-----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, QHJNZ77tcJimlLUmZyUvJyTucmIOsw1wnGyAD0KEFWtpE2LCEKdosbhe1YkIzZRU KpwToSit/R0cAi4vb4juwQ== 0001047469-99-013900.txt : 19990408 0001047469-99-013900.hdr.sgml : 19990408 ACCESSION NUMBER: 0001047469-99-013900 CONFORMED SUBMISSION TYPE: 10KSB40/A PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990407 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: 10KSB40/A SEC ACT: SEC FILE NUMBER: 001-14217 FILM NUMBER: 99589067 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 10KSB40/A 1 10KSB40 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB/A (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, 1998 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, Houston, Texas 77073-6013 Issuer's telephone number (281) 821-3200 Securities registered pursuant to Section 12(b) of the Exchange Act: Title of each class Name of each exchange 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-KSB/A or any amendment to this Form 10-KSB/A. X --- The issuer's revenues for fiscal year ended December 31, 1998 were $13,432,825. The aggregate market value of the voting stock held by non-affiliates of the registrant on December 31, 1998 was $26,192,708. The number of shares outstanding of the registrant's classes of stock on December 31, 1998 is as follows: $0.001 Par Value Common Stock...................13,073,718 shares DOCUMENTS INCORPORATED BY REFERENCE Responses to Items 9, 10, 11 and 12 of Part III of this report are incorporated herein by reference to certain information contained in the Company's definitive proxy statement for its 1999 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 1999. Transitional Small Business Disclosure Format: Yes No X --- --- INDUSTRIAL DATA SYSTEMS CORPORATION 1998 FORM 10-KSB/A TABLE OF CONTENTS PART I Item 1. Description of Business............................................... 1 Item 2. Description of Property...............................................15 Item 3. Legal Proceedings.....................................................16 Item 4. Submission of Matters to a Vote of Security Holders...................16 PART II Item 5. Market for Common Equity and Related Stockholder Matters..............17 Item 6. Management's Discussion and Analysis or Plan of Operation.............18 Item 7. Financial Statements .................................................23 Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure..................................................40 PART III Item 9. Directors and Executive Officers; Promoters and Control Persons, Compliance with Section 16(a) of the Exchange Act.....................40 Item 10. Executive Compensation................................................40 Item 11. Security Ownership of Certain Beneficial Owners and Management........40 Item 12. Certain Relationships and Related Transactions........................40 PART IV Item 13. Exhibits and Reports on Form 8-K .....................................40 Signatures......................................................................48
i PART I 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-KSB/A. THE DISCUSSION IN THIS ANNUAL REPORT ON FORM 10-KSB/A CONTAINS FORWARD LOOKING STATEMENTS WHICH INVOLVE RISKS AND OTHER UNCERTAINTIES. IN PARTICULAR, THE COMPANY'S BUSINESS AND FINANCIAL AFFAIRS COULD BE ADVERSELY EFFECTED BY DECREASES IN OIL PRICES, BY INABILITY TO GET PARTS FROM VENDORS AND BY ITS INABILITY TO RENEW ITS LINE OF CREDIT. 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" REFERS TO THE COMPANY'S WHOLLY OWNED SUBSIDIARY, THERMAIRE, INC. DBA THERMAL CORP. REFERENCES TO "CPM" REFERS TO THE COMPANY'S WHOLLY OWNED SUBSIDIARY, CONSTANT POWER MANUFACTURING, INC. REFERENCES TO "IDS FAB" REFERS TO THE COMPANY'S WHOLLY OWNED SUBSIDIARY, IDS FABRICATED SYSTEMS, INC. DBA MARINE AND INDUSTRIAL FIRE AND SAFETY AND MARINE AND INDUSTRIAL SUPPLY COMPANY. THE CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS RELATED TO THESE SUBSIDIARIES ARE INCLUDED IN THIS ANNUAL REPORT ON FORM 10-KSB/A. ITEM 1. DESCRIPTION OF BUSINESS GENERAL IDSC 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." Prior to June 16, 1998, the Company's Common Stock was traded on the NASDAQ Electronic Bulletin Board under the symbol "IDDS." 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. The Company's revenue is derived from its five operating wholly owned subsidiaries. IDS IDS is a Texas corporation, which was formed in May 1985, and is a wholly owned subsidiary of the Company. IDS was originally formed to provide engineering consulting services to the pipeline divisions of major integrated oil companies. The Company grew slowly to ten employees in 1989. At that time, a strategic decision was made by management to enter the industrial computer marketplace. In 1989, the Company designed and built its first industrial computer and in 1991 hired its first marketing manager. The Company continued to support both businesses and developed its industrial computer business through nationwide advertising. On August 1, 1994, the Company entered into an agreement to purchase all of the issued and outstanding shares of Industrial Data Systems, Inc., in a tax-free exchange of Common Stock. The Company issued 9,500,000 shares of its Common Stock to William A. Coskey and Hulda L. Coskey, with each individual beneficially holding 4,750,000, respectively. At the time 1 of acquisition, William A. Coskey and Hulda L. Coskey beneficially held all of the issued and outstanding shares of the Common Stock of Industrial Data Systems, Inc., a Texas corporation. William A. Coskey held the positions of Chairman of the Board, Chief Executive Office and President of Industrial Data Systems, Inc., and Hulda L. Coskey held the positions of Director, Vice President and Secretary/Treasurer of Industrial Data Systems, Inc. The executive officers, management team and beneficial ownership of securities held by the executive officers were the same in both companies at the time of the transaction. IDS is a provider of specialized microcomputer products that are targeted to be sold to the industrial market. IDS manufactures, provides systems integration and resells industrial and portable computers, microcomputers and color CRT monitors. The microcomputer and peripheral products are designed to be used in industrial applications, which include manufacturing, process control, discrete manufacturing, data acquisition, telecommunications and man-machine interfaces. The computers and monitors that are manufactured by the Company are different from conventional, commercial desktop and portable computers by their architecture, packaging, functionality, integration services and value-added software. The computer products manufactured by IDS are "open systems" that support "off-the-shelf" software operated under DOS or Windows. IDS seeks to add value to standard computer components by packaging these components in enclosures that withstand tough environmental conditions and/or enclosures that have a special form factor. IDS also seeks to add value by integrating and technically supporting advanced microcomputer systems. IED On October 15, 1997 the consulting engineering segment of the Company, formerly known as Industrial Data Systems, Inc. doing business as IDS Engineering, was incorporated in the State of Texas and now operates as IED. The Company issued all of its 1,000 shares of Common Stock to Industrial Data Systems Corporation. William A. Coskey was appointed Chairman of the Board, President and Treasurer of IED and Hulda L. Coskey was appointed the positions of Director, Vice President and Secretary of the newly formed corporation. The management structure and operations of the newly formed corporation remain unchanged. The Company believes that the restructuring of IED more clearly distinguishes it from the Company's other operating segments. IED offers engineering services to major integrated oil and gas companies. These services are performed on facilities that include cross-country pipelines, pipeline pump stations, compressor stations, metering facilities, underground storage facilities, tank storage facilities and product loading terminals. The management team of IED has the capability of developing a project from the initial planning stages through detailed design and construction management. The services provided include project scoping, cost estimating, engineering design, material procurement, mechanical fabrication, in addition to project and construction management. IED has blanket service contracts currently in place to provide services on a time and materials reimbursable basis. IED also performs services for its clients on a turnkey lump sum 2 basis. The Company has long standing relationships with several major oil and gas pipeline companies. New business relationships with other major oil companies are developed through in-house personnel. THERMAL The Company acquired Thermal Corp. (Thermal) on February 15, 1997. The Company issued 600,000 shares of Common Stock which were held in an escrow account pending completion of the acquisition by the Company exercising its option to pay $600,000 and obtain a release of the shares. The Company's option to acquire Thermal was later renegotiated and exercised on February 14, 1997 with the exchange of 193,719 shares of Common Stock and $212,563 in cash. Upon completion of the acquisition, the 600,000 shares of Common Stock previously included in the original Escrow Agreement were canceled. In connection with this transaction, Thermal purchased its previously leased facilities on February 28, 1997 for a cash consideration of $500,000, subject to the completion of the contingent purchase transaction. Bank financing in the amount of $450,000 was obtained for the purpose of purchasing these facilities. Mr. Joe Hollingsworth, the former President and owner, acquired the industrial air handling subsidiary assets of a predecessor business known as Thermal Engineering ("Old Thermaire") in 1972, and operated the Company until 1990, at which time Old Thermaire was sold to 20th Century Holding Company, as a wholly owned subsidiary. 20th Century Holding Company encountered financial difficulties and filed for protection under the bankruptcy laws in July 1992. The assets of Old Thermaire were placed in receivership and Mr. Hollingsworth reacquired these assets in October 1992, with the intention of continuing the company in its present form. Thermal was incorporated on November 17, 1992 for this purpose. Throughout its history, Thermal has built a reputation in the commercial and industrial air handling industry for its quality products which are distributed throughout the United States. CPM On February 19, 1998, the Company signed a letter of intent to acquire CPM, a Texas corporation formed in June, 1989. The acquisition was consummated on March 25, 1998 with the exchange of 300,000 shares of the Company's Common Stock for 100% of CPM's shares. CPM's previous owner, Jack Ripley, has remained with CPM as Vice President of Sales and Marketing under an employment contract. CPM's previous Sales Manager, Tilden Smith, has remained with CPM in the same position under an employment contract. CPM is a thirteen-year-old company firmly established in the uninterruptible and conditioned power systems marketplace. CPM manufactures proprietary products and packages systems in a wide array of power ranges which include: battery chargers and monitoring systems, DC power supplies, DC/AC inverters, uninterruptible power systems, regulation and isolation transformers and power conditioners. CPM sells to industrial and commercial accounts across the United States. 3 IDS FAB Effective November 1, 1998, the Company acquired MLC Enterprises, Inc., a Texas corporation formed on August 7, 1995, doing business as Marine and Industrial Fire & Safety (MIFS) and Marine and Industrial Supply Company (MISC). As agreed upon in the Stock Acquisition Agreement, the Company issued 50,000 shares of Common Stock and cash consideration of $100,000 in exchange for 100% of MLC's shares. Immediately following the acquisition, the name of the company was changed to IDS FAB and will continue to do business as MIFS. It is the Company's intention to sell or otherwise dispose of the MISC portion of IDS FAB. IDS FAB's previous owner, Michael Moore, has remained with IDS FAB as Managing Director and Vice President of Sales under an employment contract. IDS FAB operates in the fire safety, fabrication and oil-field supply marketplaces. It's primary operating division, MIFS, designs, manufactures, fabricates and distributes specialized safety equipment to petroleum related facilities which are both offshore and onshore. MISC is an oil-field supplier specializing in pipe, valves and fittings for the drilling and production industry which primarily sells to one account. PRODUCTS AND SERVICES IDS IDS provides Intel microprocessor-based microcomputer systems and system components that are extremely dependable and can withstand harsh weather conditions and demanding work environments. These computer systems are designed to withstand a wide fluctuation in temperatures, shock waves, vibration, electromagnetic and radio frequency interference, in addition to airborne dust particles and excessive moisture. IDS also provides microcomputer systems that are packaged into enclosures which have special form factors. The SafeCase Series 4000 is a proprietary design of IDS and its primary product. The SafeCase Series 4000 is a durable, rugged portable computer designed to be operated under extremely harsh environmental conditions normally encountered at industrial and commercial locations. The computer is constructed with a four slot passive backplane and three full-size open bus slots to allow the user to customize it with industry standard add-in boards. These computers are designed with dual cooling fans to control heat build-up, are fully gasketed to prevent the penetration of moisture and dust particles, and has a shock mounted disk drive which together enhance its service life. The locations and sites under which these computers are generally operated are unlike the environmental conditions under which the plastic notebook and laptop computers are operated. To complement the durability of the SafeCase Series 4000, its sturdy aluminum carrying case has been designed to withstand excessive mechanical loads. IDS also derives revenue from the systems integration and resale of industrial computer products manufactured by other companies. These products are typically designed with enclosures that withstand tough environmental conditions and/or with enclosures that have a special form factor. In the area of systems integration and resale, IDS designates three series of industrial computer products and systems. The SafeCase Series 3000 represents industrial microcomputer systems which are suitable for installation in a standard 19 inch equipment rack. 4 The SafeCase Series 5000 represents color CRT computer monitor products which are available in 14 inch, 17 inch and 20 inch diagonal models. The SafeCase Series 7000 represents industrial microcomputer systems which are designed to be mounted on a wall or attached to machinery or other equipment. In 1996, the Company announced the introduction of the SafeCase Series 400 computer as its latest entry into the industrial portable computer market. This computer was specified to be the industrial equivalent of a commercial grade notebook computer. Primarily as a result of the compact nature of the proposed design, IDS encountered technical problems during the product design phase, which resulted in significant project delays. The Company felt it did not have sufficient technical resources to complete this product. In addition, the Company believed that the resulting higher cost of the product would limit its marketability. Therefore, IDS entered into an agreement with a major customer to license the manufacturing rights for the SafeCase Series 400 limiting the sale of this product only in their marketplace. IDS also simultaneously sold this customer all product related inventory at cost. The value of this product licensing and inventory sale transaction was approximately $350,000. At the present time, IDS does not intend to further pursue design or production of the SafeCase Series 400 product. IED IED offers engineering services to the pipeline division of major integrated oil companies. These services are performed on facilities that include cross-country pipelines, pipeline pump stations, compressor stations, metering facilities, underground storage facilities, tank storage facilities and product loading terminals. The management team of IED has the capability of developing a project from the initial planning stages through detailed design and construction management. IED's expertise offers its clients a wide range of services from a single source provider. The services provided include project scoping, feasibility studies, cost estimating, engineering design, material procurement, mechanical fabrication, analyzing and implementing automation and control systems, along with project and construction management. Typical engineering projects include revamps or expansions of existing pipelines as well as new construction. THERMAL Thermal has manufactured quality air handling equipment since 1945. Because Thermal stocks a larger number of fans and manufactures coils, dampers, curbs and most other accessories, it aims to offer the quickest delivery available in the industry, usually six to eight weeks, depending on order size and scope. Thermal also reserves production capacity to accomplish premium, expedited deliveries of two to 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 flexibility provides vast freedom in air handling equipment choice. Thermal's quality air handling products include central plant air conditioners, multizone air conditioners, high pressure air conditioners, and air cooled condensers. Thermal also manufactures fan coil units, cooling and heating coils, and roof 5 top air handlers. Thermal distributes its products exclusively through its United States and international network of non-stocking sales representatives. Central plant air handlers can be built to specification in either a single or multizone configuration, from 1,000 to 50,000 cubic feet per minute (CFM). The design of these units allows for either horizontal or vertical applications. Single wall models are constructed in modular sections and double wall units feature unitized construction. Basic designs and high quality materials have been field-proven for over fifty years. The welded frame construction allows panels to be removed without affecting the structural integrity of the unit. All units are built using heavy gauge, galvanized panels on die-formed and welded galvanized steel frames. On double wall insulated units, the most often specified design, all wall panels and doors are fully gasketed and removable. All fans are statically and dynamically balanced during assembly. Custom features include but are not limited to view glass windows, factory applied epoxy and custom coatings, variable pitch drives, internal motor base with spring isolators, solid or stainless steel fan shafts, spiral or plate fin coils, motor and unit controls, filter gauges, and convenience outlets. Rooftop air handlers can be built to specification in either a single or multizone configuration, from 1,000 to 32,000 CFM. Standard features for all rooftop air handlers include a structural channel base, galvanized steel frame, galvanized steel panels, pitched roof with continuous ridge cap and integral drip ledge, 2 to 1.5 pounds per cubic foot (pcf) insulation, double inlet double width fan and open drip proof motor mounted on 1 foot deflection spring isolators, 2 foot 30% pleated filters and pitched, double wall drain pan. Custom units can feature plenum fan, gravity economizer, internal piping vestibule motor controls and special base designed for field rollproof unloading. CPM CPM designs, manufactures, and sells standard and custom back-up and conditioned power systems including battery chargers, battery monitors, DC power supplies, converters, inverters, uninterruptible power systems, regulation and isolation transformers, power conditioners, power distribution systems and solar photo-voltaic systems. Additionally, CPM provides field service support for installation and maintenance of these products. Most of the products manufactured by CPM are made pursuant to specifications required for a particular order. The products sold by CPM are utilized by refineries, petrochemical plants, utilities, offshore platforms and other commercial, industrial and governmental facilities. IDS FAB IDS FAB designs, engineers and fabricates fire protection systems and equipment for the energy and marine industries worldwide, through the MIFS portion of the business. Systems and equipment manufactured by MIFS includes foam skids, CO2 suppression systems, deluge systems, fire pumps, oscillating fire monitors and remote controlled fire monitors. MIFS also distributes fire protection products manufactured by other companies, including Chubb, Kidde, Akron and Elkhart. MIFS also fabricates process piping and skids which are not related to the fire protection industry, but are utilized by MIFS's energy and marine 6 customers. MIFS provides field service support for installation and maintenance of these products and systems. Most of the systems manufactured by MIFS are made pursuant to specifications required for a particular order. The products and systems sold by MIFS are utilized by refineries, petrochemical plants, offshore drilling rigs, offshore production platforms and other industrial facilities. MISC, the oilfield supply portion of the business, buys and resells oilfield equipment, primarily to one account. PRODUCT DEVELOPMENT IDS IDS is currently not developing any new proprietary product designs. In order to satisfy customer requirements, IDS makes frequent modifications to its proprietary SafeCase 4000 design. Revisions also are being made to this product to increase functionality and reduce cost. Being an integrator and re-seller of industrial microcomputer systems, IDS is continuously evaluating products in its marketplace which serves to increase its range of offerings and enhance its ability to sell systems to its customers. In this activity, IDS evaluates microcomputer enclosures, CPU boards, components and peripheral products from a variety of manufacturers. IED IED continues to provide engineering services to the pipeline industry as its base of business. During 1998, IED signed two new blanket service contracts with pipeline industry clients. In February 1999, the Company announced the opening of a satellite office in Tulsa, Oklahoma which will facilitate the expansion of its market area. IED plans to increase its range of engineering capabilities and begin marketing its services to new industries such as the refining, petrochemical and process industries. THERMAL During 1998, Thermal redesigned their line of rooftop air handlers in order to increase capacity and provide for a narrower unit to better fit shipping platforms and reduce freight costs. Thermal also was successful in obtaining Environmental Testing Laboratories certification for its products, which will open new markets for its products to municipalities and other industries requiring such certification. During 1999, Thermal plans to add the in-house capability of manufacturing industry certified plate-fin coils with 0.625 inch diameter tubing. Thermal believes the addition of this plate-fin coil production line will improve its competitive position in the marketplace by reducing product costs and production time. Thermal currently purchases all plate-fin coils from outside sources. CPM CPM is currently in the developmental stages of designing a proprietary battery monitor product. The proposed product will continuously monitor parameters associated with battery systems, including current, voltage and temperature. The battery monitor will provide status and historical information about the battery system to which it is connected, and also will have a 7 feature to optimize recharging. In 1999, CPM will also be redesigning some of its existing charger line in order to improve cost effectiveness as well as to decrease manufacturing time required to produce these products. IDS FAB IDS FAB currently has no products or services under development. COMPETITION IDS IDS competes against various companies across its different product lines. IDS' line of industrial portable computers compete with products manufactured by Fieldworks, Dolch and Panasonic. IDS' industrial computer products which are mountable in a 19 inch equipment rack compete with products from Advantek, Contec and Industrial Computer Source. There is also competition from much larger suppliers of commercial grade computers, such as Compaq, Dell, Toshiba and IBM. This commercial competition effectively sets pricing for its product line, since IDS' customers are willing to pay a premium for industrial grade computers which is usually limited to approximately two times the equivalent of commercial grade products. Management believes that its industrial computer products compete effectively based on its engineering responsiveness to specific industrial market requirements, the resulting functional specialization of its products, and its strategy of focusing on relatively "sheltered" market niches where major competitors have difficulty tailoring their offerings to specific application requirements. These strategies help offset the greater name recognition and broader service and support resources of IDS' major competitors. IDS is engaged in business activities that are targeted to industrial markets which are less competitive and typically generate greater profit margins. Management believes that the principal competitive factors in the business in which it operates are price and performance, product availability, technical expertise, adherence to industry standards, financial stability, service support and reputation. Pricing competition for IDS' products is from large manufacturers of commercial grade computer products. IDS' pricing of its computer product line is governed by pricing in the commercial market. Some of the IDS' current and potential competitors have longer operating histories and financial, sales, marketing, manufacturing, distribution, technical and other competitive resources which are substantially greater than those of IDS. As a result, IDS' competitors may be able to adapt more quickly to changes in customer demands or to commit resources to sales and service of its products than IDS has available. Such competitors could also seek to increase their presence in the markets where IDS is providing sales and services by creating strategic alliances with other competitors, by offering new or improved products and services to IDS' customers or increasing their efforts to gain and retain market share through competitive pricing. 8 IED IED operates in a highly competitive environment with many other organizations which are substantially larger and have greater financial and other resources. IED competes with other consulting engineering companies on the basis of price, performance, and its experience as a provider of quality personnel to perform projects. The pricing competition of IED has intensified as a result of an increase in temporary personnel contracting agencies who can perform services at a higher volume level and lower profit margin. Because the engineering business may require small amounts of capital, market entry can be rather effortless for a potential new competitor possessing acceptable professional qualifications. Therefore, IED competes with a wide array of both national and regional specialty firms. THERMAL Thermal operates in a highly competitive environment with many other organizations which are substantially larger and have greater financial resources. Management believes that the principal competitive factors in its market include time to market, flexibility and design of its products, 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 its capability to provide custom applications. Thermal is cost competitive with many well respected manufacturers, such as Pace, Temtrol, and Buffalo. Thermal has distinguished itself by being responsive to customer requests for custom products and is able to expedite delivery of these units faster than other commercial manufacturers due to the flexibility of their manufacturing facility and staff. CPM CPM is engaged in a highly competitive business which 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 is dependent on the ability of to provide quality products to a customer's specifications, on a timely basis, at a competitive price, utilizing state-of-the-art materials, design and production methods. Some of CPM's principal competitors are larger and have greater capital and management resources. However, management believes that it can capitalize on its ability to provide custom packaged systems more effectively than its competition. IDS FAB IDS FAB's business is also highly competitive. IDS FAB competes with a variety of industrial and safety supply distributors, many of which may have greater financial and other resources than IDS FAB. IDS FAB competes not only with companies of similar size selling to customers within the same geographic area but also with much larger distributors that provide integrated supply programs and outsourcing services which may be able to supply their products in a more efficient and cost-effective manner than does IDS FAB. However, IDS FAB remains competitive through its product application, engineering and fabricating expertise offered by its professional staff and it's after-the-sale services provided by IDS FAB. 9 BUSINESS STRATEGY IDS intends to increase market penetration by focusing on systems integration and the resale of industrial microcomputer products that are manufactured by outside sources. IDS believes that it does not have the personnel or financial resources to broaden its line of proprietary industrial computer products. In addition, the Company believes that an effort to develop a broad line of proprietary industrial computer products cannot be financially justified, given the rapid pace of change and resulting short product lifetimes typical of the computer industry. IDS will seek to add value by integrating and technically supporting advanced microcomputer systems primarily comprised of components from outside sources. IDS has continued to develop and expand its market presence in the eastern and mid-western portion of the United States since the opening of its sales office in Connecticut in 1997. IED's strategy is to increase revenues per employee by developing and marketing the capability of performing 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. On the majority of projects to date, IED has invoiced for hours worked by its personnel with billing rates that are specified in client generated blanket services contracts. In order to execute this EPC strategy, IED will have to greatly enhance its project proposal and bidding capability. In the first quarter of 1999, IED has hired two people with extensive EPC project proposal experience. While executing this EPC strategy, IED plans to expand its area of engineering expertise beyond its traditional focus on the pipeline industry. IED plans to market its services and submit proposals outside of the pipeline industry, which over a period of time, will serve to diversify its client base. Thermal continues to focus on establishing and supporting a qualified sales representative network within the U.S. The planned addition in 1999 of a plate-fin coil manufacturing line will help reduce product costs and production time. CPM plans to expand its marketing activities beyond the Texas-Gulf Coast region. As of February 1999, CPM has signed contracts with three sales representative firms outside of this region. CPM is focusing on obtaining a reliable source for industrial quality uninterruptible power supply (UPS) systems. CPM is currently evaluating this marketplace and plans to either strategically align itself with an outside UPS supplier or initiate its own UPS design project. With the expansion of IED's project scope into the EPC arena, it is anticipated that increased opportunities will arise for growth in the IDS FAB subsidiary through the cross-selling of fabrication services. The Company also intends to continue to pursue potential acquisitions of complementary businesses. The success of this strategy depends not only upon the Company's ability to acquire complementary businesses on a cost-effective basis, but also upon its ability to integrate acquired operations into its organization effectively, to retain and motivate key personnel and to retain customers of acquired firms. There can be no assurance that the Company will be able to find 10 suitable acquisition candidates or be successful in acquiring or integrating such businesses. Furthermore, there can be no assurance that financing required for any such transactions will be available on satisfactory terms. SALES AND MARKETING The Company's various subsidiaries derive revenues from in-house direct sales, sales representatives and catalog distributor sales. IDSC's products are primarily marketed through commissioned third-party sales representatives. These 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 create and maintain 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. The Company's subsidiaries promote their products and services through general and trade advertising, participation in trade shows and through telemarketing and most recently through on-line Internet communication via IDSC's corporate home page which provides links to each of the subsidiaries webpages. 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 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 by this synergy are then jointly pursued. CUSTOMERS IDSC's customer base consists primarily of Fortune 500 companies in numerous industry segments within the United States. The Company's largest ten customers (which varied from period to period) accounted in the aggregate for approximately 77% and 63% of the Company's total revenue during 1997 and 1998, respectively. Currently, the Company's major customers include: IDS: Baker Hughes Inteq, SAIC IED: EXXON Pipeline Co., Marathon Pipeline Co., Jacobs Engineering THERMAL: Hollingsworth Equipment, South Texas Equipment CPM: Powell Equipment, Gulf Interstate 11 IDS FAB: Baker Hughes Processing, Chevron, Amfels, Texaco Based upon historical results and existing relationships with customers, the Company believes that although efforts are being made to diversify its client base, a substantial portion of its total revenue and gross profit will continue to be derived from sales to existing customers. There are no long-term commitments by such customers to purchase products or services from the Company. Sales of IDSC's subsidiaries products are typically made on a purchase order basis. A significant reduction in orders from any of the Company's largest customers could have a material adverse effect on the Company's financial condition and results of operations. Similarly, the loss of any one of the Company's largest customers or the failure of any one of such customers to pay its accounts receivable on a timely basis could have a material adverse effect on the Company's financial condition and results of operations. There can be no assurance that the Company's largest customers will continue to place orders with the Company or that orders by such customers will continue at their previous levels. There can be no assurance that the Company's customers for its engineering services will continue to enter into contracts with the Company for such services or that existing contracts will not be terminated. 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 can not be resolved over the telephone. The Company provides limited warranty coverage for its products for varying time periods depending on a variety of factors. 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. In some cases, IDS' computer components are purchased through a single source. IDS does not always have a long term purchasing contract in place to purchase computer components from single sources. In the normal course of business, IDS executes blanket purchase orders with its major suppliers for a period of one year in order to maintain competitive pricing and service. The purchase orders include provisions for the delivery, on a monthly basis, of an adequate supply of computer parts to fulfill the Company's orders for a period of one year 12 IDS purchases from other manufacturers substantially all peripheral devices and components used in its products and systems. A majority of the components and peripherals are available from a number of different suppliers, although certain major items are procured from single sources. Management believes that alternate sources could be developed for such single source items, if necessary, however, in the event that certain peripheral or component shortages were to occur, it could have an adverse effect on IDS' operations. The business in which IDS competes is characterized by rapid technological change and frequent introduction of new products and product enhancements. IDS' success depends in large part on its ability to identify and obtain products that meet the changing requirements of the marketplace. IDS could experience delays in the receipt of these integral products. There can be no assurance that IDS will be able to identify and offer products necessary to remain competitive or avoid losses related to obsolete inventory and drastic price reductions. IDS attempts to maintain a level of inventory required to meet its near term delivery requirements by relying on the ready availability of products from its principal suppliers. Accordingly, the failure of IDS' suppliers to maintain adequate inventory levels of computer products demanded by its existing and potential customers and to react effectively to new product introductions could have a material adverse affect on the Company's financial condition and results of operations. Failure of IDS to gain sufficient access to new products or product enhancements could also have a material adverse affect on the Company's financial condition and results of operations. Thermal currently stocks key components due to long lead times. Fans are purchased on individual purchase orders. Thermal has increased its stocking level of this component, because of the potential delays in manufacturing which would be caused by its inability to procure this important element. All of CPM's products are manufactured using components and materials that are readily available from numerous domestic suppliers. CPM has approximately ten principal suppliers of components and each of those could be replaced with several competitors; therefore, CPM anticipates no difficulty in obtaining components in sufficient quantities and in a timely manner to support its manufacturing and assembly operations. IDS FAB acquires its products through numerous original equipment manufacturers, fabricators and distributors. The company believes that alternative sources of supply could be obtained in a timely manner if any of these relationships were canceled. The Company does not believe that the loss of any one of these relationships with its distributors would have a material adverse effect on the financial condition or results of operations of IDS FAB. Representative manufacturers of products distributed by IDS FAB include Chubb, Kidde, Keystone Valve, Elkhart and Akron. 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 its 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 13 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 does not own the rights to any U.S. or foreign patents. 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. The Company currently has no patents, trademarks, licenses or royalty agreements. GOVERNMENT REGULATIONS Certain of the Company's subsidiaries are subject to various 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 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 cost for 1998 was $25,049. 1997 expenditures for research and development was $148,259. As of December 31, 1998 there were no ongoing research and development activities. EMPLOYEES As of December 31, 1998, the Company employed approximately 135 individuals within its five subsidiaries; approximately twelve were employed in sales, marketing and customer services; fifty-one were employed in engineering; fifty-four were employed in technical production positions; and seventeen were employed in administration, finance and management information systems. 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. 14 ITEM 2. DESCRIPTION OF PROPERTY FACILITIES Except as noted below, the Company leases its principal executive offices in Houston, Texas, which consist of approximately 20,525 square feet that has been divided into administrative, sales, and engineering offices. Approximately 12,000 square feet of this space is currently utilized for production operations and warehouse space for the IDS and CPM operations. On September 1, 1998 the Company leased 2,370 square feet of adjoining office space for expansion of its' IED operation. As a result of this expansion, a fourth amendment of its lease was executed which extended the lease to August 31, 2002. On February 10, 1999, IED signed a lease for its newly established office in Tulsa, Oklahoma. This office space consists of 5,400 square feet in a one-story office building. The lease is for a term of two years, ending on February 28, 2001. The base monthly rent is $2,925. with an additional Common Area fee of $225. per month. Management believes that it has the ability to sustain substantial additional sales growth without having to expand its facilities or relocate its offices. As a result of the acquisition of Thermal, the land and property previously leased by Thermal was purchased by Thermal for $500,000, consisting of $50,000 cash advance from the Company and a note payable in the amount of $450,000. The balance on this note at December 31, 1998 was $420,830. This property consists of 4.5995 acres of land improved with a 37,725 square foot concrete tiltwall office/manufacturing facility located in Houston, Texas. Thermal owns and occupies a 37,735 square foot facility on approximately 4.5 acres which consists of approximately 2,500 square feet of office space and 35,200 square feet of manufacturing area located in Houston, Texas. As a result of the acquisition of CPM, the Company was able to allocate a portion of its available space occupied by IDS to serve as office and manufacturing space for the CPM. In consolidating its facilities, the Company was successful in reducing overhead and increasing operating efficiencies by vacating the existing space leased by CPM. The newly acquired, IDS FAB subsidiary leases a 12,650 square foot office/warehouse building situated on approximately 25,000 square feet of land in Houston, Texas. The term of the lease is three years from December 1, 1997 and ending on November 30, 2000 unless sooner terminated. A deposit in the amount of $3,795.00 for the last month's rent was paid in advance. This facility serves as the IDS FAB's sales office, warehouse, and fabrication plant. From time to time, IDS FAB subleases property adjacent to its fabrication facility on an as-needed basis to facilitate implementation of large projects. At year-end 1998, IDS FAB was the sublessor of 16,500 square feet of office/warehouse space. The term of the sublease was for three months from October 8, 1998 and ending January 8, 1999 unless sooner terminated at a monthly rate of $4,950. The sub-lease was renewed for a ninety (90) day period terminating March 8, 1999. At the time of the acquisition by the Company, IDS FAB had additional leased office/warehouse space of approximately 3,915 square feet in Houston, Texas. The operations of 15 the two business units had been consolidated into the existing lease space occupied by the MIFS unit leaving this space unoccupied. The original term of the lease was for 36 months beginning December 15, 1996 and ending December 14, 1999; however, IDSC was able to negotiate a Lease Termination Agreement that allowed for early termination of the lease effective November 18, 1998 for payment of $1,570. By doing so, the Company was successful in reducing overhead and increasing operating efficiencies. ITEM 3. LEGAL PROCEEDINGS From time to time, the Company is involved in various legal proceedings arising in the ordinary course of business. The Company is not currently involved in any material legal proceedings and is not aware of any legal proceeding threatened against it. ITEM 4. SUBMISSION OR MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's stockholders during the fourth quarter of the fiscal year ended December 31, 1998. 16 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock, $.001 par value per share, is quoted on the American Stock Exchange effective June 16, 1998, under the symbol "IDS. Prior to June 16, 1998, the Company's Common Stock was traded on the NASDAQ Electronic Bulletin Board under the symbol "IDDS."
HIGH LOW ---- --- YEAR ENDED DECEMBER 31, 1997 First Quarter.................................... 9.000 6.500 Second Quarter................................... 10.620 7.500 Third Quarter.................................... 10.000 8.370 Fourth Quarter................................... 10.500 4.500 YEAR ENDED DECEMBER 31, 1998 First Quarter.................................... 6.750 3.125 Second Quarter................................... 6.000 3.250 Third Quarter.................................... 8.688 6.000 Fourth Quarter................................... 9.375 5.875
The foregoing figures are based on information published by Dow Jones Retrieval Service, do not reflect retail markups or markdowns and may not represent actual trades. As of December 31, 1998, the Common Stock was held by approximately 170 stockholders of record. 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. The Company has not entered into any agreement which restricts its ability to pay dividends on its Common Stock in the future. See "Management's Discussion and Analysis or Plan of Operation." 17 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 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-KSB/A. Footnote 12 to the Financial Statements contains segment information. OVERVIEW The Company was formed in 1985 to engage in the business of providing engineering consulting services to the pipeline divisions of major integrated oil and gas companies. For the period from 1985 through 1989, most of its revenues were derived from the IED segment. In 1989, the Company introduced its Industrial Products segment and has continued to introduce new products to the marketplace. In 1997, with the acquisition of Thermal, the Company expanded into the manufacture and distribution of air handling equipment for HVAC systems. The Products segment has generated sales as a percent of total revenue of 24.5% and 11.4%, for 1997 and 1998, respectively, while the Engineering segment has generated sales as a percent of total revenue of 40.5% and 32.8% for the same periods. The Air Handling segment has generated sales as a percent of total revenue of 34.9% and 27.6%, for 1997 and 1998, respectively. In 1998, with the acquisition of CPM, the Company expanded into the manufacture and distribution of uninterrupitable power systems and battery charger units and with the acquisition of IDS FAB, the Company expanded into the design and fabrication of fire detection, fire prevention equipment, environmental and safety equipment. The Power Systems segment generated sales as a percent of total revenue of 22.5% for the nine months ended December 31, 1998, and the Fabricating segment generated sales as a percent of total revenue of 5.7% for the two month period ended December 31, 1998. The gross margin varies between each of its operating segments. The Product segment has produced a gross margin ranging from 31.4% in 1997 to 20.2% in 1998 due to the decrease in sales volume between 1997 and 1998. The gross margin for Engineering segment which reflects direct labor costs, has ranged from 24.5% in 1997 to 28.7% in 1998. The gross margin produced by the Air Handling segment decreased from 20.4% in 1997 to 19.3% in 1998. The Power Systems segment produced a gross margin in 1998 of 30.7%. The Fabricating segment produced a gross margin of (17.1%) for a two-month period ended December 31, 1998. The overall gross margin for IDSC, which includes Products, Engineering and Air Handling was 24.8% in 1997. The 1998 overall gross margin which includes Products, Engineering, Air Handling, Power Systems for nine months and Fabricating for two months was 23.0%. YEAR 2000 (Y2K) ISSUES AND CONSEQUENCES The Company's program to address its Year 2000 issues has progressed as planned. Testing of the Company's internal hardware systems has been completed and all systems have been brought into Y2K compliance. Upgrading of non-compliant software systems is underway and will be completed by the end of the third quarter of 1999. Costs expended to address Year 18 2000 issues has been approximately $50,000 and an estimated additional $200,000 will be spent to correct Year 2000 issues. The cost to address these issues is being funded from internally-generated cash flow and are expensed as incurred. The Company does not own or maintain any computer controlled machinery or operations outside its primary offices and production facilities, which would be effected by non-complaint Y2K components. Over the past three years, the Company has required Y2K compliant components on all parts procured for its manufacturing process and has received certification from the manufacturers and suppliers to this effect. The Company does not rely heavily upon any single vendor for goods and services and does not have significant suppliers or vendors who share information systems. The Company's program to deal with Year 2000 issues includes evaluation of the effects of third-party non-compliance and the effect that non-compliance would have on the Company's ability to do business. The Company has banking relations with one major financial institution, which has indicated that they are Y2K compliant. The Company does not believe that the inability of external agents to complete their Year 2000 remediation process in a timely manner will have a material effect on the financial position or results of operation of the Company. No material adverse effects have been identified, but the Company intends to continue its evaluation process throughout the 1999 year. However, the effect of non-compliance by external agents is not readily determinable. There can be no guarantee that the Company's current efforts or its contingency plan will successfully address all the contingencies that may arise. The Company has defined critical activities which would be maintained manually in case third party utility failures, such as electrical and telephone systems. In the event the Company is unsuccessful in addressing all its Year 2000 issues, there could be material adverse effect on the Company's financial condition and liquidity. Disruptions in the economy generally resulting from Year 2000 issues could adversely effect the Company's ability to do business. The amount of potential liability or lost revenue cannot be reasonably estimated at this time. FORWARD-LOOKING STATEMENTS This report includes forward-looking statements, which are statements of future expectation and not facts. Actual results or development might differ materially from those included in the forward-looking statements because of factors such as competition and industry restructuring, changes in economic conditions, changes in laws, regulations, regulatory policies or public policies, technological developments, and other presently unknown or unforeseen factors. 19 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.
YEARS ENDED DECEMBER 31, ------------------------ 1997 1998 ---- ---- AMOUNT % AMOUNT % ------ --- ------ --- Revenue: Products.................................... $ 2,581,633 24.5 $ 1,535,915 11.4 Engineering................................. 4,265,446 40.5 4,406,585 32.8 Air Handling................................ 3,676,898 34.9 3,707,672 27.6 Power Systems............................... -- 0.0 3,016,286 22.5 Fabricating................................. -- 0.0 766,367 5.7 -------------- -------- ------------- ------- Total Revenue............................... $ 10,523,977 100.0 $ 13,432,825 100.0 Gross Profit: Products..................................... 810,982 31.4 309,727 20.2 Engineering.................................. 1,046,371 24.5 1,263,454 28.7 Air Handling................................. 748,444 20.4 715,547 19.3 Power Systems................................ 00 0.0 926,760 30.7 Fabricating.................................. 00 0.0 (131,124) (17.1) -------------- -------- ------------- ------- Total Gross Profit............................. $ 2,605,797 24.8 $ 3,084,724 23.0 Selling, general and administrative expenses..... 1,914,818 18.2 2,203,008 16.4 Depreciation and amortization.................... 97,101 .9 170,564 1.3 -------------- -------- ------------- ------- Operating income............................. 593,878 5.6 710,702 5.3 Other income (expense) (3,134) (.03) (5,494) (.04) Income before provision for Income Taxes............................. 590,744 5.6 705,208 5.3 Provision for income taxes....................... 208,249 2.0 285,376 2.1 -------------- -------- ------------- ------- Net income after income taxes.................... $ 382,495 3.6 $ 419,832 3.1 -------------- -------- ------------- ------- -------------- -------- ------------- -------
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 TOTAL REVENUE. Total revenue increased by $2,908,848 or 27.6% from $10,523,977 in 1997 to $13,432,825 in 1998. Revenue from the Products segment, which comprised 24.5% and 11.4% of total revenue in 1997 and 1998, respectively, decreased by $1,045,718 or 40.5%. The decrease in Products segment revenue was generally attributable to the overall decline in sales due to lack of sales initiative in 1998. Revenue from the Enginneering segment, which comprised 20 40.3% and 32.8% of total revenue in 1997 and 1998, respectively, increased by $141,139 or 3.3%. This slight increase was due to the segment adding lump-sum projects to its existing scope of jobs performed. Revenue from the Air Handling segment comprised 24.9% and 27.6% of total revenue in 1997 and 1998, respectively, increased by $30,774 or .8%. No sales were recorded in 1997 for the Power Systems segment or the Fabricating segment, since each was acquired during 1998. The Power Systems segment contributed $3,016,286 to the total revenue in 1998 during the nine months from April 1 to December 31, 1998, and IDS FAB contributed $766,367 to the total revenues during the two months from November 1 to December 31, 1998. GROSS PROFIT. Gross profit increased by $478,477 or 18.4% from $2,605,797 in 1997 to $3,084,724 in 1998. The gross margin for the Products segment decreased from 31.4% in 1997 to 20.2% in 1998. This decrease was attributable to the overall decline in sales revenue without offsetting reductions in production costs. The gross margin for the Engineering segment increased from 24.6% in 1997 to 28.7% in 1998. This increase was attributable to changes in the scope of jobs being performed generating higher margins, plus the addition of lump-sum projects being added to the product line of jobs performed by the segment. The gross margin for the Air Handling segment decreased slightly from 20.4% in 1997 to 19.3% in 1998. This decrease was due to general competition in the market. The Power Systems segment generated a gross margin of 30.7% for 1998. The Fabricating segment's gross margin for 1998 was a negative 17.1%. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by $288,190 or 15.1% from $1,914,818 in 1997 to $2,203,008 in 1998. As a percentage of total revenue, selling, general and administrative expenses decreased from 18.2% in 1997 to 16.4% in 1998. The increase was attributable to the acquisitions of CPM and IDS FAB which added additional personnel costs and increased overall general and administrative expenses. The increases were more than offset by the increased revenue generated by the additional operations. OPERATING INCOME. Operating income increased by $116,824 or 19.7% from $593,878 in 1997 to $710,702 in 1998. Operating income decreased as a percentage of total revenue from 5.6% in 1997 to 5.3% in 1998. This decrease was brought about by the lower gross margins in the Products segment, in the Air Handling segment and the effect of the negative gross margin in the Fabricating segment. NET INCOME. Net income after taxes increased by $37,337 or 9.8% from $382,495 in 1997 to $419,832 in 1998. Net income after taxes decreased as a percentage of total revenue from 3.6% in 1997 to 3.1% in 1998. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company has satisfied its cash requirements principally through operations and as needed by borrowing under its line of credit. As of December 31, 1998, the Company's cash position, including marketable securities, was, in management's judgment sufficient to meet its working capital requirements. The Company had, as of December 31, 1998, $1,150,000 in additional advances available under its line of credit with a bank. This line of credit provides for maximum borrowings of $1,150,000, which bears interest at prime plus 1% 21 is for a term of one year and matures on May 12, 1999. The Company expects the line of credit will be renewed at that time. The line of credit is secured by accounts receivable, inventory and the personal guarantees of certain stockholders and officers of the Company. The Company has an additional term note maturing May 12, 1999, in the amount of $375,000 and bears interest at prime plus 1%. This note also is secured by accounts receivable, inventory and the personal guarantees of certain stockholders. Interest on the outstanding balance of this note is paid on a monthly basis. At its maturity on May 12, 1999, the Company expects that the line of credit term note will be renewed. The Company believes that it has sufficient working capital and does not intend to sell shares of its Common Stock within the next twelve months. The Company's working capital was $2,790,559 and $3,047,291 at December 31, 1997 and December 31, 1998, respectively. CASH FLOW Operating activities provided (used) net cash totaling ($818,061) and $551,975 during 1997 and 1998, respectively. The Company has not generated significant cash flow from operating activities due to the working capital requirements resulting from its rapid growth. Trade accounts receivable over the prior year increased $1,301,632 and decreased $660,162 for the years ended December 31, 1997 and 1998, respectively. Inventory increased by $300,149 and decreased $177,745 for the same periods. Investing activities used cash totaling $1,066,995 and generated $208,515 respectively, during the years ended December 31, 1997 and 1998. In 1997, the Company's investing activities that used cash were primarily related to the acquisition of Thermal and capital expenditures. In 1998, the Company's investing activities were executed primarily with the common Stock of the Company for the acquisition of CPM and IDS FAB. As of December 31, 1998, the Company had a portfolio of marketable securities with a fair market value of $676,647 and consisted of bonds and mutual funds. The mutual funds that the Company owns are open-end stock funds managed by Aim, Pioneer, and Smith Barney & Co. These mutual fund investments are generally held for longer than one year. These securities are traded by the Company as part of its plan to provide additional cash for working capital requirements. The marketable securities to be held until 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 stockholder's 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. Marketable securities accounted for as trading securities are stated at market value, with unrealized gains and losses charged to income. William A. Coskey, the Company's President and Chief Executive Officer, is responsible for managing the Company's portfolio of marketable securities. The funds used in this portfolio were from generally available cash reserves. 22 The Company has implemented a policy that restricts it from purchasing any securities on margin, and also limits the investment of any one security or mutual fund to represent no more than 10% of the Company's investment portfolio. The Company believes that the risks associated with its investment portfolio are slightly higher than the risk of loss in a Standard & Poor's 500 Index Fund. This higher risk is due to the less diverse distribution of the Company's portfolio as compared to the broadly based Standard & Poor's 500 Stock Index. Financing activities provided cash totaling $1,367,657 and $7,630 during 1997 and 1998. During 1997, $811,929 was provided from the collection of notes receivable that were received as consideration for sales of Common Stock in 1996. Additionally, financing activities provided an increase in borrowings of $554,913 under its line of credit. The Company has additional financing amounts available on its line of credit ($1,150,000 at December 31, 1998 and at March 30, 1999). The line of credit has been used principally to finance accounts receivable and inventory purchases. Additional bank financing in the amount of $450,000 was obtained for the purchase of the facilities that Thermal had been leasing. 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 of $2,268,864 and $2,193,128 at December 31, 1997 and 1998, respectively. The number of days' sales outstanding in trade accounts receivable was 78 days and 70 days, respectively. Bad debt expenses have been insignificant (approximately .01%) for each of these periods. ITEM 7. FINANCIAL STATEMENTS The audited financial statements for Industrial Data Systems Corporation, Inc., as of December 31, 1998 and 1997 are attached hereto and made part hereof. 23 INDEX
Page ---- INDEPENDENT AUDITOR'S REPORT....................................... 25 CONSOLIDATED BALANCE SHEET - December 31, 1998..................... 26 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME - Years Ended December 31, 1998 and 1997..................... 27 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - Years Ended December 31, 1998 and 1997................................. 28 CONSOLIDATED STATEMENTS OF CASH FLOWS - Years Ended December 31, 1998 and 1997................................. 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS......................... 30
24 INDEPENDENT AUDITOR'S REPORT Board of Directors and Stockholders Industrial Data Systems Corporation We have audited the accompanying consolidated balance sheet of Industrial Data Systems Corporation and Subsidiaries as of December 31, 1998, and the related consolidated statements of income and comprehensive income, stockholders' equity and cash flows for the years ended December 31, 1998 and 1997. 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 generally accepted auditing standards. 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, 1998, and the results of their operations and their cash flows for the years ended December 31, 1998 and 1997, in conformity with generally accepted accounting principles. HEIN + ASSOCIATES LLP Houston, Texas March 10, 1999 25 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1998 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,225,821 Marketable securities, at market value - Trading 676,647 Accounts receivable - trade, less allowance for doubtful accounts of approximately $40,000 2,913,128 Inventory 917,097 Notes receivable from stockholders 162,000 Deferred income taxes 8,000 Prepaid and other 228,115 --------------- Total current assets 6,130,808 PROPERTY AND EQUIPMENT, net 1,050,568 OTHER ASSETS 1,500 GOODWILL 745,760 --------------- Total assets $ 7,928,636 --------------- --------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 620,383 Current maturities of long-term debt 52,530 Accounts payable 1,557,985 Income taxes payable 157,000 Accrued expenses and other current liabilities 695,619 --------------- Total current liabilities 3,083,517 LONG-TERM DEBT 422,483 DEFERRED INCOME TAXES 14,000 COMMITMENTS AND CONTINGENCIES (Notes 7, 8, 13 and 15) STOCKHOLDERS' EQUITY : Common stock, $.001 par value; 75,000,000 shares authorized; 13,073,718 shares issued 13,074 Additional paid-in capital 2,766,163 Retained earnings 1,644,722 --------------- 4,423,959 Treasury stock, 15,323 shares, at cost (15,323) --------------- Total stockholders' equity 4,408,636 --------------- Total liabilities and stockholders' equity $ 7,928,636 --------------- ---------------
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS. 26 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years Ended December 31, ------------------------------------- 1997 1998 ---------------- ---------------- OPERATING REVENUES $ 10,523,977 $ 13,432,825 OPERATING EXPENSES: Cost of goods sold 7,918,180 10,348,551 Selling, general and administrative 1,914,818 2,203,008 Depreciation and amortization 97,101 170,564 --------------- --------------- 9,930,099 12,722,123 --------------- --------------- Operating profit 593,878 710,702 OTHER INCOME (EXPENSE): Realized gains on marketable securities, net 52,358 14,510 Net unrealized gains (losses) on marketable securities (26,334) 3,772 Interest income 36,357 55,070 Interest expense (64,381) (78,846) Other income (1,134) - --------------- --------------- (3,134) (5,494) --------------- --------------- INCOME BEFORE PROVISION FOR INCOME TAXES 590,744 705,208 PROVISION FOR INCOME TAXES: Federal 176,830 292,810 State 24,095 24,900 Deferred 7,324 (32,334) --------------- --------------- 208,249 285,376 --------------- --------------- NET INCOME 382,495 419,832 OTHER COMPREHENSIVE LOSS - Unrealized loss on securities (1,068) - --------------- --------------- COMPREHENSIVE INCOME $ 381,427 $ 419,832 --------------- --------------- --------------- --------------- BASIC EARNINGS PER COMMON SHARE $ .03 $ .03 --------------- --------------- --------------- --------------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 12,756,564 12,947,280 --------------- --------------- --------------- ---------------
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS 27 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1997 AND 1998
Common Stock Additional -------------------------------- Paid-in Retained Shares Amount Capital Earnings --------------- --------------- --------------- --------------- BALANCES, December 31, 1996 13,129,999 $ 13,130 $ 1,829,684 $ 842,395 Rescission of stock previously issued for contingent transaction (600,000) (600) - - Stock issuance in conjunction with acquisition 193,719 194 387,029 - Sale of stock from treasury (1,000 shares) - - - - 1996 offering costs - - (40,000) - Change in unrealized gain on marketable securities - - - - Net income - - - 382,495 ------------- ------------- ------------- ------------- BALANCES, December 31, 1997 12,723,718 12,724 2,176,713 1,224,890 Stock issuances in conjunction with acquisitions 350,000 350 589,450 - Net income - - - 419,832 ------------- ------------- ------------- ------------- BALANCES, December 31, 1998 13,073,718 $ 13,074 $ 2,766,163 $ 1,644,722 --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- Accumulated Comprehensive Treasury Loss Stock Total --------------- --------------- --------------- BALANCES, December 31, 1996 $ 1,068 $ (16,138) $ 2,670,139 Rescission of stock previously issued for contingent transaction - - (600) Stock issuance in conjunction with acquisition - - 387,223 Sale of stock from treasury (1,000 shares) - 815 815 1996 offering costs - - (40,000) Change in unrealized gain on marketable securities (1,068) - (1,068) Net income - - 382,495 ------------- ------------- ------------- BALANCES, December 31, 1997 - (15,323) 3,399,004 Stock issuances in conjunction with acquisitions - - 589,800 Net income - - 419,832 ------------- ------------- ------------- BALANCES, December 31, 1998 $ - $ (15,323) $ 4,408,636 --------------- --------------- --------------- --------------- --------------- ---------------
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS 28 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, ------------------------------------- 1997 1998 ---------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 382,495 $ 419,832 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 97,101 170,564 Deferred income tax expense 7,324 (32,334) Increase in trading securities, net (82,044) (301,602) Changes in operating assets and liabilities, net of assets acquired in business combinations: Accounts receivable - trade (1,301,632) 660,162 Inventory (300,149) 177,745 Accounts payable 425,640 (832,867) Income taxes payable (47,813) 77,302 Accrued expenses and other current liabilities 4,939 270,488 Other, net (3,922) (57,315) --------------- --------------- Net cash provided by (used in) operating activities (818,061) 551,975 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Thermal Corporation (212,563) - Purchase of IDS Fabricated Systems, Inc., net of cash received - 125,387 Purchase of Constant Power Manufacturing, Inc., net of cash received - 112,289 Note receivable from affiliate 84,936 - Payments (advances) on note receivable from stockholder (150,000) 50,000 Capital expenditures (833,822) (84,707) Purchases of available-for-sale securities 24,000 - Proceeds from sale of available-for-sale securities (4,000) - Repayments from affiliate 24,454 5,546 --------------- --------------- Net cash provided by (used in) investing activities (1,066,995) 208,515 CASH FLOWS FROM FINANCING ACTIVITIES: Increase in notes payable, net 554,913 - Short-term repayments - (12,470) Long-term borrowings - 20,100 Proceeds from notes receivable issued for issuance of common stock, net 811,929 - Sales of stock from treasury 815 - --------------- --------------- Net cash provided by financing activities 1,367,657 7,630 --------------- --------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (517,399) 768,120 CASH AND CASH EQUIVALENTS, at beginning of year 975,100 457,701 --------------- --------------- CASH AND CASH EQUIVALENTS, at end of year $ 457,701 $ 1,225,821 --------------- --------------- --------------- --------------- SUPPLEMENTAL DISCLOSURES: Interest paid $ 12,458 $ 81,000 Income taxes paid $ 160,631 $ 232,632 --------------- --------------- --------------- --------------- NON-CASH TRANSACTIONS: Issuance of common stock in conjunction with purchase of Thermal Corporation $ 387,223 $ - Issuance of common stock in conjunction with purchase of IDS Fabricated Systems, Inc. $ - $ 289,800 Issuance of common stock in conjunction with purchase of Constant Power Manufacturing, Inc. $ - $ 300,000 Assumption of $200,000 note payable in conjunction with purchase of IDS Fabricated Systems, Inc. $ - $ 200,000
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS 29 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION - The accompanying consolidated financial statements include the accounts of Industrial Data Systems Corporation ("IDSC" or the "Company"), a Nevada corporation, and its wholly-owned subsidiaries Industrial Data Systems, Inc., a Texas corporation, dba IDS Technical Services ("IDS"); Thermaire, Inc., a Texas corporation, dba Thermal Corporation ("Thermal"); Constant Power Manufacturing, Inc. ("CPM"), a Texas corporation, IDS Engineering, Inc. ("IED"), a Texas corporation; and IDS Fabricated Systems, Inc. ("IDS FAB"), a Texas corporation. All significant intercompany balances and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash in bank and investments in highly liquid money market mutual funds. 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 when such services are performed and product sales upon shipment to the customer. 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 stockholders' 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. PROPERTY AND EQUIPMENT - All property and equipment is stated at cost, adjusted for accumulated depreciation. Depreciation on all property and equipment, other than land, building and improvements, is calculated using an accelerated method over the estimated useful lives of the related assets, which is five years. Depreciation on the building 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. 30 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GOODWILL - The Company capitalizes the excess purchase price over the fair value of net assets acquired ("goodwill") and amortizes this intangible asset on a straight-line basis over 5-10 years. 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, whereby deferred income taxes are 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. EARNINGS PER SHARE - Basic earnings per share was computed by dividing net income by the weighted average common shares outstanding as of December 31, 1997 and 1998. There were no dilutive securities at December 31, 1997 and 1998. USE OF ESTIMATES - The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles 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. SIGNIFICANT ESTIMATE - The Company's management has made significant estimates related to the realizability of the Company's goodwill associated with the acquisition of IDS FAB (see Note 14). The estimation process involved in determining if assets have been impaired is inherently uncertain since it requires estimates of current market yields as well as future events and conditions, which could change these estimates in the near term. FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of financial instruments, primarily accounts receivable, accounts payable and notes payable, closely approximate the carrying values of the instruments due to the short-term maturities of such instruments. 31 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COMPREHENSIVE INCOME - Comprehensive income is defined as all changes in stockholders' 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. 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. 1. MARKETABLE SECURITIES Marketable securities at December 31, 1998 are summarized as follows:
GROSS GROSS UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE -------------- --------------- -------------- --------------- Trading: Common stocks $ 291,830 $ 2,456 $ - $ 294,286 Bond 300,000 - - 300,000 Other 50,000 32,361 - 82,361 ------------- ------------- ------------- ------------- $ 641,830 $ 34,817 $ - $ 676,647 ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
2. AFFILIATE RECEIVABLES The Company has several notes receivable due from stockholders. The notes receivable are unsecured, due on demand and bear interest at a rate of 9% per annum. Interest on the notes is due annually. During the years ended December 31, 1997 and 1998, the Company recognized interest income of approximately $10,000 and $18,000, respectively, on these notes. 32 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. PROPERTY AND EQUIPMENT Property and equipment consisted of the following as of December 31, 1998: Land $ 90,000 Furniture and fixtures 110,118 Computer equipment 258,044 Building 605,000 Shop equipment 203,031 Leasehold improvements 85,118 ------------- 1,351,311 Accumulated depreciation and amortization (300,743) ------------- $ 1,050,568 ------------- -------------
4. NOTES PAYABLE The Company entered into a Revolving Credit Note with a bank on July 12, 1998 in the amount of $1,150,000, bearing interest at prime + 1% (8.75% at December 31, 1998) and maturing on May 12, 1999. The Company made no draws under the agreement during the year ended December 31, 1998. In June of 1998, the Bank lines of credit for IDS and Thermal were converted into a term note that matures on May 12, 1999. The note bears interest at prime + 1% (8.75% at December 31, 1998). The outstanding balance due at December 31, 1998 was $375,000. The note is collateralized by the accounts receivable and inventory of the Company. The Company assumed a term note payable with a bank of $200,000 bearing interest at 6.9% as part of the acquisition of IDS FAB (see Note 14). This note, which expires on June 25, 1999, is collateralized by a certificate of deposit at the bank. The entire $200,000 was outstanding at December 31, 1998. Interest on the outstanding amount is due and payable monthly. The Company is financing a portion of its insurance each year on a short-term basis, with a balance of $45,383 at December 31, 1998. 33 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. LONG-TERM DEBT The Company has a term note payable with a bank of $450,000 at 8.88% (Ordinary Interest). The loan, which expires on February 28, 2002, is collateralized by land and building acquired in the purchase of Thermal (see Note 14). There was $420,671 outstanding under this note at December 31, 1998. Interest on the outstanding amount is due and payable monthly. The Company is financing a portion of its insurance over 23 months bearing interest at 7.95% with a remaining balance of $54,342 at December 31, 1998. Future maturities of long-term debt are as follows:
YEARS ENDING DECEMBER 31, 1999 $ 52,530 2000 39,046 2001 21,238 2002 362,199 -------------- Total 475,013 Less current portion (52,530) -------------- Long-term debt $ 422,483 -------------- --------------
6. LEASES The Company leases office space under two non-cancelable operating leases. Total rent expense for the years ended December 31, 1998 and 1997 was $205,000 and $109,000, respectively. Future minimum rentals due under the non-cancelable operating leases with an original term of at least one year are as follows:
YEARS ENDING DECEMBER 31, 1999 $ 195,000 2000 198,000 2001 203,000 2002 165,000 -------------- $ 761,000 -------------- --------------
34 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. 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 will make matching contributions equal to 50% of employee contributions up to 3% 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 four years. The Company made contributions to the Plan of $72,000 and $93,000 for the years ended December 31, 1997 and 1998, respectively. 8. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS The Company manufactures and distributes industrial and portable computers and computer monitors, power systems and battery chargers, and air handling equipment for air conditioning and heating systems to commercial companies primarily in the southern states and provides pipeline engineering and fabricated systems and services primarily to major integrated oil and gas companies. 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. The Company maintains deposits in banks which may exceed the amount of federal deposit insurance available. Management periodically assesses the financial condition of the institutions and believes that any possible deposit loss is minimal. For the year ended December 31, 1997, the Company had sales to five major customers in the Engineering and Thermal segments totaling approximately $6,630,000, representing 63% of total revenues for the year. For the year ended December 31, 1998, the Company had sales to one major customer in the Engineering segment totaling approximately $2,533,000 which represents 19% of total revenues. At December 31, 1998, amounts due from three customers who individually had amounts due in excess of 10% of trade receivables totaled $1,068,000. 35 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. STOCKHOLDERS' EQUITY In 1997, the Company issued 193,719 shares of common stock as part of the acquisition of Thermal Corporation (see Note 14). In 1998, the Company issued 300,000 shares of common stock as part of the CPM acquisition and 50,000 shares as part of the IDS FAB acquisition (see Note 14). 10. FEDERAL INCOME TAXES The following is a reconciliation of expected to actual income tax expense:
YEARS ENDED DECEMBER 31, ------------------------------------- 1997 1998 ----------------- ---------------- Federal income tax expense at 34% $ 200,853 $ 239,770 State and foreign taxes 15,902 16,434 Nondeductible expenses 1,665 16,775 Other (10,171) 12,397 --------------- --------------- $ 208,249 $ 285,376 --------------- --------------- --------------- ---------------
The components of the Company's deferred tax liability consisted of the following as of December 31, 1998: Deferred tax asset: Allowance for doubtful accounts $ 8,000 Tax accounting change from cash basis to accrual basis - IDS-FAB acquisition 143,000 Deferred tax liabilities: Tax accounting change from cash basis to accrual basis - CPM Acquisition (142,000) Depreciation (15,000) --------------- Deferred tax liability, net $ (6,000) --------------- ---------------
36 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. SEGMENT INFORMATION The Company operates in five business segments: (1) the manufacture and distribution of industrial computer systems to industrial and commercial companies; (2) engineering consulting services primarily to major integrated oil and gas companies; (3) the manufacture and distribution of air handling equipment for HVAC systems to commercial companies; (4) the manufacture and distribution of uninterruptible power systems and battery chargers; and (5) the design and fabrication of fire and safety equipment primarily for the oil and gas industry. Sales, operating income, identifiable assets, capital expenditures and depreciation set forth in the following table are the results of the five segments. The amount in corporate and eliminations includes amounts to eliminate intercompany items, including notes receivable and notes payable. Segment information for the years 1997 and 1998 was as follows:
(Thousands) ----------------------------------------------------------------------------------------------------------- 1 9 9 7 ----------------------------------------------------------------------------------------------------------- Air Power Products Engineering Handling Systems Fabricating Corporate Total ----------------------------------------------------------------------------------------------------------- Net sales from external customers $ 2,582 $ 4,265 $ 3,677 $ - $ - $ - $10,524 Operating earnings 190 310 94 - - - 594 Depreciation and amortization 5 29 55 - - 8 97 Total assets 996 1,625 2,002 - - 745 5,368 Capital expenditures $ 60 $ 97 $ 677 $ - $ - $ - $ 834 ----------------------------------------------------------------------------------------------------------- 1 9 9 8 ----------------------------------------------------------------------------------------------------------- Net sales from external customers $ 1,536 $ 4,407 $ 3,708 $ 3,016 $ 766 $ - $13,433 Operating earnings (362) 603 60 638 (228) - 711 Depreciation and amortization 29 47 59 - - 36 171 Total assets 536 2,100 1,755 1,677 1,646 215 7,929 Capital expenditures $ 25 $ 19 $ 32 $ - $ 4 $ 5 $ 85 -----------------------------------------------------------------------------------------------------------
12. TRANSACTION WITH AFFILIATE In July 1997, the Company entered into a management contract with BHC Management Corporation ("BHC"), a Texas corporation. As compensation for services provided hereunder, IDS agreed to pay BHC the sum of $4,000 per month plus expenses not to exceed $500 per month. The principals of BHC are stockholders of IDS. The total payments made to BHC during 1998 and 1997 were approximately $48,000. 13. ACQUISITIONS 37 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In February 1997, the Company acquired Thermal in a stock purchase. The Company paid $600,000, consisting of $212,563 in cash and 193,719 shares of the Company's common stock, which may have been put back to the Company for $2 per share at the option of the holder. Additionally, the Company purchased the facilities that Thermal had been leasing from an affiliate for $500,000. The Company obtained bank financing totaling $450,000 related to the acquisition of these facilities. This acquisition has been accounted for on the purchase method of accounting. The purchase price exceeded the fair value of the net assets acquired by approximately $60,000. Previously, in 1995, the Company had issued 600,000 shares of its common stock to Thermal on a contingent basis. These shares were held in an escrow account pending completion of the acquisition, at which time these shares were released from escrow and cancelled. The aforementioned 193,719 shares were issued under revised terms of the purchase agreement. The operating results of Thermal have been included in the Company's consolidated financial statements since the date of acquisition. In April 1998, the Company acquired CPM in a stock purchase. The Company paid $500,000, consisting of $200,000 in cash and 300,000 shares of the Company's common stock, which may be put back to the Company for $1 per share at the option of the holder. This acquisition has been accounted for on the purchase method of accounting. The purchase price exceeded the fair value of the net assets acquired by approximately $132,000. The operating results of CPM have been included in the Company's consolidated financial statements since the date of acquisition. In November 1998, the Company acquired IDS FAB in a stock purchase. The Company paid $389,800, consisting of $100,000 in cash and 50,000 shares of the Company's common stock, whose fair market value at the date of exchange was $289,800. This acquisition has been accounted for on the purchase method of accounting. The purchase price exceeded the fair value of the net assets acquired by approximately $593,000. The operating results of IDS FAB have been included in the Company's consolidated financial statements since the date of acquisition. The following unaudited proforma consolidated results of operations of the years ended December 31, 1997 and 1998 assumes the Thermal, CPM and IDS FAB acquisitions occurred as of January 1, 1997.
(thousands, except per share data) 1997 1998 ------------------------------------------------------------------------------- Net sales $ 16,695 $ 19,488 Net earnings 737 306 Basic earnings per share .06 .02 -------------------------------------------------------------------------------
38 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In management's opinion, the unaudited proforma combined results of operations are not indicative of the actual results that would have occurred had the acquisitions been consummated at the beginning of fiscal 1997 or of future operations of the combined companies under the ownership and management of the Company. 14. YEAR 2000 The Year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a major system failure or miscalculations. The Year 2000 problem may impact or be impacted by other entities with which the Company transacts business. The Company has begun to address possible remedial efforts in connection with computer software that could be affected by the Year 2000 problem. The Company has incurred approximately $50,000 of remediation costs and estimates another $200,000 will be incurred toward remediation of the Year 2000 problem. Such costs are expensed as incurred. 39 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There are no changes in and disagreements with the Company's accountants on accounting and financial disclosure. PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE Incorporated herein by reference in the Company's definitive proxy statement for its 1999 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 1999. ITEM 10. EXECUTIVE COMPENSATION Incorporated herein by reference in the Company's definitive proxy statement for its 1999 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 1999. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference in the Company's definitive proxy statement for its 1999 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 1999. ITEM 12. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS Incorporated herein by reference in the Company's definitive proxy statement for its 1999 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 1999. 40 PART IV ITEM 13. 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 24 hereof. B. REPORTS ON FORM 8-K There were no Current Reports on Form 8-K filed by the Company during the quarter ended December 31, 1998 that have not been previously reported in the Company's Quarterly Reports on Form 10-Q. 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 Stockholders for the Purchase of Industrial Data Systems, Incorporated, a Texas corporation, dated August 1, 1994(1) 2.3 Stock Acquisition Agreement for the Purchase of Thermaire Incorporated, dba Thermal Corp., dated August 15, 1995(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) 41 2.9 Stock Purchase Subscription Agreement from World Glory Company Limited, dated July 10, 1996(1) 2.10 Stock Purchase Subscription Agreement from Asian Harvest Corporation Limited dated July 10, 1996(1) 2.11 Stock Purchase Subscription Agreement from Silver Course Corporation, dated July 10, 1996(1) 2.13 Stock Purchase Subscription Agreement from Pines Intervest Corporation, dated July 10, 1996(1) 2.14 Stock Purchase Subscription Agreement from Wilton Assets Corp., dated July 10, 1996(1) 2.15 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 (8). 2.16 Stock Acquisition Agreement between MLC Enterprises, Inc. and Industrial Data Systems Corporation, dated November 13, 1998(10) 2.17 Escrow Agreement by and between Industrial Data Systems Corporation, Michael L. Moore and MLC Enterprises, Inc. and Johnny J. Williams (Escrow Agent) dated November 13, 1998(10) 2.18 MLC Enterprises, Inc. Written Consent of all Directors in Lieu of Meeting Resolving MLC Enterprises, Inc. to enter into Stock Acquisition Agreement (Exhibit 2.16)(10) 2.19 MLC Enterprises, Inc. Certificate of Corporate Resolution(10) 2.20 Employment Agreement dated November 1, 1998 by and between MLC Enterprises, Inc. and Michael L. Moore(10) 2.21 Amendment to Employment Agreement (Exhibit 2.20) dated January 16, 1999(10) 42 2.22 Industrial Data Systems Corporation Written Consent of All Directors in Lieu of Meeting Resolving Purchase of MLC Enterprises, Inc.(10) 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 June 22, 1994(1) 3.3 Articles of Incorporation, IDS Engineering, Inc., dated October 15, 1997. Previously filed as Exhibit 3 on (7) 3.4 Corporate Charter, IDS Engineering, Inc., dated October 15, 1997. Previously filed as Exhibit 3.1 on (7) 3.5 Corporate Bylaws, IDS Engineering, Inc., dated October 15, 1997. Previously filed as Exhibit 3.2 on (7) 3.6 Corporate Bylaws, MLC Enterprises, Inc. dated November 13, 1998 effective August 7, 1995(10) 3.7 Corporate Charter, MLC Enterprises, Inc., dated August 7, 1995(10) 3.8 Amended Articles of Incorporation, MLC Enterprises, Inc., dated November 13, 1998)(10) 3.9 Certificate of Amendment for IDS Fabricated Systems, Inc. formerly MLC Enterprises, Inc.(10) 4.1 Revolving Credit Line with Texas Commerce Bank, N.A., dated June 11, 1996(1) 4.2 Promissory Note plus Restricted Common Stock to John H. Cameron, dated July 23, 1994(1) 4.3 Promissory Note plus Restricted Common Stock to Charles B. Pollock, et ux, dated July 23, 1994(1) 4.4 Promissory Note payable to Industrial Data Systems Corporation from World Glory Company Limited, dated July 15, 1996(1) 4.5 Promissory Note payable to Industrial Data Systems Corporation from Asian Harvest Corporation, Ltd., dated July 15, 1996(1) 43 4.6 Promissory Note payable to Industrial Data Systems Corporation from Silver Course Corporation, dated July 15, 1996(1) 4.7 Promissory Note payable to Industrial Data Systems Corporation from Pines Intervest Corporation, dated July 15, 1996(1) 4.8 Promissory Note payable to Industrial Data Systems Corporation from Wilton Assets Corp. dated July 15, 1996(1) 10 Lease Agreement between Industrial Data Systems, Incorporated, a Texas corporation, and American General Life Insurance Company, dated January 16, 1991(1) 10.1 First Amendment to Lease Agreement between Industrial Data Systems, Incorporated, a Texas corporation, and American General Life Insurance Company, dated December 7, 1993(1) 10.2 Second Amendment to Lease Agreement between Industrial Data Systems Corporation, a Nevada corporation, and American General Life Insurance Company, dated December 29, 1994(1) 10.3 Third Amendment to Lease Agreement between Industrial Data Systems Corporation, a Nevada corporation, and American General Life Insurance Company, dated December 8, 1995(1) 10.4 Lease Agreement between Industrial Data Systems Corporation, a Nevada corporation, and Clarksburg, West Virginia Masonic Building, dated June 1, 1995(1) 10.5 Adoption Agreement for Nonstandardized Code 401(k) Profit Sharing Plan, dated January 1, 1993(1) 10.6 Blanket Service Contract - Exxon Pipeline Company (3) 10.7 Blanket Service Contract - Marathon Oil Company (3) 10.8 Blanket Service Contract - Texas Eastern Transmission Corporation (3) 10.9 Blanket Service Contract - Trunkline Gas Company (3) 10.10 Blanket Service Contract - Panhandle Eastern Pipeline Company (3) 10.11 Blanket Service Contract - ARCO Pipe Line Company (3) 10.12 Blanket Service Contract - CNG Transmission Corporation (3) 10.13 Blanket Service Contract - Columbia Gas Transmission Corporation (3) 10.14 Blanket Service Contract - Praxair, Inc. (3) 44 10.15 Blanket Service Contract - Texas Products Pipeline Company (3) 10.16 Volume Purchase Agreement (3) 10.17 Lease between Industrial Data Systems, Incorporated, a Texas corporation, and 319 Century Plaza Associates, Ltd., August 18, 1997. Previously filed as Exhibit 10 on (7) 10.18 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 (7) 10.19 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 (7) 10.20 Employment Agreement, dated March 25, 1998, by and between Constant Power Manufacturing Incorporated and Jack Ripley. Previously filed as Exhibit 10.19 on (8) 10.21 First Amendment to Employment Agreement, dated April 3, 1998, by and between Jack Ripley and Constant Power Manufacturing Incorporated. Previously filed as Exhibit 10.20 on (8) 10.22 Employment Agreement, dated March 25, 1998, by and between Constant Power Manufacturing Company, Inc. and R. Tilden Smith. Previously filed as Exhibit 10.21 on (8) 10.23 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 (8) 10.24 Fourth Amendment to Lease between Industrial Data Systems, Inc., a Texas corporation and 600 C.C. Business Park Ltd., dated September 1, 1998 (10) 10.25 Lease Agreement between IDS Engineering, Inc. and d/b/a Wilshire Square, dated February 8, 1999 (10) 10.26 Lease Agreement between MLC Enterprises, Inc. dba Marine and Industrial Supply and Trust Management Company, dated November 5, 1997 (10) 10.27 Sublease between Marine and Industrial Supply Company and Input/Output, Inc., dated October 8, 1998 (10) 10.28 Lease Agreement between MLC Enterprises, Inc. dba Marine and Industrial Supply and Vantage Houston, Inc., as Agent for Greenbriar Holdings Houston, Ltd., dated December 15, 1996 (10) 45 10.29 Termination of Lease between MLC Enterprises, Inc. dba Marine and Industrial Supply and Vantage Houston, Inc., as Agent for Greenbriar Holdings Houston, Ltd., dated November 18, 1998 (10) 10.30 Blanket Service Contract with Texaco Pipeline Company. Previously filed as Exhibit 10.18 on (4) 11 Statement Regarding Computation of Per Share Earnings (4)(5) 21 Subsidiaries of the Registrant (11) 23 Consent of Lindsey, Keys & Shannon (2) 24 Power of Attorney (2) 27 Financial Data Schedule (11)(12) 99 Audited Financial Statements of Thermaire, Inc. dba Thermal Corp. as of and for the year ended December 31, 1996 (3) 99.1 Unaudited Pro Forma Condensed Consolidated Balance Sheet and Statement of Income as of and for the year ended December 31, 1996 for Industrial Data Systems Corporation and Thermaire, Inc. dba Thermal Corp. (3)
(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 for the year ended December 31, 1996 filed with the Securities and Exchange Commission on April 14, 1997. (3) 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. (4) Exhibits incorporated by reference on the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1997 filed with the Securities and Exchange Commission on August 14, 1997. (5) Exhibits incorporated by reference on the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1997 filed with the Securities and Exchange Commission on November 14, 1997. (6) Exhibits incorporated by reference on the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997 filed with the Securities and Exchange Commission on March 31, 1998. (7) 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. (8) Exhibits incorporated by reference on the Company's Form 8-K filed April 10, 1998 and Form 8-K/A filed April 29, 1998. (9) Exhibits incorporated by reference on the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998 filed with the Securities and Exchange Commission on March 31, 1999. 46 (10) Exhibits incorporated by reference on the Company's Annual Report on Form 10-KSB/A for the year ended December 31, 1998. (11) Exhibit incorporated by reference on the Company's Annual Reports on Form 10-KSB. (12) Exhibit incorporated by reference on the Company's Annual Reports on Form 10-QSB. 47 SIGNATURES In accordance with Section 12 of the Securities Exchange act of 1934, the Registrant has caused this Annual Report on Form 10 KSB/A to be signed no its behalf by the undersigned, thereunto duly authorized. INDUSTRIAL DATA SYSTEMS CORPORATION Dated: April 7, 1999 ----------------- By: /s/ William A. Coskey ---------------------------- William A. Coskey, P.E., Chairman of the Board, President and Chief Executive Officer By: /s/ Hulda L. Coskey ---------------------------- Hulda L. Coskey, Chief Financial Officer, Secretary, Treasurer, Director By: /s/ David W. Gent ---------------------------- David W. Gent, P.E., Director By: /s/ Gordon R. Wingate ---------------------------- Gordon R. Wingate, Director By: /s/ Ken J. Hedrick ---------------------------- Ken J. Hedrick, Controller, Director
48 EX-2.16 2 EXHIBIT 2.16 EXHIBIT 2.16 STOCK ACQUISITION AGREEMENT BY AND AMONG MICHAEL L. MOORE AS "STOCKHOLDER", M L C ENTERPRISES, INC. AS THE "COMPANY" AND INDUSTRIAL DATA SYSTEMS, CORP. AS THE "ACQUIRING CORPORATION" EFFECTIVE DATE: NOVEMBER 1, 1998 1 STOCK ACQUISITION AGREEMENT INDEX Page ARTICLE I DEFINITIONS 1.1 DEFINED TERMS 1.2 OTHER DEFINED TERMS 1.3 REFERENCES ARTICLE II EFFECT OF THE AGREEMENT 2.1 EXCHANGE OF STOCK 2.2 EFFECT ARTICLE III CLOSING 3.1 CLOSING 3.2 DOCUMENTS TO BE DELIVERED ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.1 ORGANIZATION OF THE COMPANY 4.2 AUTHORIZATION 4.3 SUBSIDIARIES 4.4 ABSENCE OF CERTAIN CHANGES OR EVENTS 4.5 TITLE TO ASSETS, ETC. 4.6 CONDITION OF TANGIBLE ASSETS 4.7 CONTRACTS AND COMMITMENTS 4.8 NO CONFLICT OR VIOLATION 4.9 CONSENTS AND APPROVALS 4.10 FINANCIAL STATEMENTS 4.11 LITIGATION 4.12 LABOR MATTERS 4.13 LIABILITIES 4.14 COMPLIANCE WITH LAW 4.15 NO BROKERS 4.16 NO OTHER AGREEMENTS TO SELL THE ASSETS OR THE COMPANY 4.17 PROPRIETARY RIGHTS 4.18 EMPLOYEE AGREEMENTS AND BENEFITS 4.19 TRANSACTIONS WITH CERTAIN PERSONS 4.20 TAX MATTERS 2 4.21 SEVERANCE ARRANGEMENTS 4.22 INSURANCE 4.23 ACCOUNTS RECEIVABLE 4.24 INVENTORIES 4.25 PURCHASE COMMITMENTS AND OUTSTANDING BID 4.26 PAYMENTS 4.27 CUSTOMERS AND SUPPLIERS 4.28 ENVIRONMENTAL AND SAFETY COMPLIANCE 4.29 MATERIAL MISSTATEMENTS OR OMISSIONS 4.30 BUSINESS OF THE COMPANY ARTICLE V REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS 5.1 ORGANIZATION OF STOCKHOLDERS 5.2 AUTHORIZATION 5.3 CONTRACTS AND COMMITMENTS 5.4 CONSENTS AND APPROVALS 5.5 NO BROKERS 5.6 NO OTHER AGREEMENTS TO SELL THE ASSETS OR THE COMPANY 5.7 TRANSACTIONS WITH CERTAIN PERSONS 5.8 MATERIAL MISSTATEMENTS OR OMISSIONS 5.9 NO KNOWLEDGE OF INDEMNIFICATION EVENTS ARTICLE VI REPRESENTATIONS AND WARRANTIES OF ACQUIRING CORPORATION 6.1 ORGANIZATION OF ACQUIRING CORPORATION 6.2 AUTHORIZATION 6.3 CONSENTS AND APPROVALS 6.4 NO BROKERS 6.5 NO CONFLICT OR VIOLATION 6.6 LITIGATION 6.7 COMPLIANCE WITH LAW 6.8 MATERIAL MISSTATEMENTS OR OMISSIONS ARTICLE VII ACTIONS BY STOCKHOLDER, THE COMPANY ACQUIRING CORPORATION PRIOR TO THE CLOSING 5.1 MAINTENANCE OF BUSINESS 5.2 CERTAIN PROHIBITED TRANSACTIONS 5.3 INVESTIGATION BY ACQUIRING CORPORATION 5.4 CONSENTS AND BEST EFFORTS 5.5 NOTIFICATION OF CERTAIN MATTERS 5.6 NO MERGERS, CONSOLIDATIONS, SALE OF STOCK, ETC. 5.7 MAINTENANCE OF SHAREHOLDER EQUITY 3 ARTICLE VIII CONDITIONS TO STOCKHOLDERS OBLIGATIONS 8.1 REPRESENTATIONS, WARRANTIES AND COVENANTS 8.2 CONSENTS 8.3 NO GOVERNMENTAL PROCEEDING OR LITIGATION 8.4 CORPORATE DOCUMENTS ARTICLE IX CONDITIONS TO ACQUIRING CORPORATIONS OBLIGATION 9.1 REPRESENTATIONS, WARRANTIES AND COVENANTS 9.2 CONSENTS 9.3 NO GOVERNMENTAL PROCEEDING OR LITIGATION 9.4 CERTIFICATE 9.5 CORPORATE DOCUMENTS 9.6 INVESTIGATION 9.7 EMPLOYMENT AGREEMENTS 9.8 ACCOUNTING MATTERS 9.9 COMPLETION OF BUY OUT ARTICLE X ACTIONS BY STOCKHOLDER, THE COMPANY AND ACQUIRING CORPORATION AFTER THE CLOSING 10.1 FURTHER ASSURANCES ARTICLE XI INDEMNIFICATION 11.1 SURVIVAL OF REPRESENTATIONS, ETC. 11.2 INDEMNIFICATION 11.3 INDEMNIFICATION PROCEDURES 11.4 NO RIGHT OF CONTRIBUTION ARTICLE XII SECURITIES LAWS 10.1 ACQUISITION OF INVESTMENT ARTICLE XIII STOCKHOLDER'S OPTION TO RESELL TO ACQUIRING CORPORATION 10.1 SALE OPTION OF STOCKHOLDER 4 ARTICLE XIV MISCELLANEOUS 14.1 TERMINATION 14.2 ASSIGNMENT 14.3 NOTICES 14.4 CHOICE OF LAW 14.5 ENTIRE AGREEMENT: AMENDMENTS AND WAIVERS 14.6 COUNTERPARTS 14.7 INVALIDITY 14.8 HEADING 14.9 EXPENSES 14.10 PUBLICITY 14.11 CONFIDENTIAL INFORMATION 5 STOCK ACQUISITION AGREEMENT This Agreement is made and entered into effective the 25 day of November, 1998 by and between INDUSTRIAL DATA SYSTEMS CORP., a Nevada Corporation, having its principal place of business in Texas located at 600 Century Place Drive, Building 140, Houston, Texas (hereinafter called the "Acquiring Corporation"); MICHAEL L. MOORE, (hereinafter called "Stockholder"); and M L C ENTERPRISES, INC., (hereinafter called the "Company"). RECITALS A) M L C ENTERPRISES, INC., is a Texas Corporation having its principal place of business located at 10913 Metronome, Houston, Harris County, Texas 77043. The Company is engaged in the business of manufacture, distribution and sale of oil and gas related products and industrial fire suppression systems. B) The Company is authorized to issue 100,000 shares of common stock. There are 1000 shares of common stock issued and outstanding. C) The Acquiring Corporation is authorized to issue 75,000,000 shares of common stock of which 13,023,718 shares are issued and outstanding. D) The Stockholder has agreed to accept voting stock of the Acquiring Corporation in exchange for all of his shares of common stock of the Company. ARTICLE I DEFINITIONS 1.1 DEFINED TERMS. As used herein, the terms below shall have the following meanings: "BALANCE SHEET" shall mean the Consolidated Balance Sheet of the Company as of September 30, 1998 together with the notes thereon prepared in accordance with Generally Accepted Accounting Principles. "BALANCE SHEET DATE" shall mean September 30, 1998. "CLOSING BALANCE SHEET" shall mean the Consolidated Balance Sheet of the Company as of the end of the month immediately 6 preceding the Closing Date together with notes thereon prepared in accordance with Generally Accepted Accounting Principles. "CLOSING DATE" shall mean the close of business on November 15, 1998, or such other date as may be mutually agreed upon in writing by Stockholders and Acquiring Corporation. "CLOSING FINANCIAL STATEMENTS" shall mean the Closing Balance Sheet, and Consolidated Statements of Income, Cash Flows and Stockholders Equity for the Company for the period since the end of the Company's most recent fiscal year and ending as of the date of the Closing Balance Sheet, together with the notes thereon. "CODE" shall mean the Internal Revenue Code of 1986, as may be amended from time to time. "CONTRACTS" shall mean any of the agreements, contracts, commitments or other documents described in Section 4.7 (a)-(g). "DISCLOSURE SCHEDULE" means a schedule executed and delivered by Stockholder or the Company to Acquiring Corporation on or prior to the date hereof which sets forth exceptions to the representations and warranties contained in Article IV and V hereof and certain other information called for by Articles IV and V hereof and other provisions of this Agreement. "ENCUMBRANCES" shall mean any claim, lien, pledge, option, charge, easement, security interest, right-of-way, encumbrance or other rights of third parties. "ENVIRONMENTAL LAWS" shall mean all federal, state, and local laws, statutes, ordinances, regulations, and rules, which (i) regulate or relate to the protection or clean-up of the environment, the use, treatment, storage, transportation or disposal of hazardous, toxic or otherwise dangerous substances, wastes or materials (whether gas, liquid or solid) or the preservation or protection of waterways, groundwater, drinking water, air, wildlife, plants, or other natural resources or (ii) impose liability with respect to any of the foregoing, including without limitation the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), Resource Conservation & Recovery Act 42 U.S.C. Section 6901 et seq.) ("RCRA"), Safe Drinking Water Act (21 U.S.C. Section 349, 42 U.S.C. Section 201, 300f), Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), Clean Water Act (42 U.S.C. Section 7401 et seq.) Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.) ("CERCLA"), or any similar federal, state or local law of similar effect, each as amended. "FACILITIES" shall mean the plant, offices, manufacturing facilities, stores, warehouses, administration buildings, etc. and 7 all other real property and related facilities which are owned or leased by the Company. "FINANCIAL STATEMENTS" shall mean the Balance Sheet, and Consolidated Statements of Income, Cash Flows and Stockholders Equity for the Company for the period since the end of the Company's most recent fiscal year and ending as of the Balance Sheet Date, together with the notes thereon, previously delivered to Acquiring Corporation and attached hereto as Schedule 1.1. "FIXTURES AND EQUIPMENT" shall mean all of the furniture, fixtures, furnishings machinery and equipment owned or leased by the Company and located in, at or upon the Facilities as of the Balance Sheet Date plus all additions, replacements or deletions since the Balance Sheet Date in the ordinary course of the Company's business. "HAZARDOUS SUBSTANCES" shall mean any quantity of asbestos in any form, urea formaldehyde, PCB's, radon gas, crude oil or any fraction thereof, all forms of natural gas, petroleum products or by-products, any radioactive substance, any toxic, infectious, reactive, corrosive, ignitable or flammable chemical or chemical compound and any other hazardous substance, material or waste (as defined in or for purposes of any Environmental Law), whether solid, liquid or gas. "REPRESENTATIVE" shall mean any officer, director, principal, attorney, agent, employee or other representative. "SUBSIDIARIES" shall mean all corporations, partnerships, joint ventures or other entities in which the Company either owns capital stock or is a partner or is in some other manner affiliated through an investment or participation in the equity of such entity. 1.2 Other Defined Terms. The following terms shall have the meanings defined for such terms in the Sections set forth below:
Term Section Action 4.11 Assets 4.5 Closing 3.1 Damages 11.2 ERISA 4.18 Handled 4.28 Personnel 4.4 Plans 4.18 Proprietary Rights 4.17 Tax 4.20 Taxpayers 4.20
8 1.3 References. As used in this Agreement, unless expressly stated otherwise, references to "knowledge", "known", to the knowledge of", or other similar phrases, mean, with respect to any person, the actual knowledge or reason to have actual knowledge after reasonable independent investigation at the time of execution of this agreement and at the closing. ARTICLE II EFFECT OF THE AGREEMENT 2.1 EXCHANGE OF STOCK. In accordance with the terms and conditions herein, Stockholder shall at closing, exchange all of his shares of the Company, representing all of the issued and outstanding shares of the Company for a total of 50,000 shares of common voting stock in the Acquiring Corporation, par value One Cent ($0.01) per share. 2.2 EFFECT. The transaction contemplated under the terms of this Agreement is intended to qualify as a tax free exchange under Section 368(a)(1)(b) of the Internal Revenue Code. Each party to this agreement has relied solely on the opinion of its counsel as to the qualification of the transaction for a tax free exchange pursuant to IRC 368 (a)(l)(b) Although Acquiring Corporation in no manner guarantees that the transaction will be non-taxable, Acquiring Corporation will make all reasonable efforts necessary to assist Company and Stockholder in making the transaction non-taxable. ARTICLE III CLOSING 3.1 CLOSING. The closing of the transactions contemplated herein (the "Closing") shall be held at 10:00 a.m. local time on the Closing Date at the Houston office of Acquiring Corporation's counsel unless the parties hereto otherwise agree. 3.2 DOCUMENTS TO BE DELIVERED. To effect the exchange referred to in Section 2.1 and the delivery of the consideration described therein, Stockholders and Acquiring Corporation shall, on the Closing Date, deliver the following: (a) Stockholders shall deliver to Acquiring Corporation certificate(s) evidencing all of the issued and outstanding shares of the Company, free and clear of any encumbrances of any nature, duly endorsed for transfer to Acquiring Corporation. (b) Acquiring Corporation shall deliver to Stockholder a copy of instructions sent to its transfer agent directing the issuance to 9 Stockholder of fifty thousand (50,000) of the Acquiring Corporation's fully paid non-assessable common voting shares. (c) All instruments and documents executed and delivered to Acquiring Corporation pursuant hereto shall be in form and substance, and shall be executed in a manner reasonably satisfactory to Acquiring Corporation. All instruments and documents executed and delivered to Stockholder pursuant hereto shall be in form and substance, and shall be executed in a manner reasonably satisfactory to Stockholder. ARTICLE IV REPRESENTATIONS AND WARRANTIES Except as set forth in the Disclosure Schedules, the Company and Stockholder hereby represent and warrant to Acquiring Corporation as follows: 4.1 ORGANIZATION OF THE COMPANY. (a) The Company is duly organized, validly existing and in good standing under the laws of the State of Texas, has full corporate power and authority to conduct its business as it is presently being conducted and to own and lease its properties and assets. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which such qualification is necessary under the applicable law as a result of the conduct of its business or the ownership of its properties and where the failure to be so qualified would have a material adverse effect on the business or financial condition of the Company. Each jurisdiction, if any, in which the Company is qualified to do business as a foreign corporation is listed on the Disclosure Schedule. The Company has duly filed assumed names of HOUSTON SUPPLY INTERNATIONAL; MARINE & INDUSTRIAL FIRE & SAFETY; VALVCO INDUSTRIAL SUPPLY CO. and MARINE & INDUSTRIAL SUPPLY CO. (b) The Company has authorized 100,000 shares of Common Voting Stock. The only shares of the Company which have been issued and the current Stockholders of the Company are as follows: MICHAEL L. MOORE 1000 shares (c) The company has one Director whose names is as follows: MICHAEL L. MOORE (d) The officers of the Company are as follows: MICHAEL L. MOORE - PRESIDENT, TREASURER MICHAEL L. MOORE - VICE PRESIDENT, SECRETARY 10 4.2 AUTHORIZATION. The Company has all necessary corporate power and authority to enter into this agreement and has taken all corporate action necessary to consummate the transactions contemplated hereby and to perform its obligations hereunder. This Agreement has been duly executed and delivered by the Company and is a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. 4.3 SUBSIDIARIES. The Company has no Subsidiaries. 4.4 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the Balance Sheet Date, there has not been any: (a) change in the Company's condition (financial or otherwise), assets, liabilities, working capital, reserves, earnings, business or prospects, except for changes contemplated hereby or changes which have not, individually or in the aggregate, been materially adverse; (b) (i) except for normal periodic increases in the ordinary course of business consistent with past practice, increase in the compensation payable or to become payable by the Company to any of its officers, employees or agents (collectively, "Personnel") whose total compensation for services rendered to the Company is currently at an annual rate of more than $20,000.00, (ii) bonus, incentive compensation, service award or other like benefit granted, made or accrued, contingently or otherwise, for or to the credit of any of the Personnel, (iii) employee welfare, pension, retirement, profit-sharing or similar payment or arrangement made or agreed to by the Company for any Personnel except pursuant to the existing plans and arrangements described in the Disclosure Schedule or (iv) new employment agreement to which the Company is a party; (c) addition to or modification of the employee benefit plans, arrangements or practices described in the Disclosure Schedule affecting Personnel other than (i) contributions made for most recent year in accordance with the normal practices of the Company or (ii) the extension of coverage to other Personnel who became eligible after the Balance Sheet Date; (d) sale, assignment or transfer of any of the assets of the Company, material singularly or in the aggregate, other than in the ordinary course; (e) cancellation of any indebtedness or waiver of any rights of substantial value to the Company, whether or not in the ordinary course of business; (f) amendment, cancellation or termination of any Contract, license or other instrument material to the Company; 11 (g) capital expenditure or the execution of any lease, except building lease or any incurring of liability therefor by Company, involving payments in excess of $5,000.00 in the aggregate; (h) failure to repay any material obligation of the Company, except in the ordinary course of business or where such failure would not have a material adverse effect on the business or financial condition of the Company; (i) failure to operate the business of the Company in the ordinary course so as to use reasonable efforts to preserve the business intact, to keep available to Acquiring Corporation the services of the Personnel, and to preserve for Acquiring Corporation the goodwill of the Company's suppliers, customers and others having business relations with it except where such failure would not have a material adverse effect on the business or financial condition of the Company; (j) change in accounting methods or practices by the Company affecting its assets, liabilities or business; (k) revaluation by the Company of any of its assets, including without limitation writing off notes or accounts receivable; (l) damage, destruction or loss (whether or not covered by insurance) adversely affecting the properties, business or prospects of the Company; (m) mortgage, pledge or other encumbrances of any assets of the Company, material singularly or in the aggregate, except purchase money mortgages arising in the ordinary course of business; (n) declaration, setting aside or payment of dividends or distributions in respect of any capital stock of the Company or any redemption, purchase or other acquisition of any of the Company's equity securities; (o) issuance by the Company of, or commitment of the Company to issue, any shares of stock or other equity securities or obligations or securities convertible into or exchangeable for shares of stock or other equity securities; (p) indebtedness incurred by the Company for borrowed money or commitment to borrow money entered into by the Company, or loans made or agreed to be made by the Company; (q) liabilities involving $5,000.00, or more except in the ordinary course of business and consistent with past practice, or 12 increase or change in any assumptions underlying or methods of calculating any bad debt, contingency or other reserves; (r) payment, discharge or satisfaction of any liabilities other than the payment, discharge or satisfaction (i) in the ordinary course of business and consistent with past practice of liabilities reflected or reserved against in the Balance Sheet or incurred in the ordinary course of business and consistent with past practice since the Balance Sheet Date and (ii) of other liabilities involving $5,000.00 or less singularly and $10,000.00 or less in the aggregate; (s) payment to Stockholder by the Company; (t) agreement by the Company to do any of the foregoing; or (u) other event or condition of any character which in any one case or in the aggregate has materially adversely affected, or event or condition known to the Company (other than matters of general public knowledge relating to general economic conditions or the Company's industry as a whole) which it is reasonable to expect will, in any one case or in the aggregate, materially adversely affect in the future, the condition (financial or otherwise), assets, liabilities, working capital, reserves, earnings, business or prospects of the Company. 4.5 TITLE TO ASSETS, ETC. The Company has good and marketable fee simple title to the assets reflected on the Balance Sheet or acquired in the ordinary course of business since the Balance Sheet Date (the "Assets"). None of the Assets are subject to any Encumbrances, except for minor liens which in the aggregate are not substantial in amount, do not materially detract from the value of the property or assets subject thereto or interfere with the present use and have not arisen other than in the ordinary course of business. The Company has in all material respects performed all the obligations required to be performed by it with respect to all Assets leased by it through the date hereof, except where the failure to perform would not have a material adverse effect on the business or financial condition of the Company. The Company enjoys peaceful and undisturbed possession of all Facilities owned or leased by it, and such Facilities are not subject to any Encumbrances, encroachments, building or use restrictions, exceptions, reservations, or limitations which in any material respect interfere with or impair the present and continued use thereof in the usual and normal conduct of the business of the Company. There are no pending or threatened condemnation proceedings relating to any of the Facilities. The real property improvements (including leasehold improvements), equipment and other tangible assets owned or used by the Company at the Facilities are adequately insured and are structurally sound with no known material defects. None of said improvements, equipment and other assets is 13 subject to any commitment or other arrangement for their sale or use by any affiliate of the Company or third parties. The Assets are valued at or below actual cost less an adequate and proper depreciation charge. The Company has not depreciated any of the Assets on an accelerated basis or in any other manner inconsistent with applicable Internal Revenue Service guidelines, if any. 4.6 CONDITION OF TANGIBLE ASSETS. The Facilities and Fixtures and Equipment are in good operating condition and repair (except for ordinary wear and tear and any defect the cost of repairing which would not be material), are sufficient for the operation of the Company's business as presently conducted and are in conformity in all material respects with all applicable laws, ordinances, orders, regulations and other requirements (including applicable zoning, environmental, motor vehicle safety or standards, occupational safety and health laws and regulations) relating thereto currently in effect, except where the failure to conform would not have a material adverse effect on the business or financial condition of the Company. 4.7 CONTRACTS AND COMMITMENTS. Except as listed in the Disclosure Schedules 1.2, the Company is not a party to any written or oral: (a) commitment, contract, note, loan, evidence of indebtedness, or letter of credit involving any obligation or liability on the part of the Company of more than $10,000.00 and not cancelable (without liability) within 60 days; (b) lease of real property; (c) lease of personal property involving any annual expense in excess of $10,000.00 and not cancelable (without liability) within 60 days; (d) contracts and commitments not otherwise described above or listed in the Disclosure Schedule (including purchase orders, franchise agreements and undertakings or commitments to any governmental or regulatory authority) relating to the business of the Company and otherwise materially affecting the Company's business under contracts not in the ordinary course of business; (e) material governmental or regulatory licenses or permits required to conduct the business of the Company as presently conducted; (f) contracts or agreements containing covenants limiting the freedom of the Company to engage in any line of business or compete with any person; or 14 (g) employment contracts, including without limitation, contracts to employ executive officers and other contracts with officers or directors of the Company. The Company is not (and, to the best knowledge of the Company, no other party is) in material breach or violation of, or default under any of the Contracts or other instruments, obligations, evidences of indebtedness or commitments described in (a)-(g) above, the breach or violation of which would have a material adverse effect on the business or financial condition of the Company. 4.8 NO CONFLICT OR VIOLATION. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in (a) a violation of or a conflict with any provision of the Certificate of Incorporation or Bylaws of the Company, (b) a breach of, or a default under, any term or provision of any contract, agreement, indebtedness, lease, Encumbrance, commitment, license, franchise, permit, authorization or concession to which the Company is a party or by which the Assets are bound, which breach or default would have a material adverse effect on the business or financial condition of the Company or its ability to consummate the transactions contemplated hereby, (c) a violation by the Company of any statute, rule, regulation, ordinance, code, order, judgment, writ, injunction, decree or award, which violation would have a material adverse effect on the business or financial condition of the Company or its ability to consummate the transactions contemplated hereby, or (d) an imposition of any material Encumbrance, restriction or charge on the business of the Company or on any of the Assets. 4.9 CONSENTS AND APPROVALS. No consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority, or any other person or entity, is required to be made or obtained by the Company in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. 4.10 FINANCIAL STATEMENTS. Stockholder has heretofore delivered to Acquiring Corporation the Financial Statements. Except as otherwise set forth therein, the Financial Statements are complete, are in accordance with the books and records of the Company, accurately reflect the assets, liabilities and financial condition and results of operations indicated thereby in accordance with Generally Accepted Accounting Principles consistently applied, and contain and reflect all necessary adjustments for a fair representation of the Financial Statements as of the date and for the period covered thereby. 15 4.11 LITIGATION. There is no action, order, writ, injunction, judgment or decree outstanding or claim, suit, litigation, proceeding, labor dispute, arbitral action or investigation (collectively, "Actions") pending or, to the knowledge of the Company, threatened or anticipated against, relating to or affecting (i) the Company, (ii) any benefit plan for Personnel or any fiduciary or administrator thereof or (iii) the transactions contemplated by this Agreement. The Company is not in default with respect to any judgment, order, writ, injunction or decree of any court or governmental agency, and there are no unsatisfied judgments against the Company or the business or activities of the Company. There is not a reasonable likelihood of an adverse determination of any pending Actions which would, individually or in the aggregate, have a material adverse effect on the business or financial condition of the Company. 4.12 LABOR MATTERS. The Company is not a party to any labor agreement with respect to its employees with any labor organization, group or association. The Company has not experienced any attempt by organized labor or its representatives to make the Company conform to demands of organized labor relating to its employees or to enter into a binding agreement with organized labor that would cover the employees of the Company. The Company is in material compliance with all applicable laws respecting employment practices, terms and conditions of employment and wages and hours and is not engaged in any unfair labor practice. There is no unfair labor practice charge or complaint against the Company pending before the National Labor Relations Board or any other governmental agency arising out of the Company's activities, and the Company has no knowledge of any facts or information which would give rise thereto; there is no labor strike or labor disturbance pending or threatened against the Company nor is any grievance currently being asserted; and the Company has not experienced a work stoppage or other labor difficulty. 4.13 LIABILITIES. The Company has no liabilities or obligations (absolute, accrued, contingent or otherwise) except (i) liabilities which are reflected and reserved on the Balance Sheet, (ii) liabilities incurred in the ordinary course of business and consistent with past practice since the Balance Sheet Date that individually or in the aggregate are not material, and (iii) liabilities arising under Contracts, letters of credit, purchase orders, licenses, permits, purchase agreements and other agreements, business arrangements and commitments described in the Disclosure Schedule or which are of the type described in Section 4.7 but which because of the dollar amount or other qualifications are not required to be listed in the Disclosure Schedule. 4.14 COMPLIANCE WITH LAW. The Company and the conduct of its business are in compliance with all applicable laws, statutes, ordinances and regulations, whether federal, state or local, except 16 where the failure to comply would not have a material adverse effect on the business or financial condition of the Company. The Company has not received any written notice to the effect that, or otherwise been advised that, it is not in compliance with any of such statutes, regulations, orders, ordinances or other laws where the failure to comply would have a material adverse effect on the business or financial condition of the Company, and the Company has no reason to anticipate that any presently existing circumstances are likely to result in violations of any such regulations which would, in any one case or in the aggregate, have a material adverse effect on the business or financial condition of the Company. 4.15 NO BROKERS. Neither Stockholder, the Company or any affiliate of the Company has entered into or will enter into any Contract, agreement, arrangement or understanding with any person or firm which will result in the obligation of Acquiring Corporation to pay any finder's fee, brokerage commission or similar payment in connection with the transactions contemplated hereby. 4.16 NO OTHER AGREEMENTS TO SELL THE ASSETS OR THE COMPANY. Neither Stockholder nor the Company has any legal obligation, absolute or contingent, to any other person or firm to sell the Assets, to sell any capital stock of the Company or to effect any merger, consolidation or other reorganization of the Company or to enter into any agreement with respect thereto. 4.17 PROPRIETARY RIGHTS. All of the Company's registrations of trademarks and of other marks, trade names or other trade rights, and all pending applications for any such registrations and all of the Company's patents and copyrights and all pending applications therefor; all other trademarks and other marks, trade names and other trade rights and all other trade secrets, designs, plans, specifications and other proprietary rights, whether or not registered (collectively, "Proprietary Rights") are listed in the Disclosure Schedule 1.3. The Proprietary Rights listed in the Disclosure Schedule are in all material respects all those used in the business of the Company. No person has a right to receive a royalty or similar payment in respect of any Proprietary Rights pursuant to any contractual arrangements entered into by the Company, and no person otherwise has a right to receive a royalty or similar payment in respect of any such Proprietary Rights. The Company has no licenses granted by or to it or no other agreements to which it is a party, relating in whole or in part to any of the Proprietary Rights. The Company's use of the Proprietary Rights is not infringing upon or otherwise violating the rights of any third party in or to such Proprietary Rights, and no proceedings have been instituted against or notices received by the Company that are presently outstanding alleging that the Company's use of its Proprietary Rights infringes upon or otherwise violates any rights of a third party in or to such Proprietary Rights. 17 4.18 EMPLOYEE AGREEMENTS AND BENEFITS. (a) Except as set forth on the Disclosure Schedule 1.4, no employee of the Company is a party to, participant in, or bound by, any collective bargaining agreement, union contract or employment, bonus, deferred compensation, insurance, pension, profit sharing, or other personnel arrangement, any employee termination or severance arrangements, and the employment by the Company of any person (whether or not there is a written employment contract) can be terminated for any reason whatsoever not inconsistent with current law, without penalty or liability of any kind other than accrued vacation pay. (b) The Company does not contribute to any multi-employer pension plan, as defined in the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the Company is not subject to any claims, whether fixed or contingent, for withdrawal liability relating to any such multi-employer plan. (c) The Company has complied with all laws relating to the employment of labor with respect to its employees, including any provisions thereof relating to wages, hours, collective bargaining and the payment of social security and similar taxes, and no person has asserted that the Company is liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. (d) The employee pension benefit plans and welfare benefit plans listed in the Disclosure Schedule (collectively, the "Plans"), constitute all such Plans in which any employees of the Company participate and have been operated in all material respects in compliance with the Code and with ERISA since ERISA became applicable with respect thereto. The Company shall make available to Acquiring Corporation true and correct copies of all such Plans, trust agreements with respect to such Plans, all determination letters with respect thereto, insurance contracts, administrative servicing agreements and other agreements relating to the Plans and the most recent annual reports filed with the United States Department of Labor and/or the Internal Revenue Service by the Company with respect thereto. None of the Plans nor any of their respective related trusts have been terminated, and there has been no "reportable event", as that term is defined in Section 4043 of ERISA, required to be reported since the effective date of ERISA which has not been reported, and none of such Plans nor their respective related trusts have incurred any "accumulated funding deficiency", as such term is defined in Section 302 of ERISA (whether or not waived), since the effective date of ERISA. The Plans are the only employee benefit plans covering employees of the Company. 18 4.19 TRANSACTIONS WITH CERTAIN PERSONS. Neither any officer, director or employee of the Company nor any member of any such person's immediate family is presently a party to any material transaction with the Company relating to the Company's business, including without limitation, any contract, agreement or other arrangement (i) providing for the furnishing of material services by, (ii) providing for the rental of material real or personal property from, or (iii) otherwise requiring material payments to any such person or corporation, partnership, trust or other entity in which any such person has a substantial interest as a shareholder, officer, director, trustee or partner. 4.20 TAX MATTERS. The Company, any predecessor of the Company and all members for income tax purposes of any affiliated group of corporations of which the Company or any such predecessor corporation is or has been a member (hereinafter referred to collectively as the "Taxpayers") have duly filed all tax reports and returns required to be filed by them, including all federal, state, local and foreign tax returns and reports. The Taxpayers have paid in full all taxes required to be paid by such Taxpayers before such payment became delinquent. The Company has made adequate provision, in conformity with generally accepted accounting principles consistently applied, for the payment of all taxes which may subsequently become due. All taxes which any Taxpayer has been required to collect or withhold have been duly collected or withheld and, to the extent required when due, have been or will be duly paid to the proper taxing authority. The consolidated federal income tax returns of the Company and the federal income tax returns of each Subsidiary of the Company whose results of operations are not consolidated in the federal income tax returns of the Company, have been timely filed with the Internal Revenue Service for all periods to and including those expressly set forth in the Disclosure Schedule, and except to the extent shown therein, all deficiencies asserted as a result of such examinations have been paid or finally settled, and no issue has been raised by the Internal Revenue Service in any such examination which, by application of similar principles, reasonably could be expected to result in a proposed deficiency for any other period not so examined. There are no audits known by the Company to be pending on the Company's tax returns, and there are no claims which have been or may be asserted relating to any of the Company's tax returns filed for any year which if determined adversely would result in the assertion by any governmental agency of any deficiency. There have been no waivers of statutes of limitations by the Company. None of the Taxpayers have filed a statement under Section 341(f) of the Code (or any comparable state income tax provision) consenting to have the provisions of Section 341(f)(2) (collapsible corporations provisions) of the Code (or any comparable state income 19 tax provision) apply to any disposition of any of the Company's assets or property, no property of the Company is property which Acquiring Corporation or the Company is or will be required to treat as owned by another person pursuant to the provisions of Section 168(f) (safe harbor leasing provisions) of the Code. The Company is not a party to any tax-sharing agreement or similar arrangement with any other party. For the purpose of this Agreement, any federal, state, local or foreign income, sales, use, transfer, payroll, personal property, occupancy or other tax, levy, impost, fee, imposition, assessment or similar charge, together with any related addition to tax, interest or penalty thereon, is referred to as a "tax." 4.21 SEVERANCE ARRANGEMENTS. The Company has not, except to the extent that such arrangements have been made with Michael L. Moore in the Employment Agreement attached hereto as Schedule 1.5, entered into any severance or similar arrangement in respect of any present or former Personnel that will result in any obligation (absolute or contingent) of Acquiring Corporation or the Company to make any payment to any present or former Personnel following termination of employment. 4.22 INSURANCE. The Disclosure Schedule 1.6 contains a complete and accurate list of all policies or binders of fire, liability, title, worker's compensation and other forms of insurance maintained by the Company on its business, property or Personnel. All of such policies are sufficient for compliance with all requirements of law and of all Contracts to which the Company is a party. The Company is not in default under any of such policies or binders, and the Company has not failed to give any notice or to present any claim under any such policy or binder in a due and timely fashion. There are no facts upon which an insurer might be justified in reducing coverage or increasing premiums on existing policies or binders. There are no outstanding unpaid claims under any such policies or binders. Such policies and binders provide sufficient coverage for the risks insured against, are in full force and effect on the date hereof and shall be kept in full force and effect by the Company through the Closing Date. 4.23 ACCOUNTS RECEIVABLE. The accounts receivable reflected in the Balance Sheet Schedule 1.7, and all accounts receivable ensuing since the Balance Sheet Date, represent bona fide claims against debtors for sales, services performed or other charges arising on or before the date hereof, and all the goods delivered and services performed which gave rise to said accounts were delivered or performed in accordance with the applicable orders, Contracts or customer requirements. Said accounts receivable are subject to no defenses, counterclaims or rights of offset and are fully collectible in the ordinary course of business without cost to Acquiring Corporation in collection efforts therefor except, in the 20 case of accounts receivable shown on the Balance Sheet, to the extent of the appropriate reserves set forth on the Balance Sheet, and, in the case of accounts receivable arising since the Balance Sheet Date, to a reasonable allowance for bad debts which does not reflect a rate of bad debts more than percent (4%) higher than that reflected by the reserve for bad debts on the Balance Sheet. 4.24 INVENTORIES. The values at which inventories are shown on the Balance Sheet have been determined in accordance with the normal valuation policy of the Company, consistently applied and in accordance with Company's historical accounting method. The inventories (and items of inventory acquired or manufactured subsequent to the Balance Sheet Date) consist only of items of quality and quantity commercially usable and salable in the ordinary course of business, except for any items of obsolete material or material below standard quality, all of which have been written down to realizable market value, or for which adequate reserves have been provided. 4.25 PURCHASE COMMITMENTS AND OUTSTANDING BIDS. As of the date of this Agreement, the aggregate of all accepted and unfulfilled orders for the sale of merchandise entered into by the Company does not exceed $ 750,000.00 and the aggregate of all Contracts or commitments for the purchase of supplies by it does not exceed $ 200,000.00, all of which orders, Contracts and commitments were made in the ordinary course of business. As of the date of this Agreement, there are no claims against the Company to return in excess of an aggregate of $ 10,000 of merchandise by reason of alleged overshipments, defective merchandise or otherwise, or of merchandise in the hands of customers under an understanding that such merchandise would be refundable. No outstanding purchase or outstanding lease commitment of the Company presently is in excess of the normal, ordinary and usual requirements of its business or was made at any price in excess of the now current market price or contains terms and conditions more onerous than those usual and customary in the Company's business. There is no outstanding bid, proposal, Contract or unfilled order of the Company which when or would, if accepted, have a material adverse effect, individually or in the aggregate, on the business or financial condition of the Company. 4.26 PAYMENTS. The Company has not, directly or indirectly, paid or delivered any fee, commission or other sum of money or item or property, however characterized, to any finder, agent, government official or other party, in the United States or any other country, which is in any manner related to the business or operations of the Company, which the Company knows or has reason to believe to have been illegal under any federal, state or local laws of the United States or any other country having jurisdiction; and the Company has not participated, directly or indirectly, in any boycotts or other similar practices affecting any of its actual or potential customers 21 and has at all times done business in an open and ethical manner. 4.27 CUSTOMERS AND SUPPLIERS. The Disclosure Schedule contains a complete and accurate list of (i) the ten (10) largest customers of the Company in terms of sales during the Company's last fiscal year, showing the approximate total sales by the Company to each such customer during such fiscal year; (ii) the ten (10) largest suppliers of the Company in terms of purchases during the Company's last fiscal year, showing the approximate total purchases by the Company from each such supplier during such fiscal year. Since the Balance Sheet Date, there has been no adverse change in the business relationship of the Company with any customer or supplier named in the Disclosure Schedule which is material to the business or financial condition of the Company. 4.28 ENVIRONMENTAL AND SAFETY COMPLIANCE. There are no present or past Environmental Conditions in any way relating to the Facilities. The Company did not cause or contribute to, nor did the Company negligently permit a third party to cause or contribute to, any Environmental Condition in any way relating to the Facilities. For purposes of this Agreement, "Environmental Condition" means any environmental pollution, including, without limitation, any contaminant, irritant or pollutant, from any spill, discharge, leak, emission, escape, injection, dumping or release of any kind whatsoever or any exposure of any type in any work places or to any medium, including, without limitation, air, land, surface waters or groundwaters, or from any generation, transportation, treatment, discharge, handling, storage or disposal of Hazardous Substances used, generated, transported, treated, discharged, stored or disposed of (in any case, "Handled"), except in all cases in the ordinary course of the operations or business of the Company and in accordance in all material respects with all Environmental Laws relating thereto. Without limiting the generality of the foregoing, neither (i) the operations of the Company, nor (ii) the collection, distribution or sale of the processes, results or products of the Company, violates or has violated any Environmental Law. The Company has timely obtained all licenses and permits and timely filed all reports required to be filed under any Environmental Laws. The Company has not handled any Hazardous Substances on, beneath or about any of the Facilities, except for Hazardous Substances reasonably necessary to the business of the Company (which Hazardous Substances, if any, were Handled, in compliance with Environmental Laws). The Company has not received any notice from any governmental agency or private or public entity advising the Company that it is potentially responsible for response costs with respect to a release or threatened release of Hazardous Substances. The Company has not buried, dumped, released or otherwise disposed of any Hazardous Substances, on, beneath or about any of the Facilities 22 or on, beneath or about any other property used in the business of the Company. The Company has not received notice of any violation of any Environmental Law or other zoning or land use ordinance, law or regulation relating to the business or operations of the Company, or any of the processes followed, results obtained or products made by the Company. 4.29 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or warranties by the Company in this Agreement, nor any document, exhibit, statement, certificate or schedule furnished to Acquiring Corporation pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact necessary to make the statements or facts contained therein not misleading. The Company has disclosed all events, conditions and facts materially affecting the business, prospects and financial condition of the Company. 4.30 BUSINESS OF THE COMPANY. As of the Closing Date, the Company shall only be engaged in the manufacture, distribution and sale of Oil and Gas Products and fire suppression systems and related equipment, and the only assets and liabilities retained by the Company as of such date shall be related to the manufacturing, distribution and selling of Oil and Gas products and fire suppression systems, including, without limitation, accounts receivable, inventory, tangible personal property, leased property, contractual rights, records (customer and production related), government licenses, permits and approvals, and trade name of the Company. ARTICLE V REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS Except as otherwise set forth in the Disclosure Schedule, Stockholder hereby represents and warrants to Acquiring Corporation as follows: 5.1 ORGANIZATION OF STOCKHOLDERS. MICHAEL L. MOORE is the owner of record and beneficially of all of the issued and outstanding Stock free and clear of all encumbrances, and upon transfer pursuant to this Agreement, Acquiring Corporation will own shares representing 100% of the Company's issued and outstanding capital stock free and clear of all encumbrances. 5.2 AUTHORIZATION. Stockholder has all necessary power and authority to enter into this Agreement and has taken all action necessary to consummate the transactions contemplated hereby and to perform his respective obligations hereunder. This Agreement has been duly executed and delivered by Stockholder and is a legal, 23 valid and binding obligation of Stockholder enforceable against Stockholder in accordance with its terms. 5.3 CONTRACTS AND COMMITMENTS. Stockholder is not a party to any written or oral commitment, contract, lease, note, loan, evidence of indebtedness, purchase order, letter of credit or other agreement involving any obligation or liability on the part of the Company or relating to the business of the Company and otherwise materially affecting the Company's business not otherwise listed in the Disclosure Schedule. Stockholder and the Company is not (and to the best knowledge of Stockholder, no other party is) in material breach or violation of, or default under any of the contracts or other instruments, obligations, evidences of indebtedness or commitments set forth in the Disclosure Schedule, the breach or violation of which would have a material adverse effect on the business or financial condition of the Company. 5.4 CONSENTS AND APPROVALS. No consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority, or any other person or entity, is required to be made or obtained by Stockholder in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. 5.5 NO BROKERS. Stockholder has not entered and will not enter into any Contract, agreement, arrangement or understanding with any person or firm which will result in the obligation of Acquiring Corporation to pay any finder's fee, brokerage commission or similar payment in connection with the transactions contemplated hereby. 5.6 NO OTHER AGREEMENTS TO SELL THE ASSETS OR THE COMPANY. Stockholder does not have any legal obligation, absolute or contingent, to any other person or firm to sell the Assets, to sell any capital stock of the Company or to effect any merger, consolidation or other reorganization of the Company or to enter into any agreement with respect thereto. 5.7 TRANSACTIONS WITH CERTAIN PERSONS. To the knowledge of Stockholder, no officer, director or employee of Stockholder nor any member of any such person's immediate family is presently a party to any material transaction with the Company relating to the Company's business, including without limitation, any contract, agreement or other arrangement (i) providing for the furnishing of material services by, (ii) providing for the rental of material real or personal property from, or (iii) otherwise requiring material payments to (other than for services as officers, directors or employees of Stockholder) any such person or corporation, 24 partnership, trust or other entity in which any such person has a substantial interest as a shareholder, officer, director, trustee or partner. 5.8 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or warranties by Stockholder, in this Agreement, nor any document, exhibit, statement, certificate or schedule furnished to Acquiring Corporation pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact necessary to make the statements or facts contained therein not misleading. 5.9 NO KNOWLEDGE OF INDEMNIFICATION EVENTS. Stockholder has no knowledge of the existence of any event or combination of events, disclosed or undisclosed, which have occurred prior to closing for which any person or entity would be entitled to seek Indemnification against Stockholder, Company or Acquiring Company. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF ACQUIRING CORPORATION Acquiring Corporation hereby represents and warrants to Stockholder as follows: 6.1 ORGANIZATION OF ACQUIRING CORPORATION. Acquiring Corporation is duly organized, validly existing and in good standing under the laws of the State of Nevada and has full corporate power and authority to conduct its business and to own and lease its properties. 6.2 AUTHORIZATION. Acquiring Corporation has all necessary corporate authority to enter into this Agreement and has taken all necessary corporate action to consummate the transactions contemplated hereby and to perform its obligations hereunder. This Agreement has been duly executed and delivered by Acquiring Corporation and is a valid and binding obligation of Acquiring Corporation enforceable against it in accordance with its terms. 6.3 CONSENTS AND APPROVALS. No consent, approval or authorization of, or declaration, filing or registration with, any United States federal or state governmental or regulatory authority is required to be made or obtained by Acquiring Corporation in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. 25 6.4 NO BROKERS. Neither Acquiring Corporation nor any affiliate of Acquiring Corporation has entered into or will enter into any agreement, arrangement or understanding with any person or firm in which will result in the obligation of Stockholder to pay any finder's fee, brokerage commission or similar payment in connection with the transactions contemplated hereby. 6.5 NO CONFLICT OR VIOLATION. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in (a) a violation of or a conflict with any provision of the Certificate of Incorporation or Bylaws of Acquiring Corporation, (b) a breach of, or a default under, any term or provision of any contract, agreement, indebtedness, lease, commitment, license, franchise, permit, authorization or concession to which Acquiring Corporation is a party which breach or default would have a material adverse effect on the business or financial condition of Acquiring Corporation or its ability to consummate the transactions contemplated hereby or (c) a violation by Acquiring Corporation of any statute, rule, regulation, ordinance, code, order, judgment, writ, injunction, decree or award, which violation would have a material adverse effect on the business or financial condition of Acquiring Corporation or its ability to consummate the transactions contemplated hereby. 6.6 LITIGATION. There is no action, order, writ, injunction, judgment or decree outstanding or claim, suit, litigation, proceeding, labor dispute, arbitral action or investigation (collectively, "Actions") pending or, to the knowledge of the Acquiring Corporation, threatened or anticipated against, relating to or affecting (i) the Acquiring Corporation, (ii) any benefit plan for Personnel or any fiduciary or administrator thereof or (iii) the transactions contemplated by this Agreement. The Acquiring Corporation is not in default with respect to any judgment, order, writ, injunction or decree of any court or governmental agency, and there are no unsatisfied judgments against the Acquiring Corporation or the business or activities of the Acquiring Corporation. There is not a reasonable likelihood of an adverse determination of any pending Actions which would, individually or in the aggregate, have a material adverse effect on the business or financial condition of the Acquiring Corporation. 6.7 COMPLIANCE WITH LAW. The Acquiring Corporation and the conduct of its business are in compliance with all applicable laws, statutes, ordinances and regulations, whether federal, state or local, except where the failure to comply would not have a material adverse effect on the business or financial condition of the Acquiring Corporation. The Acquiring Corporation has not received any written notice to the effect that, or otherwise been advised 26 that, it is not in compliance with any of such statutes, regulations, orders, ordinances or other laws where the failure to comply would have a material adverse effect on the business or financial condition of the Acquiring Corporation, and the Acquiring Corporation has no reason to anticipate that any presently existing circumstances are likely to result in violations of any such regulations which would, in any one case or in the aggregate, have a material adverse effect on the business or financial condition of the Acquiring Corporation. 6.8 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or warranties by the Acquiring Corporation in this Agreement, nor any document, exhibit, statement, certificate or schedule furnished to Stockholder pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact necessary to make the statements or facts contained therein not misleading. The Acquiring Corporation's annual report has disclosed all events, conditions and facts materially affecting the business, prospects and financial condition of the Acquiring Corporation. ARTICLE VII ACTIONS BY STOCKHOLDER, THE COMPANY AND ACQUIRING CORPORATION PRIOR TO THE CLOSING Stockholder, the Company and Acquiring Corporation covenant as follows for the period from the date hereof through the Closing Date: 7.1 MAINTENANCE OF BUSINESS. The company shall diligently carry on its business in the ordinary course consistent with past practice. 7.2 CERTAIN PROHIBITED TRANSACTIONS. The Company shall not without the prior written approval of Acquiring Corporation and Stockholder: (a) incur any indebtedness for borrowed money, assume, guarantee, endorse or otherwise become responsible for obligations of any other individual, partnership, firm or corporation, or make any loans or advances to any individual, partnership, firm or 27 corporation, except in the ordinary course of business and consistent with past practice; (b) issue any shares of its capital stock or any other securities or any securities convertible into shares of its capital stock or any other securities; (c) pay or incur any obligation to pay any dividend on its capital stock or make or incur any obligation to make any distribution or redemption with respect to capital stock; (d) make any change to its Certificate of Incorporation or bylaws; (e) mortgage, pledge or otherwise encumber any of its properties or assets or sell, transfer or otherwise dispose of any of its properties or assets or cancel, release or assign any indebtedness owed to it or any claims held by it, except in the ordinary course of business and consistent with past practice; (f) make any investment of a capital nature either by purchase of stock or securities, contributions to capital, property transfer or otherwise, or by the purchase of any property or assets of any other individual, partnership, firm or corporation, except in the ordinary course of business and consistent with past practice; (g) enter into or terminate any material contract or agreement, or make any material change in any of its leases and Contracts, other than in the ordinary course of business and consistent with past practice; or (h) engage in any business other than the type it currently conducts; or (i) do any other act which would cause any representation or warranty of Acquiring Corporation and the Company in this Agreement to be or become untrue in any material respect. 7.3 INVESTIGATION BY ACQUIRING CORPORATION. Stockholder and the Company shall allow Acquiring Corporation during regular business hours through Acquiring Corporation's employees, agents and representatives, to make such investigation of the business, properties, books and records of the Company, and to conduct such examination of the condition of the Company, as Acquiring Corporations deems necessary or advisable to familiarize itself with such business, properties, books, records, condition and other matters, and to verify the representations and warranties of Stockholder and the Company hereunder. Stockholder and the Company shall allow Acquiring Corporation to contact the Company's vendors, customers and any other person having business dealings with the 28 Company. Acquiring Company's investigation shall be done in such a manner that it does not interfere with the Company's business operations. 7.4 CONSENTS AND BEST EFFORTS. Stockholder and the Company will, as soon as possible, commence to take all action required to obtain all consents, approvals and agreements of, and to give all notices and make all other filings with, any third parties, including governmental authorities, necessary to authorize, approve or permit the full and complete sale, conveyance, assignment or transfer of all of the Stock, and Acquiring Corporation shall cooperate with Stockholder with respect thereto; provided, however, that Acquiring Corporation shall not be required to agree to any unfavorable modification of any existing contract or agreement in order to obtain such consent. In addition, subject to the terms and conditions herein provided, each of the parties hereto covenants and agrees to use its best efforts to take, or cause to be taken, all action or do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated hereby and to cause the fulfillment of the parties' obligations hereunder. 7.5 NOTIFICATION OF CERTAIN MATTERS. Stockholder shall give prompt notice to Acquiring Corporation, and Acquiring Corporation shall give prompt notice to Stockholder, of (i) the occurrence, or failure to occur, of any event which occurrence or failure would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect any time from the date hereof to the Closing Date and (ii) any material failure of Stockholder, the Company or Acquiring Corporation, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, and each party shall use all reasonable efforts to remedy same. 7.6 NO MERGERS CONSOLIDATIONS, SALE OF STOCK, ETC. The Company and Stockholder will not, directly or indirectly, solicit any inquiries or proposals or enter into or continue any discussions, negotiations or agreements relating to the sale or exchange of the Stock, the merger of the Company with, or the direct or indirect disposition of a significant amount of the Company's assets or business to any person other than Acquiring Corporation or its affiliates or provide any assistance or any information to or otherwise cooperate with any person in connection with any such inquiry, proposal or transaction. In the event that the Company or Stockholder receives an unsolicited offer for such a transaction or obtains information that such an offer is likely to be made, the Company or Stockholder will provide Acquiring Corporation with notice thereof as soon as practical after receipt, including the identity of the prospective purchaser or soliciting party. 29 ARTICLE VIII CONDITIONS TO STOCKHOLDERS' OBLIGATIONS The obligations of Stockholder to transfer the Stock to Acquiring Corporation on the Closing Date are subject, in the discretion of Stockholder, to the satisfaction, on or prior to the Closing Date, of each of the following conditions: 8.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and warranties of Acquiring Corporation contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date as if such representations and warranties were made at and as of the Closing Date, and Acquiring Corporation shall have performed in all material respects all agreements and covenants required hereby to be performed by it prior to or at the Closing Date. 8.2 CONSENTS. All consents, approvals and waivers from governmental authorities and other parties necessary to permit Stockholders to transfer the Stock to Acquiring Corporation as contemplated hereby shall have been obtained, unless the failure to obtain any such consent, approval or waiver would not have a material adverse effect upon Stockholder. 8.3 NO GOVERNMENTAL PROCEEDING OR LITIGATION. No suit, action, investigation, inquiry or other proceeding by any governmental authority or other person shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby and which could reasonably be expected materially to damage Stockholder if the transactions contemplated hereunder are consummated. 8.4 CORPORATE DOCUMENTS. Stockholder shall have received from Acquiring Corporation resolutions adopted by the Board of Directors of Acquiring Corporation approving this Agreement and the transactions contemplated hereby, certified by Acquiring Corporation's corporate secretary. ARTICLE IX CONDITIONS TO ACQUIRING CORPORATION'S OBLIGATIONS The obligations of Acquiring Corporation to purchase the Stock as provided hereby are subject, in the discretion of Acquiring Corporation, to the satisfaction, on or prior to the Closing Date, of each of the following conditions: 9.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and warranties of Stockholder and the Company 30 contained in this Agreement shall be true and correct as of the Closing Date as if such representations and warranties were made at and as of the Closing Date, and Stockholder and the Company shall have performed all agreements and covenants required hereby to be performed by them prior to or at the Closing Date. There shall be delivered to Acquiring Corporation certificates from each of the Stockholder and the Company (signed by the President or a Vice President of the Company and Stockholder) to the foregoing effect. 9.2 CONSENTS. All consents, approvals and waivers from governmental authorities and other parties necessary to permit Stockholder to transfer the Stock to Acquiring Corporation as contemplated hereby shall have been obtained, unless the failure to obtain any such consent, approval or waiver would not have a material adverse effect upon Acquiring Corporation. 9.3 NO GOVERNMENTAL PROCEEDING OR LITIGATION. No suit, action, investigation, inquiry or other proceeding by any governmental authority or other person shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby and which could reasonably be expected materially and adversely to affect the value of the Stock or business of the Company. 9.4 CERTIFICATES. The Company shall furnish Acquiring Corporation with such certificates of the respective officers of the Company and others to evidence compliance with the conditions set forth in this Article IX as may be reasonably requested by Acquiring Corporation. 9.5 CORPORATE DOCUMENTS. Acquiring Corporation shall have also received the corporate minute books, Certificates of Incorporation, Bylaws and stock transfer books of the Company. 9.6 INVESTIGATION. Acquiring Corporation or its Representatives shall have investigated the Company's properties (including without limitation, an environment audit), business, books and records, and in Acquiring Corporation's sole discretion, Acquiring Corporation shall be satisfied on the basis of such investigation that the representations and warranties of Stockholder and the Company made pursuant to this Agreement are accurate and complete. 9.7 EMPLOYMENT AGREEMENTS. Stockholder shall execute and deliver to Company on or before closing an Employment Agreement in a form substantially the same as attached hereto as Exhibit A. Aarron Phillips shall execute an instrument in acceptable form releasing the Company from any obligations arising out of that certain letter agreement between the parties dated April 30, 1998. 31 9.8 ACCOUNTING MATTERS. Prior to closing Company shall have performed the following accounting functions in addition to any other obligations contained herein: 1. Filed its 1997 1120S return; 2. Provided the Balance Sheets and Financial Statements required herein; 3. All billings have been brought up to date; 4. Completion of a detailed inventory valuation; 5. Completion of a detailed fixed assets schedule with supporting documentation; and 6. Compilation of "job cost" detail on a minimum of four jobs completed in 1998 as representative of profit margins. 9.9 COMPLETION OF BUY OUT. Prior to Closing Stockholder shall have provided fully executed copies of all buy out documents and proof of payment by and between Company, Stockholder and Michael L. Cooper. ARTICLE X ACTIONS BY STOCKHOLDER, THE COMPANY AND ACQUIRING CORPORATION AFTER THE CLOSING 10.1 FURTHER ASSURANCES. On and after the Closing Date, Stockholder, the Company and Acquiring Corporation will take all appropriate action and execute all documents, instruments or conveyances of any kind which may be reasonably necessary or advisable to carry out any of the provisions hereof. ARTICLE XI INDEMNIFICATION 11.1 SURVIVAL OF REPRESENTATIONS, ETC. All statements contained in the Disclosure Schedule or in any certificate or instrument of conveyance delivered by or on behalf of the parties pursuant to this Agreement or in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the parties hereunder. The representations and warranties of Stockholder, the Company and Acquiring Corporation contained herein shall survive the Closing Date until the 15th day of November, 2002, without regard to any investigation made by any of the parties hereto; provided, however, that such representations and warranties shall survive as to any claim or demand made prior to the 15th day of November, 2002 until such claim or demand is fully paid or otherwise resolved by the parties hereto in writing or by a court of competent jurisdiction. 32 11.2 INDEMNIFICATION. Stockholder shall indemnify Acquiring Corporation and Company against, and hold Acquiring Corporation and Company harmless from, any damage, claim, liability or expense, including without limitation, interest, penalties and reasonable attorneys' fees, INCLUDING WITHOUT LIMITATION ANY UNDISCLOSED TAX LIABILITIES OF COMPANY INCURRED PRIOR TO NOVEMBER 1, 1998 WHETHER KNOWN OR UNKNOWN TO STOCKHOLDER, (collectively "Damages"), arising out of the breach of any warranty, representation, covenant or agreement of Stockholder contained in this Agreement. The Acquiring Corporation shall indemnify and hold Stockholder harmless from any Damages arising out of the breach of any warranty, representation, covenant or agreement of Acquiring Corporation contained in this Agreement. The Company shall indemnify and hold Acquiring Corporation harmless from any Damages arising out of the breach of any warranty, representation, covenant or agreement of Company contained in this Agreement. The term "Damages" as used in Article XI is not limited to matters asserted by third parties against Stockholder, the Company or Acquiring Corporation, but includes Damages incurred or sustained by the Company, Stockholder or Acquiring Corporation in the absence of third party claims. No claims for indemnification by Acquiring Corporation or Stockholder may be made or instituted after four years following the Closing date of this Agreement. All claims for indemnification made prior to the end of the four year period shall continue until a final determination is made in regard to the validity of the indemnification claim by either settlement, arbitration or litigation. 11.3 INDEMNIFICATION PROCEDURES. Upon Acquiring Corporation becoming aware of a fact, condition or event which constitutes a breach of any of the representations, warranties, covenants or agreements of Stockholder or the Company contained herein or a products liability claim, if a claim for Damages in respect thereof is to be made against Stockholder under this Article XI, Acquiring Corporation will with reasonable promptness notify Stockholder or the Company, as the case may be, in writing of such fact, condition or event. If such fact, condition or event is the assertion of a claim by a third party, Stockholder or the Company, as the case may be, will be entitled to participate in or take charge of the defense against such claim, provided that Stockholder or the Company, as the case may be, and its counsel, shall proceed with diligence and in good faith with respect thereto. 11.4 NO RIGHT OF CONTRIBUTION. After the Closing, the Company shall have no liability to indemnify the Stockholder on account of the breach of any representation or warranty or the nonfulfillment of any covenant or agreement of the Company; and Stockholder shall have no right of contribution against the Company. In addition to any other remedy which may be available at law or in equity, Acquiring Corporation or the Company shall be entitled to specific 33 performance and injunctive relief, without posting bond or other security. ARTICLE XII SECURITIES LAWS 12.1 ACQUISITION FOR INVESTMENT. Acquiring Corporation and Stockholder hereby acknowledge that the shares of Stock to be purchased pursuant to the terms of this Agreement shall be acquired in good faith for investment for its own account and not with a view to a distribution or resale of any of such Stock, and shall not for a period of one (1) years after closing transfer, sell, exchange or encumber the same except as provided for herein. ARTICLE XIII STOCKHOLDER'S OPTION TO RESELL TO ACQUIRING CORPORATION 13.1 SALE OPTION OF STOCKHOLDER. Stockholder for a period of one year following the closing of the transaction shall be entitled to require Acquiring Corporation to repurchase all or any portion of his 50,000 shares of common voting stock in the Acquiring Corporation for cash consideration of One Dollar ($1.00) per share. Stockholder shall exercise this option by written notification, in accordance with Article 14.3 herein, to Acquiring Corporation. The written notification shall state the number of shares Acquiring Corporation shall be required to repurchase and the date and time, which time and date shall be at least ten (10) days from the date of the notice, when the transaction shall occur. ARTICLE XIV MISCELLANEOUS 14.1 TERMINATION. This Agreement may be terminated as follows: (a) This Agreement may be terminated and the transactions contemplated hereby abandoned by any party if the conditions set forth in Articles VIII and IX have not been satisfied on or before November 15, 1998 (unless waived by the party entitled to the benefit thereof), without liability of any party hereto; provided, however, that no party shall be released from liability hereunder if this Agreement is terminated and the transactions abandoned by reason of (i) willful failure of any party to have performed its obligations hereunder, or (ii) any knowing misrepresentation made by any party of any matter set forth herein. 34 (b) This agreement may be terminated by Acquiring Corporation in its sole discretion at any time between November 1, 1998 and closing should: 1. After completion of a complete financial audit of the Company, Acquiring Company shall determine in its sole discretion that it does not desire to complete the closing of the transaction. 2. After completion of a legal audit of the Company, Acquiring Company shall determine in its sole discretion that it does not desire to complete the closing of the transaction. 14.2 ASSIGNMENT. Neither this Agreement nor any of the rights or obligations hereunder may be assigned by Stockholder without the prior written consent of Acquiring Corporation, or by Acquiring Corporation without the prior written consent of Stockholder. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, and no other person shall have any right, benefit or obligation hereunder. 14.3 NOTICES. Unless otherwise provided herein, any notice, request, instruction or other document to be given hereunder by any party to the others shall be in writing and delivered in person or by courier, telegraphed, telexed or by facsimile transmission or mailed by certified mail, postage prepaid, return receipt requested (such mailed notice to be effective on the date such receipt is acknowledged), as follows: If to Stockholders: 410 Butterfly Court Houston, Texas 77079 If to Company: 10913 Metronome Houston, Texas 77043 If to Acquiring Corporation: 600 Century Plaza Drive Building 140 Houston, Texas 77073 or to such other place and with such other copies as either party may designate as to itself by written notice to the others. 14.4 CHOICE OF LAW. This Agreement shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of Texas except with respect to matters of law concerning the internal corporate affairs of any corporate entity which is a party to or the subject of this Agreement, and as to those matters the law of the jurisdiction under which the respective entity derives its powers shall govern. 35 14.5 ENTIRE AGREEMENT: Amendments and Waivers. This Agreement, together with all exhibits and schedules hereto, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 14.6 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. 14.7 INVALIDITY. In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument. 14.8 HEADINGS. The headings of the Articles and 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. 14.9 EXPENSES. Company, Stockholder and Acquiring Corporation will each be liable for their own costs and expenses incurred in connection with the negotiation, preparation, execution or performance of this Agreement, except for the fees incurred in the financial audit of Company and conversion of Company from the cash to the accrual method of accounting. The fees for such audit and conversion shall be split equally between Acquiring Corporation and the Stockholder. 14.10 PUBLICITY. No party shall issue any press release or make any public statement regarding the transactions contemplated hereby, without the prior approval of the other party, and the parties hereto shall issue a mutually acceptable press release as soon as practicable after the Closing Date. 14.11 CONFIDENTIAL INFORMATION. The parties acknowledge that the transaction described herein is of a confidential nature and shall not be disclosed except to consultants, advisors and affiliates, or as required by law, until such time as the parties make a public announcement regarding the transaction as provided in Section 14.10. Neither Stockholder nor Acquiring Corporation shall make any public disclosure of the specific terms of this Agreement, 36 except as required by law. In connection with the negotiation of this Agreement and the preparation for the consummation of the transactions contemplated hereby, each party acknowledges that it will have access to confidential information relating to the other party. Each party shall treat such information as confidential, preserve the confidentiality thereof and not duplicate or use such information, except to advisors, consultants and affiliates in connection with the transactions contemplated hereby. Stockholder, at a time and in a manner which he reasonably determines and after prior notice to and consultation with Acquiring Corporation, may notify employees, unions and bargaining agents of the fact of the subject transaction. In the event of the termination of this Agreement for any reason whatsoever, each party shall return to the other all documents, work papers and other material (including all copies thereof) obtained in connection with the transactions contemplated hereby and will use all reasonable efforts, including instructing its employees and others who have had access to such information, to keep confidential and not to use any such information, unless such information is now, or is hereafter disclosed, through no act or omission of such party, in any manner making it available to the general public. IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or have caused this Agreement to be duly executed on their respective behalf by their respective officers thereunto duly authorized, to be effective as of the day and year first above written. INDUSTRIAL DATA SYSTEMS, CORP. /s/ William A. Coskey - --------------------- By: WILLIAM A. COSKEY, PRESIDENT MLC ENTERPRISES, INC. /s/ Michael L. Moore - -------------------- BY: MICHAEL L. MOORE, PRESIDENT /s/ Michael L. Moore - -------------------- MICHAEL L. MOORE, STOCKHOLDER 37 EX-2.17 3 EXHIBIT 2.17 Exhibit 2.17 ESCROW AGREEMENT This Escrow Agreement is made by and between INDUSTRIAL DATA SYSTEMS CORP. (IDS) MICHAEL L. MOORE (MOORE) and MLC ENTERPRISES, INC. (MLC), and JOHNNY J. WILLIAMS, (ESCROW AGENT). RECITALS WHEREAS, IDS, MOORE, and MLC have entered into a Stock Acquisition Agreement dated November 1, 1998, whereby IDS will acquire all of MOORE's common stock in MLC, a Texas Corporation upon fulfillment of the conditions precedent setforth herein, and; WHEREAS, IDS, MOORE and MLC have agreed to place the Closing Documents into Escrow until a letter is received from R.V. "Skip" Wagoner completing the closing of the transaction; WHEREAS JOHNNY J. WILLIAMS has agreed to act as Escrow Agent subject to the terms hereof; NOW THEREFORE the parties hereto have agreed as follows: 1. Items of Escrow. The following items have been delivered to Escrow Agent on the date(s) set forth following the description of each item: (i) A fully executed original Stock Acquisition Agreement dated November 1, 1998 between the parties hereto. Received November 13, 1998 __________ (ii) Stock Certificate No. 2 issued to MICHAEL L. MOORE representing 1000 shares of common stock of MLC ENTERPRISES, INC. Received November 13, 1998 __________ (iii) A certificate of Corporate Resolution signed by MICHAEL L. MOORE dated November 13, 1998. Received November 13, 1998. __________ (iv) By laws of MLC ENTERPRISES, INC. signed on November 13, 1998. Received on November 13, 1998 __________ (v) Affidavit of List of Misplaced Documents dated November 13, 1998. Received on November 13, 1998. __________ (vi) Written Consent of all Directors In Lien of Meeting for MLC ENTERPRISES, INC. Received on November 13, 1998. __________ (vii) Employment Agreement dated November 1, 1998 by and between MLC and Moore. Received on November 13, 1998. __________ (viii) Agreement from Aaron Phillips dated November 1, 1998. Received on November 13, 1998. __________ (ix) Letter from IDS to its transfer agent requesting the issuance of 50,000 shares of its common stock to MICHAEL L. MOORE. -1- Received on November 13, 1998. __________ (x) A check from IDS to MOORE in the sum of $63,438.14. Received on November 13, 1998. __________ (2) In the event that the letter from Wagoner is received prior to 5:00 p.m. Houston, Texas time on November 16, 1998, Escrow Agent is directed to take the steps necessary to complete the closing of the transaction (3) In the event that the letter from Wagoner is not received prior to 5:00 p.m. Houston, Texas time on November 16, 1998 or the requirement is waived by IDS, Escrow Agent is directed to return the Escrow items as follows: (a) IDS Item(s) i, v, ix, x (b) MOORE Item(s) ii, iii, iv, v (c) MLC Item(s) iv, vi, vii, viii 5. Notice to Escrow Agent. IDS, MOORE and MLC hereby agree to notify Escrow Agent in writing of any modifications whatsoever to this Agreement. IDS, MOORE and MLC further agree that accompanying such notice shall be a true and correct copy of any instrument purporting to modify the agreement alleged to have been modified. Escrow Agent may conclusively rely upon any such notice as evidence of such modification. Absence of any such notice, shall conclusively evidence that these Agreements have not been modified. 6. Dispute Between the Parties. In the event that any disputes arise between IDS, MOORE and MLC regarding construction of this or any other agreement or rights arising therefrom, Escrow Agent is hereby authorized and directed to file an appropriate interpleader action in a court of competent jurisdiction and shall be entitled to recover from the IDS, MOORE and MLC, all costs, fees, and expenses associated therewith, including reasonable attorney's fees. 7. Termination of Escrow Duties. The duties of Escrow Agent shall terminate upon occurrence of any of the following events: (i) completion of the transaction, (ii) return of the Escrowed items to the appropriate party, (iii) written notice executed by the parties or their respective successors in interest, terminating this Escrow Agreement setting forth instructions for delivery of the escrow items. Upon termination as above stated Escrow Agent shall have no further liability hereunder. 8. Indemnity of Escrow Agent. IDS, MOORE and MLC, on behalf of themselves and their successors in interest, if any, individually, jointly and severally hereby agree and shall, upon demand, indemnify, protect, save and hold harmless Escrow Agent, his agents, servants, officers, directors, shareholders, employees, representatives and any and all others acting by or through the Escrow Agent, from and against any and all debts, liabilities, losses, damages, penalties, claims, actions, suits, costs, expenses, disbursements, including without limitation, reimbursement for all reasonable attorney fees, of whatsoever kind and nature, imposed upon, incurred by, paid by and/or asserted against Escrow Agent, in any way or form, directly or indirectly arising out of this Agreement, any and all aspects hereof and/or any and all disputes which may arise between the parties hereto or between the parties hereto and third persons as well as claims by third persons against Escrow Agent, including but not limited to, claims or demands by any governmental entity whatsoever, asserted by reason of this Agreement. -2- 9. Notices. Any notice required or permitted hereunder shall be sent to the party entitled to receive the same by certified United States mail, return receipt requested, or shall be hand delivered. Any notice sent by mail shall be deemed received five (5) business days following deposit of the same in the United States mail, in a properly addressed wrapper with proper postage affixed thereto. 10. Construction. This Agreement shall be construed and enforced in accordance with the laws of the State of Texas. EXECUTED this 13th day of November, 1998. ESCROW AGENT: IDS: /s/ Johnny J. Williams /s/ Bill Coskey - ----------------------- --------------------------- JOHNNY J. WILLIAMS BY: BILL COSKEY, PRESIDENT MLC: /s/ Michael L. Moore /s/ Michael L. Moore - ----------------------- --------------------------- MICHAEL L. MOORE BY: MICHAEL L. MOORE, PRESIDENT -3- EX-2.18 4 EXHIBIT 2.18 EXHIBIT 2.18 M L C ENTERPRISES, INC. (the "Company") WRITTEN CONSENT OF ALL DIRECTORS IN LIEU OF MEETING The undersigned, being all the directors of M L C ENTERPRISES, INC., a Texas Corporation, do hereby vote for, approve and consent to the following resolutions: RESOLVED, that the Board of Directors of M L C ENTERPRISES, INC. the Company entering into the Stock Acquisition Agreement by and between INDUSTRIAL DATA SYSTEMS CORP., MICHAEL L. MOORE and M L C ENTERPRISES, INC. RESOLVED FURTHER, that Michael L. Moore, the President of the Company, is hereby authorized, empowered and directed to do and perform all such acts and execute any and all documents necessary to consummate the foregoing transaction. This consent is executed pursuant to Business Corporation law authorizing the taking of action by the Board of Directors by unanimous written consent without a meeting. IN WITNESS WHEREOF, we have signed this consent effective the 13th day of November, 1998. /s/ Michael L. Moore ------------------------------------- MICHAEL L. MOORE, Sole Shareholder and Director IDS/MLC/CONSENT.1 EX-2.19 5 EXHIBIT 2.19 EXHIBIT 2.19 CERTIFICATE OF CORPORATE RESOLUTION I, MICHAEL L. MOORE, President and Secretary of M L C ENTERPRISES, INC., a Texas corporation, do hereby certify that said corporation is duly organized and existing under the laws of the State of Texas; that all franchise and other taxes required to maintain its corporate existence have been paid when due and that no such taxes are delinquent; that it is duly qualified to do business in the State of Texas and is in good standing in such State; that the By-Laws attached hereto as Exhibit "A" are the current By-Laws of the corporation. I further certify that the following persons are the officers of M L C ENTERPRISES, INC, and are the persons authorized to act and sign on behalf of the corporation: MICHAEL L. MOORE President MICHAEL L. MOORE Secretary IN WITNESS WHEREOF, I have hereunto set my hand as President and Secretary, respectively, of said corporation and have attached hereto the official seal of said corporation, this 13th day of November, 1998. /s/ Michael L. Moore ------------------------------------- MICHAEL L. MOORE, President ------------------------------------- MICHAEL L. MOORE, Secretary corporate Seal EX-2.20 6 EXHIBIT 2.20 Exhibit 2.20 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") dated November 1, 1998, between MLC Enterprises, Inc., a Texas corporation ("Company"), and Michael L. Moore, a Texas resident ("Employee"), evidences that, in consideration of the mutual covenants and agreements contained herein, the Company hereby employs Employee and Employee hereby accepts such employment and agrees to perform the services specified herein upon the terms and conditions set forth in this Agreement. 1. DUTIES AND RESPONSIBILITIES. During the Term of Employment (as defined in Section 2), Employee shall: (a) serve as the Managing Director of the Company promoting the products and services offered by the Company for sale, subject in all events to the direction and control of the board of directors of the Company; (b) serve in such other capacities, perform such other services and have such duties and responsibilities with the Company and its affiliates and subsidiaries as are assigned to Employee, subject in all events to the direction and control of the board of directors of the Company. To the extent that Employee is requested to perform services and/or is assigned duties and responsibilities with an affiliate of the Company, Employee shall be entitled to additional compensation. To the extent that the Company and Employee are unable to agree on such additional compensation, Employee may decline to perform duties or services for an affiliate of the Company; (c) be a full-time employee of the Company, subject to Employee's obligations to Flameout Design & Fabrication, Inc. as detailed in paragraph 6 (b), and devote Employee's full business time, attention, efforts and energy to the affairs of the Company, subject to Employee's right to vacations as provided herein, and subject to absences on account of temporary illness; (d) faithfully, diligently, competently and to the best of Employee's ability perform all duties incident to Employee's employment hereunder; (e) use Employee's best efforts to promote the interests of the Company; and 2. TERM OF EMPLOYMENT. The "Term of Employment" as used in this Agreement shall means the three year period commencing on November 13, 1998 ("Effective Date"). The Term of Employment shall be earlier terminated as follows: (a) Should Employee die, the Term of Employment shall be terminated upon Employee's death. (b) Should Employee become disabled and should Employee's disability exceed the period of paid leave plus twelve unpaid work weeks during any twelve month period, the Term of Employment may, at the option of the Company, be terminated by the Company upon ten days written notice to Employee. (c) Should Employee (i) violate any of the terms and provisions of this Agreement or otherwise fail to satisfactorily perform any obligation due to the Company hereunder or otherwise, (ii) engage in misrepresentation, dishonesty, embezzlement, fraud or disloyalty in matters affecting the Company or the employment relationship or usurpation of a benefit that rightfully belongs to the Company, (iii) be negligent with respect to matters involving or affecting the Company or the duties and responsibilities of Employee to the Company, or (iv) engage in any crime (other than minor traffic violations), the Term of Employment, at the option of the Company, may be terminated by the Company immediately upon written notice to Employee. Any such termination by virtue of this Section 2(c) shall be deemed "for cause" and shall not prejudice any remedy that the Company may have at law, in equity, or under this Agreement for breach hereof by Employee. 3. DISABILITY. If, because of illness or otherwise, Employee should become physically or mentally disabled and is therefore unable to perform Employee's duties hereunder, Employee shall be entitled to such paid temporary leaves of absence as may be in the Company's policies and procedure. Should the duration of any such disability exceed the Company's period of paid leave, Employee shall be entitled to unpaid leave of up to twelve work weeks during any twelve month period. Should Employee's disability exceed the period of paid leave plus twelve unpaid work weeks during any twelve month period, Employee may be subject to termination at the sole discretion of Company. 4. COMPENSATION. As compensation ("Compensation") for Employee's services, during the Term of Employment, the Company shall pay the following compensation or provide the following benefits, as the case may be, to Employee: (a) DRAW AGAINST COMMISSIONS. Company shall allow Employee a draw against commissions in the amount of Sixty Thousand and No/100 Dollars ($60,000.00) per year, payable bi-weekly in equal installments. EXPENSES. Employee shall be responsible for all expenses incurred by Employee in generating sales on behalf of Company. COMMISSION. Employee shall be entitled to a commission of six percent (6%) of the Gross Profits on sales generated by Company and received by Company as hereinafter defined. Gross Profits Received shall be equal to gross revenue ACTUALLY RECEIVED during the contract term on sales generated by Company, adjusted to reflect all costs other than General and Administrative expenses, together with any backcharges, discounts, reductions or rebates associated with the sales generating such revenue. Commissions less accumulated draws due shall be paid on the 15th day of the next calendar month following receipt of payment by Company. (b) Coverage for Employee under group medical, life, accidental death, long-term disability, and dental insurance policies provided by the Company, if any, all on such terms as the Company extends to its employees from time to time. Employee shall not be entitled to be paid any additional cash Compensation for accrued, unused sick leave, if any. (c) Prior Commissions. Prior to execution of this Agreement Employee has accrued unpaid commissions in the amount of $250,000.00 owed by Company to Employee. Upon Execution of this Agreement, Employee shall receive the amount of $63,438.14 cash and title to a 1999 Chevrolet Suburban free and clear of any liens, which the parties agree has a value of $36,561.86. The balance due in the amount of $150,000.00, which shall not bear interest, shall be due and payable as follows: February 1, 1999 $ 25,000.00 May 1, 1999 25,000.00 August 1, 1999 25,000.00 November 1, 1999 25,000.00 February 1, 2000 25,000.00 May 1, 2000 25,000.00
The February 1, 1999 and May 1, 1999 payments shall be made irregardless of the Company's Accumulated Profits. The remaining payments shall be made only to such extent as the Company has Accumulated Profits that exceed the amount of all cumulative payments made to the Employee pursuant to this paragraph including the February 1, 1999 and May 1, 1999 payments. Should the Company fail to have Accumulated Profits sufficient to make any such payment, such payments will be deferred until such as the Company has accumulated profits to make the payment. Company may prepay this amount in whole or in part, without penalty, at any time. In consideration of this sum, Employee does hereby Release and Discharge Company from any claim for compensation in any form, be it salary, commissions, bonus or otherwise arising out of Employee's employment and/or ownership with/of Company prior to November 1, 1998. 5. TERMINATION PAYMENTS. In the event of termination of the Term of Employment, whether by action of the Company, Employee or by mutual agreement, voluntary or involuntary, the Company shall no longer be obligated to make any payments of any kind to Employee, except for accrued unpaid commissions and commissions for orders booked prior to the date of termination and paid following the date of termination, if any, which payments shall be paid in the same manner as setforth above. Upon any termination, Employee shall pay the Company any amounts owed by Employee to the Company by reason of the breach hereof or otherwise and the Company shall be entitled to offset against any amounts owed to Employee any amounts owed by Employee to the Company or any of its subsidiaries or affiliates, whether under this Agreement or otherwise, without prejudice to any other rights or remedies of the Company or its subsidiaries or affiliates available at law or equity. 6. NON-COMPETITION COVENANT. (a) Except as provided in paragraph 6 (b), Employee represents that Employee is subject to no obligation to any third party that would restrict or interfere with Employee's ability to perform hereunder. Employee agrees that from the date hereof and for the one year period following the termination of the Term of Employment ("Covenant Trigger"), whether by action of the Company, Employee, or by mutual agreement, voluntary or involuntary, other than by violation of this agreement by the Company, Employee will not, directly or indirectly, (i) own, manage, operate, join, control, or participate in the ownership, management, operation or control of, or be employed by, or otherwise engage in or become interested in or be connected in any manner with any business located in the United States of America which offers goods or services of the type offered by the Company ("Competing Business"), (ii) solicit, on behalf of Employee or any business in the same or similar business as that engaged in by the Company ("Competing Business"), any person or entity that has been a customer of the Company, either directly or indirectly through a broker or otherwise, at any time during the two year period preceding the Covenant Trigger ("Company Customer"), to purchase or otherwise acquire or use any products or services of the same or similar nature as products or services offered by the Company, (iii) solicit any person who, at any time within the two year period preceding the Covenant Trigger, has been an employee of the Company ("Company Employee"), except a Company Employee who was terminated by the Company, to become an employee of Employee or any Competing Business. Employee shall not be deemed to be so competing solely by reason of purchasing stock of companies listed on the New York Stock Exchange, the American Stock Exchange, or quoted on the National Association of Securities Dealers Automatic Quotation System (NASDAQ), provided that Employee's direct and beneficial ownership of any class of securities in any of such entities is less than 5% of the aggregate number of outstanding units, interests or shares of such class of securities. The term "solicit" as used herein shall refer, in addition to its common usages, to communications or transactions with intent to violate this paragraph whether initiated by Employee or a third party. All parties acknowledge that the restrictions and restraints contained in this covenant are reasonable. Should any court of competent jurisdiction determine that, consistent with the established precedent of the forum jurisdiction, the public policy of such jurisdiction requires a more limited restriction, duration, nature of restricted activity, or any combination thereof, it would be in furtherance of the intentions of the parties hereto for the court to so interpret and construe the terms of this Section 6 to apply only to the extent of such limited restriction. In the event of a breach of this covenant the running of the non-competition period herein provided shall be tolled for the duration of such breach. In the event of any breach or attempted or threatened breach of this covenant any aggrieved party shall have the right in addition to all other rights and remedies at law and in equity, to obtain an injunction prohibiting such breach or attempted or threatened breach and commanding compliance with this covenant merely by proving the existence of such breach or threatened or attempted breach, and without the necessity of proving irreparable harm or inadequacy of legal remedies. (b) Company acknowledges that Employee is an officer, director and shareholders of Flameout Design & Fabrication, Inc., (Flameout), that Employee has obligations to Flameout, and that Flameout has in the past engaged in the same or similar business as that engaged in by the Company. The Company agrees that Employee may engage in such corporate governance activity as is necessary to keep Flameout as an active corporation for the purpose of pursuing the litigation in Cause No. 01-98-00543-CV; Flameout Design & Fabrication, Inc., Appellant v. Pennzoil Caspian Corporation, Pennzoil Corporation and Pennzoil Exploration and Production Company, Appellees; In the Court of Appeals for the First District of Texas at Houston, Texas. Such governance activity shall not constitute a violation of paragraph 6(a). Employee agrees not to engage in any other activity for Flameout other than the activity specifically described herein. 7. CONFIDENTIALITY OF INFORMATION. Employee acknowledges that Employee has had and will have access to certain confidential information of the Company or its subsidiaries or affiliates, including, without limitation, product designs, employee lists, customer lists, supplier lists, manuals, forms, documentation, data, trade secrets, specifications, methods, procedures, systems, plans, techniques, know-how, plans, and computer programs ("Information") and that such Information constitutes valuable, special and unique assets of the Company or such other entities. Employee will cause the Information obtained by Employee to be treated as strictly confidential. Employee shall not use or knowingly permit others to use any such Information in a manner detrimental to the Company or its subsidiaries or affiliates, or for Employee's own account and shall not directly or indirectly disclose any such Information to any person, firm, corporation, association or other entity for any reason or purpose, except to such parties to whom such information is furnished in the normal course of business under established policies approved by the Company, authorized representatives of the Company, or upon the written consent of the Company, or as required by law, or to a governmental agency pursuant to a valid subpoena or other order or pursuant to applicable governmental regulations, rules or statutes unless such information is otherwise available in the public domain. For purposes hereof, authorized representatives of the Company shall be directors and officers of the Company to which such Information is furnished in the normal course of business under established policies approved by the Company. Employee further agrees that, upon termination of the Term of Employment, Employee will not take with Employee or retain, or disclose to others without written authorization from the Company, any Information, papers, files or other documents or copies thereof of any kind belonging to the Company or any of its subsidiaries or affiliates. The obligations of this Section 7 shall continue as to each item of such Information, both during and after termination of the Term of Employment, until the Company's competitors have become cognizant of such item of Information from published sources through no fault of or action by Employee. 8. PROPRIETARY DEVELOPMENTS. Employee agrees promptly to fully disclose and assign and does hereby assign to the Company the entire right, title and interest throughout the world in and to all product formulations, inventions, improvements, discoveries, know-how, trade secrets, information, processes, machines, manufactures, compositions, apparatus or products ("Proprietary Information"), whether or not patentable, made or conceived or discovered or developed or reduced to practice, solely or jointly, by Employee during the Term of Employment that are related to the manufacture, distribution and sale of oil and gas products and industrial fire suppression systems (Company's Business): (a) Regardless of whether or not during working time chargeable to the Company, which relate in any manner to the Company's Business or are suggested by or to Employee or result from work performed by Employee for the Company or are made by the use of the Company's materials or equipment, or (b) While on the Company's time pursuing Company's Business. It shall be presumed, subject to clear and convincing proof to the contrary, that all Inventions, whether or not patentable, relating to the Company's Business and developed by Employee during the six month period beginning on the date of termination of the Term of Employment were, for the purposes of this Agreement, conceived prior to the termination of the Term of Employment. Employee will cooperate with the Company in all lawful ways in order to carry into effect the provisions of this Section 8, including the execution of any papers or documents deemed by the Company to be desirable or necessary to enable the Company to apply for, secure and maintain patent or copyright protection thereon in the United States of America and in foreign countries including, but not limited to applications, assignments and other legal instruments. 9. ENFORCEMENT. Employee acknowledges that the rights reserved to the Company under Sections 6, 7, and 8 hereof are necessarily of a special, unique and extraordinary nature and that the loss arising from a breach or threatened breach thereof cannot reasonably and adequately be compensated by money damages and will cause the Company to suffer irreparable harm and that a remedy at law for any breach thereof will be inadequate. Accordingly, Employee hereby agrees that the Company shall be entitled to injunctive or other extraordinary relief in case of any such breach or threatened breach, and without the necessity of proving irreparable harm or inadequacy of legal remedies, which shall, however, in no way limit any other rights, including the recovery of damages, which the Company may have at law or in equity. In addition, and without limitation of the foregoing or any other rights the Company may have at law or in equity, if Employee shall at any time before, during, or following the Term of Employment violate Sections 6, 7, and 8 or use any Confidential Information or Proprietary Information for Employee's personal benefit or the benefit of any third party, Employee agrees to pay to the Company immediately without demand seventy five percent of the gross receipts therefrom. 10. NOTICES. All notices, requests, demands and other communications under this Agreement or any instrument contemplated hereby shall be in writing and shall be personally delivered or mailed by United States registered or certified mail, first class, postage prepaid, return receipt requested, to the address of the respective parties hereto as shown under their names on the signature page hereof and shall be deemed given on the earlier of actual receipt (as evidenced by return receipt if mailed) or the date five days after mailing. Any party hereto may change his or its address for such notices by giving notice of such change pursuant to this Section 10. 11. BINDING EFFECT. This Agreement shall inure to the benefit of and shall be binding upon the Company and its successors and assigns and upon Employee and Employee's personal representatives and heirs. The provisions of Sections 5 through 18 hereof shall survive any termination of this Agreement. If the Company has or adopts an employee manual or policies of a similar nature that conflict with this Agreement the terms and provisions of this Agreement shall control. 12. WAIVER. No failure to insist upon strict compliance with any provision hereof shall be deemed a waiver of such provision or any other provision hereof. No failure to exercise and no delay in exercising, on the part of the Company, any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law or in any other agreement. 13. GOVERNING LAW: VENUE. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (EXCEPT THOSE RELATING TO THE CONFLICT OF LAWS) AND SHALL BE PERFORMABLE IN HARRIS COUNTY. EACH PARTY HERETO SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS AND THE FEDERAL COURTS IN AND FOR THE SOUTHERN DISTRICT OF TEXAS IN CONNECTION WITH ANY DISPUTE ARISING UNDER THIS AGREEMENT OR ANY DOCUMENT OR INSTRUMENT ENTERED INTO IN CONNECTION HEREWITH. ALL ACTIONS HEREUNDER MUST BE BROUGHT IN THE STATE COURTS OF HARRIS COUNTY, TEXAS OR THE FEDERAL COURTS IN AND FOR THE SOUTHERN DISTRICT OF TEXAS. 14. SEVERABILITY. If any provision of this Agreement, or the application thereof to any person or circumstance, is for any reason or to any extent, invalid or unenforceable, the remainder of the Agreement and the application of such provision to the other persons or circumstances shall not be affected thereby, but rather is to be enforced to the greatest extent permitted by law. 15. ASSIGNMENT. The rights and interest of Employee under this Agreement including Employee's right to receive Employee's Compensation hereunder, may not be assigned, sold, transferred, pledged or hypothecated, nor may the duties and obligations of Employee hereunder be delegated. The rights and interests of the Company hereunder are freely assignable and delegable by the Company with Employees consent which shall not be unreasonably withheld. 16. PRIOR AGREEMENTS SUPERSEDED. This Agreement constitutes the sole agreement of the parties hereto concerning the within subject matter and supersedes any prior understandings or written or oral agreements between the parties, SPECIFICALLY TERMINATING AND SUPERSEDING THE EMPLOYMENT AGREEMENT EXECUTED BY AND BETWEEN M L C ENTERPRISES, INC. D/B/A MARINE & INDUSTRIAL FIRE & SAFETY, COMPANY, AND MICHAEL L. MOORE, EMPLOYEE, DATED APRIL 28, 1998, A TRUE AND CORRECT COPY OF WHICH IS ATTACHED HERETO AS EXHIBIT "A", respecting the within subject matter. 17. CAPTIONS. The captions used in this Agreement are for convenience only and are not to be construed in interpreting this Agreement. 18. AMENDMENT. This Agreement may be amended only by a written instrument signed by each party hereto. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the day and year first above written. Company: MLC ENTERPRISES, INC. By: /s/ William A. Coskey ------------------------ Name: William A. Coskey Title: President Address: 600 Century Plaza, Bldg. 140 Houston, Texas 77060 Employee: /s/ Michael L. Moore --------------------- Name: MICHAEL L. MOORE EX-2.21 7 EXHIBIT 2.21 EXHIBIT 2.21 Amendment to Employment Agreement This amendment is made to that certain Employment Agreement dated November 1, 1998, by and between MLC Enterprises, Inc., a Texas Corporation ("Company") now known as IDS Fabricated Systems, Inc. and Michael L. Moore, a Texas resident, ("Employee") in connection with the acquisition of all the outstanding common stock of Company from Employee by Industrial Data Systems, Corp. pursuant to a Stock Acquisition Agreement of even date therewith. Whereas, since the acquisition date additional undisclosed liabilities of MLC Enterprises, Inc. have come to the attention of the parties; and Whereas, Employee's entitlement to prior commissions was premised, in part, on the absence of such undisclosed liabilities; and Whereas, the parties hereto desire to adjust Employee's Compensation for accrued unpaid commissions as a dollar for dollar offset against such undisclosed liabilities of Company; Now therefore in consideration of the premises and the further consideration of a dollar for dollar credit against any undisclosed liabilities of Company as of the Acquisition Date, Paragraph 4(c) of the Employment Agreement is amended to reduce the amount of accrued unpaid commissions by $125,000.00 as of November 1, 1998 and deleting payments due on May 1, 1999; August 1, 1999; November 1, 1999; February 1, 2000 and May 1, 2000. Signed this 16th day of January, 1999. IDS Fabricated Systems, Inc. formerly known as MLC Enterprises, Inc. by: /s/ William A. Coskey --------------------------- William A. Coskey, President /s/ Michael L. Moore ------------------------------ Michael L. Moore EX-2.22 8 EXHIBIT 2.22 EXHIBIT 2.22 INDUSTRIAL DATA SYSTEMS, CORP. (the "Company") WRITTEN CONSENT OF ALL DIRECTORS IN LIEU OF MEETING The undersigned, being all the directors of INDUSTRIAL DATA SYSTEMS, CORP., a Nevada Corporation, do hereby vote for, approve and consent to the following resolutions: 1. PURCHASE OF M L C ENTERPRISES, INC. RESOLVED, that the Board of Directors of Industrial Data Systems Corp. hereby approves the acquisition of 1,000 shares of Common stock of M L C ENTERPRISES, INC., a Texas Corporation from Michael L. Moore in exchange for 50,000 shares of the Company's common stock. RESOLVED FURTHER, that William A. Coskey, the President of the Company, is hereby authorized, empowered and directed to do and perform all such acts and execute any and all documents necessary to consummate the foregoing transaction. This consent is executed pursuant to Business Corporation law authorizing the taking of action by the Board of Directors by unanimous written consent without a meeting. IN WITNESS WHEREOF, we have signed this consent effective the 13th day of November, 1998. /s/William A. Coskey --------------------------------- WILLIAM A. COSKEY, Director /s/ Hulda L. Coskey --------------------------------- HULDA L. COSKEY, Director /s/ David W. Gent --------------------------------- DAVID W. GENT, Director /s/ Gordon Wingate --------------------------------- GORDON WINGATE, Director /s/ Ken Hedrick --------------------------------- EXHIBIT 2.22 KEN HEDRICK, Director EX-3.6 9 EXHIBIT 3.6 Exhibit 3.6 BYLAWS OF M L C ENTERPRISES, INC. CONTENTS OF INITIAL BYLAWS
Page 1.00 CORPORATE CHARTER AND BYLAWS 1.01 Corporate Charter Provisions.......................... 4 1.02 Registered Agent or Office - Requirement of Filing Changes with Secretary of State............. 4 1.03 Initial Business office............................... 4 1.04 Amendment of Bylaws................................... 5 2.00 DIRECTORS AND DIRECTORS' MEETINGS 2.01 Action Without Meeting................................ 5 2.02 Telephone Meetings.................................... 5 2.03 Place of Meeting...................................... 5 2.04 Regular Meeting....................................... 5 2.05 Call of Special Meeting............................... 6 2.06 Quorum................................................ 6 2.07 Adjournment - Notice of Adjourned Meetings............ 6 2.08 Conduct of Meetings................................... 6 2.09 Powers of the Board of Directors...................... 7 2.10 Board Committees - Authority to Appoint............... 7 2.11 Transactions with Interested Directors................ 7 2.12 Number of Directors................................... 8 2.13 Term of Office........................................ 8 2.14 Removal of Directors.................................. 8 2.15 Vacancies............................................. 8 2.15(a) Declaration of Vacancy................................ 8 2.15(b) Filing Vacancies by Directors......................... 8 2.15(c) Filing Vacancies by Shareholders...................... 9 2.16 Compensation.......................................... 9 2.17 Indemnification of Directors and Officers............. 9 2.18 Insuring Directors, Officers, and Employees...........10 - ------------------------------------------------------------------------------- BYLAWS, PAGE 1 Page 3.00 SHAREHOLDERS' MEETINGS 3.01 Action without Meeting................................10 3.02 Telephone Meetings....................................10 3.03 Place of Meetings.....................................10 3.04 Notice of Meetings....................................10 3.05 Voting List...........................................11 3.06 Votes per Share.......................................11 3.07 Cumulative Voting.....................................12 3.08 Proxies...............................................12 3.09 Quorum................................................12 3.09(a) Quorum of Shareholders................................12 3.09(b) Adjourn for Lack or Loss..............................12 3.10 Voting by Voice or Ballot.............................13 3.11 Conduct of Meetings...................................13 3.12 Failure to Hold Annual Meeting........................13 3.13 Special Meeting.......................................13 4.00 OFFICERS 4.01 Title and Appointment.................................13 4.02 Removal and Resignation...............................14 4.03 Vacancies.............................................14 4.04 Chairman of the Corporation...........................14 4.05 President.............................................14 4.06 Vice President........................................15 4.07 Secretary.............................................15 4.08 Treasurer.............................................16 4.09 Assistant Secretary or Assistant Treasurer............16 4.10 Compensation..........................................16 5.00 AUTHORITY TO EXECUTE INSTRUMENTS 5.01 No Authority Absent Specific Authorization............17 5.02 Execution of Certain Instruments......................17 6.00 ISSUANCE AND TRANSFER OF SHARES 6.01 Classes and Series of Shares..........................17 6.02 Certificates for Fully Paid Shares....................18 6.03 Consideration for Shares..............................18 6.04 Replacement of Certificates...........................18 6.05 Signing Certificates - Facsimile Signatures...........18 - ------------------------------------------------------------------------------- BYLAWS, PAGE 2 Page 6.06 Transfer Agents and Registrars........................18 6.07 Conditions of Transfer................................19 6.08 Reasonable Doubts as to Right to Transfer.............19 7.00 CORPORATE RECORDS AND FISCAL YEAR 7.01 Minutes of Corporate Meetings.........................19 7.02 Share Register........................................19 7.03 Books of Account......................................20 7.04 Fiscal Year...........................................20 8.00 ADOPTION OF INITIAL BYLAWS.........................................21
- ------------------------------------------------------------------------------- BYLAWS, PAGE 3 ARTICLE ONE - CORPORATE CHARTER AND BYLAWS 1.01 CORPORATE CHARTER PROVISIONS The Corporation's Charter authorizes One Hundred Thousand (100,000) shares to be issued. The Officers and transfer agents issuing shares of the Corporation shall not exceed this matter. Such officers and agents shall advise the Board at least annually of the authorized shares remaining available to be issued. No shares shall be issued for less than par value stated in the Articles of Incorporation. Each Charter provision shall be observed until amended by Restated Articles or Articles of Amendment duly filed with the Secretary of State. 1.02 REGISTERED AGENT OR OFFICE - REQUIREMENT OF FILING CHANGES WITH SECRETARY OF STATE The address of the Registered Office provided in the initial Articles of Incorporation, as duly placed of record with the Secretary of State for the State of Texas is 444 East Medical Center Blvd. #411 Webster, Texas 77598-4339. The name of the Registered Agent of the Corporation at such address, as duly set forth in its initial Articles of Incorporation, is MICHAEL L. COOPER. The Registered Agent or Office may be changed by filing appropriate documents with the Secretary of State, and not otherwise. Such filing shall be made promptly with each change. Arrangements for each change in Registered Agent or Office shall ensure that the corporation is not exposed to the possibility of a default judgment. Each successive Registered Agent shall be of reliable character and well informed of the necessity of immediately furnishing the papers of any lawsuit against the corporation to its attorneys. 1.03 INITIAL BUSINESS OFFICE The address of the initial principal business office of the Corporation is hereby established to be 10913 Metronome Houston, Texas 77043. The corporation may have additional business offices within the State of Texas, and where it may be duly qualified to do business outside of Texas, as the Board of Directors may from time to time designate or the business of the Corporation may require. - ------------------------------------------------------------------------------- BYLAWS, PAGE 4 1.04 AMENDMENT OF BYLAWS The Board of Directors may alter, amend, or repeal these Bylaws, and adopt new Bylaws. All such Bylaw changes shall take effect upon adoption by the Directors, subject to repeal or change by the shareholders. Notice of Bylaws changes shall be given in or before notice of the Shareholders' Meeting following their adoption. ARTICLE TWO - DIRECTORS AND DIRECTORS' MEETINGS 2.01 ACTION BY CONSENT OF BOARD WITHOUT MEETING Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, and shall have the same force and effect as a unanimous vote of Directors, if all members of the Board consent in writing to the action. Such consent may be given individually or collectively. 2.02 TELEPHONE MEETINGS Subject to the notice provisions required by these Bylaws and by the Business Corporation Act, Directors of the Corporation may participate in and hold a meeting by means of conference call or similar communication by which all persons participating can hear each other. Participation in such a meeting shall constitute presence in person at such meeting, except participation for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. 2.03 PLACE OF MEETING Meetings of the Board of Directors shall be held at the business office of the Corporation or at such other place within or without the State of Texas as may be designated by the Board. 2.04 REGULAR MEETINGS Regular meetings of the Board of Directors shall be held, without call or notice, immediately following each annual meeting of the Shareholders of this Corporation, and at such other regular times as the Directors may determine. - ------------------------------------------------------------------------------- BYLAWS, PAGE 5 2.05 CALL OF SPECIAL MEETING Special meetings of the Board of Directors for any purpose may be called at any time by the President or, if the President is absent or unable or refuses to act, by any Vice President or any two Directors. Written notices of the special meetings, stating the time and place of the meeting, shall be mailed ten days before, or telegraphed or personally delivered so as to be received by each Director not later than two days before, the day appointed for the meeting. Notice of meetings need not indicate an agenda. Generally a tentative agenda will be included, but the meeting shall not be confined to any agenda included with the notice. Meetings provided in these Bylaws shall not be invalid for lack of notice if all persons entitled to notice are present at the meeting in person or by proxy and do not object to the notice given; or if such persons consent to the meeting in writing. Upon receiving notice, the Secretary or other officer sending notice shall sign and file in the Corporate Record Book a statement of the details of giving notice to each Director. If such statement should later not be found in the Corporate Record Book, due notice shall be presumed. 2.06 QUORUM The presence at any Directors' Meeting of a majority of the authorized number of Directors shall be necessary to constitute a quorum to transact any business, except to adjourn. If a quorum is present, every act done or resolution passed by a majority of the Directors present shall be the act of the Board of Directors. 2.07 ADJOURNMENT - NOTICE OF ADJOURNED MEETINGS A quorum of the Directors may adjourn any Directors' meeting to meet again at a stated hour on a stated day. Notice of the time and place where an adjourned meeting will be held need not be given to absent Directors if the time and place is fixed at the adjourned meeting. In the absence of a quorum, a majority of the Directors present may adjourn to a set time and place if notice is duly given to the absent members, or until the time of the next regular meeting of the Board. 2.08 CONDUCT OF MEETINGS At every meeting of the Board of Directors, the Chairman of the Board of Directors, if there is such an officer, and if not, the President, or in the President's absence, a Vice President designated by the President, or in the absence of such designation, a Chairman chosen by a majority of the Directors present, shall preside. The Secretary of the Corporation shall act as - ------------------------------------------------------------------------------- BYLAWS, PAGE 6 Secretary of the Board of Directors. When the Secretary is absent from any meeting, the Chairman may appoint any person to act as Secretary of that meeting. 2.09 POWERS OF THE BOARD OF DIRECTORS The business and affairs of the Corporation and all corporate powers shall be exercised by or under authority of the Board of Directors, subject to limitations imposed by law, the Articles of Incorporation, any applicable close corporation shareholders' agreement, or by these Bylaws. 2.10 BOARD COMMITTEES - AUTHORITY TO APPOINT The Board of Directors may designate an executive committee and one or more other committees to conduct business and affairs of the Corporation, to the extent authorized by the resolution. The Board shall have the power at any time to change the powers and membership of any committee, fill vacancies, and dissolve any committee. Members of any committee shall receive such compensation as the Board of Directors may from time to time provide. The designation of any committee and the delegation of authority thereto shall not operate to relieve the Board of Directors, or of any member thereof, of any responsibility imposed by law. 2.11 TRANSACTIONS WITH INTERESTED DIRECTORS Any contract or other transaction between the Corporation and any of its Directors (or any corporation or firm in which any of its Directors are directly or indirectly interested) shall be valid for all purposes notwithstanding the presence of that Director at the meeting during which the contract or transaction was authorized, and notwithstanding the Director's participation in that meeting. This section shall apply only if the contract or transaction is just and reasonable to the Corporation at the time it is authorized and ratified, the interest of each Director is known or disclosed to the Board of Directors, and the Board nevertheless authorizes or ratifies the contract or transaction by a majority of the disinterested Directors present. Each interested Director is to be counted in determining whether a quorum is present, but shall not vote and shall not be counted in calculating the majority necessary to carry the vote. This section shall not be construed to invalidate contracts or transactions that would be valid in its absence. - ------------------------------------------------------------------------------- BYLAWS, PAGE 7 2.12 NUMBER OF DIRECTORS The number of Directors of this Corporation shall be one (1). No Director need be a Shareholder or a resident of Texas. The number of Directors may be increased or decreased from time to time by amendment of these Bylaws. Any decrease in the number of Directors shall not have the effect of shortening the tenure which any incumbent Director would otherwise enjoy. 2.13 TERM OF OFFICE Directors shall be entitled to hold office until their successors are elected and qualified. Election of Directors shall occur at each annual meeting of the Shareholders and may be held at any special meeting of Shareholders called specifically for that purpose. 2.14 REMOVAL FROM DIRECTORS The entire Board of Directors or any individual Director may be removed from office by a vote of Shareholders holding a majority of the outstanding shares entitled to vote at an election of Directors. However, if less than the entire Board is to be removed, no one of the Directors may be removed if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors. No director may be so removed except at an election of the class of Directors of which he is a part. If any or all Directors are so removed, new Directors may be elected at the same meeting. Whenever a class or series of shares is entitled to elect one or more Directors under authority granted by the Articles of Incorporation, the provisions of this Paragraph apply to the vote of that class or series and not to the vote of the outstanding shares as a whole. 2.15 VACANCIES Vacancies on the Board of Directors shall exist upon the occurrence of any of the following events: (a) the death, resignation, or removal of any Director; (b) an increase in the authorized number of Directors; or (c) the failure of the Shareholders to elect the full authorized number of Directors to be voted for at any annual, regular, or special Shareholders' meeting at which any Director is to be elected. 2.15(a) DECLARATION OF VACANCY The Board of Directors may declare vacant the office of a Director if the Director is adjudged incompetent by a court order, is convicted of a crime involving moral turpitude, or fails to accept the office of Director, in writing or by attending a meeting of the Board of Directors, within thirty (30) days of notice of election. - ------------------------------------------------------------------------------- BYLAWS, PAGE 8 2.15(b) FILLING VACANCIES BY DIRECTORS Vacancies other than those caused by an increase in the number of Directors may be filled by a majority vote of the remaining Directors, though less than a quorum, or by a sole remaining Director. Each Director so elected shall hold office until a qualified successor is elected at a Meeting of the Shareholders. 2.15(c) FILLING VACANCIES BY SHAREHOLDERS Any vacancy caused by an increase in the number of Directors shall be filled by the Shareholders at an annual meeting or at a special meeting called for that purpose. The Shareholders may also elect a Director at any time to fill any vacancy not filled by the Directors. Upon the resignation of a Director tendered to take effect at a future time, the Board or the Shareholders may elect a successor to take office when the resignation becomes effective. 2.16 COMPENSATION Directors shall receive such compensation for their services as Directors as shall be determined from time to time by resolution of the Board. Any Director may serve the Corporation in any other capacity as an officer, agent, employee, or otherwise, and receive compensation therefor. 2.17 INDEMNIFICATION OF DIRECTORS AND OFFICERS The Board of Directors shall authorize the Corporation to pay or reimburse any present or former Director or officer of the Corporation any costs or expenses actually and necessarily incurred by that officer in any action, suit, or proceeding to which the officer is made a party by reason of holding that position, provided, however, that no officer shall receive such indemnification if finally adjudicated therein to be liable for negligence or misconduct in office. This indemnification shall extend to good-faith expenditures incurred in anticipation of threatened or proposed litigation. The Board of Directors may, in proper cases, extend the indemnification to cover the good-faith settlement of any such action, suit, or proceeding, whether formally instituted or not. - ------------------------------------------------------------------------------- BYLAWS, PAGE 9 2.18 INSURING DIRECTORS, OFFICERS, AND EMPLOYEES The Corporation may purchase and maintain insurance on behalf of any Director, officer, employee, or agent of the Corporation, or on behalf of any person serving at the request of the Corporation as a Director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against any liability asserted against that person and incurred by that person in any such corporation, whether or not the Corporation has the power to indemnify that person against liability for any of those acts. ARTICLE THREE - SHAREHOLDERS' MEETINGS 3.01 ACTION WITHOUT MEETING Any action that may be taken at a meeting of the Shareholders under any provision of the Texas Business Corporation Act may be taken without a meeting if authorized by a consent or waiver filed with the Secretary of the Corporation and signed by all persons who would be entitled to vote on that action at a shareholders' meeting. Each such signed consent or waiver, or a true copy thereof, shall be placed in the minute book of the Corporation. 3.02 TELEPHONE MEETINGS Subject to the notice provisions required by these Bylaws and by the Business Corporation Act, Shareholders of the Corporation may participate in and hold a meeting by means of conference call or similar communication by which all persons participating can hear each other. Participation in such a meeting shall constitute presence in person at such meeting, except participation for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. 3.03 PLACE OF MEETINGS Meetings of Shareholders shall be held at the business office of the Corporation, or at such other place within or without the State of Texas as may be designated by the Board of Directors or by the Shareholders. 3.04 NOTICE OF MEETINGS The President, the Secretary, or the officer or persons calling a Shareholders' Meeting, shall give notice, or cause it to be given, in writing to each Director and to each Shareholder - ------------------------------------------------------------------------------- BYLAWS, PAGE 10 entitled to vote at the meeting at least ten (10) but no more than fifty (50) days before the date of the meeting. Such notice shall state the place, day and hour of the meeting, and , in case of a special meeting, the purpose or purposes for which the meeting is called. Such written notice may be given personally, by mail, or other means. Such notice shall be addressed to each recipient at such address as appears on the Books of the Corporation or was given by the recipient to the Corporation for the purpose of notice. Any meeting provided herein shall not be invalid for lack of notice if consent to the meeting is given in writing by all persons entitled to vote at the meeting and is filed with the Secretary of the Corporation. Such consent may be given either before or after the meeting. Notice of the reconvening of an adjourned meetings is not necessary unless the meeting is adjourned more than thirty days past the date stated in the notice in which care notice of the adjourned meeting shall be given as in the case of any special meeting. Notice may be waived by a written waiver signed either before or after the meeting by the person entitled to the notice. 3.05 VOTING LIST At least ten (10) days before each Shareholders' meeting, the officer or agent having charge of the stock transfer books for shares of the Corporation shall make a complete list of the Shareholders entitled to vote at that meeting or any adjournment thereof, arranged in alphabetical order, with the address and the number of shares held by each. The list shall be kept on file at the registered office of the Corporation for a period of ten (10) days prior to the meeting, and shall be subject to inspection by any Shareholder at any time during usual business hours. The list shall also be produced and kept open at the time and place of the meeting and shall be subject, during the whole time of the meeting, to the inspection of any Shareholder. The original share transfer books shall be PRIMA FACIE evidence as to the Shareholders entitled to examine such list or transfer books or to vote at any meeting of Shareholders. However, failure to prepare and to make the list available in the manner provided above shall not affect the validity of any action taken at the meeting. 3.06 VOTES PER SHARE Each outstanding share, regardless of class, shall be entitled to one (1) vote on each matter submitted to a vote at a meeting of Shareholders, except to the extent that the voting rights of the shares of any class or classes are limited or denied pursuant to the Articles of Incorporation. A Shareholder may vote either in person, or by proxy executed in writing by the shareholder, or by the Shareholder's duly authorized attorney-in-fact. - ------------------------------------------------------------------------------- BYLAWS, PAGE 11 3.07 CUMULATIVE VOTING Subject to any limitations stated in the Articles of Incorporation, every Shareholder entitled to vote at any election for Directors may cumulate votes. For this purpose, each Shareholder shall have a number of votes equal to the number of Directors to be elected multiplied by the number of votes to which the Shareholder's shares are entitled. The Shareholder may cast all these votes for one candidate or may distribute the votes among any number of candidates. The candidate receiving the highest number of votes are elected, up to the number of vacancies to be filled. No Shareholder may cumulate votes unless that Shareholder shall have given written notice of his or her intention to do so to the Secretary of the Corporation on or before the day preceding the election at which the votes will be cumulated. If any Shareholder gives written notice as provided above, all Shareholders may cumulate their votes. 3.08 PROXIES A Shareholder may vote either in person or by proxy executed in writing by the Shareholder on his duly authorized attorney in fact. Unless otherwise provided in the proxy or by law, each proxy shall be revocable and shall not be valid after eleven (11) months from the date of its execution. 3.09 QUORUM 3.09(a) QUORUM OF SHAREHOLDERS The presence (in person or by proxy) of the persons who are entitled to vote a majority of the outstanding voting shares shall constitute the quorum necessary for the transaction of business at a meeting of the Shareholders of the Corporation. The vote of the holders of a majority of the shares entitled to vote and represented at a meeting at which a quorum is present shall be the act of the Shareholders' meeting. 3.09(b) ADJOURNMENT FOR LACK OR LOSS OF QUORUM No business may be transacted in the absence of a quorum, or upon withdrawal of enough Shareholders to leave less than a quorum, other than to adjourn the meeting from time to time by the vote of a majority of the shares the holders of which are present in person or by proxy. - ------------------------------------------------------------------------------- BYLAWS, PAGE 12 3.10 VOTING BY VOICE OR BALLOT Elections for Directors need not be by ballot unless a Shareholder demands election by ballot at the election before the voting begins. 3.11 CONDUCT OF MEETING Meetings of the Shareholders shall be chaired by the President, or, in the President's absence, a Vice President designated by the President, or, in the absence of such designation, any other person chosen by a majority of the Shareholders of the Corporation present in person or by proxy and entitled to vote. The Secretary of the Corporation, or, in the Secretary's absence, an Assistant Secretary, shall act as Secretary of all meetings of Shareholders. In the absence of the Secretary or Assistant Secretary, the Chairman shall appoint another person to act as Secretary of the meeting. 3.12 FAILURE TO HOLD ANNUAL MEETING If within any 13-month period, an annual Shareholders' Meeting is not held, any Shareholder may apply to a court of competent jurisdiction in the county in which the principal office of the Corporation is located for a summary order that an annual meeting be held. 3.13 SPECIAL MEETINGS Special Shareholders' meetings may be called at any time by any of the following: (a) the President; (b) the Board of Directors; (c) one or more Shareholders holding in the aggregate one-tenth or more of all the shares entitled to vote at the meetings. Special Shareholders' meetings may be called for any purpose. The notice of a special Shareholders' meeting must state the purpose or purposes of the meeting and absent consent of every shareholder to the specific action taken, shall be limited to purposes plainly stated in the notice, other provisions herein notwithstanding. ARTICLE FOUR - OFFICERS 4.01 TITLE AND APPOINTMENT The officers of the Corporation shall be President, a Secretary, and a Treasurer. The Corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries, and one or more Assistant - ------------------------------------------------------------------------------- BYLAWS, PAGE 13 Treasurers. Any two offices, including President and Secretary, may be held by one person. All officers shall be elected by and hold office at the pleasure of the Board of Directors, which shall fix the compensation and tenure of all officers. 4.02 REMOVAL AND RESIGNATION Any officer may be removed, either with or without cause, by vote of a majority of the Directors, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board of Directors, by any committee or officer upon whom that power of removal may be conferred by the Board of Directors. Such removal shall be without prejudice to the contract rights, if any, of the person removed. Any officer may resign at any time by giving written notice to the Board of Directors, the President, or the Secretary of the Corporation. Any resignation shall take effect on the date of the receipt of that notice or at any later time specified therein, and, unless otherwise specified therein, the acceptance of that resignation shall not be necessary to make it effective. 4.03 VACANCIES Upon the occasion of any vacancy occurring in any office of the Corporation, by reason of death, resignation, removal, or otherwise, the Board of Directors may elect an acting successor to hold office for the unexpired term, or until a permanent successor is elected. 4.04 CHAIRMAN OF THE CORPORATION The Chairman, if there shall be such an officer, shall, if present, preside at the meeting of the Board of Directors and exercise and perform such other powers and duties as may from time to time be assigned to the Chairman by the Board of Directors or prescribed by these Bylaws. 4.05 PRESIDENT Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman, if there is an officer, the President shall be the chief executive officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and officers of the Corporation. The President shall have the general powers and duties of management usually vested in the office of President of a Corporation; shall have such other powers and duties as may be prescribed by the Board of Directors or the Bylaws; and shall be ex officio a member of all standing committees, including the executive committee, in any. In addition, the President shall preside at all meetings of the Shareholders and in the absence of the Chairman, or if there is no Chairman, at all meetings of the Board of Directors. - ------------------------------------------------------------------------------- BYLAWS, PAGE 14 4.06 VICE PRESIDENT Any Vice President shall have such powers and perform such duties as from time to time may be prescribed by these Bylaws, by the Board of Directors, or by the President. In the absence or disability of the President, the senior or duly appointed Vice President, if any, shall perform all the duties of the President, pending action by the Board of Directors. When so acting, such Vice President shall have all the powers of, and be subject to all the restrictions on, the President. 4.07 SECRETARY The Secretary shall: (A) See that all notices are duly given in accordance with the provisions of these Bylaws or as required by law. In case of the absence or disability of the Secretary, or the Secretary's refusal or neglect to act, notice may be given and served by an Assistant Secretary or by the Chairman, the President, any Vice President, or by the Board of Directors. (B) Keep the minutes of corporate meetings, and the corporate record book, as set out in Article 7.01 hereof. (C) Maintain, in the official record book of the Corporation, a record of all share certificates issued or canceled and all shares of the corporation canceled or transferred. (D) Be custodian of the Corporation's records, and of any seal which the Corporation may from time to time adopt. When the Corporation exercises its right to use a seal, the Secretary shall see that the seal is emblazoned on all share certificates prior to their issuance and on all documents authorized to be executed under seal in accordance with the provisions of these Bylaws. (E) In general, perform all duties incident to the office of Secretary, and such other duties as from time to time may be required by Bylaws 7.01, 7.02, and 7.03, by these Bylaws generally, by the Board of Directors, or by the President. - ------------------------------------------------------------------------------- BYLAWS, PAGE 15 4.08 TREASURER The Treasurer shall: (A) Have charge of the custody of, and be responsible for, all funds and securities of the Corporation, and deposit all funds in the name of the Corporation in those banks, trust companies, or other depositors that shall be selected by the Board of Directors. (B) Receive, and give receipt for, monies due and payable to the Corporation. (C) Disburse or cause to be disbursed the funds at the Corporation as may be directed by the Board of Directors, taking proper vouchers for those disbursements. (D) If required by the Board of Directors or the President, give to the Corporation a bond to assure the faithful performance of the duties of the Treasurer's office and the restoration to the Corporation of all corporate books, papers, vouchers, money, and other property of whatever kind in the Treasurer's possession or control, in case of the Treasurer's death, resignation, retirement or removal from office. Any such bond shall be in a sum satisfactory to the Board of Directors. (E) In general, perform all duties incident to the office of Treasurer and such other duties as from time to time may be assigned to the Treasurer by Bylaws 7.04 and 7.05, by these Bylaws generally, by the Board of Directors, or by the President. 4.09 ASSISTANT SECRETARY OR ASSISTANT TREASURER The Assistant Secretary or Assistant Treasurer shall have such powers and perform such duties as the Secretary or Treasurer, respectively, or as the Board of Directors or President may prescribe. In case of the absence of the Secretary or Treasurer, the senior Assistant Secretary or Assistant Treasurer, may respectively perform all of the functions of the Secretary or Treasurer. 4.10 COMPENSATION The compensation of the officers shall be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving a salary by reason of the fact that the officer is also a Shareholder or a Director of the Corporation, or both. - ------------------------------------------------------------------------------- BYLAWS, PAGE 16 ARTICLE FIVE - AUTHORITY TO EXECUTE INSTRUMENTS 5.01 NO AUTHORITY ABSENT SPECIFIC AUTHORIZATION These Bylaws provide certain authority for the execution of instruments. The Board of Directors, except as otherwise provided in these Bylaws, may additionally authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. Unless expressly authorized by these Bylaws or the Board of Directors, no officer, agent, or employee shall have any power or authority to bind the Corporation by any contract or engagement nor to pledge its credit not to render it liable pecuniarily for any purpose or in any amount. 5.02 EXECUTION OF CERTAIN INSTRUMENTS Formal contracts of the Corporation, promissory notes, deeds, deeds of trust, mortgages, pledges, and other evidences of indebtedness of the Corporation, other corporate documents, and certificates of ownership of liquid assets held by the Corporation shall be signed or endorsed by the President or any Vice President and by the Secretary or the Treasurer, unless otherwise specifically determined by the Board of Directors or otherwise required by law. ARTICLE SIX - ISSUANCE AND TRANSFER OF SHARES 6.01 CLASSES AND SERIES OF SHARES The Corporation may issue one or more classes or series of shares, or both. Any of these classes or series may have full, limited, or no voting rights, and may have such other preferences, rights, privileges, and restrictions as are stated or authorized in the Articles of Incorporation. All shares of any one class shall have the same voting rights, conversion, redemption, and other rights, preferences, privileges, and restriction, unless the class is divided into series. If a class is divided into series, all the shares of any one series shall have the same voting rights, conversion, redemption, and other rights, preferences, privileges, and restrictions. There shall always be a class or series of shares outstanding that has complete voting rights except as limited or restricted by voting rights conferred on some other class or series of outstanding shares. - ------------------------------------------------------------------------------- BYLAWS, PAGE 17 6.02 CERTIFICATES FOR FULLY PAID SHARES Neither shares nor certificates representing shares may be issued by the Corporation until the full amount of the consideration has been received. When the consideration has been paid to the Corporation, the shares shall be deemed to have been issued and the certificate representing the shares shall be issued to the shareholder. 6.03 CONSIDERATION FOR SHARES Shares may be issued for consideration as may be fixed from time to time by the Board of Directors at not less than the par value stated in the Articles of Incorporation. The consideration paid for the issuance of shares shall consist of money paid, labor done, or property actually received, and neither promissory notes nor the promise of future services shall constitute payment nor partial payment for shares of the Corporation. 6.04 REPLACEMENT OF CERTIFICATES No replacement share certificates shall be issued until the former certificates for the shares represented thereby shall have been surrendered and canceled, except that replacements for lost or destroyed certificates may be issued, upon such terms, conditions, and guarantees as the Board may see fit to impose, including the filing of sufficient indemnity. 6.05 SIGNING CERTIFICATES - FACSIMILE SIGNATURES All share certificates shall be signed by the officer(s) designated by the Board of Directors. The signatures of the foregoing officers may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar, either of which is not the Corporation itself or an employee of the Corporation. If the officer who has signed or whose facsimile signature has been placed on the certificate has ceased to be such officer before the certificate issued, the certificate may be issued by the corporation with the same effect as if he or she were such officer on the date of its issuance. 6.06 TRANSFER AGENTS AND REGISTRARS The Board of Directors may appoint one or more transfer agents or transfer clerks, and one or more registrars, at such times and places as the requirements of the Corporation may necessitate and the Board of Directors may designate. Each registrar appointed, if any, shall be an incorporate bank or trust company, either domestic or foreign. - ------------------------------------------------------------------------------- BYLAWS, PAGE 18 6.07 CONDITIONS OF TRANSFER The party in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof as regards the Corporation, provided that whenever any transfer of shares shall be made for collateral security, and not absolutely, and prior written notice thereof shall be given to the Secretary of the Corporation, or to its transfer agent, if any, such fact shall be stated in the entry of the transfer. 6.08 REASONABLE DOUBTS AS TO RIGHT TO TRANSFER When a transfer of shares is requested and there is reasonable doubt as to the right of the person seeking the transfer, the Corporation or its transfer agent, before recording the transfer of the shares of on its books or issuing any certificate therefor, may require from the person seeking the transfer reasonable proof of that person's right to transfer. If there remains a reasonable doubt of the right to the transfer, the Corporation may refuse a transfer unless the person gives adequate security or a bond of indemnity executed by a corporate surety or by two individual sureties satisfactory to the Corporation as to form, amount, and responsibility of sureties. The bond shall be conditioned to protect the Corporation, its officers, transfer agents, and registrars, or any of them, against any loss, damage, expense, or other liability to the transfer or the issuance of a new certificate for shares. ARTICLE SEVEN - CORPORATE RECORDS AND FISCAL YEAR 7.01 MINUTES OF CORPORATE MEETINGS The corporation shall keep at the registered or principal office, or such other place as the Board of Directors may order, a book recording the minutes of all the meetings of its Directors and of its Shareholders, with the time and place of each meeting, whether such meeting was regular or special, a copy of the notice given of such meeting, or of the written waiver thereof, and, if special, how the meeting was authorized. The record book shall further show the names of those present at Directors' meetings, the number of shares present or represented at Shareholders' meetings, and the proceedings of all meetings. 7.02 SHARE REGISTER The Corporation shall keep at the registered or principal office, or at the transfer agent, a share register, showing the names of the Shareholders, their addresses, the number and class of shares issued by each, the number and date of certificates issued for such shares, and the number - ------------------------------------------------------------------------------- BYLAWS, PAGE 19 and date of cancellation of every certificate surrendered for cancellation. The above specified information may be kept on an information storage device such as electronic data processing equipment, provided that the equipment is capable of reproducing the information in clearly legible form for the purpose of inspection by any Shareholder, Director, Officer, or agent of the Corporation during regular business hours. If the Corporation elects taxation under Internal Revenue Code '1244 or Subchapter S, the officer issuing shares shall ensure the appropriate requirements regarding issuance of shares are maintained in effect. 7.03 BOOKS OF ACCOUNT The Corporation shall maintain correct and adequate accounts of its properties and business transactions, including accounts of its assets, liabilities, receipts, disbursement, gains, losses capital, surplus, and shares. The corporate bookkeeping procedures shall conform to accepted accounting practices for the business or businesses in which the corporation is engaged. Subject to the foregoing, the chart of financial accounts shall be taken from, and designed to facilitate preparation of, current corporate tax returns. Any surplus, including earned surplus, paid-in surplus, and surplus arising from a reduction of stated capital, shall be classified according to source and shown in a separate account. If the Corporation elects taxation under Internal Revenue Code '1244 or Subchapter S, the officers and agents maintaining the books of account and issuing shares shall ensure that the appropriate requirements are maintained in effect. 7.04 FISCAL YEAR The fiscal year of the Corporation shall be as determined by the Board of Directors and approved by the Internal Revenue Service. The Treasurer shall forthwith arrange a consultation with the Corporation's tax advisers, to determine if the Corporation is to have a fiscal year other than the calendar year. If so, the Treasurer shall file an election with the Internal Revenue Service as early as possible, and all correspondence with the I.R.S., including the application for the Corporation's Employer Identification Number, shall reflect such non-calendar year election. - ------------------------------------------------------------------------------- BYLAWS, PAGE 20 ARTICLE EIGHT - ADOPTION OF INITIAL BYLAWS The foregoing bylaws were adopted by the Board of Directors on November 13, 1998 to be effective August 7, 1995. /s/ Michael L. Moore --------------------- MICHAEL L. MOORE, Director Corporate Seal Attested to, and certified by: /s/ Michael L. Moore - -------------------- MICHAEL L. MOORE, Secretary BYLAWS1.1 - ------------------------------------------------------------------------------- BYLAWS, PAGE 21 EX-3.7 10 EXHIBIT 3.7 EXHIBIT 3.7 The State of Texas Secretary of State CERTIFICATE OF INCORPORATION OF M L C ENTERPRISES, INC. CHARTER NUMBER 01365098 THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY CERTIFIES THAT THE ATTACHED ARTICLES OF INCORPORATION FOR THE ABOVE NAMED CORPORATION HAVE BEEN RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM TO LAW. ACCORDINGLY, THE UNDERSIGNED, AS SECRETARY OF STATE, AND BY VIRTUE OF THE AUTHORITY VESTED IN THE SECRETARY BY LAW, HEREBY ISSUES THIS CERTIFICATE OF INCORPORATION. ISSUANCE OF THIS CERTIFICATE OF INCORPORATION DOES NOT AUTHORIZE THE USE OF A CORPORATE NAME IN THIS STATE IN VIOLATION OF THE RIGHTS OF ANOTHER UNDER THE FEDERAL TRADEMARK ACT OF 1946, THE TEXAS TRADEMARK LAW, THE ASSUMED BUSINESS OR PROFESSIONAL NAME ACT OR THE COMMON LAW. DATED AUG. 7, 1995 EFFECTIVE AUG. 7, 1995 Antonio 0. Garza, Jr., Secretary of State EX-3.8 11 EXHIBIT 3.8 EXHIBIT 3.8 ARTICLES OF AMENDMENT TO THE ARTICLES OF OF M L C ENTERPRISES, INC. Pursuant to the provisions of Article 4.04 of the Texas Business Corporation Act, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation: ARTICLE I The name of the corporation is M L C ENTERPRISES, INC. The Charter Number of the Corporation is 01365098. ARTICLE II The following amendment to the Articles of Incorporation was adopted by the shareholders of the corporation on November 13, 1998 changing the name of the corporation: BE IT RESOLVED, that the name of the corporation be changed from M L C ENTERPRISES, INC. to IDS FABRICATED SYSTEMS, INC. The amendment alters or changes Article 1 of the original Articles of Incorporation and the full text of each provision altered is as follows: "IDS FABRICATED SYSTEMS, INC." The amendment deletes a portion of Article 1 of the original Articles of Incorporation. The part that was deleted read as follows: "M L C ENTERPRISES, INC." ARTICLE III The following amendment to the Articles of Incorporation was adopted by the Shareholders of the corporation on November 13, 1998 changing the purpose clause of the corporation: BE IT RESOLVED, that the purpose clause of the corporation be changed from "The purpose for which the corporation is organized is to sell oil field equipment." to "The purpose for which the Corporation is organized is the transaction of any and all lawful business for which corporations may be incorporated under the Texas Business Corporation Act." 1 The amendment alters or changes Article III of the original Articles of Incorporation and the full text of each provision altered is as follows: "The purpose for which the Corporation is organized is the transaction of any and all lawful business for which corporations may be incorporated under the Texas Business Corporation Act." The amendment deletes a portion of Article III of the original Articles of Incorporation. The part that was deleted read as follows: "The purpose for which the Corporation is organized is to sell oil field equipment." ARTICLE IV The following amendment to the Articles of Incorporation was adopted by the Shareholders of the corporation on November 13, 1998 deleting Article 7 of the Articles of Incorporation. BE IT RESOLVED, that Article 7 be deleted from the Articles of Incorporation. The amendment deletes Articles 7 of the original Articles of Incorporation and the full text of the deleted Article 7 is as follows: The name and address of the individuals who are to be the shareholders of the Corporation are: Michael L. Cooper 444 East Medical Center Blvd #441 Webster, Tx. 77598 R.V. Wagoner 12714 Huntingwick Houston, Texas 77024 ARTICLE V The number of shares of the corporation outstanding at the time of such adoption was 1000; and the number of shares entitled to vote on the amendment was 1000. 2 ARTICLE VI The holders of all of the shares outstanding and entitled to vote on the amendments unanimously adopted the amendments at a special meeting held on November 13, 1998. Dated: November 13, 1998 M L C ENTERPRISES, INC. By: /s/ William A. Coskey ------------------------- WILLIAM A. COSKEY, President IDS\MLC\AOA.1 3 EX-3.9 12 EXHIBIT 3.9 EXHIBIT 3.9 THE STATE OF TEXAS SECRETARY OF STATE CERTIFICATE OF AMENDMENT FOR IDS FABRICATED SYSTEMS, INC. FORMERLY M L C ENTERPRISES, INC. CHARTER NUMBER 01365098 THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY CERTIFIES THAT THE ATTACHED ARTICLES OF AMENDMENT FOR THE ABOVE NAMED ENTITY HAVE BEEN RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM TO LAW. ACCORDINGLY THE UNDERSIGNED, AS SECRETARY OF STATE, AND BY VIRTUE OF THE AUTHORITY VESTED IN THE SECRETARY BY LAW, HEREBY ISSUES THIS CERTIFICATE OF AMENDMENT. DATED JAN. 7, 1999 EFFECTIVE JAN. 7, 1999 Alberto R. Gonzales, Secretary of State EX-10.24 13 EXHIBIT 10.24 EXHIBIT 10.24 FOURTH AMENDMENT TO LEASE AGREEMENT This Fourth Amendment to Lease Agreement ("First Amendment") is entered as of the 1st day of September, 1998 by and between 600 C.C. Business Park Ltd. ("Landlord") and Industrial Data Systems, Inc. ("Tenant"); RECITALS A. WHEREAS, 600 C.C. Business Park Ltd. as Landlord and Tenant entered a Lease executed on January 16, 1991 (the "Lease"), and which lease was amended by the First Amendment to Lease Agreement dated December 7, 1993, and the Second Amendment to Lease dated December 29, 1994, and the Third Amendment to Lease dated August 8, 1995 for certain premises known as Suite A-140, located at 600 Century Plaza Drive, Houston, Texas ("Leased Premises") described as consisting of a total leaseable area of 18,155 square feet; B. WHEREAS, Landlord and Tenant desire to modify the lease so as to modify certain terms and provisions outlined in the original Lease, the First Amendment to Lease, the Second Amendment to Lease, and the Third Amendment to Lease to allow for the extension of the lease term and to increase the square footage of the premises that the tenant will occupy under the terms and conditions of the original Lease, the First Amendment to Lease, the Second Amendment to Lease, the Third Amendment to Lease and this Fourth Amendment to Lease and; C. WHEREAS, Tenant and Landlord hereby agree that no other document has been executed or exchanged between the parties hereto other than the original Lease Agreement, the First Amendment to Lease, the Second Amendment to Lease, and the Third Amendment to Lease specified above and that there are no side letters or any oral agreements between the parties and; D. WHEREAS, Landlord and Tenant desire to enter into this Fourth Amendment, NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by Landlord and Tenant, Landlord and Tenant agree as follows: AGREEMENTS 1. The Lease for the Leased Premises is hereby agreed to be renewed and extended an additional twenty-four (24) month term. Therefore, the new lease expiration date shall be modified to be August 31, 2002. 2. Effective immediately upon full execution of this Fourth Amendment, Landlord and Tenant mutually agree to expand the "Leased Premises" by 2,370 square feet of leaseable area Page 1 of 3 ("Expansion Premises") making a total leaseable area of 20,525 square feet. (See Attached Exhibit "A" Site Plan and Expansion Premises). 3. Landlord and Tenant agree that the monthly base rental scheduled in the Original Lease, the First Amendment to Lease, the Second Amendment to Lease, and the Third Amendment to Lease shall be modified and scheduled as follows: September 1, 1998 - September 31, 1998: $ .44 per sf per month ($9,077.50 per month) October 1,1998 - August 31, 2000: $ .50 per sf per month ($10,262.50 per month) September 1, 2000 - August 31, 2002: $ .53 per sf per month ($10,878.15 per month)
4. COMMON AREA MAINTENANCE, TAXES, INSURANCE (OPERATING EXPENSES): Tenant shall be responsible for it's pro-rata share of any increases in these expenses (as defined in Sections 4, 7, 11, and 13 of the original lease) above a base year 1997. Effective September 1, 1998 Tenant's proportionate share shall change from 13.72% to 15.51%. 5. TENANT IMPROVEMENT ALLOWANCE: Landlord shall provide Tenant with an allowance of up to $12,000 for improvements to the 2,370 sf expansion space and any improvements required in the Tenant's 18,155 sf existing/current premises. Tenant shall be responsible for having the improvements to the premises performed by qualified contractors and Landlord shall pay to Tenant an amount equal to the cost of the improvements up to a maximum of $12,000. Tenant shall provide Landlord a list of all contractors/suppliers which will perform work at the Premises and copies of their appropriate insurance certificates prior to commencement of construction. EXCEPT as expressly provided herein, all other terms, covenants, and conditions of the lease shall remain the same and in full force and effect, and are hereby ratified by both parties. This Amendment shall be binding upon and inure to the benefit of Landlord and Tenant and their successors and assigns: however, this provision shall not permit any additional transfer or assignment of the Lease by Tenant which is otherwise limited by the terms of the Lease and this Amendment required by Landlord's consent. IN WITNESS WHEREOF, the parties have executed this Fourth Amendment to Lease as of the date first written above. Attachments: Exhibit "A" - Site Plan and Expansion Premises Page 2 of 3 Executed effective the 31 day of August 1998. LANDLORD TENANT - -------- ------ 600 C.C. BUSINESS PARK, LTD. INDUSTRIAL DATA SYSTEMS, INC. By: /s/ John W. Costello By: /s/ William A. Coskey ------------------------------ ---------------------------------- Name: John W. Costello Name: William A. Coskey ----------------------------- ---------------------------------- Title: General Partner Title: President --------------------------- -------------------------------- Page 3 of 3 EX-10.25 14 EXHIBIT 10.25 BUSINESS PARK LEASE ARTICLE ONE BASIC LEASE PROVISIONS Date: February 8, 1999 Landlord: d/b/a Wilshire Square Address of Landlord: Wilshire Square 7912 East 31st Court, Suite 200 Tulsa, Oklahoma 74145-1346 Tenant: IDS Engineering, Inc. Address of Tenant: 600 Century Drive, Building 140 Houston, Texas 77073 Address of Tenant at Wilshire Square: 11 08 East 51st Street Tulsa, Oklahoma 74146 Tenant's Trade Name: IDS Engineering, Inc., Size of Leased Premises: One Story Business Location containing approximately 5,400 square feet of ground area. (Article 2) Use of Premises by Tenant: Engineering Office (Article 4) Lease Term: 24 Lease Months plus a Partial Lease Month, if any prior to the first month. (Article 3) Commencement Date: February 10, 1999 (Article 3) Ending Date: February 28, 2001 (Article 3) Rental: 1. Minimum Rental: $ 72,184.82 for the term of the Lease payable in equal monthly installments of $ 2,925.00 subject to adjustment with the first month's installment due at the execution of the Lease. (Article 5) 2. Additional Rental: $ 2,700.00 Common Area Fee for the first year of the Lease payable in equal monthly installments of $ 225.00 subject to adjustment. (Article 6) Security Deposit: $ 2,925.00 due upon execution of Lease. Guarantor: None Broker: Tulsa Properties, Inc. - Matt Klimisch Expiration of Offer Date: February 28, 1999 (Article 26.1)
1.1 Each reference in this Business Park Lease (herein sometimes called "Lease") to any of the Basic Lease Provisions contained about shall be deemed and construed to incorporate all of the terms provided under each such Basic Lease Provision. 1.2 The exhibits enumerated in this Section and attached to this Lease are incorporated in this Lease by reference and are to be construed as part of this Lease. Exhibit "N" - Plot Plan of the Business Park Exhibit "B" - Legal Description of the Business Park Exhibit "C" - Description of Landlord's Work Exhibit "D" - Changes, Alterations and Modifications Exhibit "E" - Signage Specifications Exhibit "F" - Rules and Regulations ARTICLE TWO PREMISES, IMPROVEMENTS, POSSESION 2.1 The Leased Premises consist of a one-story space having square footage set out in Article One. The Premises are shown and outlined in red on the drawing identified as Exhibit "A", which is attached hereto and made a part hereof. The Premises are located within a portion of the Business Park buildings (the "Building") and upon a portion of certain real property (the "Property") situated in the City of Tulsa, Tulsa County, Oklahoma, which said real property is more particularly bounded and described in Exhibit "B", hereto annexed and made a part hereof. Should there exist a discrepancy between the exact dimensions of the Premises, as set forth on Exhibit "A", and the locations of the boundary walls of the Premises, as finally constructed, the actual physical location of the boundary walls shall control. In addition to the leased Premises, Tenant is hereby granted a license (the "License") for the non-exclusive use, in connection with the Tenant's permitted uses of the Premises, in common with Landlord and other licensees of Landlord, of the parking areas, roadways, service areas and sidewalks constructed on the Property as indicated approximately on said Exhibit "A". Said License shall be limited to the use for which such areas are intended and shall be subject to such reasonable rules and regulations as the Landlord may prescribe, from time to time, for the common benefit of Landlord and its licensees and of Tenant and other tenants of the Property. 2.2 Landlord shall deliver possession of the Premises to Tenant, and Tenant shall accept the Premises from Landlord, in their present condition as of the date hereof; provided, however, prior to delivery of possession of the Premises to Tenant, Landlord shall have made such repairs and improvements and shall, at Landlord's sole cost and expense, have substantially performed such work and installation of improvements to the Premises as are set forth as "Landlord's Work" in Exhibit "C", annexed hereto and made a part hereof. Any and all improvements to the Premises for the use of Tenant, other than Landlord's Work, shall be performed at Tenant's sole cost and expense, in accordance with Article Twenty-Two herein below contained. 2.3 In the event of any disagreement of dispute between Landlord and Tenant with reference to work to be performed with respect to the Premises pursuant to Exhibits "C" or "D", or with respect to whether or not the Premises are available for Tenant's modifications or Tenant's occupancy, the certification in writing upon an approved AIA form, of Landlord's supervising architect, Holmes and Bjornberg Architects, shall be conclusive and binding upon the parties hereto. ARTICLE THREE TERM AND TERMINATION 3.1 Landlord does hereby lease, let and demise the Premises to Tenant for the term specified in Article One above. Subject to the provisions hereof relating to making the Premises ready for occupancy, the Commencement Date and Ending Date shall be as specified in Article One. 3.2 Landlord agrees to exercise due diligence in making the Premises available for Tenant's use and occupancy and to deliver the Premises to Tenant not later than the Commencement Date specified in Article One above. However, should Landlord be unable to complete said Premises by said date, which delay in completion is due to any occurrence or eventuality outside the direct control of Landlord, the date of delivery of the Premises to Tenant shall be extended until such time as Landlord is able to substantially complete the Premises and the Commencement Date and Ending Date of the term of this Lease shall be adjusted to take into account the delay in making the premises available for Tenant's use and occupancy. Tenant agrees that no such delay shall be grounds for cancellation or alteration of the terms and conditions of this Lease unless such delay exceeds 45 days. In the event of any delay in delivery of the Premises to Tenant, Landlord shall not be subject to any liability for failure to give possession after said date. Tenant shall have thirty days after taking possession to notify Landlord of any deficiencies in the Premises. Failure of Tenant to so notify Landlord shall be conclusive evidence that the Premises were in good order and satisfactory condition when Tenant took possession, unless otherwise agreed in writing. 3.3 This Lease and the tenancy herein created shall cease and terminate at the end of the lease term set forth above or at the end of any period of extension or renewal as provided by written extension agreement or as otherwise provided herein without the necessity of any notice from either Landlord or Tenant to terminate the same. The Tenant hereby waives notice to vacate the Premises and agrees that Landlord shall be entitled to the benefit of all provisions of law respecting the summary recovery of possession of Premises from Tenant holding over without the consent of Landlord to the same extend as if a notice had been given. In the event Tenant holds over and beyond the term of this Lease, for any reason, without the express written consent of Landlord, Tenant shall be deemed a "hold over tenant" in violation of the terms of this Lease, and shall be subject to all covenants and conditions of this Lease Agreement, except however, that the minimum monthly rental installment during each month, or fractional part thereof, of continued occupancy shall be two hundred percent (200%) of the amount payable by Tenant as total rental during the last one (1) month of the lease term. If Tenant holds over and beyond the term of this Lease with the consent of Landlord, then, except as otherwise provided by written agreement, the tenancy of Tenant shall be a month-to-month tenancy at will, subject to all covenants and conditions of this Lease Agreement including the monthly rental installment provisions which shall be applied on a month-to-month basis. Thirty (30) days written notice (computed from the date of delivery of such notice) shall be required in order for either party to terminate the tenancy at will. ARTICLE FOUR USE OF THE PREMISES 4.1 The Premises shall be used by the Tenant solely for the purpose provided for in Article One above, and for no other use or purpose without the prior written consent of Landlord. 4.2 Tenant further covenants and agrees that its use and occupancy of the Premises shall strictly comply with and not involve any violation of any federal, state or municipal statute, rule, ordinance or zoning law or any regulation, rule or directive of any governmental or regulatory agency as may now exist or may hereafter exist concerning the use, operation or safety of the Premises. In addition, Tenant covenants and agrees to operate the Premises in conformance with the Rules and Regulations which are attached to this Agreement as Exhibit "F", and made a part hereof. Tenant shall not use the Premises or the building in which the Premises are contained for any purpose that will increase the insurance rate or risk of the building above that which is customary and normal for the uses set forth above and, in such event, Landlord, as an additional remedy for the violation of this provision, may elect to recover, as "Additional Rental" (defined below), the total cost of such increase from Tenant, without contribution of other tenants of the Business Park. (See Article 8.6.) 4.3 All damages to the Premises, the Common Areas or the building in which the Premises are contained, caused by Tenant's negligence, shall be repaired at Tenant's expense. Tenant shall not commit waste or allow waste to be committed on the Premises or the Common Areas. Tenant shall not perform any acts or carry on any practices which will constitute a nuisance or menace, or be offensive, to the other tenants or occupants or to the general public. Tenant shall keep the Premises, its use of the Common Areas and all its improvements in sound condition, in good repair and safe for the incidental use of its business invitees. 4.4 Tenant shall not make or permit any noise or odor that is objectionable to the public, to other tenants of the Business Park or to Landlord to emanate from the Premises and shall not create or maintain a nuisance thereon. Tenant shall not disturb, solicit or canvas the users of the Common Areas without the consent of Landlord and shall not do any act tending to injure the reputation of the Landlord or the Business Park. 4.5 Lessee shall not place or permit any radio antenna, loud speakers, sound amplifiers or any other thing or item on the exterior of the roof or outside of the building or the Premises. 4.6 Lessee shall not obstruct, encumber or use the parking areas, sidewalks, entrances, passages, vestibules, stairways, corridors and halls for any purpose other than ingress or egress to and from the Premises and for parking only in the delegated areas for such use. ARTICLE FIVE RENTAL 5.1 The total agreed rental (the "Rental") for the term of this Lease is the sum of: (i) the "Minimum Rental" (defined below) and (ii) the "Additional Rental" (defined below). 5.2 (a) The Minimum Rental for the lease term shall be in the amount provided in Article One. In the event the first day of the lease term shall not be the first day of a calendar month, then the rental for the first month of the term shall be prorated on a daily basis. (b) Tenant shall pay the Minimum Rental, in advance, in equal monthly installments as provided in Article One. (c) An amount equal to the first installment of Minimum Rental payment shall be paid by Tenant upon the execution of this Lease. Tenant will receive, on any prorated minimum rent due and for the first full month's minimum rent due a credit in an amount equal to this installment. Any minimum rental for the first full month under this Lease for which minimum rental is payable, after the application of the above described credit, will be due on or before the first day of the month to which it is applicable. other installments of the minimum rental payment shall be due on or before the first day of the month to which it is applicable and the rental obligation of Tenant shall be deemed delinquent if any given monthly installment is not received by Landlord on or before the fifth day of the month in which it is due. Any Additional Rental or Rental Adjustments which are not paid within five (5) days of when they are due shall be deemed delinquent. All rentals shall be paid by Tenant without any right of offset or deductions therefrom for any purpose. All rent is, and shall be, payable in legal tender at Landlord's address as set forth herein for notice or at such other address as Tenant may be directed from time to time by notice from Landlord. (Items 5.2(d) through 5.5 were stricken from the Lease Agreement at time of execution.) 5.6 The term "Additional Rental" shall include any cost, charge or expense of any kind whatsoever which is or may become payable and due to Landlord by Tenant in accordance with the terms, covenants and conditions of this Lease, excluding Minimum Rental. Additional Rental includes, but is not limited to, Tenant's Common Area Maintenance Fees (Article Six), Tenant's Proportionate Share of Excess Taxes (Article Seven) and Excess Premiums (Article Eight) and any and all Rental Taxes which are in existence or which may come into existence, and which are based upon or measured by the payment of Minimum Rental or items of Additional Rental other than said Rental Taxes. 5.7 Any installment of rent accruing under the provisions of this Lease that shall not be paid when due shall bear interest at the annual rate of three percent (3%) above the prime rate reported from time to time by the Wall Street Journal as the base rate on corporate loans at large U. S. Money Center commercial banks from the date when the same was payable by the terms hereof until the same shall be paid by Tenant. ARTICLE SIX COMMON AREA MAINTENANCE FEE 6.1 Tenant covenants and agrees to pay to the Landlord, in addition to the rentals specified in Article Five hereof, as Additional Rental, a Common Area Maintenance Fee payable in equal monthly installments as provided for in Article One. Landlord shall have the responsibility of Business Park's Common Area (defined below) specifically including, without limitation gardening and landscaping, lighting, removal of Common Area trash, rubbish, garbage and other refuse, parking lot cleaning, snow removal, outside window cleaning (monthly), Common Area utilities and lawn maintenance. "Common Area" means all areas and space provided by Landlord for the common use and joint use of the occupants of the Business Park and/or their employees, agents, servants and customers and other invitees, including, without limitation, parking area, access roads, driveways, retaining walls, interior store boundary walls, exterior walls and trim (but not store fronts), exterior utilities and service lines, landscaped areas, truck service ways loading docks, stairs, ramps and sidewalks. 6.2 Within one hundred twenty days following the end of the year 1999 and each year thereafter Landlord shall furnish Tenant a statement covering the calendar year just ended, certified as correct by a certified public accountant or an authorized representative of Landlord and showing the total Business Park Common Area Maintenance Costs and the amount of Tenant's share for such costs. If Tenant's share exceeds the Common Area Fee provided for in Article One, then Tenant's Common Area Fee will be increased to reflect the increase in the Common Area Maintenance Cost and will be payable as Additional Rental pursuant to Section 6.1 above. 6.3 Common Area Maintenance Fees will not escalate more than 5% of base rate for the term of the lease. ARTICLE SEVEN TAXES 7.1 Landlord agrees to pay all taxes, assessments and governmental charges of any kind and nature whatsoever (hereinafter collectively referred to as "Taxes") lawfully levied or assessed against the Business Park, including the buildings and the grounds, parking areas, driveways and alleys around the buildings, provided, however, that the maximum in taxes attributable to the Business Park to be paid by Landlord during any one real estate tax year shall be those taxes levied against the Business Park during the year 1999. If in any real estate tax year during the term of this Lease, or any renewal or extension of this lease, the taxes levied against the buildings and the grounds, parking areas, driveways and alleys around the buildings during such tax year shall exceed the amount levied during the year 1999. Tenant shall pay to Landlord as additional rental, Tenant's proportionate share of the amount of such excess ("Excess Taxes"). Tenant's proportionate share, as used herein, shall mean a fraction, the numerator of which is the floor area contained in the Premises as provided in Article One above and the denominator of which is the total contracted floor area in the Business Park. 7.2 At Tenant's request Landlord shall employ a tax consulting firm to attempt to assure a fair tax burden on the buildings and grounds within the applicable taxing jurisdiction. Tenant shall pay to Landlord upon demand from time to time, as additional rent, the amount of Tenant's proportionate share of the cost of such service. 7.3 Any payment to be made pursuant to this Article Seven with respect to the real estate tax year in any partial lease year shall be prorated. ARTICLE EIGHT INSURANCE 8.1 The Landlord agrees that it will keep the buildings in the Business Park of which the Premises is a part (excluding Tenant's improvements and the contents of the Premises) insured by standard form fire and extended coverage casualty insurance in an amount not less than eighty percent (80%) of the original cost thereof (excluding excavations, footings and foundations). 8.2 The Landlord agrees to maintain public liability insurance covering the Business Park of which the Premises is a part, it being understood that such coverage may not insure against the negligence of the Tenant. 8.3 Tenant will keep in force, at its own expense so long as this Lease remains in effect or during such other time as the Tenant occupies the leased Premises or any part thereof, public liability insurance with respect to the leased Premises with minimum limits of One Million Dollars ($1,000,000.00) on account of bodily injury or death of one person, and One Million Dollars ($1,000,000.00) on account of bodily injuries or death of more than one person as a result of any one accident or disaster; and property damage insurance at the minimum limits of 2,000,000. Tenant shall cause Landlord to be named as an additional insured party thereon. Insurance coverage, as provided, shall be issued by insurance companies licensed to do business in the State of Oklahoma with a Best's rating of "A" or better. Tenant shall deliver to the Landlord a certificate or certificates of insurance of all such insurance coverage, a copy of all such insurance policies and proof of payment of annual premiums. 8.4 Landlord shall insure at its sole cost and expense any and all plate and other glass damaged or broken from any cause whatsoever in and about the Premises. 8.5 Tenant agrees that it will not keep, use, sell or offer for sale in or upon the Leased Premises any article which may be prohibited by the standard from of fire insurance policy. Tenant agrees to pay any increases in premiums for fire and extended coverage insurance that may be charged during the Lease Term on the amount of such insurance which may be carried by Landlord on the Premises or the Business Park, resulting from the type of materials kept or stored by Tenant in the Premises, whether or not Landlord has consented to the same. In determining whether increased premiums are the result of Tenant's use of the Premises, a schedule, issued by the organization making the insurance rate on the Premises, showing the various components of such rate, shall be conclusive evidence of the several items and charges which make up the fire insurance rate on the Premises. 8.6 In the event Tenant's occupancy causes any increase of premium for the fire and/or casualty rates on the Premises or Business Park or any part thereof above the rate for the least hazardous type of occupancy legally permitted in the Premises, the Tenant shall pay the additional premium on the fire, and/or casualty insurance policies by reason thereof. The Tenant also shall pay, in such event, any additional premium on the rent insurance policy that may be carried by the Landlord for its protection against rent loss through fire. Bills for such additional premiums shall be rendered by Landlord to Tenant at such times as Landlord may elect, and shall be due from, and payable by, Tenant when rendered, and the amount thereof shall be deemed to be, and be paid as, additional rent. 8.7 If during the year 1999, or during any subsequent year of the primary term or any renewal or extension, Landlord's cost of maintaining the insurance provided for in this Article shall exceed Landlord's cost of maintaining such insurance for the year 1999. Tenant agrees to pay to Landlord, as additional rental, Tenant's full Proportionate Share, as defined in Paragraph 7.1 above, of such excess ("Excess Premiums"). 8.8 Any payment to be made pursuant to this paragraph with respect to a partial lease year shall be subject to a pro rata adjustment based on the ratio of the partial lease year to a full lease year. ARTICLE NINE DEFAULT 9.1 In the event of a default, as herein described, on the part of the Tenant, Landlord shall have the following remedies which shall be cumulative and shall not exclude any other right or remedy given to Landlord as Landlord under the laws of the State of Oklahoma. 9.2 If Tenant shall file a petition in voluntary bankruptcy or be adjudged bankrupt in involuntary proceedings or make all assignment for benefit of creditors or like arrangements or composition or file a petition in the federal court for reorganization or otherwise seek relief under the Code of Bankruptcy of the United States of America or files for the appointment of a receiver or trustee or discontinues business in the Premises for any reason whatsoever, except as otherwise permitted by this Lease, such is to be considered a default under this Lease and Landlord, without further notice or demand and either with or without entry upon Premises, at its discretion at anytime thereafter, may elect to terminate Tenant's rights under this Lease and thereafter be entitled to recover damages in the amount equal to the then present value of the then remaining and unpaid portion of the Minimum Rental for the remaining and unexpired portion of the term of this Lease. Said present value shall be calculated using a discount factor equal to the then cost of funds published by the Eleventh District Federal Home Loan Bank; and/or 9.3 Upon the following events of default by Tenant: (a) The payment of any Rental not being made upon the day the same shall become due and same remains unpaid for five (5) days after written notice from Landlord to Tenant of such nonpayment of Rental. (b) The neglect, failure or refusal by the Tenant in the performance of any of the other terms, conditions or covenants of this Lease by said Tenant to be performed, and the continued neglect, failure or refusal for a period of ten (10) days after the service of written notice of such default by the Landlord on Tenant; then the Landlord may enter into and upon the Premises or any part thereof and repossess the same with or without terminating this Lease and, without prejudice to any of its remedies for rent or breach of covenant and in any such event, may, at its option: (i) terminate said Lease by giving written notice of its election to so do, or may, at its option, (ii) lease the Premises or any part thereof as the agent of the Tenant, or otherwise, or may, at its option, (iii) accelerate to the entire remaining unpaid balance of Minimum Rental, in which event the then present value of the entire unpaid balance of Minimum Rental shall be immediately due and payable as similarly provided in Article 10.2 below. In the event of any such re-letting, as described in (ii) above, the Tenant shall, without demand or further process of law, pay to Landlord at the end of each month during the full term of this Lease, the deficiency of the net Minimum Rental. 9.4 Landlord shall, in addition thereto, have a lien against all merchandise, fixtures, furniture, equipment or other personal property located in the Premises for the payment of rents or other amounts due hereunder. 9.5 In the event of breach or Rental default as provided herein, Landlord shall be entitled to common law and statutory (Oklahoma) remedy of distraint and Landlord shall be entitled to the immediate possession of the Premises and may sell and dispose of the leasehold, as well as the property of the said Tenant, at public auction. Tenant hereby acknowledges that this is a lease for business purposes only and does, by these presents, waive any rights granted to Tenant pursuant to any statutes of the State of Oklahoma. Tenant shall be liable to Landlord for all sums remaining unpaid in the event of such a sale and all of the expenses incident to the collection thereof, including reasonable attorney's fees. ARTICLE TEN FIRE OR OTHER CASUALTY 10.1 If the Premises (excluding Tenant improvements or contents of the Premises) shall be damaged by fire or other risk covered by standard form fire and extended coverage casualty insurance and is not thereby rendered untenantable, in whole or in part, Landlord shall promptly, upon receipt of insurance proceeds, cause such damage to be repaired and the rent shall not be abated; if, by reason of such occurrence, the Premises shall be rendered untenantable only in part, the Landlord shall promptly, upon receipt of insurance proceeds, cause the damage to be repaired and the minimum rent, meanwhile, shall be abated proportionately as to the portion of the Premises rendered untenantable; if, by reason of such occurrence, the Premises should be rendered wholly untenantable, the Landlord shall promptly, upon receipt of insurance proceeds, cause such damage to be repaired, and the minimum annual rent, meanwhile, shall be abated in whole; provided, however, if the leased Premises shall be damaged, whether or not from a risk of the type covered by Landlord's fire and extended coverage casualty insurance, to the extent that such damage is fifty percent (50%) or more of the then replacement cost of the leased Premises, then, in such event, the Landlord shall have the right, at Landlord's option, to declare this Lease canceled by giving appropriate written notice to the Tenant within thirty (30) days first following said occurrence, whereupon this Lease Agreement and tenancy hereby created shall cease as of the date of damage occurrence, all rentals to be adjusted as of such date. The obligation of Landlord, where such obligation exists under the foregoing sentence, to repair damages shall be limited to repair and restoration of the damaged portion of the Premises to substantially the condition of the Premises as existed upon delivery of possession of the Premises to Tenant at the commencement of the term of this Lease, is modified by ordinary wear and tear preceding such damage. If the Premises shall be damaged, whether, or nt from a risk of the type covered by Landlord's fire and extended coverage insurance, provided such damage was not caused by the negligent or willful acts of the Tenant, and is thereby rendered untenantable, wholly or in part, following which the Landlord is unable to repair the Premises within 120 days after receipt by the Landlord of the insurance proceeds, then, in such event, the Tenant shall have the right, at Tenant's option, to declare this Lease canceled by giving appropriate written notice to the Landlord within ten (10) days first following said 120 day period, following which this Lease Agreement and tenancy hereby created shall cease as of the date of such notice. 10.2 It is further understood and agreed that, if fifty percent (50%) or more of the gross floor area of the building of the Business Park wherein the Premises are located (whether or not the Premises are damaged) are rendered untenantable by fire or other casualty, following which the Landlord does not elect to commence restoration of said damages within sixty (60) days after such occurrence of damages, then, in such event, the Landlord shall have the option right to declare this Lease canceled by giving appropriate written notice, within thirty (30) days first following said sixty (60) day period, following which this Lease Agreement and tenancy hereby created shall cease as of the last day of the next full calendar month first following the date of such termination notice. ARTICLE ELEVEN REPAIRS AND MAINTENANCE 11.1 Landlord will keep the exterior, including the roof and structural portions of the Premises, except doors in good repair; provided, however, Landlord shall not be responsible for the repair of any damage that shall be caused by the negligence of the Tenant or its agents, servants, employees, assignees, sublessees, contractors, customers, or invitees. The Landlord agrees to keep in good repair and to maintain, to the extent reasonably necessary and consistent with good business practices, the Common Area of the Business Park, to keep the same reasonably free from debris and to illuminate such areas adequately. Landlord shall be under no other liability for repair, maintenance, alteration or other action with reference to the Premises or any part thereof, or any plumbing, heating, electrical, air conditioning or other mechanical installation therein, except as otherwise provided by Article Eleven of this Lease Agreement relating to repair of damage from a casualty. Landlord shall be responsible for all repair in excess of $250.00 per occurrence. 11.2 Landlord agrees to provide and maintain the necessary mains, feeders, ducts and conduits within the Business Park in order to bring gas and electricity up to the boundary of the Premises; it being understood that all means of distribution of such services within the Premises shall be maintained by the Tenant at the Tenant's expense. 11.3 Tenant hereby agrees to keep the interior of the Premises, including any doors, together with all lighting, electrical, plumbing, heat, ventilating and air conditioning systems and other mechanical installations therein, in good order and repair and will make all replacements thereto at its own expense. Tenant will surrender the leased Premises at the expiration of the term or at such other time as it may vacate the Premises in as good a condition as when received, excepting depreciation caused by ordinary wear and tear and damage by other causes not required hereunder to be repaired by Tenant. 11.4 Landlord agrees that on all new interior construction, the normal contractor and equipment warranties will inure to the benefit of Tenant. ARTICLE TWELVE UTILITIES 12.1 All utility services except for water and sewage services, used by the Tenant in connection with the occupancy of the Premises, shall be paid by Tenant directly to the provider of such services, and the Tenant shall keep all bills for such services current as they come due. Tenant hereby indemnities and agrees to save Landlord harmless from all such liability for said services. In the event Tenant fails to pay for any such services as and when they come due, Landlord may elect to pay same and charge Tenant, as Additional Rental, the amounts paid. It is understood that utility services, excluding water and sewage, have been designed for separate metering and that Tenant will provide such deposits, if any, as may be required by any utility company in order to cause commencement of utility services to the Premises occupied by Tenant. Water and sewage services for the Premises shall be provided through a Landlord's common use meter at Landlord's expense. In no event shall Landlord be liable for an interruption or failure in the supply of water and sewage services to the Premises. Water and sewage service shall be paid for by Landlord. Tenant will be billed periodically for its pro rata share of these charges as Additional Rental. ARTICLE THIRTEEN SIGNS AND ADVERTISING 13.1 Tenant will not place or suffer to be placed or maintained on the exterior of the Premises any sign, advertising matter or other thing of any kind, and will not place or maintain any decoration, lettering or advertising matter on the door or any glass of the Premises without first obtaining the Landlord's written approval thereof. The cost of all signage of any kind whatsoever shall be borne by Tenant, unless otherwise provided herein. Upon the installation or removal of any signs or advertising matter, Tenant shall, at its sole expense, repair any damages to the Building or to the Common Usage Areas occasioned by such installation or removal, including restorations occasioned thereby. Any sign or advertising matter placed or maintained by Tenant will be in conformance with the provisions of Exhibit "E" attached hereto and made a part hereof. 13.2 The Landlord reserves the right to place any sign or advertisement on the Building or the Common Usage Areas as it desires and to place restrictions on the sources furnishing sign painting, lettering or construction, and on the appearance of such signage. ARTICLE FOURTEEN ASSIGNMENTS OR SUBLETTING 14.1 Tenant will not assign this Lease, in whole or in part, nor sublet all or any part of the Premises without the prior written consent of the Landlord being first obtained, which consent shall not be unreasonably withheld. Any such assignment or subletting shall not affect or relieve the Tenant from any of its obligations under this Lease, including, without limitation, the obligations to pay the Rentals when due and the obligations of Tenant to perform all of its covenants hereunder. The terms "assign" and "sublet" shall be construed to include assignment or subletting by operation of law. 14.2 If at any time during the Lease Term, any part, or all, of the corporate shares of Tenant shall be transferred by sale, assignment, bequest, inheritance, operation of law or other disposition so as to result in a change in the present effective voting control of Tenant by the person, or persons, owning a majority of said corporate shares on the date of this Lease, Tenant shall promptly notify Landlord in writing of such change and Landlord may terminate this Lease at any time after such change in control by giving Tenant thirty (30) days' prior written notice of such termination. ARTICLE FIFTEEN PARKING AREAS 15.1 Landlord reserves the right to designate in its sole discretion, certain portions of the Common Area to be used as parking areas for the exclusive use of certain tenants and/or their business invitees and to designate other portions of the Common Area to be used as parking areas for the general use of all the tenants of the Business Park and their business invitees. ARTICLE SIXTEEN INSPECTION 16.1 Landlord or Landlord's agents shall have the right to enter the Premises during normal business hours to examine the same and to show them to prospective purchasers, mortgagees or tenants of the Landlord or to make such decorations, repairs, alterations, improvements or additions as the Landlord may deem necessary or desirable. 16.2 In the event of an emergency, Landlord or Landlord's agent may enter the Premises using whatever means is reasonable under the circumstances to accomplish such entry. 16.3 Tenant shall, upon termination of the Lease or of Tenant's possession, surrender all keys of the Premises to Landlord at the place then fixed for the payment of rent and shall make known to Landlord the explanation of all combination locks on safes, cabinets and vaults in the Premises. ARTICLE SEVENTEEN SUBORDINATION TO MORTGAGE 17.1 At the option of the holder of any present or future mortgage of the land and buildings of which the Premises are a part, this Lease shall be subject and subordinate to such mortgage to the full extent of all sums and amounts secured thereby and, at the request of Landlord or Landford's mortgagee, without any way diminishing or negating the effectiveness of the subordination provided for herein, Tenant shall execute any instruments or documents that may be deemed necessary or proper by counsel for Landlord or Landlord's mortgagee to effect such subordination; provided, however, that, at such time as any subordination is requested, Landlord shall furnish Tenant evidence that Tenant shall have the right to remain in possession of the Premises under the terms of this Lease, notwithstanding any default in such mortgage or trust deed or after foreclosure thereof, so long as Tenant is not in default under any of the covenants, conditions and agreements contained in this Lease. In the event any proceedings are brought for the foreclosure of any mortgage on property on which the Premises is located, Tenant will attorn to the purchase at a foreclosure sale and recognize the purchaser as Landlord under the Lease. 17.2 At Landlord's request, Tenant will execute either an estoppel certificate addressed to Landlord's mortgagee or any prospective successor of Landlord or a three-party agreement among Landlord, Tenant and said mortgagee or successor, certifying to such facts (if true) regarding the status and terms of this Lease as may be requested and agreeing to such notice provisions and other matters as such mortgagee or successor may reasonably require in connection with Landlord's financing or the conveyance of the Building. ARTICLE EIGHTEEN WARRANTY, COMPLIANCE WITH LAWS 18.1 The Landlord covenants and warrants that it has full right, power and authority to enter into this Lease for the term herein granted and that, as of the date hereof, the said Premises may be used by Tenant for the purposes herein set forth. The Tenant agrees, during its occupancy of the Premises, to promptly execute, observe and comply with all present and future laws, ordinances, rules, requirements and regulations of any federal, state, county, city or any other governmental agency and of any or all of their respective several departments, offices and bureaus affecting the Premises. ARTICLE NINETEEN NOTICES 19.1 For all purposes hereunder, the addresses of the parties hereto are as follows: Landlord: Wilshire Square c/o Tulsa Properties Management, Inc. 7912 East 31st Court, Suite 200 Tulsa, Oklahoma 74145-1346 Tenant: At address shown in Article One. 19.2 The parties hereto shall have the right, from time to time, to designate different addresses than those above set forth by giving written notice to the other party designating such new address. 19.3 Any notice to be given by either party to the other shall be in writing and shall be deemed to have been served upon the party to whom it shall be directed: (i) as of the date of deposit in the United States mail, postage prepaid, certified or registered mail, addressed to such party at the address above given, or at such other address as such party may, from time to time, designate in accordance with the provisions hereof or (ii) as of the date of hand delivery to the Landlord or Tenant as the case may be. ARTICLE TWENTY PREMISES ALTERATIONS 20.1 The Tenant shall have the right, at any time and from time to time during the term of this Lease, to make such changes and alterations to the interior of the Premises as the Tenant shall deem necessary or desirable in connection with the requirements of the Tenant's business; provided, however: (a) no change or alteration shall weaken, either temporarily or permanently, the structure of the Premises nor, when completed, shall be of such a character as to: (1) affect adversely the value of the Premises; (2) materially reduce the cubic content of said Premises; or (3) diminish the general utility of the Premises; and (b) no change or alteration involving a reasonably estimated (by the Landlord) cost of more than Five Thousand Dollars ($5,000.00) (excluding trade fixtures) shall be undertaken except pursuant to the provisions contained in Exhibit "D" attached hereto. Tenant shall not make any changes or alterations to the exterior of the Premises and shall not make any penetrations in the roof or demising walls of the Premises, regardless of the estimated cost thereof, without the prior written consent of Landlord in each, such occasion obtained. 20.2 All alterations and improvements of said Premises by Tenant shall be and become a part of the real estate, except such machinery, equipment, appurtenances, furnishings and fixtures placed therein by Tenant as trade equipment and fixtures. ARTICLE TWENTY-ONE INDEMNIFICATION 21.1 Except as to injury, death or property damage proximately caused by the negligence of Landlord for which Landlord is legally liable, Tenant agrees to indemnify and hold Landlord harmless from all claims, suits, actions, damages, liability and claims (including costs and expenses of defending against all of the aforesaid) arising (or alleged to arise) from any act or omission of Tenant or Tenant's agents, employees, assignees, sublessees, contractors, customers or invitees, or arising from any injury to or death of any person or persons or damage to or destruction of the property of any person or persons occurring at the Premises, and Common Areas attendant thereto, and Tenant assumes responsibility for the condition of the Premises and agrees to give Landlord written notice in the event of any damage, defect or disrepair therein. 21.2 Tenant agrees to use and occupy the Premises and place its fixtures, equipment, merchandise and other property thereon at its own risk and hereby releases Landlord and its agents from all claims for any damage or injury to the full extent permitted by law. Tenant agrees that Landlord shall not be responsible or liable to Tenant, or those claiming under Tenant, for any injury, death or damage or loss occasioned by the acts or omissions of persons occupying any part of the Premises or, occasioned by the condition of the Premises, the upkeep for which Tenant is responsible under the terms of this Lease. ARTICLE TWENTY-TWO SECURITY DEPOSIT 22.1 Tenant, contemporaneously with the execution of this Lease, will deposit with Landlord a security deposit in the sum provided for in Article One, receipt of which is hereby acknowledged by Landlord. Said deposit shall be held by Landlord, without liability for interest, as security for the faithful performance by Tenant of all of the terms, covenants, and conditions of this Lease by said Tenant to be kept and performed during the Lease Term. At the end of the Lease Term or upon any earlier termination of the lease, Landlord shall return the deposit to Tenant, less any portion thereof needed to compensate Landlord for damages other than those caused by normal wear and tear. ARTICLE TWENTY-THREE CONDEMNATION 23.1 Should so much of the Premises be condemned for public or quasi-public use so as to render the Premises untenantable for Tenant's use under this Lease, then either Landlord or Tenant, upon written notice to the other within 20 days of the taking date, shall be entitled to terminate this Lease and upon such termination, the rent shall be adjusted to the date of termination. 23.2 The Tenant shall have no claim against the Landlord for the value of any unexpired term of the Lease and no right or claim to any part of any condemnation award for any reason related to the Premises or this Lease, except that the Tenant shall be entitled in any such condemnation proceeding to prove and collect damages, if any, for the taking of its trade fixtures that are not part of the realty. The provisions of the foregoing paragraphs shall apply whether or not the Lease is terminated as aforesaid. ARTICLE IWENTY-FOUR MISCELLANEOUS PROVISIONS 24.1 OFFER AND ACCEPTANCE. The submission of this "Lease Agreement" for examination does not constitute agreement between the parties hereto. This document becomes effective only upon execution and delivery thereof by Landlord and Tenant on or before the Expiration of Offer Date provided for in Article One, failing which no reservation or option shall later exist to complete this "Lease Agreement". 24.2 RENT TAX. If, at any time during the term of this Lease or any extension thereof, a tax or excise on rents is levied or assessed against Landlord by a lawful taxing authority on account of Landlord's interest in this Lease or the rents or other charges reserved hereunder, Tenant agrees to pay to Landlord, upon demand, as Additional Rent under Article 5.4 hereof, the amount of such tax or excise. In the event any such tax or excise is levied or assessed directly against Tenant, the Tenant shall be responsible for and shall pay the same at such times and in such manner as the taxing authority shall require. 24.3 RECORDING. Tenant shall not record this Lease without the prior written consent of the Landlord. However, Tenant and Landlord, upon the request of either, agree to execute and deliver a memorandum of this Lease in recordable form for the purposes of recordation at Tenant's expense. 24.4 TIME. Time is of the essence of this Lease. 24.5 ENTIRE AGREEMENT. This instrument (including all attachments hereto) constitutes the entire agreement between Landlord and Tenant and the same may not be amended or modified orally. 24.6 SUCCESSORS. This Lease shall inure to the benefit of and be binding upon Landlord and Tenant, their successors and assigns (or heirs, executors and administrators, as the case may be) subject to the terms, covenants and conditions stated. In the event of the assignment of this Lease by Landlord, Tenant agrees to attorn to the rights of the assignee. 24.7 CONSTRUCTION OF LEASE (a) The term "Landlord", as herein used, means and includes the named Landlord, its successors and assigns, and the term "Tenant," as herein used, means and includes the named Tenant, its successors and any assignees to whom this Lease may be validly assigned as hereinabove provided, and all of the terms and provisions of this Lease shall be binding on and inure to the benefit of such successors and assigns. (b) This Lease shall be governed by and enforced in accordance with the laws of the State of Oklahoma. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed on the day and year first above written. LANDLORD D/B/A WILSHIRE SQUARE, BY ITS AGENT, TULSA PROPERTIES MANAGEMENT, INC. By: /s/ Lori Bryant Donovan ----------------------------------- Lori Bryant Donovan, President TENANT IDS ENGINEERING, INC. By: /s/ William A. Coskey --------------------- Name: William A. Coskey Title: President ATTEST: /s/ Hulda L. Coskey - ------------------- Secretary 14 EX-10.26 15 EXHIBIT 10.26 Exhibit 10.26 INDUSTRIAL LEASE -NET-NET-.NET- 1. PARTIES. This Lease, dated, for reference purposes only, NOVEMBER 5, 1997 is made by and between TRUST MANAGEMENT COMPANY (herein called "Landlord") and MLC ENTERPRISES INC. dba MARINE & INDUSTRIAL SUPPLY (herein called "Tenant"). 2. PREMISES. Landlord hereby leases to Tenant and Tenant leases from Landlord for the term, at the rental, and upon all of the conditions set forth herein, that certain real property situated in the City of HOUSTON, County of HARRIS, State of TEXAS, commonly known as 10913 METRONOME, HOUSTON, TEXAS 77043 and described as a 12,650 square foot office/warehouse building situated on approximately 25,000 square feet of land. Said property, including the land and all improvements thereon, is herein called "the Premises". 3. TERM. 3.1 TERM. The term of this tease shall be for THREE (3) YEARS, commencing on I DECEMBER 1997 and ending on 30 NOVEMBER 2000 unless sooner terminated pursuant to any provision hereof. 4. RENT. 4.1 Tenant shall pay to Landlord as rent for the Premises equal monthly installments of THREE THOUSAND SEVEN HUNDRED NINETY-FIVE AND NO 100 DOLLARS ($3,795.00), in advance, on the FIRST day of each month of the term hereof. Tenant shall pay Landlord upon the execution hereof the sum of SEVEN THOUSAND FIVE HUNDRED NINETY AND N01100 DOLLARS ($7,590.00) as rent for THE FIRST AND LAST MONTHS HEREOF. Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the monthly installment. Rent shall be payable without notice or demand and without any deduction, offset, or abatement in lawful money of the United States of America to Landlord at the address stated herein or to such other persons or at such other places as Landlord may designate in writing. 4.2 ADDITIONAL CHARGES. This Lease is what is commonly called a "net lease", it being understood that Landlord shall receive the rent set forth in Article 4.1 free and clear of any and all impositions, taxes, real estate taxes, liens, charges or expenses of any nature whatsoever in connection with the ownership and operation of the Premises. In addition to the rent reserved by Article 4.1, Tenant shall pay to the parties respectively entitled thereto all impositions, insurance premiums, operating charges, maintenance charges, construction costs, and any other charges, costs and expenses which arise or may be contemplated under any provisions of this Lease during the term hereof. All of such charges, costs and expenses shall constitute additional charges, and upon the failure of Tenant to pay any of such costs, charges and expenses, Landlord shall have the same rights and remedies as otherwise provided in this Lease for the failure of Tenant to pay rent. It is the intention of the parties hereto that this Lease shall not be terminable for any reason by the Tenant and that the Tenant shall in no event be entitled to any abatement of or reduction in rent payable hereunder, except as herein expressly provided. Any present or future law to the contrary shall not alter this agreement of the parties. Page 1 5. SECURITY DEPOSIT. Tenant shall deposit with Landlord upon execution hereof the sum of NONE ($-O-) Dollars as security for Tenant's faithful performance of Tenant's obligations hereunder. If Tenant fails to way rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Landlord may use, apply or retain all or any portion of said deposit for the payment of any rent or other charges in default or for the payment of any other sum to which Landlord may become obligated by reason of Tenant's default, or to compensate Landlord for any loss or damage which Landlord may suffer thereby. If Landlord so uses or applies all or any portion of said deposit, Tenant shall within ten (10) days after written demand therefor deposit cash with Landlord in an amount sufficient to restore said deposit to the full amount hereinabove stated and Tenant's failure to do so shall be a breach of this Lease, and Landlord may at his option terminate this Lease. Landlord shall not be required to keep said deposit separate from its general accounts. If Tenant performs all of Tenant's obligations hereunder, said deposit or so much thereof as had not theretofore been applied by Landlord, shall be returned, without payment of interest or other increment for its use, to Tenant (or, at Landlord's option, to the last assignee, if any, of Tenant's interest hereunder) within fifteen (15) days after the expiration of the term hereof, or after Tenant has vacated the Premises, whichever is later. 6. USE. 6.1 USE. The Premises shall be used and occupied only for ANY LEGAL BUSINESS. 6.2 COMPLIANCE WITH LAW. Tenant shall, at Tenant's expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders and requirements in effect during the term or any part of the term hereof regulating the use by Tenant of the Premises. Tenant shall not use or permit the use of the Premises in any manner that will tend to create waste or a nuisance, or, if there shall be more than one tenant of the building containing the Premises, which shall tend to unreasonably disturb such other tenants. 6.3 CONDITION OF PREMISES. Tenant hereby accepts the Premises in their condition existing as of the date of possession hereunder, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Tenant acknowledges that neither Landlord nor Tenant's agent has made any representation or warranty as to the suitability of the Premises for the conduct of Tenant's business. 6.4 INSURANCE CANCELLATION. Notwithstanding the provisions of Article 6.1 hereinabove, no use shall be made or permitted to be made of the Premises nor acts done which will cause the cancellation of any insurance policy covering said Premises or any building of which the Premises may be a part, and if Tenant's use of the Premises causes an increase in said insurance rates Tenant shall pay any such increase. 6.5 LANDLORD'S RULES AND REGULATIONS. Tenant shall faithfully observe and comply with the rules and regulations that Landlord shall from time to time promulgate. A copy of said rules and regulations is attached hereto. Landlord reserves the right from time to time to make all reasonable modifications to said rules and regulations. The additions and modifications to said rules and regulations shall be binding upon the Tenant upon delivery of a copy of them to Tenant. Landlord shall not be responsible to Tenant for the nonperformance of any of said rules and regulations by any other tenants or occupants. Page 1 7. MAINTENANCE, REPAIRS AND ALTERATIONS. 7.1 TENANT'S OBLIGATIONS. Tenant shall, during the term of this Lease, keep in good order, condition and repair, the Premises and every part thereof, structural or non-structural, and all adjacent sidewalks, landscaping, driveways, parking lots, fences and signs located in the areas which are adjacent to and included with the Premises. Landlord shall incur no expense nor have any, obligation of any kind whatsoever in connection with maintenance of the Premises, and Tenant expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Tenant the right to make repairs at Landlord's expense or to terminate this Lease because of Landlord's failure to keep the Premises in good order, condition and repair. 7.2 SURRENDER. On the last day of the term hereof, or on any sooner termination, Tenant shall surrender the Premises to Landlord in good condition, broom clean, ordinary wear and tear excepted. Tenant shall repair any damage to the Premises occasioned by its use thereof, or by the removal of Tenant's trade fixtures, furnishings and equipment pursuant to Article 7.4(c), which repair shall include the patching and filling of holes and repairs of structural damage. 7.3 LANDLORD'S RIGHTS. If Tenant fails to perform Tenant's obligations under this Article 7, Landlord may at its option (but shall not be required to) enter upon the Premises, after ten (10) days' prior written notice to Tenant, and put the same in good order, condition and repair, and the cost thereof together with interest thereon at the rate of ten (10%) percent per annum shall become due and payable as additional rental to Landlord together with Tenant's next rental installment. 7.4 ALTERATIONS AND ADDITIONS. (a) Tenant shall not, without Landlord's prior written consent, make any alterations, improvements, or additions, in, on or about the Premises, except for non-structural alterations not exceeding $1,000 in cost. As a condition to giving such consent, Landlord may require that Tenant remove any such alterations, improvements, additions or utility installations at the expiration of the term, and to restore the Premises to their prior condition. (b) Before commencing any work relating to alterations, additions and improvements affecting the Premises, Tenant shall notify Landlord in writing of the expected date of commencement thereof. Landlord shall then have the right at any time and from time to time to post and maintain on the Premises such notices as Landlord reasonably deems necessary to protect the Premises and Landlord from mechanics' liens, materialmen's liens or any other liens. In any event, Tenant shall pay, when due, all claims for labor or materials furnished to or for Tenant at or for use in the Premises. Tenant shall not permit any mechanics, or materialmen's liens to be levied against the Premises for any labor or material furnished to Tenant or claimed to have been furnished to Tenant or to Tenant's agents or contractors in connection with work of any character performed or claimed to have been performed on the Premises by or at the direction of Tenant. (c) Unless Landlord requires their removal, as set forth in Article 7.4 (a), all alterations, improvements or additions which may be made on the Premises, shall become the property of Landlord and remain upon and be surrendered with the Premises at the expiration of the term. Notwithstanding the provisions of this Article 7.4(c), Tenant's machinery, equipment and other trade fixtures other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, shall Page 1 remain the property of Tenant and may be removed by Tenant subject to the provisions of Article 7.2. Page 1 8. INSURANCE; INDEMNITY. 8.1 INSURING PARTY. As used in this Article 8, the term "insuring party" shall mean the party who has the obligation to obtain the insurance required hereunder. The insuring party in this case shall be designated in Article 20. Whether the insuring party is the Landlord or the Tenant, Tenant shall, as additional rent for the Premises, pay the cost of all insurance required hereunder. If Landlord is the insuring party Tenant shall, within ten (10) days following demand by Landlord, reimburse Landlord for the cost of the insurance so obtained. 8.2 LIABILITY INSURANCE. The Tenant shall obtain and keep in force during the term of this Lease a policy of comprehensive public liability insurance insuring Landlord and Tenant against any liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be in an amount of not less than $300,000 for injury to or death of one person in any one accident or occurrence and in an amount of not less than $500,000 for injury or death of more than one person in any one accident or occurrence. Such insurance shall further insure Landlord and Tenant against liability for property damage of at least $50,000. The limits of said insurance shall not, however, limit the liability of Tenant hereunder. In the event that the Premises constitute a part of a larger property said insurance shall have a Landlord's Protective Liability endorsement attached thereto. If the Tenant shall fail to procure and maintain said insurance the Landlord may, but shall not be required to, procure and maintain the same, but at the expense of Tenant. 8.3 PROPERTY INSURANCE. The insuring party shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Premises, in the amount of the full replacement value thereof, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, special extended perils (all risk), sprinkler leakage and flood insurance if required. Said insurance shall provide for payment for loss thereunder to Landlord and, if applicable, to the holder of a first mortgage or deed of trust on the Premises. If the insuring party shall fail to procure and maintain said insurance the other party may, but shall not be required to, procure and maintain the same, but at expense of Tenant. 8.4 INSURANCE POLICIES. Insurance required hereunder shall be in companies rated A+, AAA or better in "Best's Insurance Guide". The insuring party shall deliver prior to possession to the other party copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with loss payable clauses satisfactory to Landlord. No such policy shall be cancelable or subject to reduction of coverage or other modification except after ten (10) days' prior written notice to Landlord. If Tenant is the insuring party, Tenant shall, within ten (10) days prior to the expiration of such policies, furnish Landlord with renewals or "binders" thereof, or Landlord may order such insurance and charge the cost thereof to Tenant, which amount shall be payable by Tenant upon demand. Tenant shall not do or permit to be done anything which shall invalidate the insurance policies referred to in Article 8.3. Tenant shall forthwith, upon Landlord's demand reimburse Landlord for any additional premiums attributable to any act or omission or operation of Tenant causing such increase in the cost of insurance. If Landlord is the insuring party, and if the insurance policies maintained hereunder cover other improvements in addition to the Premises, Landlord shall deliver to Tenant a written statement setting forth the amount of any such insurance cost increase and showing in reasonable detail the manner in which it has been computed. 8.5 WAIVER OF SUBROGATION. Tenant and Landlord each waives any and all rights of recovery against the other, or against the officers, employees, agents and representatives of the Page 1 other, for loss of or damage to such waiving party or its property or the property of others under its control, where such loss of damage is- insured against under any insurance policy in force at the time of such loss or damage. Tenant and Landlord shall, upon obtaining the policies of insurance required hereunder, give notice to the insurance carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 8.6 HOLD HARMLESS. Tenant shall indemnify, defend and hold Landlord harmless from any and all claims arising from Tenant's use of the Premises or from the conduct of its business or from any activity, work or things which may be permitted or suffered by Tenant in or about the Premises and shall further indemnify, defend and hold Landlord harmless from and against any and all claims arising from any breach or default in the performance of any obligation on Tenant's part to be performed under the provision of this Lease arising from any negligence of tenant or any of its agents, contractors, employees or invitees and from any and all costs, attorneys' fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon. Tenant hereby assumes all risk or damage to property or injury to persons in or about the Premises from any cause, and Tenant hereby waives all claims in respect thereof against Landlord, excepting where said damages arises out of negligence of Landlord. 8.7 EXEMPTION OF LANDLORD FROM LIABILITY. Tenant hereby agrees that Landlord shall not be liable for injury to Tenant's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Tenant, Tenant's employees, invitees, customers, or any other person in or about the Premises; nor, unless through its negligence, shall Landlord be liable for injury to the person of Tenant, Tenant's employees, agents or contractors and invitees, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said damage or injury results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Landlord or Tenant. Landlord shall not be liable for any damages arising from any act or neglect of any other tenant, if any, of the building in which the Premises are located. 9. DAMAGE OR DESTRUCTION. 9.1 In the event the improvements on the Premises are damaged or destroyed, partially or totally, from any cause whatsoever, whether or not such damage or destruction is covered by any insurance required to be maintained under Article 8, the Tenant shall repair, restore and rebuild the Premises to their condition existing immediately prior to such damage or destruction and this Lease shall continue in full force and effect. Such repair, restoration and rebuilding (all of which are herein called the "repair") shall be commenced within a reasonable time after such damage or destruction and shall be diligently prosecuted to completion. There shall be no abatement of rent or of any other obligation of Tenant hereunder by reason of such damage or destruction. The proceeds of any insurance maintained under Article 8.3 shall be made available to Tenant for payment of the cost and expense of the repair, provided, however, that such proceeds may be made available to Tenant subject to reasonable conditions "including, but not limited to, architect's certification of costs and retention of a percentage of such proceeds pending final notice of completion. In the event that such proceeds are not made available to Tenant within ninety (90) days after such damage or destruction, Tenant shall have the (option for thirty (30) days, commencing on the expiration of such ninety (90) day period of canceling this Lease. If Tenant shall exercise such option, Tenant shall have no further obligation Page 1 hereunder and shall have no further claim against Landlord; provided, however, that Landlord shall return to Tenant so much of Tenant's security deposit as has not theretofore been applied by Landlord. Tenant shall exercise such option by written notice to Landlord -within said thirty (30) day period. In the event that the insurance proceeds are insufficient to cover the cost of the repair, then any amount in excess thereof required to complete the repair shall be paid by Tenant. 9.2 DAMAGE NEAR END OF TERM. If the Premises are partially destroyed or damaged during the last six (6) months of the term of this Lease, Landlord may, at Landlord's option, cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Tenant of Landlord's election to do so within thirty (30) days after the date of occurrence of such damage. 9.3 PRORATIONS. Upon termination of this Lease pursuant to this Article 9, a pro rata adjustment of rent based upon a thirty (30) day month shall be made. Landlord shall, in addition, return to Tenant so much of Tenant's security deposit as has not theretofore been applied by Landlord. 10. REAL PROPERTY TAXES. 10.1 PAYMENT OF TAXES. Landlord shall pay all real property taxes applicable to the Premises during the term of this Lease and bill Tenant for same. If any such taxes shall cover any period of the time prior to or after the expiration of the term hereof, Tenant's share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year during which this Lease shall be in effect. If Tenant shall fail to pay any such taxes when billed and due, Tenant shall pay Landlord a late fee equal to ten (10%) percent of said taxes. 10.2 DEFINITION OF "REAL PROPERTY" TAXES. As used herein, the term "real property tax" shall include any form of assessment, license fee, rent tax, levy, penalty, or tax (other than inheritance or estate taxes) , imposed by any authority having the direct or indirect power to tax, including anv city, county, state or federal government, or any school, agricultural, lighting, drainage or other improvement district thereof, as against any legal or equitable interest of Landlord in the Premises or in the real property of which the Premises are a part, as against Landlord's right to rent or other income therefrom, or as against Landlord's business of leasing the Premises, and, Tenant shall pay any and all charges and fees which may be imposed by the EPA or other similar government regulations or authorities. 10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Tenant's liability shall be an equitable proportion of the real property taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Landlord from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Landlord's reasonable determination thereof, in good faith, shall be conclusive. 10.4 PERSONAL PROPERTY TAXES. (a) Tenant shall pay prior to delinquency all taxes assessed against and levied upon leasehold improvements, trade fixtures, furnishings, equipment and all other personal property of Tenant contained in the Premises or elsewhere. Tenant shall cause said leasehold improvements, trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Landlord. Page 1 (b) If any of Tenant's said personal property shall be assessed with landlord's real property, Tenant shall pay Landlord the taxes attributable to Tenant within ten (10) days after receipt of a written statement setting forth the taxes applicable to Tenant's property. 11. COMMON AREAS. When, in fact, there are Common Areas, then the following shall apply. 11.1 DEFINITIONS. The phrase "Common Areas" means all areas and facilities outside the Premises that are provided and designated for general use and convenience of Tenant and other tenants and their respective officers, agents and employees, customers, and invitees. Common Areas include (but are not limited to) pedestrian sidewalks, landscaped areas, roadways, parking areas and railroad tracks, if any. Landlord reserves the right from time to time to make changes in the shape, size, location, number, and extent of the land and improvements constituting the Common Areas. Landlord may designate from time to time additional parcels of land for use as a part thereof; and any additional land so designated by Landlord for such use shall be included until such designation is revoked by Landlord. 11.2 MAINTENANCE. During the term of this Lease, Landlord shall operate, manage, and maintain the Common Areas so that they are clean and free from accumulations of debris, filth, rubbish, and garbage. The manner in which such Common Areas shall be so maintained, and the expenditures for such maintenance, shall be at the sole discretion of Landlord, and the use of the Common Areas shall be subject to such reasonable regulations and changes therein as Landlord shall make from time to time, including (but not by way of limitation) the right to close from time to time, if necessary, all or any portion of the Common Areas to such extent as may be legally sufficient, in the opinion of Landlord's counsel, to prevent a dedication thereof or the accrual of rights of any person or of the public therein, or to close temporarily all or any portion of such Common Areas for such purposes. 11.3 TENANT'S RIGHTS AND OBLIGATIONS. Landlord hereby grants to Tenant, during the term of this Lease, the license to use, for the benefit of Tenant and its officers, agents, employees, customers, and invitees, in common with the others entitled to such use, the Common Areas as they from time to time exist, subject to the rights, powers, and privileges herein reserved to Landlord. Storage, either permanent or temporary, of any materials, supplies or equipment in the Common Area is strictly prohibited. Should Tenant violate this provision of the Lease, then in such event, Landlord may, at his option either terminate this Lease or, without notice to Tenant, remove said materials, supplies and equipment from the Common Area and place such items in storage, the cost thereof to be reimbursed by Tenant within ten (10) days from receipt of a statement submitted by Landlord. All subsequent costs in connection with the storage of said items shall be paid to Landlord by Tenant as accrued. Failure of Tenant to pay these charges within ten (10) days from receipt of statement shall constitute a breach of this Lease. Tenant and its officers, agents, employees, customers and invitees shall park their motor vehicles only in areas designated by Landlord for that purpose from time to time. Within five (5) days after request from Landlord, Tenant shall furnish to Landlord a list of the license numbers assigned to its motor vehicles, and those of its officers, agents and employees. Tenant shall not at any time park or permit the parking of motor vehicles, belonging to it or to others, 'so as to interfere with the pedestrian sidewalks, roadways, and loading areas, or in any portion of the parking areas not designated by Landlord for such use by Tenant. Tenant agrees that receiving and shipping of goods and merchandise and all removal of refuse shall be made only by way of the loading areas constituting part of the Premises. Tenant shall repair, at its cost, all deteriorations or damages to the Common Areas, occasioned by its lack of ordinary care. Page 1 11.4 CONSTRUCTION. Landlord, while engaged in constructing improvements or making repairs or alterations in or about the Premises or in their vicinity, shall have the right to make reasonable use of the Common Areas. 12. UTILITIES. Tenant shall pay for all water, gas, heat, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Tenant, Tenant shall pay a reasonable proportion to be determined by Landlord of all charges jointly metered with other premises. 13. ASSIGNMENT AND SUBLETTING. 13.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Tenant's interest in this Lease or in the Premises without Landlord's prior written consent, which Landlord shall not be deemed consent to any subsequent assignment or subletting. 14. DEFAULTS; REMEDIES. (b) The failure by Tenant to make any payment of rent or any other payment required to be made by Tenant hereunder, as And when due, where such failure shall continue for a period of three (3) days after written notice thereof from Landlord to Tenant. (c) The failure by Tenant to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Tenant, other than described in Paragraph (b) above, where such failure shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant, provided, however, that if the nature of Tenant's default is such that more than thirty (30) days are reasonably required for its cures, then Tenant shall not be deemed to be in default if Tenant commenced such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (d) (i) The making by Tenant of any general assignment, or general arrangement for the benefit of creditors; (ii) the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days); (iii) The appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within thirty (30) days. 14.2 REMEDIES IN DEFAULT. In the event of any such default or breach of Tenant, Landlord may at any time thereafter, with or without notice or demand and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such default or breach: (a) Terminate Tenant's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. In such event Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant's default including, but not limited to, the cost of recovering possession of the Premises; expenses of reletting, including necessary renovation and alteration of the Premises, reasonable Page 1 attorney's fees, and any real estate commission actually paid; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the amount of such rental loss for the same period that Tenant proves could be reasonably avoided; and that portion of the leasing commission paid by Landlord applicable to the unexpired term of this Lease. Unpaid installments of rent or other sums shall bear interest from the date due at the rate of ten (10%) percent per annum. In the event Tenant shall have abandoned the Premises, Landlord shall have the option of (i) retaking possession of the Premises and recovering from Tenant the amount specified in this Article 14.2(a), or (ii) proceeding under Article 14.2(b). (b) Maintain Tenant's right to possession, in which case this Lease shall continue in effect whether or not Tenant shall have abandoned the Premises. In such event, Landlord shall be entitled to enforce all of Landlord's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. (c) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the state in which the Premises are located. 14.3 DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event later than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligation; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for performance then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. 14.4 LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant to Landlord of rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain . Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Landlord by the terms of any mortgage cr trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Tenant shall not be received by Landlord or Landlord's designee within ten (10) days after due, then Tenant shall pay to Landlord a late charge equal to ten (10%) percent of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the cost Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder. 15. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain, or sold by Landlord under the threat of the exercise of said power (all of which is herein referred to as "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever occurs first. If more than twenty-five (25%) percent of the floor area of any building on the Premises, or more than twenty-five (25%) percent of the land area of the Premises not covered with buildings, is taken by condemnation, either Landlord or Tenant may terminate this Lease as of the date the condemning authority takes possession by notice in writing of such election within twenty (20) days after Landlord shall have notified Tenant of the taking or, in the absence of such notice, then within twenty (20) days after the condemning authority shall have taken possession. If this Lease is not terminated by either Landlord or Tenant then it shall remain in full force and effect Page 1 as to the portion of the Premises remaining, provided the rental shall be reduced in proportion to the floor area of the building taken within the Premises as bears to the total floor area of all building located on the Premises. In the event this Lease is not so terminated then Landlord agrees, at Landlord's sole cost, to as soon as reasonably possible restore the Premises to a complete unit of like quality and character as existed prior to the condemnation. All awards for the taking of any part of the Premises or any payment made under the threat of the exercise of power of eminent domain shall be the property of Landlord, whether made as compensation for diminution of value of the leasehold or for the taking of the fee or as severance damages; provided, however, that Tenant shall be entitled to any reward for loss of or damage to Tenant's trade fixtures and removable personal property. 16. GENERAL PROVISIONS. 16.1 OFFSET STATEMENT. (a) Tenant shall at any time upon not less than ten (10) days' prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent, security deposit, and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults, if any, which are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. (b) Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant (i) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) that there are no uncured defaults in Landlord's performance, and (iii) that not more than one (1) month's rent has been paid in advance. (c) If Landlord desires to finance or refinance the Premises, or any part thereof, Tenant hereby agrees to deliver to any lender designated by Landlord such financial statements of Tenant as may be reasonably required by such lender. Such statements shall include the past three (3) years, financial statements of Tenant. All such financial statements shall be received by Landlord in confidence and shall be used only for the purposes herein set forth. 16.2 LANDLORD'S INTEREST. The term "Landlord," as used herein shall mean only the owner or owners at the time in question of the fee title or a tenant' s interest in a ground lease of the Premises. In the event of any transfer of all liability as respects Landlord's obligations thereafter to be preformed, provided that any funds in the hands of Landlord or the then grantor at the time of such transfer, in which Tenant has an interest, shall be delivered to grantee. The obligations contained in this Lease to be performed by Landlord shall, subject as aforesaid, be binding on Landlord's successors and assigns, only during their respective periods of ownership. 16.3 SEVERABILITY. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 16.4 INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any amount due to Landlord not paid when due shall bear interest at ten (10%) percent per annum from the date due. Payment of such interest shall not excuse or cure any default by Tenant under this Lease. Page 1 16.5 TIME OF ESSENCE. Time is of the essence. 16.6 CAPTIONS. Article and paragraph captions are not a part hereof. 16.7 INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. 16.8 WAIVERS. No waiver by Landlord of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Tenant of the same or any other provision. Landlord's consent to or approval of any act shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of -any subsequent act by Tenant. The acceptance of rent hereunder by Landlord shall not be a waiver of any preceding breach by Tenant of any provision hereof, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. 16.9 RECORDING. Tenant shall not record this Lease. Any such recordation shall be a breach under this Lease. 16.10 HOLDING OVER. If Tenant remains in possession of the Premises or any part thereof after the expiration of the term hereof with the express written consent of Landlord, such occupancy shall be a tenancy from month to month at a rental in the amount of the last monthly rental plus all other charges payable hereunder, and upon the terms hereof applicable to month-to-month tenancy. 16.11 CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive, but shall wherever possible, be cumulative with all other remedies at law or in equity. 16.12 COVENANTS AND CONDITIONS. Each provision of this Lease performable by Tenant shall be deemed both a covenant and a condition. 16.13 BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting assignment or subletting by Tenant and subject to the provisions of Article 16.2, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the state where the Premises are located. 16.14 SUBORDINATION. (a) This Lease, at Landlord's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation for security now or hereafter placed upon the real property of which the Premises are a part and to any and all 'advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Tenant's right to quiet possession of the Premises shall not be disturbed if Tenant is not in default and so long as Tenant shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this Lease prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Tenant, this Lease shall be deemed prior to such mortgage, deed of trust, or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. (b) Tenant agrees to execute any documents required to effectuate such subordination or to make this Lease prior to the lien of any mortgage, deed of trust or ground lease, as the case may be, and failing to do so within ten (10) days after written demand, does hereby make, constitute and irrevocably appoint Landlord as Tenant's attorney in fact and in Tenant's name, place and stead, to do so. 16.15 ATTORNEY'S FEES. If either party named herein brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his reasonable attorney's fees to be paid by the losing party as fixed by the court. 16.16 LANDLORD'S ACCESS. Landlord and Landlord's agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, showing the same to prospective purchasers, or lenders, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part as Landlord may deem necessary or desirable. Landlord may at any time place on or about the Premises any ordinary "For Sale" signs and Landlord may at any time during the last one hundred twenty (120) days of the term hereof place on or about the Premises any ordinary "For Sale or Lease" signs, all without rebate of rent or liability to Tenant. 16.17 AUCTIONS. Tenant shall not place any auction sign upon the Premises or conduct any auction thereon without Landlord's prior written consent. 16.18 MERGER. The voluntary or other surrender of this Lease by Tenant, or mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord, terminate all or any existing subtenancies or may, at the option of Landlord, operate as an assignment to Landlord of any or all of such subtenancies. 16.19 CORPORATE AUTHORITY. If Tenant is a corporation, each individual executing this Lease on behalf of said corporation represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation in accordance with a duly adopted resolution of the Board of Directors of said corporation or in accordance with the Bylaws of said corporation, and that this Lease is binding upon said corporation in accordance with its terms. 16.20 LANDLORD'S LIABILITY. If Landlord is a limited partnership, the liability of the partners of the Landlord pursuant to this Lease shall be limited to the assets of the partnership; and Tenant, its successors and assigns hereby waive all rights to proceed against any of the partners, or the officers, shareholders, or directors of any corporate partner of Landlord, except to the extent of their interest in the partnership. The term "Landlord", as used in this Article, shall mean only the owner or owners at the time in question of the fee title or its interest in the ground lease of the Premises, and in the event of any transfer of such title or interest, Landlord herein named (and in case of any subsequent transfers the then grantor) shall be relieved from and after the date of such transfer of all liability as respects Landlord's obligations thereafter to be performed by Landlord shall, subject as aforesaid, be binding on Landlord's successors and assigns, only during their respective period of ownership. 17. PERFORMANCE BOND. At any time Tenant either desires to or is required to make any repairs, alternations, additions, improvements or utility installation thereon, pursuant to Articles 7.4 or 9.2 herein, or otherwise, Landlord may at his sole option require Tenant, at Page 1 Tenant's sole cost and expense, to obtain and provide to Landlord a lien and completion bond in an amount equal to one and one-half (1 1/2) times the estimated cost of such improvements, to insure Landlord against liability for mechanics' and materialmen's liens and to insure completion of the work. 18. BROKERS. The parties hereto acknowledge that N/A were the real estate brokers that represented the parties herein, and that no other commissions are due to any brokers whatsoever, other than the above-named brokers. 19. NOTICES. Whenever under this Lease provision is made for any demand, notice or declaration of any kind, or where it is deemed desirable or necessary by either party to give or serve such notice, demand or declaration to the other party, it shall be in writing and served either personally or sent by United States mail, postage prepaid, addressed at the addresses set forth herein below: To Landlord at: P.O. BOX 42262 HOUSTON, TX 77242-2262 713/975-6969 To Tenant at: ----------------------------- 20. INSURING PARTY. The insuring party under this Lease shall be the Landlord, unless Tenant should decide to carry its own building coverage, in which case Tenant must immediately notify Landlord. See Condition #23. 21. LANDLORD' S LIEN. As security for Lessee's payment of rent, damages and all other payments required to be made by this Lease, Lessee hereby grants to Lessor a lien upon all property of Lessee now or subsequently located upon the leased premises. If Lessee abandons or vacates any substantial portion of the leased premises or is in default in the payment of any rentals, damages or other payments required to be made by this Lease or is in default of any other provision of this Lease, Lessor may enter upon the leased premises, by picking or changing locks if necessary, and take possession of all or any part of the personal. property, and may sell all or any part of the personal property at a public or private sale, in one or successive sales, with or without notice, to the highest bidder for cash, and, on behalf of Lessee, sell and convey all or part of the personal property to the highest bidder, delivering to the highest bidder all of Lessee's title and interest in the personal property sold to him. The proceeds of the sale of the personal property shall be applied by Lessor toward the reasonable costs and expenses of the sale, including attorneys fee and then toward the payment of all sums then due by Lessee to Lessor under the terms of this Lease: any excess remaining shall be paid to Lessee or any other person entitled thereto by Law. 22. UNIFORM COMMERCIAL CODES. To the extent, if any, this Lease grants Lessor any lien or lien rights greater than provided by the laws of this State (the State in which the Teased premises are located) pertaining to "Landlord's Liens", this Lease is intended as and constitutes a security agreement within the meaning of the Uniform Commercial Code of this State and Lessor, in addition to the rights prescribed in this Lease, shall have all of the rights, titles, liens and interests in and to Lessee's property now or hereafter located upon the leased premises which are granted a secured party, as that term is defined, under this State's Uniform Commercial Code to secure the payment to Lessor of the various amounts provided in this Lease. Lessee will on request execute and deliver to Lessor a financing statement for the purpose of Page 1 perfecting Lessor's security interest under this Lease or Lessor may file this Lease or a copy thereof as a financing statement. 23. Coverage afforded under Landlord's Texas Commercial Package Policy shall be for the full replacement cost of the building, all risk, subject to a $1,000.00 deductible. Tenant shall be responsible for the deductible on any loss. Should Tenant desire coverage on plate glass, signs or fences, Tenant should discuss with Landlord. Depending on the policy year, such coverage may or may not be included in the basic coverage. 24. Landlord grants Tenant a ninety (90) day warranty on all systems in the building, i.e. plumbing, electrical, HVAC, etc. Thereafter, Condition #7 shall apply. 25. Assuming Tenant is not in default under any term or condition of this Lease and by giving Landlord notice in writing ninety (90) days prior to its expiration, Tenant shall have the option to renew this Lease for three (3) years upon the same terms and conditions contained herein, except for the monthly rental rate which shall be the lesser of 50% of the Consumer Price Index (CPI) increase during the primary term of this Lease or 10t. 26. Tenant shall take the Premises in an "as is" condition. 27. Upon full execution hereof, Tenant shall take immediate occupancy; however, Lease payments shall not commence until December 1, 1997. The parties hereto have executed this Lease at the place and on the dates specified immediately adjacent to their respective signatures. Executed at TRUST MANAGEMENT COMPANY --------------------------- On By ---------------------------------- ---------------------------------- Robert B. Cole "LANDLORD" Executed at MLC ENTERPRISES INC. ------------------------- ------------------------------------ Dba MARINE & INDUSTRIAL SUPPLY On By: /s/ Michael L. Cooper ---------------------------------- ------------------------------- Michael L. Cooper, President By: /s/ Michael L. Cooper ------------------------------- Michael L. Cooper, Individually "Tenant" If this Lease has been filled in it has been prepared for submission to your attorney for his approval. No representation recommendation is made by the real estate broker or its agents or employees as to the legal sufficiency, legal effect, or tax consequences of this Lease or the transaction relating thereto. Page 1 EX-10.27 16 EXHIBIT 10.27 Exhibit 10.27 SUBLEASE AGREEMENT This "Sublease Agreement" by and between INPUT/OUTPUT, INC., ("Sublessor"), who hereby agrees to sublease the 10905 Metronome Street space, Houston, Harris Co., Texas, to MARINE & INDUSTRIAL SUPPLY CO., ("Sublessee"), on a three (3) month basis for Forty Nine Hundred and Fifty Dollars ($4,950.00/Month) per month on a net/net/net basis. This Sublease should begin on October 8, 1998, upon first month's payment and execution of subject agreement by Marine & Industrial Supply Co. Both parties acknowledge Grubb & Ellis as the only broker, involved in this transaction and shall be paid by Sublessor by separate agreement. Either party may cancel this Sublease by giving the other party fifteen (15) days prior written notice. If the Sublessee is in an holdover position, he agrees to pay two hundred (200%) percent of the above referenced monthly rental to Sublessor. All other terms and conditions and precedents of the Master Lease attached hereto and thereby made a part hereof shall prevail. Agreed and Accepted this 8th day of October, 1998. SUBLESSOR: SUBLESSEE: By: /s/ Ronald A. Harris By: /s/ Michael Moore ---------------------------------- -------------------------- Ronald A. Harris Michael Moore Vice President and Controller EX-10.28 17 EXHIBIT 10.28 EXHIBIT 10.28 STANDARD COMMERCIAL LEASE ARTICLE 1.00 BASIC LEASE TERMS 1.01 PARTIES. This lease agreement ("Lease") is entered into by and between the following Lessor and Lessee: VANTAGE HOUSTON, INC. AS AGENT FOR GREENBRIAR HOLDINGS HOUSTON, LTD. ("Lessor") MLC ENTERPRISES, INC. DBA MARINE & INDUSTRIAL SUPPLY ("Lessee") 1.02 LEASED PREMISES. In consideration of the rents, terms, provisions and covenants of this lease, Lessor hereby leases, lets and demises to Lessee the following described premises ("leased premises"): 3,915 (APPROXIMATE SQ. FT.) (JOB NO.) - ------------------------------------------------------------------------------- PINEWAY SERVICE CENTER II (Name of Building or project) - --------------------------------------------- 4455 SOUTH PINEMONT, SUITE 204 (Street address/suite number) - --------------------------------------------- HOUSTON, TEXAS 77041 (City, State, and Zip Code) - --------------------------------------------- 1.03 TERM. Subject to and upon the conditions set forth herein, the term of this Lease shall commence on (DECEMBER 15, 1996 the "commencement date") and shall terminate 36 months thereafter. 1.04 BASE RENT AND SECURITY DEPOSIT. Base rent is $1,570.00 per month. Security deposit is $1,570.00. 1.05. ADDRESSES. Lessor's Address Lessee's Address: 4635 Southwest Freeway 4544 South Pinemont Suite 425 Suite 204 Houston, Texas 77027 Houston, Texas 77041 1.06 PERMITTED USE. General offices/Storage and distribution of marine & industrial supplies. ARTICLE 2.00 RENT 2.01 BASE RENT. Lessee agrees to pay monthly as base rent during the term of this Lease the sum of money set forth in section 1.04 of this Lease, which amount shall be payable to Lessor at the address shown above. One monthly installment of rent shall be due and payable on the date of execution of this Lease by Lessee for the first month's rent and a like monthly installment shall be due and payable on or before the first day of each calendar month succeeding the commencement date or completion date during the term of this lease; provided, if the commencement date or the completion date other than be the first day of a calendar month, the monthly rental set forth above shall be prorated to the end of that calendar month, and all Page 1 succeeding installments of rent shall be payable on or before the first day of each succeeding calendar month during the term of this Lease. Lessee shall pay, as additional rent, all other sums due under this Lease. 2.02 OPERATING EXPENSES. In the event Lessor's operating expenses for the building and/or project of which the leased premises are in part shall, in any calendar year during the term of this Lease, exceed the sum of $*1.30 per square foot, Lessee agrees to pay as additional rent Lessee's pro rata share of such excess operating expenses. Lessor nay invoice Lessee monthly for Lessee's pro rata share of the estimated operating expenses for each calendar year, which amount shall be adjusted each year band upon anticipated operating expenses. Within nine months following the close of each calendar year, Lessor shall provide Lessee an accounting showing in reasonable detail all computations of additional rent due under this section. In the event the accounting shows that the total of the monthly payments made by Lessee exceeds the amount of additional rent due by Lessee under this section the accounting shall be accompanied by a refund. In the event the accounting shows that the total of the monthly payments made by Lessee is less than the amount of additional rent due by Lessee under this section, the account shall be accompanied by an invoice for the additional rent. Notwithstanding any other provision in this Lease, during the year in which the Lease terminates, Lessor, prior to the termination date, shall have the option to invoice Lessee for Lessee's pro rata share of the excess operating expenses based upon the previous year's operating expenses. If this Lease shall terminate on a day other than the last day of a calendar year, the amount of any additional rent payable by Lessee applicable to the year in which such termination shall occur shall be prorated on the ratio that the number of days from the commencement of the calendar year to and including the termination date bears to 365. Lessee shall have the right, at its own expense and within a reasonable time, to audit Lessor's books relevant to the additional rent payable under this section. Lessee agrees to pay any additional rent due under this section within ten days following receipt of the invoice or accounting showing additional rent due. *OR BASE YEAR 1996, WHICHEVER IS HIGHER 2.03 DEFINITION OF OPERATING EXPENSES. The term "operating expenses" includes all expenses incurred by Lessor with respect to the maintenance and operation of the building of which the leased premises are a part, including, but not limited to, the following: maintenance, repair and replacement costs; security; management fees, wages and benefits payable to employees of Lessor whose duties are directly connected with the operation and maintenance of the building; all services, utilities, supplies, repairs, replacements or other expenses for maintaining and operating the common parking and plaza areas; the cost, including interest, amortized over its useful life, of any capital improvement made to the building by Lessor after the date of this Lease which is required under any governmental law or regulation that was not applicable to the building at the time it was constructed: the cost, including interest, amortized over its useful life, of installation of any device or other equipment which improves the operating efficiency of any system within the leased premises and thereby reduces operating expenses; all other expenses which would generally be regarded as operating and maintenance expenses which would reasonably be amortized over a period not to exceed five years; all real property taxes and installments of special assessment, including dues and assessments by means of deed restrictions and/or owners' associations which accrue against the building of which the leased premises are a part during the term of this Lease; and all insurance premiums Lessor is required to pay or deems necessary to pay, including public liability insurance, with respect to the building. The term operating expenses does not include the following; repairs. restoration or other work occasioned Page 2 by fire, wind, the elements or other casualty; income and franchise taxes of Lessor; expenses incurred in leasing to or procuring of lessees, leasing commissions, advertising expenses and expenses for their renovating of space for new lessee; interest or principal payments on any mortgage or other indebtedness of Lessor; compensation paid to any employee of Lessor above the grade of property manager; any depreciation allowance or expense; or operating expenses which are the responsibility of Lessee. 2.04 LATE PAYMENT CHARGE. Other remedies for nonpayment of rent notwithstanding, if the monthly rental payment is not received by Lessor on or before the tenth day of the month for which the rent is due, or if any other payment due Lessor by Lessee is not received by Lessor on or before the tenth day of the month next following the month in which Lessee was invoiced, a late payment charge of five percent of such past due amount shall become due and payable in addition to such amounts owed under this Lease. 2.05 INCREASE IN INSURANCE PREMIUMS. If an increase in any insurance premiums paid by Lessor for the building is caused by Lessee's use of the leased premises in a manner other than as set forth in section 1.06, or if Lessee vacates the leased premises and causes an increase in such premiums, then Lessee shall pay as additional rent the amount of such increase to Lessor. 2.06 SECURITY DEPOSIT. The security deposit set forth above shall be held by Lessor for the performance of Lessee's covenants and obligations under this Lease, it being expressly understood that the deposit shall not be considered an advance payment of rental or a measure of Lessor's damage in case of default by Lessee. Upon the occurrence of any event of default by Lessee or breach by Lessee of Lessee's covenants under this Lease, Lessor may, from time to time, without prejudice to any other remedy, use the security deposit to the extent necessary to make good any arrears of rent or to repair any damage or injury, or pay any expense or liability incurred by Lessor as a result of the event of default or breach of covenant, and any remaining balance of the security deposit shall be returned by Lessor to Lessee upon termination of this Lease. If any portion of the security deposit is so used or applied, Lessee shall upon ten days written notice from Lessor, deposit with Lessor by cash or cashier's check an amount sufficient to restore the security deposit to its original amount. 2.07 HOLDING OVER. In the event that Lessee does not vacate the leased premises upon the expiration or termination of this Lease, Lessee shall be a tenant at will for the holdover period and all of the terms and provisions of this Lease shall be applicable during that period, except that Lessee shall pay Lessor as base rental for the period of such holdover an amount equal to two times the base rent which would have been payable by Lessee had the holdover period been a part of the original term of this Lease. Lessee agrees to vacate and deliver the leased premises to Lessor upon Lessee's receipt of notice from Lessor to vacate. The rental payable during the holdover period shall be payable to Lessor on demand. No holding over by Lessee, whether with or without the consent of Lessor, shall operate to extend the term of this Lease. ARTICLE 3.00 OCCUPANCY AND USE 3.01 USE. Lessee warrants and represents to Lessor that the leased premises shall be used and occupied only for the purpose as set forth in section 1.06. Lessee shall occupy the leased premises, conduct its business and control its agents, employees, invitees and visitors in Page 3 such a manner as is lawful, reputable and will not create a nuisance. Lessee shall not permit any operation which emits any odor or matter which intrudes into other portions of the building, use any apparatus or machine which makes undue noise or causes vibration in any portion of the building or otherwise interfere with, annoy or disturb any other lessee in its normal business operations or Lessor in its management of the building. Lessee shall neither permit any waste on the leased premises nor allow the leased premises to be used in any way which would, in the opinion of Lessor, be extra hazardous on account of fire or which would in any way increase or render void the fire insurance on the building. Lessee warrants to Lessor that the insurance questionnaire (filled out by Lessee, signed and presented to Lessor prior to the execution of this Lease) accurately reflects Lessee's original intended use of the leased premises. The insurance questionnaire is made a part of this Lease by reference as though fully copied herein. If at any time during the term of this Lease the State Board of Insurance or other insurance authority disallows any of Lessor's sprinkler credits or imposes an additional penalty or surcharge in Lessor's insurance premiums because of Lessee's original or subsequent placement or use of storage racks or bins, method of storage or nature of Lessee's inventory or any other act of Lessee, Lessee agrees to pay as additional rent the increase (between fire walls) in Lessor's insurance premiums. 3.02 SIGNS. No sign of any type or description shall be erected, placed or painted in or about the leased premises or project except those signs submitted to Lessor in writing, and approved by Lessor in writing, and which signs are in conformance with lessor's sign criteria established for the project. 3.03 COMPLIANCE WITH LAWS, RULES AND REGULATIONS. * Lessee, at Lessee's sole cost and expense, shall comply with all laws, ordinances, orders, rules and regulations of state, federal, municipal or other agencies or bodies having jurisdiction over use, condition and occupancy of the leased premises. Lessee will comply with the rules and regulations of the building adopted by Lessor which art, set forth on a schedule attached to this Lease. Lessor shall have the right at all times to change and amend the rules and regulations in any reasonable manner as may be deemed advisable for the safety, care, cleanliness, preservation of good order and operation or use of the building or the leased premises. All changes and amendments to the rules and regulations of the building will be sent by Lessor to Lessee in writing and shall thereafter be carried out and observed by Lessee. *SEE ARTICLE 16.02 FOR CONTINUATION. 3.04 WARRANTY OF POSSESSION. Lessor warrants that it has the right and authority to execute this Lease, and Lessee, upon payment of the required rents and subject to the terms, conditions, covenants and agreements contained in this Lease, shall have possession of the leased premises during the full term of this Lease as well as any extension of renewal thereof. Lessor shall not be responsible for the acts or omissions of any other lessee or third party that may interfere with Lessee's use and enjoyment of the leased premises. 3.05 INSPECTION. Lessor or its authorized agents shall at any and all reasonable times have the right to enter the leased premises to inspect the same, to supply janitorial service or any other service to be provided by Lessor, to show the leased premises to prospective purchasers or lessees, and to alter, improve or repair the leased premises or any other portion of the building. Lessee hereby waives any claim for damages for injury or inconvenience to or interference with Lessee's business, any loss of occupancy or use of the leased premises, and any other loss occasioned thereby. Lessor shall at all times have and retain a key with which to unlock all of the doors in, upon and about the leased premises. Lessee shall not change Lessor's lock system Page 4 or in any other manner prohibit Lessor from entering the leased premises. Lessor shall have the right to use any and all means which lessor may deem proper to open any door in an emergency without liability therefor. ARTICLE 4.00 UTILITIES AND SERVICE 4.01 BUILDING SERVICES. Lessor shall provide the normal utility service connections to the building. Lessee shall pay the cost of all utility services, including, but not limited to, initial connection charges, all charges for gas, electricity, water, sanitary and storm sewer service, and for all electric lights. However, in a multi-occupancy building, Lessor may provide water to the leased premises, in which case Lessee agrees to pay to Lessor its pro rata share of the cost of such water. Lessee shall pay all costs caused by Lessee introducing excessive pollutants or solids other than ordinary human waste into the sanitary sewer system, including permits, fees and charges levied by any governmental subdivision for any such pollutants or solids. Lessee shall be responsible for the installation and maintenance of any dilution tanks, holding tanks, settling tanks, sewer sampling devices, sand traps, grease traps or similar devices as may be required by any governmental subdivision for Lessee's use of the sanitary sewer system. If the leased premises are in a multi-occupancy building, Lessee shall pay all surcharges levied due to Lessee's use of sanitary sewer or waste removal services insofar as such surcharge affect Lessor or other lessees in the building. Lessor shall not be required to pay for any utility service, supplies or upkeep in connection with the leased premises or building. 4.02 THEFT OR BURGLARY. Lessor shall not be liable to Lessee for losses to Lessee's property or personal injury caused by criminal acts or entry by unauthorized persons into the leased Premises or the building. ARTICLE 5.00 REPAIRS AND MAINTENANCE 5.01 LESSOR REPAIRS. Lessor shall not be required to make any improvements, replacements or repairs of any kind or character to the leased premises or the project during the term of this Lease except as are set forth in this section. Lessor shall maintain only the roof, foundation, parking and common areas, and the structural soundness of the exterior walls (excluding windows, window glass, plate glass and doors). Lessor's costs of maintaining the items set forth in this section are subject to the additional rent provisions in section 2.02. Lessor shall not be liable to Lessee, except as expressly provided in this Lease, for any damage or inconvenience, and Lessee shall not be entitled to any abatement or reduction of rent by reason of any repairs, alterations or additions made by Lessor under this Lease. 5.02 LESSEE REPAIRS. Lessee shall, at its sole cost and expense, maintain, repair and replace all other parts of the leased premises in good repair and condition, including, but not limited to, heating, ventilating and air conditioning systems, down spouts, fire sprinkler system, dock bumpers, lawn maintenance, pest control and extermination, trash pick-up and removal, and painting the building and exterior doors. Lessee shall repair and pay for any damage caused by any act or omission of Lessee or Lessee's agents, employees, invitees, licensees or visitors. If the leased premises are in a multi-occupancy building or project, Lessor reserves the right to perform, on behalf of Lessee, lawn maintenance, painting, and trash pick-up and removal; Lessee agrees to pay Lessor, as additional rent, Lessee's pro rata share of the cost of such services within ten days from receipt of Lessor's invoice, or Lessor may by monthly invoice direct Lessee to prepay the estimated costs for the current calendar year, and such amount shall be adjusted Page 5 annually. If the leased premises are served by rail, Lessee agrees, if requested by the railroad, to enter into a joint maintenance agreement with the railroad and bear its pro rata share of the cost of maintaining the railroad spur. If Lessee fails to make the repairs or replacements promptly as required herein, Lessor may, at its option, make the repairs and replacements and the cost of such repairs and replacements shall be charged to Lessee as additional rent and shall become due and payable by Lessee within ten days from receipt of Lessor's invoice. Costs incurred under this section are the total responsibility of Lessee and do constitute operating expenses under section 2.02. 5.03 REQUEST FOR REPAIRS. All requests for repairs or maintenance that are the responsibility of Lessor pursuant to any provision of this Lease must be made in writing to Lessor at the address in section 1.05. 5.04 LESSEE DAMAGES. Lessee shall not allow any damage to be committed on any portion of the leased premises or building, and at the termination of this Lease, by lapse of time or otherwise, Lessee shall deliver the leased premises to Lessor in as good condition as existed at the commencement date of this Lease, ordinary wear and tear expected. The cost and expense of any repairs necessary to restore the condition of the leased premises shall be borne by Lessee. 5.05 MAINTENANCE CONTRACT. Lessee shall at its sole cost and expense, during the term of this Lease maintain a regularly scheduled preventative maintenance/service contract with a maintenance contractor for the servicing of all hot water, heating and air conditioning systems and equipment within the leased premises. The maintenance contractor and contract must be approved by Lessor and must include all services suggested by the equipment manufacturer. ARTICLE 6.00 ALTERATIONS AND IMPROVEMENTS 6.01 LESSOR IMPROVEMENTS. If construction to the leased premises is to be performed by Lessor prior to or during Lessee's occupancy, Lessor will complete the construction of the improvements to the leased premises, in accordance with plan and specifications agreed to by Lessor and Lessee, which plans and specifications are made a part of this Lease by reference. Lessee shall execute a copy of the plans and specifications and change orders, if applicable, setting forth the amount of any costs to be borne by Lessee within seven days of receipt of the plans and specifications. In the event Lessee fails to execute the plans and specifications and change order within the seven day period, Lessor may, at its sole option, declare this Lease cancelled or notify Lessee that the base rent shall commence on the completion date even though the improvements to be constructed by Lessor may not be complete. Any Changes or modifications to the approved plans and specifications shall be made and accepted by written change order or agreement signed by Lessor and Lessee and shall constitute an amendment to this Lease. 6.02 LESSEE IMPROVEMENTS. Lessee shall not make or allow to be made any alterations or physical additions in or to the leased premises without first obtaining the written consent of Lessor, which consent may in the sole and absolute discretion of Lessor be denied. Any alterations, physical additions or improvements to the leased premises made by Lessee shall at once become the property of Lessor and shall be surrendered to Lessor upon the termination of this Lease provided, however, Lessor, at its option, may require Lessee to remove any physical additions and/or repair any alterations in order to restore the leased promises to the condition existing at the time Lessee took possession, all costs of removal and/or alterations to be borne by Page 6 Lessee. This clause shall not apply to moveable equipment or furniture owned by Lessee, which may be removed by Lessee at the end of the term of this Lease if Lessee is not then in default and if such equipment and furniture are not then subject to any other rights, liens and interest of Lessor. ARTICLE 7.00 CASUALTY AND INSURANCE 7.01 SUBSTANTIAL DESTRUCTION. If the leased premises should be totally destroyed by fire or other casualty, or if the leased premises should be damaged so that rebuilding cannot reasonably be completed within ninety working days after the date of written notification by Lessee to Lessor of the destruction, this Lease shall terminate and the rent shall be abated for the unexpired portion of the Lease, effective as of the date of the written notification. 7.02 PARTIAL DESTRUCTION. If the leased premises should be partially damaged by fire or other casualty, and rebuilding or repairs can reasonably be completed within ninety working days from the date of written notification by Lessee to Lessor of the destruction, this Lease shall not terminate, and Lessor shall at its sole risk and expense proceed with reasonable diligence to rebuild or repair the building or other improvements to substantially the same condition in which they existed prior to the damage. If the leased premises are to be rebuilt or repaired and are untenantable in whole or in part following the damage, and the damage or destruction was not caused or contributed to by act or negligence of Lessee, its agents, employees, invitees or those for whom Lessee is responsible, the rent payable under this Lease during the period for which the leased premises are untenantable shall be adjusted to such an extent as may be fair and reasonable under the circumstances. In the event that Lessor fails to complete the necessary repairs or rebuilding within ninety working days from the date of written notification by Lessee to Lessor of the destruction, Lessee may at its option terminate this Lease by delivering written notice of termination to Lessor, whereupon all rights and obligations under this Lease shall cease to exist. 7.03 PROPERTY INSURANCE. Lessor shall at all times during the term of this Lease maintain a policy or policies of insurance with the premiums paid in advance, issued by and binding upon some solvent insurance company, insuring the building against all risk of direct physical loss in an amount equal to at least ninety percent of the full replacement cost of the building structure and its improvements as of the date of the loss: provided, Lessor shall not be obligated in any way or manner to insure any personal property (including, but not limited to, any furniture, machinery, goods or supplies) of Lessee upon or within the leased premises, any fixtures installed or paid for by Lessee upon or within the leased premises, or any improvements which Lessee may construct on the leased premises. Lessee shall have no right in or claim to the proceeds of any policy of insurance maintained by Lessor even if the cost of such insurance is borne by Lessee as set forth in article 2.00. 7.04 WAIVER OF SUBROGATION. Anything in this Lease to the contrary notwithstanding, Lessor and Lessee hereby waive and release each other of and from any and all right of recovery, claim, action or cause of action against each other, their agents, officers and employees, for any loss or damage that may occur to the leased premises, improvements to the building of which the leased premises are a part, or personal property within the building, by reason of fire or the elements, regardless of cause or origin including negligence of Lessor or Lessee and their agents, officers and employees. Lessor and Lessee agree immediately to give their respective insurance companies which have issued policies of insurance covering all risk of direct physical loss, Page 7 written notice of the terms of the mutual waivers contained in this section, and to have its insurance policies properly endorsed, if necessary, to prevent the invalidation of the insurance coverages by reason of the mutual waivers. 7.05 HOLD HARMLESS. Lessor shall not be liable to Lessee's employees agents, invitees, licensees or visitors, or to any other person, for an injury to person or damage to property on or about the leased premises caused by any act or omission of Lessee, its agents, servants or employees, or of any other person entering upon the leased premises under express or implied invitation by Lessee, or caused by the improvements located on the leased premises becoming out of repair, the failure or cessation of any service provided by Lessor (including security service and devices), or caused by leakage of gas, oil, water or steam or by electricity emanating from the leased premises. Lessee agrees to indemnify and hold harmless Lessor of and from any loss attorney's fees, expenses or claims arising out of any such damage or injury. ARTICLE 8.00 CONDEMNATION 8.01 SUBSTANTIAL TAKING. If all or a substantial part of the leased premises are taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain or by purchase in lieu thereof, and the taking would prevent or materially interfere with the use of the leases premises for the purpose for which it is then being used, this Lease shall terminate and the rent shall be abated during the unexpired portion of this Lease effective on the date physical possession is taken by the condemning authority. Lessee shall have no claim to the condemnation award or proceeds in lieu thereof. 8.02 PARTIAL TAKING. If a portion of the leased premises shall be taken for any public of quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain or by purchase in lieu thereof, and this Lease is not terminated as provided in section 8.01 above, Lessor shall at Lessor's sole risk and expense, restore and reconstruct the building and other improvements on the leased premises to the extent necessary to make it reasonably tenantable. The rent payable under this Lease during the unexpired portion of the term shall be adjusted to such an extent as may be fair and reasonable under the circumstances. Lessee shall have no claim to the condemnation award or proceeds in lieu thereof. ARITCLE 9.00 ASSIGNMNT OR SUBLEASE 9.01 LESSOR ASSIGNMENT. Lessor shall have the right to sell, transfer or assign, in whole or in part its rights and obligations under this Lease and in the building. Any such sale, transfer or assignment shall operate to release Lessor from any and all liabilities under this Lease arising after the date of such sale, assignment or transfer. 9.02 LESSEE ASSIGNMENT. Lessee shall not assign, in whole or in part, this Lease, or allow it to be assigned in whole or in part, by operation of law or otherwise (including without limitation by transfer of a majority interest of stock, merger, or dissolution, which transfer of majority interest of stock, merger or dissolution shall be deemed an assignment) or mortgage or pledge, the same, or sublet the leased premises, in whole or in part, without the prior written consent of Lessor, and in no event shall any such assignment or sublease ever release Lessee or any guarantor from any obligation or liability hereunder. No assignee or subleases of the leased premises or any portion thereof my assign or sublet the leased premises or any portion thereof. Page 8 9.03 CONDITION OF ASSIGNMENT. If Lessee desires to assign or sublet all or any part of the leased premises, it shall so notify Lessor at least thirty days in advance of the date on which Lessee desires to make such assignment or sublease. Lessee shall provide Lessor with a copy of the proposed assignment or sublease and such information as Lessor might request concerning the proposed subleases or assignee to allow Lessor to make informed judgements as to the financial condition, reputation, operations and general desirability of the proposed sublessee or assignee. Within fifteen days after Lessor's receipt of Lessee's proposed assignment or sublease and all required information concerning the proposed sublessee or assignee, Lessor shall have the following options: (1) cancel this Lease as to the leased premises or portion thereof proposed to be assigned or sublet; (2) consent to the proposed assignment or sublease, and, if the rent due and payable by any assignee or sublessee under any such permitted assignment or sublease (or a combination of the rent payable under such assignment or sublease plus any bonus or any other consideration or any payment incident thereto) exceeds the rent payable under this Lease for such space, Lessee shall pay to Lessor all such excess rent and other excess consideration within ten days following receipt thereof by Lessee: or (3) refuse, in its sole and absolute discretion and judgment, to consent to the proposed assignment or sublease which refusal shall be deemed to have been excised unless Lessor gives Lessee written notice providing otherwise. Upon the occurrence of an event of default if all or any part of the leased premises are then assigned or sublet, Lessor, in addition to any other remedies provided by this Lease or provided by law may at its option, collect directly from the assignee or sublessee all rents becoming due to Lessee by reason of the assignment or sublease and Lessor shall have a security interest in all properties on the leased premises to secure payment of such sums. Any collection directly by Lessor from the assignee or sublessee shall not be construed to constitute a novation or a release of Lessee or any guarantor from the further performance of its obligations under this Lease. 9.04 RIGHTS OF MORTGAGEE. Lessee accepts this Lease subject and subordinate to any recorded mortgage or deed of trust lien presently existing or hereafter created upon the building or project and to all existing recorded restrictions, covenants, casements and agreements with respect to the building or project. Lessor is hereby irrevocably vested with full power and authority to subordinate Lessee's interest under this Lease to any first mortgage or deed of trust lien hereafter placed on the leased premises, and Lessee agrees upon demand to execute additional instruments subordinating this Lease as Lessor may require. If the interest of Lessor under this Lease shall be transferred by reason of foreclosure or other proceedings for enforcement of any first mortgage or deed of trust on the leased premises, Lessee shall be bound to the transferee (sometimes called the "Purchaser") at the option of the Purchaser, under the terms, covenants and conditions of this Lease for the balance of the term remaining, including any extensions or renewals, with the same force and effect as if the Purchaser were Lessor under this Lease, and, if requested by the Purchaser, Lessee agrees to atorn to the Purchaser, including the first mortgage under any such mortgage if it be the Purchaser, as it's Lessor. 9.05 ESTOPPEL CERTIFICATES. Lessee agrees to furnish, from time to time, within ten days after receipt of a request from Lessor or Lessor's mortgage a statement certifying, if applicable, the following: Lessee is in possession of the leased premises: the leased premises are acceptable: the Lease is in full force and effect: the Lease is unmodified: Lessee claims no present charge, lien, or claim of offset against rent: the rent is paid for the current month, but is not prepaid for more than one month and will not be prepaid for more than one month in advance: there is no existing default by reason of some act or omission by Lessor; and such other matters as may be reasonably required by Lessor or Lessor's mortgagee. Lessee's failure to deliver such statement, in addition to being a default under this Lease, shall be deemed to Page 9 establish conclusively that this Lease is in full force and effect except as declared by Lessor, that Lessor is not in default of any of its obligations under this Lease and that Lessor has not received more than one month's rent in advance. ARTICLE 10.00 LIENS 10.01 LANDLORD'S LIEN. As security for payment of rent, damages and all other payments required to be made by this Lease, Lessee hereby grants to Lessor a lien upon all property of Lessee now or subsequently located upon the leased premises. If Lessee abandons or vacates any substantial portion of the leased premises or is in default in the payment of any rentals, damages or other payments required to be made by this Lease or is in default of any other provision of this Lease, Lessor may enter upon the Leased premises, by picking or changing locks if necessary, and take possession of all or any part of the personal property, and may sell all or any part of the personal property at a public or private sale, in one or successive sales, with or without notice, to the highest bidder for cash, and, on behalf of Lessee, sell and convey all or part of the personal property to the highest bidder, delivering to the highest bidder all of Lessee's title and interest in the personal property sold. The proceeds of the sale of the personal property shall be applied by Lessor toward the reasonable costs and expenses of the sale, including attorney's fees, and then toward the payment of all sums then due by Lessee to Lessor under the terms of this Lease. Any excess remaining shall be paid to Lessee or any other person entitled thereto by law. 10.02 UNIFORM COMMERCIAL CODE. This Lease is intended as and constitutes a security agreement within the meaning of the Uniform Commercial Code of the state in which the leased premises are situated. Lessor, in addition to the rights prcscribcd in this Lease, shall have all of the rights, titles, liens and interests in and to Lessee's property, now or hereafter located upon the leased premises, which may be granted a secured party, as that term is defined, under the Uniform Commercial Code to secure to Lessor payment of all sums due and the full performance of all Lessee's covenants under this Lease. Lessee will on request execute and deliver to Lessor a financing statement for the purpose of perfecting Lessor's security interest under this Lease or Lessor may file this Lease or a copy thereof as a financing statement. Unless otherwise provided by law and for the purpose of exercising any right pursuant to this section, Lessor and Lessee agree that reasonable notice shall be met if such notice is given by ten days written notice, certified mail, return receipt requested, to Lessor or Lessee at the addresses specified herein. ARTICLE 11.00 DEFAULT AND REMEDIES 11.01 DEFAULT BY LESSEE. The following shall be deemed to be events of default by Lessee under this Lease: (1) Lessee shall fail to pay when due any installment of rent or any other payment required pursuant to this Lease; (2) Lessee shall abandon any substantial portion of the leased premises; (3) Lessee shall fail to comply with any term, provision or covenant of this Lease, other than the payment of rent, and the failure is not cured within ten days after written notice to Lessee; (4) Lessee shall file a petition or be adjudged bankrupt or insolvent under any applicable federal or state bankruptcy or insolvency law or admit that it cannot meet its financial obligations as they become due; or a receiver or trustee shall be appointed for all or substantially all of the assets of Lessee; or Lessee shall make, a transfer in fraud of creditors or shall make an assignment for the benefit of creditors; or (5) Lessee shall do or permit to be done any act which results in a lien being filed against the leased premises or the building and/or project of which the leased premises are a part. Page 10 11.02 REMEDIES FOR LESSEE'S DEFAULT. Upon the occurrence of any event of default set forth in this Lease, Lessor shall have the option to pursue any one or more of the remedies set forth herein without any notice or demand. (1) Lessor may enter upon and take possession of the leased premises, by picking or changing locks if necessary, and lock out, expel or remove Lessee and any other person who may be occupying all or any part of the leased premises without being liable for any claim for damages, and relent the leased premises on behalf of Lessee and receive the rent directly by reason of the reletting. Lessee agrees to pay Lessor on demand any deficiency that may arise by reason of any reletting of the leased premises; further, Lessee agrees to reimburse Lessor for any expenditures made by it in order to relet the leased premises, including, but not limited to, remodeling and repair costs. (2) Lessor may enter upon the leased premises, by picking or changing locks if necessary, without being liable for any claim for damages, and do whatever Lessee is obligated to do under the terms of this Lease. Lessee agrees to reimburse Lessor on demand for any expenses which Lessor may incur in effecting compliance with Lessee's obligations under this Lease; further, Lessee agrees that Lessor shall not be liable for any damages resulting to Lessee from effecting compliance with Lessee's obligations under this Lease caused by the negligence of Lessor or otherwise. (3) Lessor may terminate this Lease, in which event Lessee shall immediately surrender the leased premises to Lessor, and if Lessee fails to surrender the leased premises, Lessor may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the leased premises, by picking or changing locks if necessary, and lock out, expel or remove Lessee and any other person who may be occupying all or any part of the leased premises without being liable for any claim for damages. Lessee agrees to pay on demand the amount of all loss and damage which Lessor may suffer by reason of the termination of this Lease under this section, whether through inability to relet the leased premises on satisfactory terms or otherwise. Notwithstanding any other remedy set forth in this Lease, in the event Lessor has made rent concessions of any type or character, or waived any base rent, and Lessee fails to take possession of the leased premises on the commencement or completion date or otherwise defaults at any time during the term of this Lease, the rent concessions, including any waived base rent, shall be cancelled and the amount of the base rent or other rent concessions shall be due and payable immediately as if no rent concessions or waiver of any base rent had ever been granted. A rent concession or waiver of the base rent shall not relieve Lessee of any obligation to pay any other charge due and payable under this Lease including without limitation any sum due under section 2.02. Notwithstanding anything contained in this Lease to the contrary, this Lease may be terminated by Lessor only by mailing or delivering written notice of such termination to Lessee, and no other act or omission of Lessor shall be constructed as a termination of this Lease. ARTICLE 12.00 RELOCATION 12.01 RELOCATION OPTION. In the event Lessor determines to utilize the leased premises for other purposes during the term of this Lease, Lessee agrees to relocate to other space in the building and/or project designated by Lessor, provided such other space is of equal or larger size than the leased premises. 12.02 EXPENSES. Lessor shall pay all out-of-pocket expenses of any such relocation, including the expenses of moving and reconstruction of all Lessee furnished and Lessor furnished improvements. In the event of such relocation, this Lease shall continue in full force Page 11 and effect without any change in the terms or conditions of this Lease, but with new location substituted for the old location set forth in section 1.02 of this Lease. ARTICLE 13.00 DEFINITIONS 13.01 ABANDON. "Abandon" means the vacating of all or a substantial portion of the leased premise by Lessee, whether or not Lessee is in default of the rental payments due under this Lease. 13.02 ACT OF GOD OR FORCE MAJEURE. An "Act Of God" or "force majeure" is defined for purposes of this Lease as strike, lockouts, sitdowns, material or restrictions by any governmental authority, unusual transportation delays, riots, floods washouts, explosions, earthquakes, fire, storms, weather (including wet grounds or inclement weather which prevents construction), acts of the public enemy, wars, insurrections and any other cause not reasonably within the control of Lessor and which by the exercise of due diligence Lessor is unable, wholly or in part to prevent or overcome. 13.03 BUILDING OR PROJECT. "Building" or "project" as used in this Lease means the building and/or project described in section 1.02, including the leased premises and the land upon which the building or project is situated. 13.04 COMMENCEMENT DATE. "Commencement date" shall be the date set forth in section 1.03. The commencement date shall constitute the commencement of the term of this Lease for all purposes, whether or not Lessee has actually taken possession. 13.05 COMPLETION DATE. "Completion date" shall be the date on which the improvements erected and to be erected upon the leased premises shall have been completed in accordance with the plans and specifications described in article 6.00. The completion date shall constitute the commencement of the term of this Lease for all purposes, whether or not Lessee has actually taken possession. Lessor shall use its best efforts to establish the completion date as the date set forth in section 1.03. In the event that the improvements have not in fact been completed as of that date, Lessee shall notify Lessor in writing of its objections. Lessor shall have a reasonable time after delivery of the notice in which to take such corrective action as may be necessary and shall notify Lessee in writing as soon as it deems such corrective action has been completed and the improvements are ready for occupancy. Upon completion of construction, Lessee shall deliver to Lessor a letter accepting the leased premises as suitable for the purposes for which they are let and the date of such letter shall constitute the commencement of the term of this Lease. Whether or not Lessee has executed such letter of acceptance, taking possession of the leased premises by Lessee shall be deemed to establish conclusively that the improvements have been completed in accordance with the plans and specifications, are suitable for the purposes for which the leased premises are let, and that the leased premises are in good and satisfactory condition as of the date possession was so taken by Lessee except for latent defects, if any. 13.06 SQUARE FEET. "Square feet" or "square foot" as used in this Lease includes the area contained within the leased premises together with a common area percentage factor of the leased premises proportionate to the total building area. Page 12 ARTICLE 14.00 MISCELLANEOUS 14.01 WAIVER. Failure of Lessor to declare an event of default immediately upon its occurrence, or delay in taking any action in connection with an event of default shall not constitute a waiver of the default but Lessor shall have the right to declare the default at any time and take such action as is lawful or authorized under this Lease. Pursuit of any one or more of the remedies set forth in article 11.00 above shall not preclude pursuit of any one or more of the other remedies provided elsewhere in this Lease or provided by law, nor shall pursuit of any remedy constitute forfeiture or waiver of any rent or damages accruing to Lessor by reason of the violation of any of the terms, provisions or covenants of this Lease. Failure by Lessor to enforce one or more of the remedies provided upon an event of default shall not be deemed or construed to constitute a waiver of the default or of any other violation or breach of any of the terms, provisions and covenants contained in this Lease 14.02 ACT OF GOD. Lessor shall not be required to perform any covenant or obligation in this Lease, or be liable in damages to Lessee, so long as the performance or non-performance of the covenant or obligation is delayed, caused or prevented by an act of God, force majeure or by Lessee. 14.03 ATTORNEY'S FEES. In the event Lessee defaults in the performance of any of the terms, covenants, agreements or conditions contained in this Lease and Lessor places in the hands of an attorney the enforcement of all or any part of this Lease, the collection of any rent due or to become due or recovery of the possession of the leased premises, Lessee agrees to pay Lessor's costs of collection, including reasonable attorney's fees for the services of the attorney, whether suit is actually filed or not. 14.04 SUCCESSORS. This Lease shall be binding upon and inure to the benefit of Lessor and Lessee and their respective heirs, personal representatives, successors and assigns. It is hereby covenanted and agreed that should Lessor's interest in the leased premises cease to exist for any reason during the term of this Lease, then notwithstanding the happening of such event this Lease nevertheless shall remain unimpaired and in full force and effect, and Lessee hereunder agrees to attorn to the then owner of the leased premises. 14.05 RENT TAX. If applicable in the jurisdiction where the leased premises are situated, Lessee shall pay and be liable for all rental. sales and use taxes or other similar taxes, if any, levied or imposed by any city, state, county or other governmental body having authority, such payments to be in addition to all other payments required to be paid to Lessor by Lessee under the terms of this Lease. Any such payment shall be paid concurrently with the payment of the rent, additional rent, operating expenses or other charge upon which the tax is based as set forth above. 14.06 CAPTIONS. The captions appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or intent of any section. 14.07 NOTICE. All rent and other payments required to be made by Lessee shall be payable to Lessor at the address set forth in section 1.05. All payments required to be made by Lessor to Lessee shall be payable to Lessee at the address set forth in section 1.05, or at any other address within the United States as Lessee may specify from time to time by written notice. Any notice or document required or permitted to be delivered by terms of this Lease shall be Page 13 deemed to be delivered (whether or not actually received) when deposited in the United States Mail, postage prepaid, certified mail, return receipt requested addressed to the parties at the respective addresses set forth in section 1.05. 14.08 SUBMISSION OF LEASE. Submission of this Lease to Lessor for signature does not constitute a reservation of space or an option to lease. This Lease is not effective until execution by and delivery to both Lessor and Lessee. 14.09 CORPORATE AUTHORITY. If Lessee executes this Lease as a corporation, each of the persons executing this Lease on behalf of Lessee does hereby personally represent and warrant that Lessee is a duly authorized and existing corporation, that Lessee is qualified to do business in the state in which the leased premises are located, that the corporation has full right and authority to enter into this Lease, and that each person signing on behalf of the corporation is authorized to do so. In the event any representation or warranty is false, all persons who execute this lease shall be liable, individually, as Lessee. 14.10 SEVERABILITY. If any provision of this Lease or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Lease and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. 14.11 LESSOR'S LIABILITY. It Lessor shall be in default under this Lease and, if as a consequence of such default, Lessee shall recover a money judgment against Lessor such judgment shall be satisfied only out of the right, title and interest of Lessor in the building as the same may then be encumbered and neither Lessor nor any person or entity comprising Lessor shall be liable for any deficiency. In no event shall Lessee have the right to levy execution against any property of Lessor nor any person or entity comprising Lessor other than its interest in the building as herein expressly provided. 14.12 INDEMNITY. Lessor agrees to indemnify and hold harmless Lessee from and against any liability or claim, whether meritorious or not, arising with respect to any broker whose claim arises by, through or on behalf of Lessor. Lessee agrees to indemnify and hold harmless Lessor from and against any liability or claim, whether meritorious or not arising with respect to any broker whose claim arises by, through or on behalf of Lessee. ARTITCLE 15.00 AMENDMENT AND LIMITATION OF WARRANTIES 15.01 ENTIRE AGREEMENT. IT IS EXPRESSLY AGREED BY LESSEE AS A MATERIAL CONSIDERATON FOR THE EXECUITON OF THIS LEASE, THAT THIS LEASE, WITH THE SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT OF THE PARTIES; THAT THERE ARE AND WERE NO VERBAL REPRESENTATIONS, WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO THIS LEASE OR TO THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT INCORPORATED IN WRITING IN WRITING IN THIS LEASE. 15.02 AMENDMENT. THIS LEASE MAY NOT BE ALTERED, WAIVED. AMENDED OR EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY LESSOR AND LESSEE. Page 14 15.03 LIMITATION OF WARRANTIES. LESSOR AND LESSEE EXPRESSLY AGREE THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE, AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS LEASE. ARTICLE 16.00 OTHER PROVISIONS 16.01 MECHANICAL WARRANTY. Lessor shall certify and repair or replace to good and proper working condition the existing heating, ventilating, air conditioning plumbing and electrical systems. Also, in the event a major component, i.e., compressor, fan motor, evaporator coils or heat exchanger must be placed or repaired during Lessee's first twelve (12) months of occupancy, the cost of such replacement or repair shall be the responsibility of the Lessor. This warranty, however, is contingent upon Lessee maintaining a regularly scheduled preventative maintenance/service contract as per paragraph 5.05 of this Lease Agreement. 16.02 ADDENDUM TO LEASE: See Attached 16.03 BUILDINGS RULES AND REGULATIONS. See Attached. ARTICLE 17.00 SIGNATURES SIGNED at HOUSTON, TX this 21ST day of NOVEMBER 1996 LESSEE Vantage Houston. Inc. as agent for MLC-Enterprines, Inc. dba Greenbriar Holdings Houston, Ltd. Marine & Industrial Supply By: /S/ KIT DOLAN By: /S/ MICHAEL L. COOPER Kit Dolan, President Michael L- Cooper, President Page 15 EXHIBIT 10.28 ADDENDUM TO LEASE HAZARDOUS WASTE. The term "Hazardous Substances." as used in this lease shall mean pollutants, contaminants, toxic or hazardous wastes, or any other substances, the use and/or the removal of which is required or the use of which is restricted, prohibited or penalized by any "Environmental Law," which term shall mean any federal, state or local law, ordinance or other statute of a governmental or quasi-governmental authority relating to pollution or protection of the environment. Lessee hereby agrees that (i) no activity will be conducted on the premises that will produce any Hazardous Substance, except for such activities that are part of the ordinary course of Lessee's business activities (the "Permitted Activities") provided said Permitted Activities are conducted in accordance with all Environmental Laws and have been approved in advance in writing by Lesssor. Lessee shall be responsible for obtaining any required permits and paying any fees and providing any testing required by any governmental agency: (ii) the premises will not be used in any manner for the storage of any Hazardous Substances except for the temporary storage of such materials that are used in the ordinary course of Lessee's business (the "Permitted Materials") provided such Permitted Materials are properly stored in a manner and location meeting all Environmental Laws and approved in advance in writing by Lessor. Lessee shall be responsible for obtaining any required permits and paying any fees and providing any testing required by any governmental agency; (iii) no portion of the premises will be used as a landfill or a dump; (iv) Lessee will not install any underground or above ground tanks of any type; (v) Lessee will not allow any surface or subsurface conditions to exist or come into existence that constitute, or with the passage of time may constitute a public or private nuisance; (vi) Lessee will not permit any Hazardous Substances to be brought onto the premises, except for the Permitted Materials described below, and if so brought or found located thereon, the same shall be immediately removed, with proper disposal and all required cleanup procedures shall be diligently undertaken pursuant to all Environmental Laws. Lessor or Lessor's representative shall have the right but not the obligation to enter the premises for the purpose of inspecting the storage, use and disposal of Permitted Materials to ensure compliance with all Environmental Laws. Should it be determined, in Lessor's sole opinion, that said Permitted Materials are being improperly stored, used, or disposed of then Lessee shall immediately take such corrective action as requested by Lessor. Should Lessee fail to take such corrective action within 24 hours, Lessor shall have the right to perform such work and Lessee shall promptly reimburse Lessor for any and all costs associated with said work. If at any time during or after the term of the lease, the premises is found to be so contaminated or subject to said conditions, Lessee shall diligently institute proper and thorough cleanup procedure at Lessee's sole cost. Before taking any action to comply with hazardous material laws or to clean up hazardous material contaminating the premises, Lessee shall submit to Lessor a plan of action, including any and all plans and documents required by any hazardous material law to be submitted to a governmental authority (collectively, a "plan of action"). Before Lessee begins the actions necessary to comply with hazardous material laws or to clean up contamination from hazardous materials Lessor shall have (1) approved the nature, scope and timing of the plan of action, and (2) approved any and all covenants and agreements to effect the plan of action. Lessee agrees to indemnify and hold Lessor harmless from all claims, demands, actions, liabilities, costs, expenses, damages and obligations of any nature arising from or as a result of the use of the premises by Lessee. The foregoing indemnification and the responsibilities of Lessee shall survive the termination of expiration of this Lease. Permitted Materials: None. Page 16 CERTFICATE OF OCCUPANCY. Upon Occupancy of the leased premises, Lessee shall be required to obtain a Certificate of Occupancy (the CO) from the municipality in which the building is located. Failure of Lessee to obtain and deliver the CO to Lessor upon occupancy shall be a default which shall allow Lessor to pursue the remedies set forth in Article 11.02 of this Lease. 3.03 (cont'd) COMPLIANCE WITH LAWS, RULES AND REGULATIONS. Should the building of which the leased premises are a part not be classified as a "commercial facility which is a place of public accommodations" as defined in Title III of the American With Disabilities Act of 1990 (the Act) on the date hereof, and Lessee's use, alterations or improvements thereafter causes the building to be classified as such, Lessee shall be responsible for and shall indemnify Lessor against any and all costs and expenses of Lessor associated with complying with the Act. LIABILITY INSURANCE. Lessee shall, at its sole expense, maintain at all times during the term of this Lease public liability insurance with respect to the leased premises and the conduct or operation of Lessee's business therein naming Lessor as an additional insured with limits of not less that $1,000,000 for death or bodily injury to any one or more persons in a single occurrence and $500,000.00 for property damage. Lessee shall deliver a certificate of such insurance to Lessor on or before the commencement date and thereafter from time to time upon request. Page 17 EXHIBIT 10.28 RULES AND REGULATIONS 1. Lessor agrees to furnish two keys without charge. Additional keys will be furnished at nominal charge. Lessee shall change locks or install additional locks on doors without prior written consent of Lessor. Lessee shall not make or cause keys to be made duplicates of keys produced from Lessor without prior approval of Lessor. All keys to lease premises shall be surrendered to Lessor upon termination of this Lease. 2. Lessee will refer all contractors, contractor's representatives and installation technicians rendering any service on or to the leased Premises for Lessee to Lessor for Lessor's approval before performance of any contractual service. Lessee's contractors and installation technicians shall comply with Lessor's rules and regulations pertaining to construction and installation. This provision shall apply to all work performed on or about the leased premises or project including installation of telephones, telegraph equipment, electrical devices and attachments and installations of any nature affecting floors, walls, woodwork, trim, windows, ceilings and equipment or any other physical portion of the leased premises or project. 3. Lessee shall not at any time occupy any part of the leased premises or project as sleeping or lodging quarters. 4. Lessee shall not place, install or operate on the leased premises or in any part of the building any engine, stove or machinery, or conduct mechanical operations or cook thereon or therein, or place or use in or about the leased premises or project any explosives, gasoline, kerosene, oil acids, caustics, or any flammable, explosive or hazardous material without written consent of Lessor. 5. Lessor will not be responsible for lost or stolen personal property, equipment, money or jewelry from the leased premises or the project regardless of whether such loss occurs when the area is looked against entry or not. 6. No dogs, cats, fowl, or other animals shall be brought into or kept in or about the leased premises or project. 7. Employees of Lessor shall not receive or carry messages for or to any Lessee or other person or contract with or render free or paid services to any Lessee or to any of lessee's agents, employees or invitees. 8. None of the parking plaza, recreation or lawn areas, entries, passages, doors, elevators, hallways, or stairways shall be blocked or obstructed or any rubbish, litter, trash, or material of any nature places, emptied or thrown into these areas or such area used by Lessee's agents, employees or invitees at any time for purposes inconsistent with their designation by Lessor. 9. The water closets and other water fixtures shall not be used for any purpose other than those for which they were constructed, and any damage resulting to them from misuse or by the defacing or injury of any part of the building shall be borne by the person who shall occasion it. No person shall waste water by inferring with the faucets or otherwise. Page 18 10. No person shall disturb occupants of the building by the use of any radios, record players, tape recorders, musical instruments, the making of unseemly noises or any unreasonable use. 11. Nothing shall be thrown out of the windows of the building or down the stairways or other passages. 12. Lessee and its employees, agents and invitees shall Park their vehicles only in those parking areas designated by Lessor. Lessee shall furnish Lessor with state automobile license numbers of Lessee's vehicles and its employees' vehicles within five days, after taking possession of the leased premises and shall notify Lessor of any changes within five days after such change occurs. Lessee shall not leave any vehicle in a state of disrepair (including without limitation, flat tires, out of date inspection stickers or license plates) on the leased premises or project. If Lessee or its employees, agents or invitees park their vehicles in areas other than the designated parking areas or leave any vehicle in a state of disrepair, Lessor after giving written notice to Lessee of such violation, will have the right to remove such vehicles at Lessee's expense. 13. Parking in a parking garage or area shall be in compliance with all parking rules and regulations including any sticker or other identification system established by Lessor. Failure to observe and regulations shall terminate Lessee's right to use the parking garage or area and subject the vehicle in violation of the parking rules and regulations to removal and impoundment. No termination of parking privileges or removal of impoundment of a vehicle shall create any liability on Lessor or be deemed to interfere with Lessee's right to possession of its leased premises. Vehicles must be parked entirely within the stall lines and all directional signs, arrows and posted speed limits must be observed. Parking is prohibited in areas not striped for parking, in aisles, where "No Parking" signs are posted, on ramps, in cross hatched areas, and in other areas as may be designated by Lessor. Parking stickers or other forms of identification supplied by Lessor shall remain the property of Lessor and not the property of Lessee and are not transferable. Every person is required to park and lock his vehicle. All responsibility for damage to vehicles or persons is assumed by he owner of the vehicle or its driver. 14. Movement in or out of the building of furniture or office supplies and equipment, or dispatch or receipt by Lessee of any merchandise or materials which requires use of elevators or stairways, or movement through the building entrances or lobby, shall be restricted to our designated by Lessor. All such movement shall be under supervision of Lessor and carried out in the manner agreed between Lessee and Lessor by prearrangement before performance. Such prearrangement will include determination by Lessor of time, method, and routing of movement and limitations imposed by safety or other concerns which may prohibit any article, equipment or any other item from being brought into the building. Lessee assumes, and shall indemnify Lessor against, all risks and claims of damage to persons and properties arising in connection with any said movement. 15. Lessor shall not be liable for any damages from the stoppage of elevators for necessary or desirable repairs or improvements or delays of any sort or duration in connection with the elevator service. Page 19 16. Lessee not lay floor covering within the leased premises without written approval of the Lessor. The use of cement or other similar adhesive materials not easily removed with water is expressly prohibited. 17. Lessee agrees to cooperate and assist Lessor in the prevention of canvassing, soliciting and peddling within the building or project. 18. Lessor reserves the right to exclude from the building or project, between the hours of 6:00 p.m. and 7;00 a.m. on weekdays and at all hours on Saturday, Sunday and legal holidays, all persons who are not known to the building or project security personnel and who do not present a pass to the building signed by the Lessee. Each Lessee shall be responsible for all persons for whom he supplies a pass. 19. It is Lessor's desire to maintain the building or project the highest standard of dignity and good taste consistent with the comfort and convenience for Lessees. Any action or condition not meeting this high standard should be reported directly to Lessor. Your cooperation will be mutually beneficial and sincerely appreciated. Lessor reserves the right to make such other and further reasonable rules and regulations as in its judgment may from time to time be necessary, for the safety, care, and cleanliness of the leased premises and for the preservation of good order therein. Page 20 EX-10.29 18 EXHIBIT 10.29 EXHIBIT 10.29 TERMINATION OF LEASE WHEREAS, by that certain written Lease Agreement dated the 21st day of November, 1996("Lease"), Vantage Houston, Inc. as agent for Greenbriar Holdings Houston, Ltd., as Lessor, leased to MLC Enterprises, Inc. d.b.a. Marine and Industrial Supply, as Lessee, approximately 3,915 square feet of space located at 4544 South Pinemont, Suite 204, Houston, Texas 77041("leased premises") WHEREAS, Lessee is desirous of terminating its obligations under the Lease. NOW, THEREFORE, for and in consideration of the promises herein contained it is herewith agreed that Lessee shall be released from all liability under the Lease, and the Lease shall be canceled and of no further force and effect, as of Midnight, November 19th, 1998 upon payment by Lessee in the amount of $1,570.00, to be paid upon execution of this document. Lessee waives all claim to any monies previously paid to Lessor, including security deposit of $1,570.00. EXECUTED THIS 18TH DAY OF NOVEMBER, 1998. LESSOR: Vantage Houston, Inc. as Agent for Greenbriar Holdings Houston, Ltd. By: ------------------------------------- Stephen Dunn Title: Executive Vice President ---------------------------------- LESSEE: MLC Enterprises, Inc. d.b.a. Marine and Industrial Supply By: /s/ William A. Coskey ------------------------------------- Title: President ---------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----