Document:

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                                                                    EXHIBIT 10.1

                       FORBEARANCE AND AMENDMENT AGREEMENT

         This Forbearance and Amendment Agreement (the "Agreement"), dated as of
August 31, 2001 is by and between INDUSTRIAL HOLDINGS, INC., a Texas corporation
(the "Borrower"), a group of affiliated business entities of the Borrower as set
forth on the execution pages of this Agreement (collectively, the "Guarantors"),
NATIONAL BANK OF CANADA, a Canadian Chartered Bank ("Bank Canada"), HIBERNIA
NATIONAL BANK ("Hibernia Bank"), and COMERICA BANK_TEXAS, a Texas banking
association ("Comerica Bank") (collectively, the "Lenders").

RECITALS:

         Section 1. The Loan Papers. Borrower and Lenders entered into that
certain Amended and Restated Credit Agreement, as the same has been amended from
time to time, (the "Credit Agreement") dated June 17, 1999, pursuant to which
Lenders agreed, subject to the terms and provisions in the Credit Agreement, to
extend credit to Borrower in the aggregate amount of not more than
$55,000,000.00 all as more fully specified in the Credit Agreement. Borrower's
indebtedness to Lenders is evidenced by those certain Promissory Notes, executed
by Borrower and payable to the order of Lenders as follows: (i) $30,000,000.00
promissory note dated June 17, 1999 payable to the order of Comerica Bank; (ii)
$15,000,000.00 promissory note dated June 17, 1999 payable to the order of Bank
Canada; and (iii) $10,000,000.00 promissory note dated June 17, 1999 payable to
the order of Hibernia Bank (collectively, the "Notes"). Pursuant to the terms
and conditions set forth in the Fifth Amendment (herein so called) to the Credit
Agreement, the aggregate amount of the Lenders' obligation to extend credit to
Borrower was permanently reduced to $43,000,000.00 (the "Commitment"). The
Notes, the Credit Agreement, and any and all documents or instruments executed
in connection therewith or related thereto including, without limitation,
security agreements, assignments, consents, guaranties, pledges, corporate
resolutions, financing statements, or any other agreement, and all renewals,
extensions, amendments, modifications and restatements thereof, shall be
referred to herein as the "Loan Papers." The indebtedness and obligations of
Borrower and the Guarantors evidenced by the Loan Papers (the "Indebtedness")
are secured by security interests and liens in certain personal and real
property, wherever located, of the Borrower and Guarantors including, without
limitation, all accounts, inventory, equipment, general intangibles, fixtures,
instruments, chattel paper contract rights, documents, insurance proceeds, and
all funds in the accounts of Borrower at Lenders (collectively, the
"Collateral").

         Section 2. Maturity and Existing Defaults. Borrower and each Guarantor,
acknowledge that the Notes matured and became due and payable in full on this
date, August 31, 2001. As the Borrower has not repaid the Indebtedness in full,
an event of default exists under the Loan Papers. Additionally, Borrower, and
each Guarantor also acknowledge that other defaults and events of default under
the Loan Papers have occurred and continue and that those defaults and events of
default are described on Exhibit "A" hereto.

FORBEARANCE AND AMENDMENT AGREEMENT                                      PAGE 1

<PAGE>   2

         Section 3. Forbearance Request by Borrower. Borrower has requested that
Lenders forbear from exercising their rights and remedies arising as a result of
any and all of Borrower's current defaults, in order to allow Borrower
sufficient time to pay Lenders an amount of good and collected funds to satisfy
Borrower's Indebtedness to Lenders under the terms and provisions of the Loan
Papers. Pursuant to the terms and conditions hereof, Lenders are willing to
forbear from taking such action until September 30, 2001. Additionally, the
Borrower has advised the Lenders that it has entered into a Merger Agreement
(hereinafter defined) which when consummated will result in the payment in full
of the Indebtedness, but that such Merger Agreement requires the Borrower to
dispose of the EPG Group (hereinafter defined) and Beaird (hereinafter defined)
before the Merger Agreement can be consummated. The Borrower has further advised
the Lenders that it intends to enter into definitive disposition agreements by
not later than September 30, 2001 to sell the EPG Group and Beaird. Accordingly,
the Borrower has requested that the Lender's forbearance extend beyond September
30, 2001 to October 31, 2001. Provided that the Borrower is, on or before
September 30, 2001, in a position to demonstrate to the Lenders that it has
entered into such definitive agreements concerning the disposition of the EPG
Group and Beaird with bona fide third party purchasers that are financially
capable of completing such transactions, all in the manner hereinafter provided,
and subject to the provisions hereof, the Lenders are willing to extend the end
of the Forbearance Period from September 30, 2001 to October 31, 2001.

AGREEMENTS:

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants, representations, warranties and agreements contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

1. Definitions. Capitalized terms used and not otherwise defined herein shall
have the same meanings as set forth in the Credit Agreement. In addition, the
following terms, for the purposes of this Agreement, shall have the following
meanings:

         (a) "Beaird" means Beaird Industries, Inc., a Delaware corporation.

         (b) "Commitment" shall have the meaning ascribed to that term on page
         one hereof.

         (c) "Definitive Disposition Agreements" shall have the meaning ascribed
         to that term on page 4 hereof.

         (d) "Effective Date" shall mean the date that Lenders shall have
         notified Borrower in writing that Lenders have received such
         instruments, evidence and certificates as Lenders may reasonably
         require to consummate the transactions contemplated hereby and evidence
         the authority of Borrower

FORBEARANCE AND AMENDMENT AGREEMENT                                      PAGE 2

<PAGE>   3

to execute this Agreement and that the terms of this Agreement shall have come
into full force and effect.

         (e) "EnSerCo" shall mean EnSerCo, L.L.C., a limited liability company.

         (f) "EPG Group" shall mean Landreth Metal Forming, Inc., Rex Machinery
         Movers, Inc., OF Acquisition, L.P., Philform, Inc. and American Rivet
         Company, Inc.

         (g) "Fifth Amendment" shall have the meaning ascribed to that term on
         page one hereof.

         (h) "Forbearance Period" shall mean the period commencing on the
         Effective Date and continuing until 5:00 p.m., Houston, Texas time on
         September 30, 2001 unless extended until October 31, 2001 pursuant to
         the provisions of Section 2 hereof, but subject to earlier termination
         pursuant to the terms and provisions of this Agreement.

         (i) "Merger Agreement" shall mean that certain Agreement and Plan of
         Merger among Industrial Holdings, Inc., T_3 Energy Services, Inc. and
         First Reserve Fund VIII, a limited partnership dated as of May 7, 2001,
         as the same is amended from time to time, provided, where required, the
         Lenders consent to such amendment.

         (j) "Specified Defaults" shall mean the defaults of Borrower under the
         Loan Papers as more specifically described in Exhibit "A" attached
         hereto.

         (k) "Termination Event" shall mean the occurrence of any of the
         following: (i)any representation or warranty made or deemed made by
         Borrower in this Agreement shall be false, misleading or erroneous in
         any material respect when made or deemed to have been made, (ii)
         Borrower shall fail to perform, observe or comply with any covenant,
         agreement or term contained in this Agreement, (iii) any default or
         event of default, other than the Specified Defaults, shall occur under
         this Agreement or the Loan Papers, (iv) the Borrower shall commence a
         voluntary proceeding seeking liquidation, reorganization, or other
         relief with respect to itself or its debts under any bankruptcy,
         insolvency, or other similar law now or hereafter in effect or seeking
         the appointment of a trustee, receiver, liquidator, custodian, or other
         similar official of it or a substantial part of its property or shall
         consent to any such relief or to the appointment of or taking
         possession by any such official in an involuntary case or other
         proceeding commenced against it or shall make a general assignment for
         the benefit of creditors or shall generally fail to pay its debts as
         they become due or shall take any corporate action to authorize any of
         the foregoing, (v) an involuntary proceeding shall be commenced against
         the Borrower seeking liquidation, reorganization, or other

FORBEARANCE AND AMENDMENT AGREEMENT                                      PAGE 3

<PAGE>   4

         relief with respect to it or its debts under any bankruptcy,
         insolvency, or other similar law now or hereafter in effect or seeking
         the appointment of a trustee, receiver, liquidator, custodian, or other
         similar official for it or a substantial part of its property, should
         any substantial creditor of the Borrower, other than EnSerCo, commence
         or threaten, in writing, to commence any legal proceeding to collect
         indebtedness owing to them by the Borrower, the conclusion of the
         Forbearance Period or the Termination Date.

2. Forbearance by Lenders. Subject to the terms of this Agreement and so long as
no Termination Event shall have occurred, Lenders hereby agree to forbear until
5:00 p.m., Houston, Texas time on September 30, 2001, from exercising their
rights and remedies arising as a result of the occurrence of the Specified
Defaults. Notwithstanding the foregoing, the forbearance granted by Lenders
pursuant hereto shall not constitute and shall not be deemed to constitute a
waiver of any of the Specified Defaults or of any other default under the Loan
Papers.

         NOTWITHSTANDING THE FOREGOING, provided that the Borrower timely
presents evidence, satisfactory to each of the Lenders, that, prior to September
30, 2001: (i) it has entered into Definitive Disposition Agreements (herein so
called), containing no financing or due diligence contingencies (nor any other
contingencies which, in the discretion of the Lenders, constitute unusual
pre-conditions to closing and funding on transactions such as those described in
the Definitive Disposition Agreements), for the disposition of the EPG Group and
Beaird with bona fide third party purchasers that are financially capable of
completing the acquisition of such entities by not later than October 31, 2001;
(ii) in connection with the Definitive Disposition Agreements the Borrower has
received non-refundable, commercially reasonable cash escrow deposits (iii) the
Lenders have received, reviewed and approved the terms of each of the Definitive
Disposition Agreements under which (y) Subsidiaries are disposing of assets, or
(z) Subsidiaries are being sold; (iv) the Borrower is then in full compliance
with the terms of the Merger Agreement; (v) no amendment to the Merger Agreement
has diminished or delayed the proceeds to be received thereunder by the Lenders
and (vi) each of the Lenders acknowledges in writing that each of the above
preconditions have been met, then, and only then, shall the Forbearance Period
be extended through and including 5:00 p.m. Houston time, October 31, 2001, or
such earlier date a Termination Event occurs.

         At 5:00 p.m., Houston, Texas time September 30, 2001, or, in the case
the Forbearance Period is extended, at 5:00 p.m., Houston, Texas time October
31, 2001, the Forbearance Period shall terminate automatically without further
act or action by Lenders, and Lenders shall be entitled to exercise any and all
rights and remedies available under the Loan Papers and this Agreement, at law,
in equity, or otherwise without any further lapse of time, expiration of
applicable grace periods, or requirements of notice, all of which are hereby
expressly waived by Borrower and each Guarantor.

FORBEARANCE AND AMENDMENT AGREEMENT                                      PAGE 4

<PAGE>   5

3. Approval of First Amendment to Merger Agreement. Provided the First Amendment
to the Merger Agreement is in the form of that attached hereto as Exhibit "B"
and incorporated herein by reference for all purposes, the Lenders acknowledge,
consent to and waive any Event of Default arising as a result of such First
Amendment. Notwithstanding the foregoing, the Lenders do not hereby waive,
modify or amend the provisions of Section 9.3 or Section 9.7 of the Credit
Agreement including their right to review and approve the terms and conditions
of any final Definitive Disposition Agreement as it relates to (i) the sale of
assets by any Subsidiary or (ii) the sale of any one or more of the
Subsidiaries.

4. Representations and Warranties. To induce Lenders to enter into this
Agreement, Borrower hereby represents and warrants to Lenders that (a) Borrower
and each Guarantor are duly organized, validly existing and in good standing
under the laws of the state in which it was organized and formed, whether by
incorporation, partnership, limited liability company, or otherwise, without
limitation, and has the power and authority to perform its obligations under
this Agreement, and (b) the execution, delivery and performance of this
Agreement have been duly authorized by all requisite action on the part of
Borrower and each Guarantor and do not and will not violate the articles of
incorporation or bylaws, partnership agreement, or other governance document or
agreement of Borrower and each Guarantor or any other agreement to which
Borrower or any Guarantor is a party, or any law, rule or regulation, or any
order of any court, governmental authority or arbitrator by which it or any of
its properties is bound.

5. Covenants. Notwithstanding any provisions to the contrary contained in the
Credit Agreement, Borrower hereby covenants and agrees that, from and after the
date hereof, it will perform, observe and comply with each of the following
covenants:

         (a) Interest Rate. The interest rate on the Notes shall continue to
         accrue at a floating rate equal to the Base Rate (as defined in the
         Credit Agreement) plus three percent (3%). Such rate shall be adjusted,
         in the manner provided in the Credit Agreement upon the occurrence of
         any Termination Event.

         (b) Compliance with Loan Papers and this Agreement. Borrower will
         perform, observe and comply with each covenant, agreement and term
         contained in this Agreement and each of the Loan Papers except for the
         Specified Defaults.

         (c) Advances Limitations/Interest. For a period of time not to exceed
         from and after the Effective Date through the occurrence of a
         Termination Event, and subject to all borrowing base limitations set
         forth in the Credit Agreement and the terms and conditions of this
         Agreement, the Lenders agree to continue to make Advances under the
         Credit Agreement and Borrower and each Guarantor each agrees that each
         Advance shall constitute a valid and legally enforceable debt and
         obligation of the Borrower under the

FORBEARANCE AND AMENDMENT AGREEMENT                                      PAGE 5

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Notes, Credit Agreement and all other Loan Papers and this Agreement, as
appropriate, and that each Guarantor shall be obligated to Lenders under their
respective guaranties or other applicable Loan Papers and this Agreement with
respect to such Advances.

         (d) Additional Reporting Requirements. In addition to all reporting
         requirements under the Loan Papers, Borrower shall provide Lenders, on
         or before the first business day of each month, in a form acceptable to
         the Lenders, a rolling eight (8) weeks cash flow projection.

6. Fees. The Borrower acknowledges that, as a result of the amendment to Article
II, Section 2.8 of the Credit Agreement made in the Fifth Amendment, the
Borrower is currently obligated to pay the Agent for the benefit of the Lenders
a fee of $300,000.00 (the "5th Amendment Fee"). The Borrower acknowledges that
the 5th Amendment Fee has not been paid. The 5th Amendment Fee shall be due and
payable on the earliest to occur of the following: (i) a Termination Event; (ii)
the end of the Forbearance Period; (iii) the date the Borrower closes any sale
of its "EPG Group;" or (iv) the date of the closing of the merger pursuant to
the Merger Agreement. The Borrower also agrees that, in the event that the
Indebtedness is not repaid in full by the close of business on November 1, 2001,
it will owe the Agent, for the benefit of the Lenders, an additional fee of
$100,000.00, which fee shall be due and payable in full on November 1, 2001.

7. Amendments to Definitions Contained in Credit Agreement. The definition of
"Termination Date" contained in the Credit Agreement is hereby deleted and the
following substituted therefore:

                  "Termination Date" means 12:00 p.m. Houston time on October
         31, 2001 or such earlier time a Termination Event (as defined in the
         Forbearance Agreement dated as of August 31, 2001 by and between the
         Banks, the Borrower and the Guarantors) occurs.

8. Amendments to Article X of Credit Agreement (Financial Covenants). Article X,
Sections 10.10 and 10.12 of the Credit Agreement are both hereby revised by, in
both cases, deleting the current provisions in their entirety and replacing them
with the following:

Section 10.10 Consolidated Tangible Net Worth. The Borrower will maintain at all
times Consolidated Tangible Net Worth in an amount equal to not less than TWO
MILLION AND NO/100 DOLLARS ($2,000,000.00) plus ONE HUNDRED PERCENT (100%) of
all consolidated monthly net income which is earned after July 31, 2001.
Compliance with this ratio shall be tested monthly beginning August 31, 2001
commencing with the financial results for the month of July 2001.

FORBEARANCE AND AMENDMENT AGREEMENT                                      PAGE 6

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                  Section 10.12 EBITDA to Debt Service. The Borrower will
         maintain, for the time period set forth below a ratio of EBITDA to Debt
         Service, tested monthly, of not less than:

<Table>
<Caption>
                           Time Period                          Ratio
                           -----------                          -----
<S>                                                         <C>
                           July                             1.0 to 1.0
                           August                           0.75 to 1.0
                           September                        1.0 to 1.0
                           October                          1.25 to 1.0.
</Table>

                  This ratio shall be tested after eliminating from the
         financial results of the Borrower the impact of the financial
         statements of the EPG Group.

9. Amendment to Article XI of Credit Agreement (Defaults). All grace periods,
all notice periods, and all opportunities to cure that may be set forth in any
of the Loan Documents are hereby deleted in their entirety and the Borrower
acknowledges that from and after the date hereof there shall be no grace period
nor shall there be any notice and opportunity to cure including, but not limited
to, those grace, notice and/or cure periods set forth at Section 11.1(a) and
11.1(c) of the Credit Agreement. The Borrower and each Guarantor also hereby
waive demand, notice of non_payment, notice of acceleration and notice of intent
to accelerate as it relates to the Indebtedness and/or any instrument evidencing
the same. Additionally, the following Event of Default is added to the Credit
Agreement by adding to Article XI at Section 11.1 the following event:

         (z) should EnSerCo fail to promptly agree to any modification or
         amendment to the Merger Agreement.

10. Ratification of Loan Papers/Collateral. The Borrower and each Guarantor
hereby acknowledges, ratifies, and reaffirms and agrees that the Notes, Credit
Agreement, each of the other Loan Papers and the first priority, perfected liens
and security interests created thereby in favor of Lenders in the Collateral,
are and shall remain in full force and effect and binding on the Borrower and
Guarantors, and are enforceable in accordance with their respective terms and
applicable law. Borrower and each Guarantor hereby grants Lenders liens and
security interests in the Collateral and acknowledges, ratifies, and reaffirms
all of the terms and provisions of the Loan Papers, except as modified herein,
which are incorporated by reference as of the date hereof as if set forth herein
including, without limitation, all promises, agreements, warranties,
representations, covenants, releases, and indemnifications contained therein.
Borrower each hereby acknowledges, ratifies and confirms the Loan Papers and all
of their respective debts and obligations thereunder.

FORBEARANCE AND AMENDMENT AGREEMENT                                      PAGE 7

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11. Remedies Upon Termination Event. Upon the occurrence of a Termination Event,
the Forbearance Period shall terminate without further act or action by Lenders,
and Lenders shall be entitled immediately to institute foreclosure proceedings
against the Collateral and to exercise any and all of the Lenders' rights and
remedies available to it under the Loan Papers and this Agreement, at law, in
equity, or otherwise, without further notice, demand, presentment, notice of
dishonor, notice of acceleration, notice of intent to accelerate, notice of
intent to foreclose, notice of sale, notice of protest or other formalities of
any kind, all of which are hereby expressly waived by Borrower.

12. Acknowledgment of Defaults. Borrower each specifically acknowledges the
existence and continuation of the Specified Defaults.

13. Release and Covenant Not to Sue. THE BORROWER (IN ITS OWN RIGHT AND ON
BEHALF OF ITS RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, INDEPENDENT
CONTRACTORS, ATTORNEYS AND AGENTS) AND GUARANTORS (IN THEIR OWN RIGHT AND ON
BEHALF OF THEIR RESPECTIVE ATTORNEYS AND AGENTS) (THE "RELEASING PARTIES")
JOINTLY AND SEVERALLY RELEASE, ACQUIT, AND FOREVER DISCHARGE LENDERS AND THEIR
DIRECTORS, OFFICERS, EMPLOYEES, INDEPENDENT CONTRACTORS, ATTORNEYS AND AGENTS,
AND ATTORNEYS (THE "RELEASED PARTIES"), TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE STATE AND FEDERAL LAW, FROM ANY AND ALL ACTS AND OMISSIONS OF THE
RELEASED PARTIES, AND FROM ANY AND ALL CLAIMS, CAUSES OF ACTION, COUNTERCLAIMS,
DEMANDS, CONTROVERSIES, COSTS, DEBTS, SUMS OF MONEY, ACCOUNTS, RECKONINGS,
BONDS, BILLS, DAMAGES, OBLIGATIONS, LIABILITIES, OBJECTIONS, AND EXECUTIONS OF
ANY NATURE, TYPE, OR DESCRIPTION WHICH THE RELEASING PARTIES HAVE AGAINST THE
RELEASED PARTIES, INCLUDING, BUT NOT LIMITED TO, NEGLIGENCE, GROSS NEGLIGENCE,
USURY, FRAUD, DECEIT, MISREPRESENTATION, CONSPIRACY, UNCONSCIONABILITY, DURESS,
ECONOMIC DURESS, DEFAMATION, CONTROL, INTERFERENCE WITH CONTRACTUAL AND BUSINESS
RELATIONSHIPS, CONFLICTS OF INTEREST, MISUSE OF INSIDER INFORMATION,
CONCEALMENT, DISCLOSURE, SECRECY, MISUSE OF COLLATERAL, WRONGFUL RELEASE OF
COLLATERAL, FAILURE TO INSPECT, ENVIRONMENTAL DUE DILIGENCE, NEGLIGENT LOAN
PROCESSING AND ADMINISTRATION, WRONGFUL SETOFF, VIOLATIONS OF STATUTES AND
REGULATIONS OF GOVERNMENTAL ENTITIES, INSTRUMENTALITIES AND AGENCIES (BOTH CIVIL
AND CRIMINAL), RACKETEERING ACTIVITIES, SECURITIES AND ANTITRUST LAWS
VIOLATIONS, TYING ARRANGEMENTS, DECEPTIVE TRADE PRACTICES, BREACH OR ABUSE OF
ANY ALLEGED FIDUCIARY DUTY, BREACH OF ANY ALLEGED SPECIAL RELATIONSHIP, COURSE
OF CONDUCT OR DEALING, ALLEGED OBLIGATION OF FAIR DEALING, ALLEGED OBLIGATION OF
GOOD FAITH, AND ALLEGED OBLIGATION OF GOOD FAITH AND FAIR DEALING, WHETHER OR
NOT IN CONNECTION WITH OR RELATED TO THE LOAN PAPERS AND THIS AGREEMENT, AT LAW
OR IN EQUITY, IN CONTRACT IN TORT, OR OTHERWISE, KNOWN OR UNKNOWN, SUSPECTED OR
UNSUSPECTED (THE "RELEASED CLAIMS"). THE RELEASING PARTIES FURTHER AGREE TO
LIMIT ANY DAMAGES THEY MAY SEEK IN CONNECTION WITH ANY CLAIM OR CAUSE OF ACTION,
IF ANY, TO EXCLUDE ALL PUNITIVE AND EXEMPLARY DAMAGES, DAMAGES ATTRIBUTABLE TO
LOST PROFITS OR OPPORTUNITY, DAMAGES ATTRIBUTABLE TO MENTAL ANGUISH, AND DAMAGES
ATTRIBUTABLE TO PAIN AND SUFFERING, AND THE RELEASING PARTIES DO HEREBY WAIVE
AND RELEASE ALL SUCH DAMAGES WITH RESPECT TO ANY AND ALL CLAIMS OR CAUSES OF
ACTION WHICH MAY ARISE AT ANY TIME AGAINST ANY OF THE RELEASED PARTIES. THE
RELEASING PARTIES REPRESENT AND WARRANT THAT NO FACTS NOW EXIST WHICH COULD
PRESENTLY OR IN THE FUTURE COULD SUPPORT THE ASSERTION OF ANY OF THE RELEASED
CLAIMS AGAINST THE RELEASED PARTIES. THE RELEASING PARTIES FURTHER COVENANT NOT
TO SUE THE RELEASED PARTIES ON ACCOUNT OF ANY OF THE RELEASED CLAIMS, AND
EXPRESSLY WAIVE ANY AND ALL DEFENSES THEY MAY HAVE IN CONNECTION WITH THEIR
DEBTS AND OBLIGATIONS UNDER THE LOAN PAPERS AND THIS AGREEMENT. THIS PARAGRAPH
IS IN ADDITION TO AND SHALL NOT IN ANY WAY LIMIT

FORBEARANCE AND AMENDMENT AGREEMENT                                      PAGE 8

<PAGE>   9

ANY OTHER RELEASE, COVENANT NOT TO SUE, OR WAIVER BY THE RELEASING PARTIES IN
FAVOR OF THE RELEASED PARTIES. ACCEPTANCE OF EACH ADVANCE MADE AFTER THE DATE
HEREOF SHALL CONSTITUTE A RATIFICATION, ADOPTION AND CONFIRMATION BY THE
RELEASING PARTIES OF THE FOREGOING GENERAL RELEASE OF RELEASED CLAIMS THAT ARE
BASED IN WHOLE OR IN PART ON FACTS, WHETHER OR NOT NOW KNOWN OR UNKNOWN,
EXISTING ON OR PRIOR TO THE DATE OF RECEIPT OF ANY SUCH ADVANCE.

14. No Obligation of Lenders. Borrower and each Guarantor hereby acknowledges
and understands that upon the expiration or termination of the Forbearance
Period Lenders shall have the right to proceed to exercise any or all available
rights and remedies, which may include foreclosure on the Collateral and/or
institution of legal proceedings. Lenders shall have no obligation whatsoever to
extend the maturity of the Notes, waive any events of default or defaults, defer
any payments, or further forbear from exercising their rights and remedies.

15. No Implied Waivers. No failure or delay on the part of Lenders in
exercising, and no course of dealing with respect to, any right, power or
privilege under this Agreement, the Credit Agreement or any other Loan Paper
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege under this Agreement, the Credit Agreement or any
other Loan Paper preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.

16. Indemnification. This Agreement constitutes one of the transactions and
documents as to which the provisions of Section 13.2 of the Credit Agreement are
applicable.

17. Power of Attorney. Borrower and each Guarantor hereby irrevocably appoints
Lenders and Lenders' authorized agents and employees as their attorney-in-fact

FORBEARANCE AND AMENDMENT AGREEMENT                                      PAGE 9

<PAGE>   10

jointly and severally, and on their behalf, to endorse, deposit, collect, and
negotiate all checks, drafts and instruments received by, or which come in to
the possession of Lenders or otherwise. This power of attorney is coupled with
an interest and is irrevocable. Borrower and each Guarantor agrees and
acknowledges that Lenders are under no duty or obligation to verify the amounts
of such checks, drafts, or instruments, or to collect any accounts owing to
Borrower or such checks, drafts, or instruments.

18. Survival of Representations and Warranties. All representations and
warranties made in this Agreement or any other Loan Paper shall survive the
execution and delivery of this Agreement, and no investigation by Lenders or any
closing shall affect the representations and warranties or the right of Lenders
to rely upon them.

19. Review and Construction of Documents. Borrower and each Guarantor hereby
acknowledges, and represents and warrants to Lenders, that (a) Borrower and each
Guarantor has had the opportunity to consult with legal counsel of its own
choice and has been afforded an opportunity to review this Agreement with its
legal counsel, (b) Borrower and each Guarantor has reviewed this Agreement and
fully understand the effects thereof and all terms and provisions contained
herein, (c) Borrower and each Guarantor has executed this Agreement of its own
free will and volition, and (d) this Agreement shall be construed as if jointly
drafted by Borrower, each Guarantor and Lenders. The recitals contained in this
Agreement shall be construed to be part of the operative terms and provisions of
this Agreement.

20. ENTIRE AGREEMENT; AMENDMENT. THIS AGREEMENT EMBODIES THE FINAL, ENTIRE
AGREEMENT BETWEEN THE PARTIES HERETO REGARDING LENDERS' FORBEARANCE WITH RESPECT
TO THEIR RIGHTS AND REMEDIES ARISING AS A RESULT OF THE SPECIFIED DEFAULTS AND
SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF
AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO
ORAL AGREEMENTS AMONG THE PARTIES HERETO. The provisions of this Agreement may
be amended or waived only by an instrument in writing signed by the parties
hereto. The Notes, Credit Agreement and the other Loan Papers, as modified by
this Agreement, continue to evidence the agreement of the parties with respect
to the subject matter thereof.

FORBEARANCE AND AMENDMENT AGREEMENT                                      PAGE 10

<PAGE>   11

21. Notices. All notices, requests, demands and other communications under this
Agreement shall be given in accordance with the provisions of the Loan Papers.
In addition as of the Effective Date, Lenders shall be provided with notice via
first class mail, postage prepaid and via facsimile as follows: To Lenders:

                                    Comerica Bank - Texas
                                    1508 W. Mockingbird Lane
                                    Dallas, Texas 75235
                                    Fax No.: (214) 589-4724
                                    Telephone No.: (214) 589-4708
                                    Attention: Mr. Robin Kain - MC6510

                                            with a copy to:
                                    Winstead Sechrest & Minick P.C.
                                    910 Travis, Suite 2400
                                    Houston, TX  77002-5895
                                    Fax No. (713) 650-2400
                                            Telephone No. (713) 650-2718
                                            Attention: James W. Doyle, Esq.

                                    National Bank of Canada
                                    5200 Town Center Circle, Suite 302
                                            Boca Raton, FL 33486
                                            Fax No. (561) 367-1020
                                            Telephone No. (561) 367-1700 ext.
                                              228
                                            Attention: Pat Cloninger

                                            Hibernia National Bank
                                            225 Baronne Street, 10th Floor
                                            New Orleans, Louisiana 70112
                                            Fax No.:  (504) 533-5099
                                            Telephone No.:  (504) 533-2045
                                            Attention:  Ms. Tammy Angelety
                                                        Vice President

                                    To Borrower:

                                    Industrial Holdings, Inc.
                                    7135 Ardmore
                                    Houston, Texas 77054
                                    Fax No.: 713-749-9642
                                    Telephone No.: 713-747-1025
                                    Attention: Mr. Robert E. Cone

                                    To Guarantors:

                                    Industrial Holdings, Inc.
                                    7135 Ardmore
                                    Houston, Texas 77054
                                    Fax No.: 713-749-9642
                                    Telephone No.: 713-747-1025
                                    Attention: Mr. Robert E. Cone

22. Successors and Assigns. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective heirs, legal
representatives, successors

FORBEARANCE AND AMENDMENT AGREEMENT                                     PAGE 11

<PAGE>   12

and assigns, provided that Borrower each may not assign any rights or
obligations under this Agreement without the prior written consent of Lenders.

23. Arms-Length/Good Faith. This Agreement has been negotiated at arms-length
and in good faith by the parties hereto.

24. Governing Law/Venue. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas and applicable laws of the United
States of America. All disputes, claims, demands, actions, causes of action,
suits or proceedings by and among the parties to this Agreement shall be
adjudicated, litigated, heard or tried, if at all, exclusively in the state
courts of Dallas County, Texas or the United States District Court for the
Northern District of Texas, Dallas Division. Dallas, Texas shall be the
mandatory, exclusive place for the adjudication, litigation, hearing or trial of
any matter by and among the parties to this Agreement. Each party to this
Agreement hereby irrevocably waives any right to have any such dispute, claim,
demand, action, cause of action, suit or proceeding adjudicated, litigated,
heard or tried in any place other than Dallas County, Texas.

25. Subrogation. Any and all rights of any Guarantor against the Borrower
arising as a result of subrogation or otherwise shall in all respects be
subordinate and junior to the rights of Lenders under the Loan Papers and this
Agreement and applicable state and federal law.

26. Interpretation. Wherever the context hereof shall so require, the singular
shall include the plural, the masculine gender shall include the feminine gender
and the neuter and vice versa. The headings, captions and arrangements used in
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.

27. Severability. In case any one or more of the provisions contained in this
Agreement 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 hereof, and this Agreement shall be construed as if
such invalid, illegal, or unenforceable provision had never been contained
herein.

FORBEARANCE AND AMENDMENT AGREEMENT                                      PAGE 12

<PAGE>   13

28. Counterparts. This Agreement may be executed and delivered in any number of
counterparts, and by different parties hereto on separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts taken together shall constitute one and the same
instrument. Execution of this Agreement via facsimile shall be effective, and
signatures received via facsimile shall be binding upon the parties hereto and
shall be effective as originals.

29. Further Assurances. Borrower and each Guarantor agrees to execute,
acknowledge, deliver, file and record such further certificates, instruments and
documents, and to do all other acts and things, as may be requested by Lenders
as necessary or advisable to carry out the intents and purposes of this
Agreement.

30. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO
A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON
CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF THE AGENT
OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.

    [Remainder of Page Intentionally Left Blank _ Signature Pages to Follow]

FORBEARANCE AND AMENDMENT AGREEMENT                                      PAGE 13

<PAGE>   14

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

                                    BORROWER:

                                    INDUSTRIAL HOLDINGS, INC.,
                                    a Texas corporation

                                    By:   /s/ Robert Cone
                                        ---------------------------------------
                                              Robert Cone

FORBEARANCE AND AMENDMENT AGREEMENT                                      PAGE 14

<PAGE>   15

                                        GUARANTORS:

                                        The Rex Group, Inc., a Texas
                                          corporation;
                                        Rex Machinery Movers, Inc., a Texas
                                          corporation;
                                        First Texas Credit Corporation, a Texas
                                          corporation;
                                        Landreth Metal Forming, Inc., a Texas
                                          corporation formerly known as Landreth
                                          Engineering Company;
                                        Pipeline Valve Specialty, Inc., a Texas
                                          corporation (f/k/a Industrial
                                          Municipal Supply Company);
                                        Bolt Manufacturing Co., Inc., a Texas
                                          corporation, d/b/a Walker Bolt
                                          Manufacturing Co., Inc.;
                                        LSS-Lone Star-Houston, Inc., a Texas
                                          corporation;
                                        American Rivet Company, Inc., an
                                          Illinois corporation;
                                        Manifold Valve Services, Inc., a
                                          Delaware corporation, d/b/a Rogers
                                          Equipment & Supply Company;
                                        Philform, Inc., a Michigan corporation;
                                        GHX, Incorporated, a Texas corporation;
                                        Regal Machine Tool, Inc., a Texas
                                          corporation, f/k/a Rex Machine Tool,
                                          Inc.;
                                        WHIR Acquisition, Inc., a Texas
                                          corporation, d/b/a Ameritech Fastener
                                          Manufacturing;
                                        Moores Pump & Services, Inc., a
                                          Louisiana corporation;
                                        GHX, Incorporated of Louisiana, a
                                          Louisiana corporation;
                                        Beaird Industries, Inc., a Delaware
                                          corporation;
                                        United Wellhead Services, Inc., a Texas
                                          corporation;

                                        By:  /s/ ROBERT CONE
                                           ------------------------------------
                                                 Robert Cone
                                                 Chief Executive Officer

                                        LENDERS:

                                        COMERICA BANK_TEXAS,
                                        a Texas banking association

                                        By: /s/ ROBIN M. KAIN
                                           ------------------------------------
                                                Robin M. Kain
                                                Vice President

                                        NATIONAL BANK OF CANADA,
                                        a Canadian Chartered Bank

                                        By:
                                           ------------------------------------
                                        Name:
                                             ----------------------------------
                                        Title:
                                              ---------------------------------

                                        By:
                                           ------------------------------------
                                        Name:
                                             ----------------------------------
                                        Title:
                                              ---------------------------------

FORBEARANCE AND AMENDMENT AGREEMENT                                     PAGE 15

<PAGE>   16

                                        HIBERNIA NATIONAL BANK

                                        By: /s/ TAMMY ANGELETY
                                           ------------------------------------
                                        Name: Tammy Angelety
                                        Title: Vice President

FORBEARANCE AND AMENDMENT AGREEMENT                                     PAGE 16

<PAGE>   17

                                   EXHIBIT "A"
                               SPECIFIED DEFAULTS

The Borrower warrants that it is presently in default of only the following
provisions of the Credit Agreement:

1.       Failure to pay the Indebtedness in full on August 31, 2001.

2.       Failure to pay when due $15,000,000.00 owing to EnSerCo.

FORBEARANCE AND AMENDMENT AGREEMENT                                     PAGE 17<PAGE>   1
                                                                    EXHIBIT 10.2

             FIRST AMENDMENT TO FORBEARANCE AND AMENDMENT AGREEMENT

         THIS FIRST AMENDMENT TO FORBEARANCE AND AMENDMENT AGREEMENT (the "First
Amendment"), dated as of September 30, 2001, is between INDUSTRIAL HOLDINGS,
INC., a Texas corporation (the "Borrower"), a group of affiliated business
entities of the Borrower as set forth on the execution page of this First
Amendment (collectively the "Guarantors"), and COMERICA BANK-TEXAS (the
"Agent"), NATIONAL BANK OF CANADA, a Canadian chartered bank, HIBERNIA NATIONAL
BANK, a national banking association and COMERICA BANK-TEXAS, a Texas banking
association (collectively the "Lenders") and it amends that certain Forbearance
and Amendment Agreement more fully described below.

                                    RECITALS:

         A. Borrower, Guarantors, Lenders, and the Agent have entered into that
certain Forbearance and Amendment Agreement (the "Agreement") dated as of August
31, 2001.

         B. Borrower, Guarantors, Lenders and Agent now desire to amend the
Agreement as herein set forth.

         NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

                                    ARTICLE I

                                   Definitions

         1.1 Definitions. Capitalized terms used in this First Amendment, to the
extent not otherwise defined herein, shall have the same meanings as in the
Agreement. The following definition is revised by deleting that currently
appears in the definition section and replacing it with what follows:

                  "FORBEARANCE PERIOD" shall mean the period commencing on the
                  Effective Date and continuing until 5:00 p.m., Houston, Texas
                  time on October 5, 2001 unless extended until October 31, 2001
                  pursuant to the provisions of Section 2 hereof, but subject to
                  earlier termination pursuant to the terms and provisions of
                  this Agreement.

FIRST AMENDMENT TO FORBEARANCE
AND AMENDMENT  AGREEMENT

<PAGE>   2

                                   ARTICLE II

                                   Amendments

         2.1 Amendment to Section 2. Section 2 "Forbearance by Lenders" is
hereby revised by deleting what currently appears at Section 2 and replacing it
with the following:

                  FORBEARANCE BY LENDERS. Subject to the terms of this Agreement
                  and so long as no Termination Event shall have occurred,
                  Lenders hereby agree to forbear until 5:00 p.m., Houston,
                  Texas time on October 5, 2001, from exercising their rights
                  and remedies arising as a result of the occurrence of the
                  Specified Defaults. Notwithstanding the foregoing, the
                  forbearance granted by Lenders pursuant hereto shall not
                  constitute and shall not be deemed to constitute a waiver of
                  any of the Specified Defaults or of any other default under
                  the Loan Papers.

                  NOTWITHSTANDING THE FOREGOING, provided that the Borrower
                  timely presents evidence, satisfactory to each of the Lenders,
                  that, prior to 5:00 P.M. Houston time October 5, 2001: (i) it
                  has entered into Definitive Disposition Agreements (herein so
                  called), containing no due diligence contingencies (nor any
                  other contingencies which, in the discretion of the Lenders,
                  constitute unusual pre-conditions to closing and funding on
                  transactions such as those described in the Definitive
                  Disposition Agreements), for the disposition of each member of
                  the EPG Group and Beaird with bona fide third party purchasers
                  that are financially capable of completing the acquisition of
                  each such entities by not later than October 31, 2001; and
                  (ii) in connection with the Definitive Disposition Agreements
                  covering Rex Machinery Movers, Inc., OF Acquisition, L.P. and
                  Philform, Inc. if the proposed purchaser is the SMS Group,
                  L.L.C. and SMS Properties, L.L.C. the Borrower shall have
                  received non-refundable, commercially reasonable cash escrow
                  deposits and in addition (i) the Lenders have received,
                  reviewed and approved, prior to their becoming effective, the
                  terms of each of the Definitive Disposition Agreements (or the
                  Borrower's obligation under any Definitive Disposition
                  Agreements are made expressly subject to the Lenders'
                  approval) where (y) Subsidiaries are disposing of assets, or
                  (z) Subsidiaries are being sold; (ii) the Borrower is then in
                  full compliance with the terms of the Merger Agreement; (iii)
                  no amendment to the Merger Agreement has diminished or delayed
                  the proceeds to be received thereunder by the Lenders and (iv)
                  each of the Lenders acknowledges in writing that each of the
                  above preconditions have been met, then, and only then, shall
                  the Forbearance Period be extended through and including 5:00
                  p.m. Houston time, October 31, 2001, or such earlier date a
                  Termination Event Occurs.

                  At 5:00 p.m., Houston, Texas time October 5, 2001, or, in the
                  case the Forbearance Period is extended, at 5:00 p.m.,
                  Houston, Texas time

FIRST AMENDMENT TO FORBEARANCE
AND AMENDMENT  AGREEMENT

                                       2
<PAGE>   3

                  October 31, 2001, the Forbearance Period shall terminate
                  automatically without further act or action by Lenders, and
                  Lenders shall be entitled to exercise any and all rights and
                  remedies available under the Loan Papers and this Agreement,
                  at law, in equity, or otherwise without any further lapse of
                  time, expiration of applicable grace periods, or requirements
                  of notice, all of which are hereby expressly waived by
                  Borrower and each Guarantor.

         2.2 Amendment to Section 6. Section 6 "Fees" is hereby revised by
deleting what currently appears at Section 6 and replacing it with the
following:

                  FEES. The Borrower acknowledges that, as a result of the
                  amendment to Article II, Section 2.8 of the Credit Agreement
                  made in the Fifth Amendment, the Borrower is currently
                  obligated to pay the Agent for the benefit of the Lenders a
                  fee of $300,000.00 (the "5th Amendment Fee"). The Borrower
                  acknowledges that the 5th Amendment Fee has not been paid. The
                  5th Amendment Fee shall be due and payable on the earliest to
                  occur of the following: (i) a Termination Event; (ii) the end
                  of the Forbearance Period; (iii) the date the Borrower closes
                  the sale of any member of, or the assets of any member of, its
                  "EPG Group;" or (iv) the date of the closing of the merger
                  pursuant to the Merger Agreement. The Borrower also agrees
                  that, in the event that the Indebtedness is not repaid in full
                  by the close of business on November 1, 2001, it will owe the
                  Agent, for the benefit of the Lenders, an additional fee of
                  $100,000.00, which fee shall be due and payable in full on
                  November 1, 2001.

                                   ARTICLE III

                              Conditions Precedent

         3.1 Conditions. The effectiveness of this First Amendment is subject to
the satisfaction of the following conditions precedent:

                  (a) Agent shall have received all of the following, each dated
         (unless otherwise indicated) the date of this First Amendment, in form
         and substance satisfactory to Agent:

                           (1) Resolutions. Resolutions of the Board of
                  Directors of Borrower certified by its Secretary or an
                  Assistant Secretary which authorize the execution, delivery,
                  and performance by Borrower and each Guarantor of this
                  Amendment and the other Loan Documents to which Borrower and
                  each Guarantor is or is to be a party hereunder;

                           (2) Incumbency Certificate. A certificate of
                  incumbency certified by the Secretary or an Assistant
                  Secretary of Borrower and each Guarantor certifying the names
                  of the officers of Borrower and each Guarantor authorized to
                  sign this Amendment and each of the other Loan Documents to
                  which Borrower and each

FIRST AMENDMENT TO FORBEARANCE
AND AMENDMENT  AGREEMENT

                                       3
<PAGE>   4

                  Guarantor is or is to be a party hereunder (including the
                  certificates contemplated herein) together with specimen
                  signatures of such officers;

                           (3) Bylaws. The bylaws of Borrower and each Guarantor
                  certified by the Secretary or an Assistant Secretary of
                  Borrower or Guarantor;

                           (4) Governmental Certificates. Certificates of the
                  appropriate government officials of the state of incorporation
                  of Borrower and each Guarantor as to the existence and good
                  standing of Borrower and each Guarantor, each dated within ten
                  (10) days prior to the date of this First Amendment; and

                           (5) Additional Information. Agent shall have received
                  such additional documents, instruments and information as
                  Agent or its legal counsel, Winstead Sechrest & Minick P.C.,
                  may request.

                  (b) The representations and warranties contained herein and in
         all other Loan Documents, as amended hereby, shall be true and correct
         as of the date hereof as if made on the date hereof;

                  (c) All corporate proceedings taken in connection with the
         transactions contemplated by this Amendment and all documents,
         instruments, and other legal matters incident thereto shall be
         satisfactory to Agent and its legal counsel, Winstead Sechrest & Minick
         P.C.

                  (d) The Borrower shall have reimbursed the Agent for fees and
         expenses paid or the fees and expenses of the Agent incurred, in
         connection with this First Amendment to the Agreement including, but
         not limited to, the fees and expenses of the Agent's counsel.

                                   ARTICLE IV

                  Ratifications, Representations and Warranties

         4.1 Ratifications. The terms and provisions set forth in this First
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement and except as expressly modified and superseded by this
Amendment, the terms and provisions of the Agreement are ratified and confirmed
and shall continue in full force and effect. Borrower and Agent agree that the
Agreement as amended hereby shall continue to be legal, valid, binding and
enforceable in accordance with its terms.

         4.2 Representations and Warranties. Borrower hereby represents and
warrants to Agent that (i) the execution, delivery and performance of this First
Amendment and any and all other Loan Documents executed and/or delivered in
connection herewith have been authorized by all requisite corporate action on
the part of Borrower and will not violate the articles of incorporation or
bylaws of Borrower, (ii) the representations and warranties contained in the
Agreement, as amended hereby, and any other Loan Document are true and correct
on and as of the date hereof as though made on and as of the date hereof, (iii)
no Event of Default, other than

FIRST AMENDMENT TO FORBEARANCE
AND AMENDMENT  AGREEMENT

                                       4
<PAGE>   5

those described in the Agreement have occurred and is continuing and no event or
condition has occurred that with the giving of notice or lapse of time or both
would be an Event of Default, and (iv) other than as described in the Agreement,
Borrower is in full compliance with all covenants and agreements contained in
the Agreement as amended hereby.

                                    ARTICLE V

                                  Miscellaneous

         5.1 Survival of Representations and Warranties. All representations and
warranties made in this First Amendment or any other Loan Document including any
Loan Document furnished in connection with this Amendment shall survive the
execution and delivery of this Amendment and the other Loan Documents, and no
investigation by any Lender or any closing shall affect the representations and
warranties or the right of Lenders to rely upon them.

         5.2 Reference to Agreement. Each of the Loan Documents, including the
Agreement and any and all other agreements, documents, or instruments now or
hereafter executed and delivered pursuant to the terms hereof or pursuant to the
terms of the Agreement as amended hereby, are hereby amended so that any
reference in such Loan Documents to the Agreement shall mean a reference to the
Agreement as amended hereby.

         5.3 Expenses of Agent. As provided in the Agreement, Borrower agrees to
pay on demand all costs and expenses incurred by Agent in connection with the
preparation, negotiation, and execution of this First Amendment and the other
Loan Documents executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including without limitation the costs
and fees of Agent's legal counsel, and all costs and expenses incurred by Agent
in connection with the enforcement or preservation of any rights under the
Agreement, as amended hereby, or any other Loan Document, including without
limitation the costs and fees of Agent's legal counsel.

         5.4 Severability. Any provision of this First Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this First Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.

         5.5 Applicable Law. This First Amendment and all other Loan Documents
executed pursuant hereto shall be deemed to have been made and to be performable
in Dallas, Dallas County, Texas and shall be governed by and construed in
accordance with the laws of the State of Texas.

         5.6 Successors and Assigns. This First Amendment is binding upon and
shall inure to the benefit of the Lenders and Borrower and their respective
successors and assigns, except Borrower may not assign or transfer any of its
rights or obligations hereunder without the prior written consent of the
Lenders.

FIRST AMENDMENT TO FORBEARANCE
AND AMENDMENT  AGREEMENT

                                       5
<PAGE>   6

         5.7 Counterparts. This First Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.

         5.8 Effect of Waiver. No consent or waiver, express or implied, by the
Lenders to or for any breach of or deviation from any covenant, condition or
duty by Borrower or Guarantor shall be deemed a consent or waiver to or of any
other breach of the same or any other covenant, condition or duty.

         5.9 Headings. The headings, captions, and arrangements used in this
First Amendment are for convenience only and shall not affect the interpretation
of this First Amendment.

         5.10 Non-Application of Chapter 346 of Texas Finance Code. The
provisions of Chapter 346 of the Texas Finance Code are specifically declared by
the parties hereto not to be applicable to this First Amendment or any of the
other Loan Documents or to the transactions contemplated hereby.

         5.11 RELEASE AND COVENANT NOT TO SUE. THE BORROWER (IN ITS OWN RIGHT
AND ON BEHALF OF ITS RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, INDEPENDENT
CONTRACTORS, ATTORNEYS AND AGENTS) AND GUARANTORS (IN THEIR OWN RIGHT AND ON
BEHALF OF THEIR RESPECTIVE ATTORNEYS AND AGENTS) (THE "RELEASING PARTIES")
JOINTLY AND SEVERALLY RELEASE, ACQUIT, AND FOREVER DISCHARGE THE LENDERS AND
THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, INDEPENDENT CONTRACTORS,
ATTORNEYS AND AGENTS, AND ATTORNEYS (THE "RELEASED PARTIES"), TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE STATE AND FEDERAL LAW, FROM ANY AND ALL ACTS AND
OMISSIONS OF THE RELEASED PARTIES, AND FROM ANY AND ALL CLAIMS, CAUSES OF
ACTION, COUNTERCLAIMS, DEMANDS, CONTROVERSIES, COSTS, DEBTS, SUMS OF MONEY,
ACCOUNTS, RECKONINGS, BONDS, BILLS, DAMAGES, OBLIGATIONS, LIABILITIES,
OBJECTIONS, AND EXECUTIONS OF ANY NATURE, TYPE, OR DESCRIPTION WHICH THE
RELEASING PARTIES HAVE AGAINST THE RELEASED PARTIES, INCLUDING, BUT NOT LIMITED
TO, NEGLIGENCE, GROSS NEGLIGENCE, USURY, FRAUD, DECEIT, MISREPRESENTATION,
CONSPIRACY, UNCONSCIONABILITY, DURESS, ECONOMIC DURESS, DEFAMATION, CONTROL,
INTERFERENCE WITH CONTRACTUAL AND BUSINESS RELATIONSHIPS, CONFLICTS OF INTEREST,
MISUSE OF INSIDER INFORMATION, CONCEALMENT, DISCLOSURE, SECRECY, MISUSE OF
COLLATERAL, WRONGFUL RELEASE OF COLLATERAL, FAILURE TO INSPECT, ENVIRONMENTAL
DUE DILIGENCE, NEGLIGENT LOAN PROCESSING AND ADMINISTRATION, WRONGFUL SETOFF,
VIOLATIONS OF STATUTES AND REGULATIONS OF GOVERNMENTAL ENTITIES,
INSTRUMENTALITIES AND AGENCIES (BOTH CIVIL AND CRIMINAL), RACKETEERING
ACTIVITIES, SECURITIES AND ANTITRUST LAWS VIOLATIONS, TYING ARRANGEMENTS,
DECEPTIVE TRADE PRACTICES,

FIRST AMENDMENT TO FORBEARANCE
AND AMENDMENT  AGREEMENT

                                       6
<PAGE>   7

BREACH OR ABUSE OF ANY ALLEGED FIDUCIARY DUTY, BREACH OF ANY ALLEGED SPECIAL
RELATIONSHIP, COURSE OF CONDUCT OR DEALING, ALLEGED OBLIGATION OF FAIR DEALING,
ALLEGED OBLIGATION OF GOOD FAITH, AND ALLEGED OBLIGATION OF GOOD FAITH AND FAIR
DEALING, WHETHER OR NOT IN CONNECTION WITH OR RELATED TO THE AGREEMENT OR THE
NOTES OR VARIOUS SECURITY DOCUMENTS, GUARANTIES AND ANY AND ALL DOCUMENTS
RELATED THERETO (THE "LOAN PAPERS") OR THIS AGREEMENT, AT LAW OR IN EQUITY, IN
CONTRACT IN TORT, OR OTHERWISE, KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED (THE
"RELEASED CLAIMS"). THE RELEASING PARTIES FURTHER AGREE TO LIMIT ANY DAMAGES
THEY MAY SEEK IN CONNECTION WITH ANY CLAIM OR CAUSE OF ACTION, IF ANY, TO
EXCLUDE ALL PUNITIVE AND EXEMPLARY DAMAGES, DAMAGES ATTRIBUTABLE TO LOST PROFITS
OR OPPORTUNITY, DAMAGES ATTRIBUTABLE TO MENTAL ANGUISH, AND DAMAGES ATTRIBUTABLE
TO PAIN AND SUFFERING, AND THE RELEASING PARTIES DO HEREBY WAIVE AND RELEASE ALL
SUCH DAMAGES WITH RESPECT TO ANY AND ALL CLAIMS OR CAUSES OF ACTION WHICH MAY
ARISE AT ANY TIME AGAINST ANY OF THE RELEASED PARTIES. THE RELEASING PARTIES
REPRESENT AND WARRANT THAT NO FACTS NOW EXIST WHICH COULD PRESENTLY OR IN THE
FUTURE COULD SUPPORT THE ASSERTION OF ANY OF THE RELEASED CLAIMS AGAINST THE
RELEASED PARTIES. THE RELEASING PARTIES FURTHER COVENANT NOT TO SUE THE RELEASED
PARTIES ON ACCOUNT OF ANY OF THE RELEASED CLAIMS, AND EXPRESSLY WAIVE ANY AND
ALL DEFENSES THEY MAY HAVE IN CONNECTION WITH THEIR DEBTS AND OBLIGATIONS UNDER
THE LOAN PAPERS AND THIS AGREEMENT. THIS PARAGRAPH IS IN ADDITION TO AND SHALL
NOT IN ANY WAY LIMIT ANY OTHER RELEASE, COVENANT NOT TO SUE, OR WAIVER BY THE
RELEASING PARTIES IN FAVOR OF THE RELEASED PARTIES.

         ACCEPTANCE OF EACH ADVANCE MADE AFTER THE DATE HEREOF SHALL CONSTITUTE
A RATIFICATION, ADOPTION AND CONFIRMATION BY THE RELEASING PARTIES OF THE
FOREGOING GENERAL RELEASE OF RELEASED CLAIMS THAT ARE BASED IN WHOLE OR IN PART
ON FACTS, WHETHER OR NOT NOW KNOWN OR UNKNOWN, EXISTING ON OR PRIOR TO THE DATE
OF RECEIPT OF ANY SUCH ADVANCE.

         5.12 ENTIRE AGREEMENT. THIS FIRST AMENDMENT AND ALL OTHER INSTRUMENTS,
DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS FIRST
AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND
SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT
BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL
AGREEMENTS AMONG THE PARTIES HERETO.

FIRST AMENDMENT TO FORBEARANCE
AND AMENDMENT  AGREEMENT

                                       7
<PAGE>   8

         5.13 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF THE AGENT OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION, OR
ENFORCEMENT THEREOF.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

FIRST AMENDMENT TO FORBEARANCE
AND AMENDMENT  AGREEMENT

                                       8
<PAGE>   9

Executed as of September 30, 2001.

                                    BORROWER:

                                    INDUSTRIAL HOLDINGS, INC.,
                                    a Texas corporation

                                    By: /s/ ROBERT CONE
                                       -----------------------------------------
                                    Name: Robert Cone
                                          President & Chief Executive Officer

                                    Address for Notices:

                                    Industrial Holdings, Inc.
                                    7135 Ardmore
                                    Houston, Texas 77054
                                    Fax No.: 713-749-9642
                                    Telephone No.: 713-747-1025
                                    Attention: Mr. Robert E. Cone

                                     AGENT:

                                     COMERICA BANK-TEXAS,
                                     a Texas banking association

                                     By: /s/ ROBIN M. KAIN
                                        ----------------------------------------
                                              Robin M. Kain
                                              Vice President

                                     Address for Notices:

                                     Comerica Bank - Texas
                                     P.O. Box 650282
                                     Dallas, Texas 75265-0282
                                     Fax No.:  (214) 589-4724
                                     Telephone No.:  (214) 589-4718
                                     Attention:  Mr. Joseph Sullivan
                                                    MC 6510

FIRST AMENDMENT TO FORBEARANCE
AND AMENDMENT  AGREEMENT

                                       9
<PAGE>   10

                                     With a copy to:

                                     Comerica Bank - Texas
                                     P.O. Box 650282
                                     Dallas, Texas  75265-0282
                                     Fax No.: (214) 589-4724
                                     Telephone No.: (214) 589-4708
                                     Attention: Robin M. Kain
                                                MC 6510

                                     LENDERS:

                                     COMERICA BANK-TEXAS
                                     a Texas banking association

                                     By: /s/ ROBIN M. KAIN
                                        ----------------------------------------
                                              Robin M. Kain
                                              Vice President

                                     Address for Notices:

                                     Comerica Bank - Texas
                                     P.O. Box 650282
                                     Dallas, Texas 75265-0282
                                     Fax No.: (214) 589-4724
                                     Telephone No.: (214) 589-4718
                                     Attention:  Mr. Joseph Sullivan
                                                    MC 6510

                                     With a copy to:

                                     Comerica Bank - Texas
                                     P.O. Box 650282
                                     Dallas, Texas  75265-0282
                                     Fax No.: (214) 589-4724
                                      Telephone No.: (214) 589-4708
                                      Attention: Robin M. Kain
                                                 MC 6510

FIRST AMENDMENT TO FORBEARANCE
AND AMENDMENT  AGREEMENT

                                       10
<PAGE>   11

                                     HIBERNIA NATIONAL BANK
                                     a national banking association

                                     By: /s/ TAMMY ANGELETY
                                        ----------------------------------------
                                              Tammy Angelety
                                              Vice President

                                     Address for Notices:

                                     Hibernia National Bank
                                     225 Barone Street., 10th Fl.
                                     New Orleans, Louisiana 70112
                                     Fax No.: (504) 533-5099
                                     Telephone No.: (504) 533-2045
                                     Attention: Ms. Tammy Angelety

                             NATIONAL BANK OF CANADA,
                             a Canadian charter bank

                             By:
                                ------------------------------------------------
                             Name:
                                  ----------------------------------------------
                             Title:
                                   ---------------------------------------------

                             By:
                                ------------------------------------------------
                             Name:
                                  ----------------------------------------------
                             Title:
                                   ---------------------------------------------

FIRST AMENDMENT TO FORBEARANCE
AND AMENDMENT  AGREEMENT

                                       11
<PAGE>   12

                              Address for Notices:

                              National Bank of Canada
                              5200 Town Center Circle, Suite 302
                              Boca Raton, Florida 33486
                              Fax No.: (561) 367-1020
                              Telephone No.: (561) 367-1700
                              Attention: Ms. Patricia Cloninger

                              With a copy to:

                              National Bank of Canada

                              ----------------------------------

                              ----------------------------------
                              Fax No.:
                                      --------------------------
                              Telephone No.:
                                            --------------------
                              Attention:
                                        ------------------------

FIRST AMENDMENT TO FORBEARANCE
AND AMENDMENT  AGREEMENT

                                       12
<PAGE>   13

         Guarantors hereby consent and agree to this First Amendment and agree
that the Guaranty shall remain in full force and effect and shall continue to be
the legal, valid and binding obligation of Guarantors enforceable against
Guarantors in accordance with its terms.

                            GUARANTORS:

                            The Rex Group, Inc., a Texas corporation
                            Rex Machinery Movers, Inc., a Texas corporation
                                 d/b/a Ideal Products
                            First Texas Credit Corporation, a Texas corporation
                            Landreth Metal Forming, Inc., a Texas corporation
                            Pipeline Valve Specialty, Inc., a Texas corporation
                                (f/k/a Industrial Municipal Supply Company)
                            Bolt Manufacturing Co., Inc., a Texas corporation,
                                d/b/a Walker Bolt Manufacturing Co., Inc.
                            LSS-Lone Star-Houston, Inc., a Texas corporation
                            American Rivet Company, Inc., an Illinois
                             corporation
                            Manifold Valve Services, Inc., a Delaware
                                corporation, d/b/a Rogers Equipment & Supply
                                Company
                            Philform, Inc., a Michigan corporation
                            GHX, Incorporated, a Texas corporation
                            Regal Machine Tool, Inc., a Texas corporation, f/k/a
                                Rex Machine Tool, Inc.
                            WHIR Acquisition, Inc., a Texas corporation, d/b/a
                            Ameritech Fastener Manufacturing
                            Moores Pump and Services, Inc., a Louisiana
                               corporation
                            GHX, Incorporated of Louisiana, a Louisiana
                             corporation
                            Beaird Industries, Inc., a Delaware corporation
                            United Wellhead Services, Inc., a Texas corporation

                            By:
                               -------------------------------------------------
                            Name:
                                 -----------------------------------------------
                                 Chief Executive Officer

FIRST AMENDMENT TO FORBEARANCE
AND AMENDMENT  AGREEMENT

                                       13

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