective successors and assigns, the "Lenders"), providing for ------- extensions of credit to be made by Lenders to Borrowers; and WHEREAS, pursuant to the terms of the Loan Agreement, Grantor has granted to Agent, for the benefit of Lenders, a security interest in all of the assets of Grantor including all right, title and interest of Grantor in, to and under all now owned and hereafter acquired patents and patent applications, together with the goodwill of the business symbolized by Grantor's patents, and all products and proceeds thereof, to secure the payment of all amounts owing by Borrowers under the Loan Agreement, including, without limitation, the Obligations (as defined in the Loan Agreement); NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantor does hereby grant to Agent, for the benefit of Lenders, a continuing security interest in all of Grantor's right, title and interest in, to and under the following (all of the following items or types of property being herein collectively referred to as the "Patent Collateral"), whether presently existing or hereafter created or ----------------- acquired: (1) each patent, patent registration and patent application, including, without limitation, the patents, patent registrations (together with any reissues, continuations or extensions thereof) and patent applications referred to in Schedule 1 annexed hereto, ---------- and all of the goodwill of the business connected with the use of, and symbolized by, each patent, patent registration and patent application; (2) each patent license, including, without limitation, each patent license listed on Schedule 1 annexed hereto, and all of the ---------- goodwill of the business connected with the use of, and symbolized by, each patent license; and Patent Security Agreement (Petrocon Technologies, Inc.) 1 (3) all products and proceeds of the foregoing, including, without limitation, any claim by Grantor against third parties for past, present or future (a) infringement or dilution of any patent or patent registration including, without limitation, the patents and patent registrations referred to in Schedule 1 annexed ---------- hereto, the patent registrations issued with respect to the patent applications referred in Schedule 1 and the patents ---------- licensed under any patent license, or (b) injury to the goodwill associated with any patent, patent registration or patent licensed under any patent license. This security interest is granted in conjunction with the security interests granted to Agent, for the benefit of Lenders, pursuant to the Loan Agreement. Grantor hereby acknowledges and affirms that the rights and remedies of Agent and/or Lenders with respect to the security interest in the Patent Collateral made and granted hereby are more fully set forth in the Loan Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. This Amended and Restated Patent Security Agreement is given in renewal, extension, modification and amendment (and not in extinguishment or novation) of that certain Patent Security Agreement, dated June 15, 1999, executed by Grantor in favor of Agent. [Remainder of Page Intentionally Left Blank] Patent Security Agreement (Petrocon Technologies, Inc.) 2 IN WITNESS WHEREOF, Grantor, through its duly authorized officer, has caused this Patent Security Agreement to be executed as of the ____ day of December, 2001. GRANTOR: PETROCON TECHNOLOGIES, INC. By:_____________________________ Name:___________________________ Title:__________________________ Acknowledged, agreed and accepted as of the date hereof: AGENT: FLEET CAPITAL CORPORATION, as Agent By:________________________________ Dan A. Hughes Vice President Patent Security Agreement (Petrocon Technologies, Inc.) ACKNOWLEDGMENT STATE OF TEXAS [sec] [sec] ss. COUNTY OF DALLAS [sec] On the ___ day of December, 2001 before me personally appeared ____________, to me personally known or proved to me on the basis of satisfactory evidence to be the person described in and who executed the foregoing instrument as the ____________ of Petrocon Technologies, Inc., a Texas corporation, who being by me duly sworn, did depose and say that he is ____________ of Petrocon Technologies, Inc., the corporation described in and which executed the foregoing instrument; that he signed the said instrument on behalf of said corporation by order of its Board of Directors; and that he acknowledged said instrument to be the free act and deed of said corporation. ________________________________ Notary Public (Seal) My commission expires: _____________________________ Patent Security Agreement (Petrocon Technologies, Inc.) ACKNOWLEDGMENT STATE OF TEXAS [sec] [sec] ss. COUNTY OF DALLAS [sec] On the ___ day of December, 2001 before me personally appeared Dan A. Hughes to me personally known or proved to me on the basis of satisfactory evidence to be the person described in and who executed the foregoing instrument as the Vice President of Fleet Capital Corporation, who being by me duly sworn, did depose and say that he is the Vice President of Fleet Capital Corporation, the corporation described in and which executed the foregoing instrument; that he signed the said instrument on behalf of said corporation by order of its Board of Directors; and that he acknowledged said instrument to be the free act and deed of said corporation. ________________________________ Notary Public (Seal) My commission expires: _____________________________ Patent Security Agreement (Petrocon Technologies, Inc.) SCHEDULE 1 TO PATENT SECURITY AGREEMENT United States Patents --------------------- Federal Issue or Status in Patent Registration Application Patent Owner Office Number Date Foreign Patents --------------- Registration or Issue or Status in Patent Application Application Patent Owner Office Number Date Patent Security Agreement (Petrocon Technologies, Inc.) EX-10.60 23 dex1060.txt AMENDED AND RESTATED PATENT SECURITY AGREEMENT EXHIBIT 10.60 AMENDED AND RESTATED PATENT SECURITY AGREEMENT WHEREAS, Petrocon Engineering, Inc., a Texas corporation ("Grantor"), owns ------- the patents, patent registrations, and patent applications listed on Schedule 1 ---------- annexed hereto, and is a party to, or has been assigned the rights by the party to, the patent licenses listed on Schedule 1 annexed hereto; and ---------- WHEREAS, Grantor, IDS Engineering, Inc., Thermaire, Inc., Constant Power Manufacturing, Inc., IDS Engineering Management, LC, Industrial Data Systems, Inc., Triangle Engineers and Constructors, Inc., Petrocon Systems, Inc., Petrocon Technologies, Inc., Petrocon Engineering of Louisiana, Inc., R.P.M. Engineering, Inc., Alliance Engineering Associates, Inc. and Petrocon Construction Resources, Inc. (collectively, "Borrowers"), have entered into --------- that certain Second Amended and Restated Loan and Security Agreement dated as of the date hereof (as amended, modified and in effect from time to time, the "Loan Agreement") with Fleet Capital Corporation, a Rhode Island corporation, -------------- as Agent (in such capacity, "Agent"), for itself and the other financial ----- institution(s) from time to time a party thereto (collectively, together with their respective successors and assigns, the "Lenders"), providing for ------- extensions of credit to be made by Lenders to Borrowers; and WHEREAS, pursuant to the terms of the Loan Agreement, Grantor has granted to Agent, for the benefit of Lenders, a security interest in all of the assets of Grantor including all right, title and interest of Grantor in, to and under all now owned and hereafter acquired patents and patent applications, together with the goodwill of the business symbolized by Grantor's patents, and all products and proceeds thereof, to secure the payment of all amounts owing by Borrowers under the Loan Agreement, including, without limitation, the Obligations (as defined in the Loan Agreement); NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantor does hereby grant to Agent, for the benefit of Lenders, a continuing security interest in all of Grantor's right, title and interest in, to and under the following (all of the following items or types of property being herein collectively referred to as the "Patent Collateral"), whether presently existing or hereafter created or ----------------- acquired: (1) each patent, patent registration and patent application, including, without limitation, the patents, patent registrations (together with any reissues, continuations or extensions thereof) and patent applications referred to in Schedule 1 annexed hereto, ---------- and all of the goodwill of the business connected with the use of, and symbolized by, each patent, patent registration and patent application; (2) each patent license, including, without limitation, each patent license listed on Schedule 1 annexed hereto, and all of the ---------- goodwill of the business connected with the use of, and symbolized by, each patent license; and Patent Security Agreement (PEI) 1 (3) all products and proceeds of the foregoing, including, without limitation, any claim by Grantor against third parties for past, present or future (a) infringement or dilution of any patent or patent registration including, without limitation, the patents and patent registrations referred to in Schedule 1 annexed ---------- hereto, the patent registrations issued with respect to the patent applications referred in Schedule 1 and the patents ---------- licensed under any patent license, or (b) injury to the goodwill associated with any patent, patent registration or patent licensed under any patent license. This security interest is granted in conjunction with the security interests granted to Agent, for the benefit of Lenders, pursuant to the Loan Agreement. Grantor hereby acknowledges and affirms that the rights and remedies of Agent and/or Lenders with respect to the security interest in the Patent Collateral made and granted hereby are more fully set forth in the Loan Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. This Amended and Restated Patent Security Agreement is given in renewal, extension, modification and amendment (and not in extinguishment or novation) of that certain Patent Security Agreement, dated June 15, 1999, executed by Grantor in favor of Agent. [Remainder of Page Intentionally Left Blank] Patent Security Agreement (PEI) 2 IN WITNESS WHEREOF, Grantor, through its duly authorized officer, has caused this Patent Security Agreement to be executed as of the ____ day of December, 2001. GRANTOR: PETROCON TECHNOLOGIES, INC. By: _________________________ Name: _________________________ Title: _________________________ Acknowledged, agreed and accepted as of the date hereof: AGENT: FLEET CAPITAL CORPORATION, as Agent By:________________________________ Dan A. Hughes Vice President 1 Patent Security Agreement (PEI) ACKNOWLEDGMENT STATE OF TEXAS [sec] [sec] ss. COUNTY OF DALLAS [sec] On the ___ day of December, 2001 before me personally appeared , to me personally known or proved to me on the basis of satisfactory evidence to be the person described in and who executed the foregoing instrument as the _____________________ of Petrocon Engineering, Inc., a Texas corporation, who being by me duly sworn, did depose and say that he is the _____________________ of Petrocon Engineering, Inc., the corporation described in and which executed the foregoing instrument; that he signed the said instrument on behalf of said corporation by order of its Board of Directors; and that he acknowledged said instrument to be the free act and deed of said corporation. ________________________________ Notary Public (Seal) My commission expires: _____________________________ Patent Security Agreement (PEI) ACKNOWLEDGMENT STATE OF TEXAS [sec] [sec] ss. COUNTY OF DALLAS [sec] On the ___ day of December, 2001 before me personally appeared Dan A. Hughes to me personally known or proved to me on the basis of satisfactory evidence to be the person described in and who executed the foregoing instrument as the Vice President of Fleet Capital Corporation, who being by me duly sworn, did depose and say that he is the Vice President of Fleet Capital Corporation, the corporation described in and which executed the foregoing instrument; that he signed the said instrument on behalf of said corporation by order of its Board of Directors; and that he acknowledged said instrument to be the free act and deed of said corporation. ________________________________ Notary Public (Seal) My commission expires: _____________________________ Patent Security Agreement (PEI) SCHEDULE 1 TO PATENT SECURITY AGREEMENT Patent Registrations -------------------- PATENT NUMBER ISSUE DATE TITLE PATENT EXPIRES - ------------- ---------- ----- -------------- Patent Applications ------------------- PATENT NUMBER APPLICATION DATE TITLE - ------------- ---------------- ----- Patent Licenses --------------- NAME OF AGREEMENT PARTIES DATE OF AGREEMENT - ----------------- ------- ----------------- Patent Security Agreement (PEI) EX-10.61 24 dex1061.txt AMENDED AND RESTATED TRADEMARK SECURITY AGREEMENT EXHIBIT 10.61 AMENDED AND RESTATED TRADEMARK SECURITY AGREEMENT WHEREAS, R.P.M. ENGINEERING, INC., a Louisiana corporation ("Grantor"), ------- owns the trademarks, trademark registrations, and trademark applications listed on Schedule 1 annexed hereto, and is a party to, or has been assigned the ----------- rights by the party to, the trademark licenses listed on Schedule 1 annexed ---------- hereto; and WHEREAS, Grantor, IDS Engineering, Inc., Thermaire, Inc., Constant Power Manufacturing, Inc, IDS Engineering Management, LC, Industrial Data Systems, Inc., Petrocon Engineering, Inc., Triangle Engineers and Constructors, Inc., Petrocon Systems, Inc., Petrocon Technologies, Inc, Petrocon Engineering of Louisiana, Inc., Alliance Engineering Associates, Inc. and Petrocon Construction Resources, Inc. (collectively, "Borrowers"), have entered into --------- that certain Second Amended and Restated Loan and Security Agreement dated as of the date hereof (as amended, modified and in effect from time to time, the "Loan Agreement") with Fleet Capital Corporation, a Rhode Island corporation, -------------- as Agent (in such capacity, "Agent"), for itself and the other financial ----- institution(s) from time to time a party thereto (collectively, together with their respective successors and assigns, the "Lenders"), providing for ------- extensions of credit to be made by Lenders to Borrowers; and WHEREAS, pursuant to the terms of the Loan Agreement, Grantor has granted to Agent, for the benefit of Lenders, a security interest in all of the assets of Grantor including all right, title and interest of Grantor in, to and under all now owned and hereafter acquired trademarks, together with the goodwill of the business symbolized by Grantor's trademarks, and all proceeds thereof, to secure the payment of all amounts owing by Grantor under the Loan Agreement including, without limitation, the Obligations (as defined in the Loan Agreement); NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantor does hereby grant to Agent, for the benefit of Lenders, a continuing security interest in all of Grantor's right, title and interest in, to and under the following (all of the following items or types of property being herein collectively referred to as the "Trademark Collateral"), whether presently existing or hereafter created or -------------------- acquired: (1) each trademark, trademark registration and trademark application, including, without limitation, the trademarks, trademark registrations (together with any reissues, continuations or extensions thereof) and trademark applications referred to in Schedule 1 annexed hereto, and all of the goodwill of the business ---------- connected with the use of, and symbolized by, each trademark, trademark registration and trademark application; (2) each trademark license and all of the goodwill of the business connected with the use of, and symbolized by, each trademark license; and (3) all products and proceeds of the foregoing, including, without limitation, any claim by Grantor against third parties for past, present or future (a) infringement or Trademark Security Agreement 1 009111.183:179757.03 dilution of any trademark or trademark registration including, without limitation, the trademarks and trademark registrations referred to in Schedule 1 annexed hereto, the trademark registrations issued with ---------- respect to the trademark applications referred in Schedule 1 and the ---------- trademarks licensed under any trademark license, or (b) injury to the goodwill associated with any trademark, trademark registration or trademark licensed under any trademark license. This security interest is granted in conjunction with the security interests granted to Agent, for the benefit of Lenders, pursuant to the Loan Agreement. Grantor hereby acknowledges and affirms that the rights and remedies of Agent and/or Lenders with respect to the security interest in the Trademark Collateral made and granted hereby are more fully set forth in the Loan Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. This Amended and Restated Trademark Security Agreement is given in renewal, extension, modification and amendment (and not in extinguishment or novation) of that certain Trademark Security Agreement, dated June 15, 1999, executed by Grantor in favor of Agent. [Remainder of Page Intentionally Left Blank] Trademark Security Agreement 2 009111.183:179757.03 IN WITNESS WHEREOF, Grantor, through its duty authorized officer, has caused this Trademark Security Agreement to be executed as of the _____ day of December, 2001. GRANTOR: R.P.M. ENGINEERING, INC. By:___________________________________ Name:_________________________________ Title:________________________________ Acknowledged, agreed and accepted as of the date hereof: AGENT: FLEET CAPITAL CORPORATION, as Agent By:________________________________ Dan A. Hughes Vice President Trademark Security Agreement ACKNOWLEDGMENT STATE OF TEXAS (S) (S) ss. COUNTY OF DALLAS (S) On the _____ day of December, 2001 before me personally appeared _________, to me personally known or proved to me on the basis of satisfactory evidence to be the person described in and who executed the foregoing instrument as the ____________ of R.P.M. Engineering, Inc., a Louisiana corporation, who being by me duly sworn, did depose and say that he is the ___________________ of R.P.M. Engineering, Inc., the corporation described in and which executed the foregoing instrument; that he signed the said instrument on behalf of said corporation by order of its Board of Directors; and that he acknowledged said instrument to be the free act and deed of said corporation. __________________________ Notary Public (Seal) My commission expires: __________________________________ Trademark Security Agreement ACKNOWLEDGMENT STATE OF TEXAS (S) (S) ss. COUNTY OF DALLAS (S) On the day of December, 2001 before me personally appeared Dan A. ----- Hughes to me personally known or proved to me on the basis of satisfactory evidence to be the person described in and who executed the foregoing instrument as the Vice President of Fleet Capital Corporation, who being by me duly sworn, did depose and say that he is the Vice President of Fleet Capital Corporation, the corporation described in and which executed the foregoing instrument; that he signed the said instrument on behalf of said corporation by order of its Board of Directors; and that he acknowledged said instrument to be the free act and deed of said corporation. __________________________ Notary Public (Seal) My commission expires: __________________________________ Trademark Security Agreement SCHEDULE 1 TO TRADEMARK SECURITY AGREEMENT Trademark Registrations ----------------------- MARK REG. NO. DATE - ---- ------- ---- Trademark Applications ---------------------- Trademark Licenses ------------------ Name of Agreement Parties Date of Agreement - ----------------- ------- ----------------- Trademark Security Agreement EX-10.62 25 dex1062.txt INTERCREDITOR AGREEMENT EXHIBIT 10.62 INTERCREDITOR AGREEMENT This INTERCREDITOR AGREEMENT (this "AGREEMENT") is entered into by and among FLEET CAPITAL CORPORATION, a Rhode Island corporation, in its capacity as Agent and as a lender under the Senior Loan Agreement (as hereinafter defined) (in each such capacity, "SENIOR LENDER"), EQUUS II INCORPORATED, a Delaware corporation ("JUNIOR LENDER"), PETROCON ENGINEERING, INC., a Texas corporation ("BORROWER"), and each of the following (hereinafter, together with Borrower, referred to individually as a "LOAN PARTY" and collectively as the "LOAN PARTIES"), INDUSTRIAL DATA SYSTEMS CORPORATION, a Nevada corporation ("IDSC"), INDUSTRIAL DATA SYSTEMS, INC., a Texas corporation, IDS ENGINEERING, INC., a Texas corporation, THERMAIRE, INC., a Texas corporation, CONSTANT POWER MANUFACTURING, INC., a Texas corporation, IDS ENGINEERING MANAGEMENT, LC, a Texas limited liability company, TRIANGLE ENGINEERS AND CONSTRUCTORS, INC., a Texas corporation, PETROCON SYSTEMS, INC., a Texas corporation, PETROCON ENGINEERING OF LOUISIANA, INC., a Louisiana corporation, R.P.M. ENGINEERING, INC., a Louisiana corporation, PETROCON CONSTRUCTION RESOURCES, INC., a Texas corporation, PETROCON TECHNOLOGIES, INC., a Texas corporation, and ALLIANCE ENGINEERING ASSOCIATES, INC., a Texas corporation. BACKGROUND 1. Borrower is indebted to Senior Lender pursuant to that certain Loan and Security Agreement dated as of June 15, 1999, between Borrower, certain subsidiaries of Borrower, and Senior Lender (as amended, restated, extended or otherwise modified from time to time, including, without limitation, as amended and restated by that certain Second Amended and Restated Loan and Security Agreement dated on or about the date hereof, executed by Senior Lender, Borrower, et al., the "SENIOR LOAN AGREEMENT"). All of Borrower's and each other Loan Party's obligations pursuant to the Senior Loan Agreement and the other Senior Debt Documents (as hereinafter defined) are secured by liens on and security interests in substantially all of the now existing and hereafter acquired real and personal property of Borrower and each other Loan Party (the "COLLATERAL"). 2. Borrower is indebted to Junior Lender pursuant to that certain Promissory Note, dated on or about the date hereof, in the original principal amount of $3,000,000 (as amended, restated, extended or otherwise modified from time to time, and including all notes issued in replacement of, or in substitution for, the foregoing, collectively, the "JUNIOR TERM NOTE"), made by Borrower to Junior Lender and issued pursuant to that certain Settlement Agreement and Plan of Reorganization dated July 31, 2001, among Borrower, Junior Lender, PEI Acquisition, Inc. and IDSC (as amended or otherwise modified from time to time, the "SETTLEMENT AGREEMENT"). All of Borrower's obligations pursuant to the Junior Term Note are secured by liens on and security interests in the Collateral. 3. Junior Lender and Senior Lender have entered into this Agreement to set forth the relative rights and priorities of the respective parties under the Junior Debt Documents (as hereinafter defined) and Senior Debt Documents (including, without limitation, the relative priorities of the respective parties liens and security interests in and to the Collateral). 1 NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Senior Lender, Junior Lender and Borrower and each other Loan Party hereby agree as follows: SECTION 1. CERTAIN DEFINITIONS. The following terms shall have the following meanings for purposes of this Agreement: "BANKRUPTCY CODE" means Chapter 11 of Title 11 of the United States Code (11 U.S.C. (S) 101 et seq.), as amended from time to time and any successor statute and all rules and regulations promulgated thereunder. "DISTRIBUTION" means, with respect to any indebtedness, (A) any payment or distribution by any Person of cash, securities or other property, by set-off or otherwise, on account of such indebtedness or obligation, (B) any redemption, purchase or other acquisition of such indebtedness or obligation by any Person, or (C) the granting of any lien or security interest to or for the benefit of the holders of such indebtedness or obligation in or upon any property of any Person. "ENFORCEMENT ACTION" means any of the following: (A) to take from or for the account of any Obligated Party by set-off or in any similar manner (but not by virtue of any payment made by any Obligated Party), the whole or any part of any monies which may now or hereafter be owing by any Obligated Party with respect to the Junior Debt; (B) to sue for payment of, or to initiate or participate with others in any suit, action or proceeding against any Obligated Party or any other Person (i) to enforce payment of or to collect the whole or any part of the Senior Debt or Junior Debt or (ii) to enforce any other rights, powers, privileges or remedies under the Senior Debt Documents or Junior Debt Documents; or (C) to take any action under the provisions of any state or federal law, including, without limitation, the Uniform Commercial Code, to enforce, foreclose upon, take possession of or sell any property or assets of any Obligated Party or any guarantor of all or any part of the Senior Debt or Junior Debt, including, in the case of any Obligated Party, any of the Collateral. "JUNIOR COSTS AND EXPENSES" means costs and expenses payable by any Obligated Party pursuant to the terms of the Junior Debt Documents, without giving effect to any amendment or supplement to, or other modification thereof, after the date of this Agreement, except for any of the foregoing previously consented to in writing by Senior Lender. "JUNIOR DEBT" means all obligations of any Obligated Party to Junior Lender evidenced by the Junior Term Note and/or other Junior Debt Documents. "JUNIOR DEBT DOCUMENTS" means the Settlement Agreement, all notes issued thereunder or in connection therewith to Junior Lender, including the Junior Term Note, and all other documents, instruments, and agreements, evidencing, guaranteeing, pertaining to, or securing all or any portion of the Junior Debt. "OBLIGATED PARTY" means Borrower and each other Person who now or hereafter executes and delivers any guaranties or security documents in favor of Senior Lender with respect to the 2 Senior Debt (including, without limitation, each Loan Party) or in favor of Junior Lender with respect to the Junior Debt. "PERSON" means any natural person, corporation, general or limited partnership, limited liability company, firm, trust, association, government, governmental agency or other entity, whether acting in an individual, fiduciary or other capacity. "PLAN" means any plan of partial or complete liquidation, reorganization, readjustment, arrangement, composition or extension. "PROCEEDING" means any voluntary or involuntary insolvency, bankruptcy, receivership, custodianship, liquidation, dissolution, reorganization, assignment for the benefit of creditors, appointment of a custodian, receiver, trustee or other officer with similar powers or any other proceeding for the liquidation, dissolution or other winding up of a Person. "SENIOR COVENANT DEFAULT" means any Senior Event of Default other than a Senior Payment Default. "SENIOR DEBT" means the "Obligations" as such term is defined in the Senior Loan Agreement together with (A) any partial or complete refinancing of the Obligations, and (B) any interest accruing on any of the foregoing after the commencement of a Proceeding, without regard to whether or not such interest is an allowed claim. Senior Debt shall be considered to be outstanding whenever any loan commitment under the Senior Loan Agreement is outstanding. "SENIOR DEBT DOCUMENTS" means the Senior Loan Agreement and all other documents, instruments and agreements evidencing, guaranteeing, pertaining to or securing all or any portion of the Senior Debt. "SENIOR EVENT OF DEFAULT" means any "Default" or "Event of Default" as such terms are defined in the Senior Loan Agreement. "SENIOR TERM LOAN" means the "Term Loan" as such term is defined in the Senior Loan Agreement together with (A) any partial or complete refinancing of the Term Loan, and (B) any interest accruing on the Term Loan after the commencement of a Proceeding, without regard to whether or not such interest is an allowed claim. SECTION 2. GENERAL. Each of Borrower and each other Loan Party and Junior Lender agrees that, notwithstanding anything to the contrary contained in any Junior Debt Documents, the Junior Debt shall be, and hereby is, subordinated in right and time of payment to the prior payment in full in cash of all Senior Debt, to the extent and in the manner provided herein. SECTION 3. LIQUIDATION; DISSOLUTION; BANKRUPTCY. In the event of any Proceeding involving any Obligated Party or any sale, transfer or other disposition of all or substantially all of the assets of any Obligated Party: (A) All Senior Debt shall first be paid in full in cash, before any Distribution, whether in cash, securities or other property, shall be made to Junior Lender on account of any Junior Debt. 3 (B) Any Distribution which would otherwise, but for the provisions of this Agreement, be payable or deliverable in respect of any Junior Debt, shall be paid or delivered directly to Senior Lender in payment of Senior Debt until all Senior Debt is paid in full, and Junior Lender irrevocably authorizes, empowers and directs any debtor, debtor in possession, receiver, liquidator, custodian, conservator, trustee or other Person having authority, to pay or otherwise deliver all such Distributions to Senior Lender as aforesaid, and irrevocably authorizes and empowers Senior Lender, in the name of Junior Lender, to demand, sue for, collect, receive and receipt for any and all such Distributions to effect payment or other delivery thereof to Senior Lender. (C) Junior Lender agrees that Senior Lender may consent to the use of cash collateral or provide financing to any Obligated Party on such terms and conditions and in such amounts as Senior Lender, in its sole discretion, may decide and, in connection therewith, each Obligated Party may grant to Senior Lender liens and security interests upon any and all property of such Obligated Party, which liens and security interests (I) shall secure payment of all Senior Debt (whether such Senior Debt arose prior to the commencement of any Proceeding or at any time thereafter); and (II) shall be superior in priority to the liens and security interests, if any, in favor of Junior Lender on any property of such Obligated Party. Junior Lender agrees that it will not object to or oppose a sale or other disposition of any property securing all or any part of the Senior Debt free and clear of security interests, liens or other claims of Junior Lender under Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code if Senior Lender has consented to such sale or disposition. Junior Lender agrees not to assert any right it may have to "adequate protection" of Junior Lender's interest in any Collateral in any Proceeding and agrees that it will not seek to have the automatic stay lifted with respect to Collateral, without the prior written consent of Senior Lender. Junior Lender waives any claim it may now or hereafter have arising out of Senior Lender' election, in any Proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code, and/or any borrowing or grant of a security interest under Section 364 of the Bankruptcy Code by any Obligated Party, as debtor in possession. Junior Lender agrees it will not seek participation or participate on any creditor's committee without Senior Lender's prior written consent. (D) The Senior Debt shall continue to be treated as Senior Debt and the provisions of this Agreement shall continue to govern the relative rights and priorities of Senior Lender and Junior Lender even if all or part of the Senior Debt or the security interests securing the Senior Debt are subordinated, set aside, avoided, invalidated or disallowed in connection with any Proceeding, or sale, or transfer or other distribution of all or substantially all of the assets of any Obligated Party, and this Agreement shall be reinstated if at any time any payment of any of the Senior Debt is rescinded or must otherwise be returned by any holder of Senior Debt or any representative of such holder. (E) Junior Lender agrees not to initiate or prosecute or encourage any other Person to initiate or prosecute any claim, action, or other proceeding challenging the enforceability, validity, perfection, priority or enforceability of the Senior Debt or any liens and security interests securing the Senior Debt. (F) Junior Lender agrees to execute, verify, deliver and file any proofs of claim in respect of the Junior Debt requested by Senior Lender in connection with any Proceeding and hereby 4 irrevocably authorizes, empowers and appoints Senior Lender its agent and attorney-in-fact to (i) execute, verify, deliver and file such proofs of claim upon the failure of Junior Lender promptly to do so (and, in any event, prior to 30 days before the expiration of the time to file any such proof) and (ii) vote such claim in any such Proceeding upon the failure of Junior Lender to do so prior to 15 days before the expiration of the time to vote any such claim; provided Senior Lender shall have no obligation to execute, verify, deliver, file and/or vote any such proof of claim. In the event that Senior Lender votes any claim in accordance with the authority granted hereby, Junior Lender shall not be entitled to change or withdraw such vote. SECTION 4. PERMITTED PAYMENTS TO JUNIOR LENDER. Except as otherwise provided in this Agreement, an Obligated Party may pay to Junior Lender when due, on a non-accelerated basis, payments of Junior Costs and Expenses and regularly scheduled payments of principal and interest on the Junior Term Note (in each case without giving effect to any amendment thereof not consented to in writing by Senior Lender); provided, however, that in no event shall any Obligated Party pay, or Junior Lender take and retain, (i) any prepayment of principal on the Junior Term Note until the Senior Debt shall have been paid in full in cash or (ii) any scheduled payment of principal on the Junior Term Note until the Senior Term Loan shall have been paid in full in cash. SECTION 5. STAND STILL PROVISIONS. 5.1. Enforcement Action by Junior Lender. Until the Senior Debt is paid in full in cash, Junior Lender shall not, without the prior written consent of Senior Lender, accelerate or take any Enforcement Action with respect to the Junior Debt, until the earliest to occur of the following and in any event, no earlier than ten (10) days after Senior Lender's receipt of written notice of Junior Lender's intention to take such action: (I) acceleration of the Senior Debt or the initiation of an Enforcement Action by Senior Lender; or (II) a date one hundred eighty (180) days after receipt by Junior Lender of notice of the existence of a Senior Event of Default; provided, however, that, notwithstanding anything to the contrary contained in this Agreement or any of the Junior Debt Documents, unless and until all Senior Debt has been paid in full in cash, (I) Junior Lender shall not in any event take any Enforcement Action with respect to the Collateral or any property or assets of any guarantor of the Junior Debt, and (II) all Distributions or proceeds of any Enforcement Action shall be paid or delivered to Senior Lender, as provided herein. 5.2. Rescinding of Enforcement Action. Notwithstanding anything contained herein to the contrary, if, following acceleration of the Senior Debt by Senior Lender, such acceleration is rescinded whether or not any existing Senior Event of Default has been cured, then all Enforcement Action taken by Junior Lender, solely as a result of the acceleration of the Senior Debt shall likewise be rescinded or terminated. SECTION 6. PAYMENTS RECEIVED IN TRUST. In the event any Distribution, inclusive of any voluntary or mandatory prepayment of Junior Debt, is made to Junior Lender, other than as expressly permitted by the terms of this Agreement, such Distribution shall not be commingled with any asset 5 of Junior Lender, shall be held in trust by Junior Lender for the benefit of Senior Lender and shall be promptly paid over to Senior Lender or its designated representative for application (in accordance with the Senior Loan Agreement) to the payment of the Senior Debt then remaining unpaid, until the Senior Debt is paid in full. SECTION 7. RELATIVE RIGHTS. This Agreement defines the relative rights of Senior Lender and Junior Lender. Nothing in this Agreement shall: A) impair, as between any Obligated Party and Senior Lender and any Obligated Party and Junior Lender, the obligation of such Obligated Party with respect to payment of the Senior Debt and the Junior Debt in accordance with their respective terms; or B) affect the relative rights of Senior Lender or Junior Lender with respect to other creditors of any Obligated Party. SECTION 8. SUBROGATION. Junior Lender hereby waives all rights of subrogation to the claims of Senior Lender against any Obligated Party, and all rights of recourse to any security for any Senior Debt, until such time as all Senior Debt shall be paid in full in cash and Senior Lender shall have no further obligation to advance funds or extend credit under any of the Senior Debt Documents, at which time, Junior Lender shall be subrogated to the rights of Senior Lender to receive Distributions applicable to Senior Debt to the extent that Distributions otherwise payable to the Junior Lender have been applied to the payment of Senior Debt; provided, however, that if any payment to Senior Lender is rescinded as a result of a Proceeding or otherwise, the subrogation of Junior Lender as provided herein shall likewise be rescinded until all of the Senior Debt is paid in full in cash. A Distribution made pursuant to this Agreement to Senior Lender which otherwise would have been made to Junior Lender is not, as between any Obligated Party and Junior Lender, a payment by such Obligated Party to or on account of the Senior Debt. SECTION 9. NO PREJUDICE OR IMPAIRMENT. No right of Senior Lender to enforce the subordination of the Junior Debt shall be impaired by any act or failure to act by any Obligated Party or by its failure to comply with this Agreement. Without limiting the generality of the foregoing, the rights of Senior Lender under this Agreement shall remain in full force and effect without regard to, and shall not be impaired by: (A) any act or failure to act of any Obligated Party or Junior Lender, or any noncompliance by any Obligated Party or Junior Lender with any agreement or obligation, regardless of any knowledge thereof which Senior Lender may have, (B) the validity or enforceability of the Senior Debt Documents, (C) subject to Section 10 hereof, any extension or indulgence in respect of any payment or prepayment of the Senior Debt or any part thereof or in respect of any other amount payable to Senior Lender, (D) subject to Section 10 hereof, any amendment, modification or waiver of any of the terms of the Senior Debt Documents or the Junior Debt Documents, (E) any exercise, delayed exercise or non-exercise by Senior Lender of any right, power, privilege or remedy under or in respect of any Senior Debt, the Collateral or this Agreement, (F) any other action of Senior Lender permitted under the Senior Debt Documents or this Agreement or (G) the absence of any notice to, or knowledge by, Junior Lender of the existence, creation or non-payment of all or any part of the Senior Debt, or the occurrence of any of the matters or events set forth in the foregoing clauses (A) through (F), except as such notice shall be required pursuant to the terms hereof. 6 SECTION 10. MODIFICATIONS. 10.1. Modifications to Senior Debt Documents. Senior Lender may at any time and from time to time without the consent of or notice to Junior Lender, without incurring liability to Junior Lender and without impairing or releasing the obligations of Junior Lender under this Agreement, change the manner or place of payment or extend the time of payment of or renew any Senior Debt, or amend in any manner any agreement, note, guaranty or other instrument evidencing or securing or otherwise relating to any Senior Debt; provided, however, that Senior Lender may not extend the scheduled maturity date of the Senior Debt without the consent of the Junior Lender. 10.2. Modifications to Junior Debt Documents. Until the Senior Debt is paid in full in cash and notwithstanding any provision to the contrary contained in the Junior Debt Documents or the Senior Loan Documents, Junior Lender shall not, without the prior written consent of Senior Lender, agree to any amendment, modification or supplement to the Junior Debt Documents, the effect of which is to (i) increase the maximum principal amount of the Junior Debt or rate of interest on any of the Junior Debt, (ii) change the dates upon which payments of principal or interest on the Junior Debt are due, (iii) change or add any event of default or any covenant with respect to the Junior Debt, (iv) change the redemption or prepayment provisions of the Junior Debt, (v) alter the subordination provisions with respect to the Junior Debt, including, without limitation, subordinating the Junior Debt to any other debt, (vi) change the maturity date of any of the Junior Debt or otherwise to alter the repayment terms of the Junior Debt, (vii) take any other liens or security interests in any assets of any Obligated Party, (viii) change or amend any other term of the Junior Debt Documents if such change or amendment would increase the obligations of any Obligated Party or confer additional material rights on Junior Lender or any other holder of the Junior Debt in a manner adverse to any Obligated Party or Senior Lender. SECTION 11. LEGENDS. 11.1. Legend on Junior Term Note. Until the termination of this Agreement, Junior Lender shall mark its books and records, and cause each Obligated Party to mark its books and records, so as to clearly indicate that all Junior Debt is subordinated in accordance with the terms hereof, and shall cause to be clearly, conspicuously and prominently inserted on the face of the Junior Term Note and on any renewals or replacements thereof, and on the face of all other promissory notes or other instruments which at any time evidence any Junior Debt, substantially the following legend: This Note is subject to an Intercreditor Agreement, dated as of December ____, 2001, among Fleet Capital Corporation, a Rhode Island corporation, Petrocon Engineering, Inc., and Equus II Incorporated, a Delaware corporation, et al. This Note is subordinated in right and time of payment to the prior payment in full in cash of all Senior Debt (as defined therein) in accordance with, and to the extent specified in, such Intercreditor Agreement and each holder of this Note, by its acceptance hereof, irrevocably agrees to be bound by the terms and provisions of such Intercreditor Agreement. 11.2. Delivery of Junior Term Note. Concurrently with the execution and delivery of this Agreement, Junior Lender will deliver to Senior Lender a true, complete and correct copy of the original Junior Term Note marked with such legend. 7 SECTION 12. REPRESENTATIONS. 12.1. Representations and Warranties of Junior Lender. Junior Lender hereby represents and warrants to Senior Lender that as of the date hereof, (A) Junior Lender has not assigned any interest in the Junior Debt, the Junior Term Note or any of the other Junior Debt Documents, (B) no other Person owns an interest in the Junior Debt, the Junior Term Note or any of Junior Lender's rights under or in respect of any other Junior Debt Documents (whether as joint holders thereof, participants, or otherwise), (C) the aggregate outstanding original principal balance of the Junior Debt is $3,000,000, (D) Junior Lender is a corporation, duly formed and validly existing under the laws of the State of Delaware (E) the execution and delivery of this Agreement and the performance by Junior Lender of its obligations hereunder are within its corporate powers, have been duly authorized by all necessary corporate action, have received all necessary governmental approvals (if any shall be required), and do not and will not contravene or conflict with any provision of law or of the constituent documents of Junior Lender, including, without limitation its certificate of incorporation, or any material agreement binding upon or applicable to Junior Lender or any of its property, and (F) this Agreement is the legal, valid and binding obligation of Junior Lender, enforceable against Junior Lender in accordance with its terms, except to the extent such enforceability may be limited by general equitable principles or bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors rights generally. 12.2. Representations and Warranties of Senior Lender. Senior Lender hereby represents and warrants to Junior Lender that as of the date hereof, (A) Senior Lender is a Delaware corporation, duly formed and validly existing under the laws of the State of Delaware, (B) the execution and delivery of this Agreement and the performance by Senior Lender of its obligations hereunder are within its corporate powers, and have been duly authorized by all necessary corporate action, (C) this Agreement is the legal, valid and binding obligation of Senior Lender, enforceable against Senior Lender in accordance with its terms, except to the extent such enforceability may be limited by general equitable principles or bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditor's rights generally. SECTION 13. SECURITY INTERESTS AND LIENS. Junior Lender hereby agrees that any and all security interests in and liens on any Collateral in favor of Junior Lender, shall be and hereby are subordinated for all purposes and in all respects to the security interests and liens of Senior Lender upon such property, regardless of the date, manner or order of perfection of any such security interests or liens. In the event Senior Lender releases any of its liens on or security interests in all or any part of the Collateral in connection with the sale or other disposition thereof at the request of the relevant Obligated Party or pursuant to any Enforcement Action by Senior Lender, Junior Lender shall thereupon promptly execute and deliver to Senior Lender such termination statements and releases as Senior Lender shall reasonably request to effect the release of Junior Lender's security interest in or lien on such Collateral. In furtherance of the foregoing, Junior Lender hereby irrevocably appoints Senior Lender as its attorney-in-fact, with full authority in the place and stead of Junior Lender and in the name of Junior Lender or otherwise, to execute and deliver any document or instrument which Junior Lender is required to deliver pursuant to this Section 13. 8 SECTION 14. MARSHALING. Junior Lender hereby waives any rights it may have under applicable law to assert the doctrine of marshaling or otherwise to require Senior Lender to marshal any property of any Obligated Party for the benefit of Junior Lender. SECTION 15. WAIVER OF RIGHTS. Junior Lender hereby waives, to the extent permitted by applicable law, any rights it may have to enjoin or otherwise obtain a judicial or administrative order preventing Senior Lender from taking, or refraining from taking, any action with respect to all or any part of the Collateral. SECTION 16. CONTINUATION; TERMINATION OF AGREEMENT. This Agreement shall remain in full force and effect until the payment in full in cash of all Senior Debt. SECTION 17. SPECIFIC PERFORMANCE. Senior Lender is hereby authorized to demand specific performance of the provisions of this Agreement, at any time when any Loan Party or Junior Lender shall have failed to comply with any provision hereof. Each Loan Party or Junior Lender hereby irrevocably waive any defense based on the adequacy of a remedy at law that might be asserted as a bar to such remedy of specific performance. SECTION 18. FURTHER ASSURANCES. Each party hereto will, upon the written request of any other party hereto, from time to time execute and deliver or cause to be executed and delivered such further instruments and agreements and do or cause to be done such further acts as may be reasonably necessary or proper to carry out more effectively the provisions of this Agreement. SECTION 19. NOTICES. Unless otherwise specifically provided herein, all notices shall be in writing addressed to the respective party as set forth below and may be personally served, telecopied or sent by overnight courier service or United States mail and shall be deemed to have been given: (A) if delivered in person, when delivered; (B) if delivered by telecopy, on the date of transmission if transmitted on a business day before 4:00 p.m. (Dallas time) or, if not, on next succeeding business day; or (C) if delivered by overnight courier, two days after delivery to such courier properly addressed; or (D) if by U.S. Mail, four business days after depositing in the United States mail, with postage prepaid and properly addressed: a. if to Senior Lender, at: Fleet Capital Corporation 5950 Sherry Lane, Suite 300 Dallas, Texas 75225 Attention: Loan Administration Manager-Petrocon Engineering, Inc. Facsimile: (214) 706-7066 9 with a copy to: Patton Boggs LLP 2001 Ross Avenue, Suite 3000 Dallas, Texas 75201 Attention: R. Jeffery Cole Facsimile: (214) 758-1550 b. if to Junior Lender, at: Equus II Incorporated 2929 Allen Parkway, 25th Floor Houston, Texas 77019 Attention: Randall B. Hale Facsimile: (713) 529-9545 c. if to Borrower or any other Loan Party, at: Petrocon Engineering, Inc. 3155 Executive Blvd. Beaumont, Texas 77705 Attention: Michael L. Burrow Facsimile: (713) 880-6300 or to such other address as the party addressed shall have previously designated by written notice to the serving party given in accordance with this SECTION 19. SECTION 20. SUCCESSORS AND ASSIGNS. 20.1. Assignment of Junior Debt. This Agreement shall be binding upon and inure to the benefit of Senior Lender, Junior Lender and each Loan Party and each of their respective successors, transferees and assigns; provided, however, Junior Lender shall have the right to assign the Junior Debt to any Person, who, prior to the effectiveness of any assignment, expressly assumes in writing and agrees to be bound by the provisions of this Agreement. Notwithstanding any failure of any assignee of Junior Lender to execute any such assignment and assumption, the subordination effected hereby shall survive any such assignment or other transfer, and the terms of this Agreement shall be binding on all successors and assigns of Junior Lender. 20.2. Assignment of Senior Debt. To the extent permitted under the Senior Loan Agreement, Senior Lender may, from time to time, without notice to Junior Lender or any Loan Party, assign or transfer any or all of the Senior Debt or any interest therein, to any Person other than to any affiliate or equity holder of any Loan Party, and notwithstanding any such assignment or transfer, or any subsequent assignment or transfer thereof, the Senior Debt shall be and remain Senior Debt for purposes of this Agreement, and every immediate and successive permitted assignee or transferee of any of the Senior Debt or of any interest therein shall, to the extent of the interest of such permitted assignee or transferee in the Senior Debt, be entitled to rely upon and be the third party beneficiary of the subordination provided under this Agreement and shall be entitled to enforce 10 the terms and provisions hereof to the same extent as if such assignee or transferee were initially a party hereto. 20.3. A Loan Party's Successors. As used in this Agreement, the term "Loan Party" shall include any receiver, trustee, custodian or debtor in possession which is the successor to such Loan Party. SECTION 21. GOVERNING LAW. This Agreement shall be construed and interpreted, and the rights of the parties shall be determined, in accordance with the laws of the State of Texas, without regard to principles of conflict of laws. SECTION 22. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement constitutes the entire agreement among the parties pertaining to the subject matter hereof. There are no other agreements among the parties in connection with the subject matter hereof except as specifically set forth herein or contemplated hereby. No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by Junior Lender and Senior Lender. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof, nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. SECTION 23. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. SECTION 24. INVALIDITY. In the event one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid or unenforceable in any respect, such invalidity or unenforceability shall not affect any other provision of this Agreement. SECTION 25. HEADINGS. The headings of the several sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. SECTION 26. SUBMISSION TO JURISDICTION. SENIOR LENDER MAY ENFORCE ANY CLAIM ARISING OUT OF THIS AGREEMENT IN ANY STATE OR FEDERAL COURT HAVING SUBJECT MATTER JURISDICTION AND LOCATED IN DALLAS, TEXAS. FOR THE PURPOSE OF ANY ACTION OR PROCEEDING INSTITUTED WITH RESPECT TO ANY SUCH CLAIM, EACH LOAN PARTY AND JUNIOR LENDER HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF SUCH COURTS. EACH OF EACH LOAN PARTY AND JUNIOR LENDER HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF SAID COURTS BY MAILING A COPY THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO SUCH PERSON AT THE RESPECTIVE ADDRESSES SET FORTH IN SECTION 19 HEREOF AND AGREE THAT SUCH SERVICE, TO THE FULLEST EXTENT PERMITTED BY LAW, (I) SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON SUCH PERSON IN ANY SUCH SUIT, ACTION OR PROCEEDING AND (II) SHALL BE TAKEN AND HELD TO BE VALID PERSONAL SERVICE UPON AND PERSONAL DELIVERY TO SUCH PERSON. NOTHING HEREIN CONTAINED HEREIN SHALL AFFECT THE RIGHTS OF SENIOR LENDER TO 11 SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR PRECLUDE SENIOR LENDER FROM BRINGING AN ACTION OR PROCEEDING IN RESPECT HEREOF IN ANY OTHER COUNTRY, STATE OR PLACE HAVING JURISDICTION OVER SUCH ACTION. EACH LOAN PARTY AND JUNIOR LENDER EACH HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH SUCH PERSON NOW OR HEREAFTER MAY HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. SECTION 27. JURY TRIAL. EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES HEREUNDER OR UNDER ANY AGREEMENT, DOCUMENT OR INSTRUMENT DELIVERED OR WHICH MAY HEREAFTER BE DELIVERED IN CONNECTION HEREWITH, OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION HEREWITH, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. [SIGNATURE PAGE FOLLOWS] 12 IN WITNESS WHEREOF, this Agreement has been made and delivered as of the ___ day of __________, 2001. FLEET CAPITAL CORPORATION By: ----------------------------------- Name: Dan A. Hughes ----------------------------------- Title: Vice President ----------------------------------- EQUUS II INCORPORATED By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- PETROCON ENGINEERING, INC. By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- INDUSTRIAL DATA SYSTEMS CORPORATION By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- IDS ENGINEERING, INC. By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- THERMAIRE, INC. By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- CONSTANT POWER MANUFACTURING, INC. By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- INDUSTRIAL DATA SYSTEMS, INC. By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- IDS ENGINEERING MANAGEMENT, LC By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- TRIANGLE ENGINEERS AND CONSTRUCTORS, INC. By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- PETROCON SYSTEMS, INC. By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- PETROCON ENGINEERING OF LOUISIANA, INC. By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- R.P.M. ENGINEERING, INC. By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- PETROCON CONSTRUCTION RESOURCES, INC. By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- PETROCON TECHNOLOGIES, INC. By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- ALLIANCE ENGINEERING ASSOCIATES, INC. By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- EX-21.1 26 dex211.txt SUBSIDIARIES EXHIBIT 21.1 SUBSIDIARIES OF REGISTRANT Industrial Data Systems, Inc. Incorporated in the State of Texas IDS Engineering, Inc. Incorporated in the State of Texas Thermaire, Inc. dba Thermal Corp. Incorporated in the State of Texas Constant Power Manufacturing, Inc. Incorporated in the State of Texas Petrocon Engineering, Inc. Incorporated in the State of Texas Petrocon Engineering of Louisiana Incorporated in the State of Louisiana Petrocon Systems, Inc. Incorporated in the State of Texas Petrocon Construction Resources, Inc. Incorporated in the State of Texas Triangle Engineers and Constructors, Incorporated in the State of Inc. Texas RPM Engineering, Inc. Incorporated in the State of Louisiana -----END PRIVACY-ENHANCED MESSAGE-----