Exhibit 10.16

 

SECURITY AGREEMENT

 

DEBTOR

 

LANCER PARTNERSHIP, LTD.,

a Texas limited partnership

 

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6655 LANCER BLVD. SAN

ANTONIO, TEXAS 78219

 

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The undersigned Debtor, Owner of Collateral, whether one or more, and
INTERNATIONAL BANK OF COMMERCE 130 E. TRAVIS. SAN ANTONIO. TEXAS 78205
(hereinafter called “Secured Party”) enter into this Security Agreement and for
good and valuable consideration, the receipt of which is hereby acknowledged,
and agree as follows:

 

SECTION I: Creation of Security Interest.

Debtor hereby grants to Secured Party a first and exclusive lien and security
interest in all of the personal property of Debtor, wherever located, and now
owned or hereafter acquired, including the property described in Section II of
this Security Agreement (the “Collateral”) to secure payment and performance of
the Indebtedness (described in Section III below).

 

SECTION II: Description of Collateral.

1.     The security interest is granted in the following collateral:

 

a. Describe the collateral and, as applicable, check boxes and provide
information indicated below.

 

SEE EXHIBIT “A” ATTACHED HERETO AND INCORPORATED HEREIN.

 

 

b.                                      1     o    The above goods are to become
fixtures on: (describe real estate; attach additional sheet, if needed)

 

 

2     o    The above timber is standing on: (describe real estate; attach
additional sheet, if needed)

 

 

3     o    The above minerals or the like (including oil and gas) or accounts
will be financed at the well head or mine head of the well or mine located on:
(describe real estate; attach additional sheet, if needed)

 

c.                                       If b.1, b.2, or b.3 above is checked,
this security agreement is to be filed for record in the” real estate records.
(The description of the real estate must be sufficiently specific as to give
constructive notice of a mortgage on the realty).

 

The Debtor does not have an interest of record; the name of a record owner of
the real estate is

 

D                                       All substitutes and replacements for,
accessions, attachments, and other additions to, and tools, parts, and equipment
used in connection with, the above property; and the increase and the unborn
young of animals and poultry.

 

E                                         All property similar to the above
hereafter acquired by Debtor.

 

F                                         All proceeds, products, and profits of
the Collateral are included. Coverage of products and proceeds for financing
statement purposes is not to be construed as giving Debtor any additional rights
with respect to the Collateral, and Debtor is not authorized to sell, lease, or
otherwise transfer, furnish under contracts of service, manufacture, process, or
assemble the Collateral, except in accordance with the provisions of this
Security Agreement. Any additional sheets describing the Collateral, the real
estate, or other matters are incorporated in and made a part of this instrument.

 

2.               Classify the collateral under one or more of the following
Texas Business And Commerce Code classifications:

 

o Consumer Goods

ý Equipment (business use)

o Equipment (farm use)

o Investment Property

o Instrument

ý Accounts

o Deposit Accounts

o Commercial Tort Claims

o Agricultural Liens

o Farm Products

o General Intangibles

ý Inventory

o Chattel Paper

o Letter-Of-Credit Rights

o Support Obligations

o Liens on Government Assets

o Sales Of Payment Intangibles and Promissory Notes

 

And to the extent not listed above as original collateral all proceeds and
products of the foregoing.

 

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Any term used in the Texas Business And Commerce Code (the “Code”) and not
defined in this Security Agreement has the meaning given to the term in the
Code.

 

3. o                        If this block is checked, this is a purchase money
security interest, and Debtor will use funds advanced to purchase the
Collateral, or Secured Party may disburse funds direct to the seller of the
Collateral, and to purchase insurance on the Collateral. To the extent Debtor
uses the Loan to purchase Collateral, Debtor’s repayment of the Loan shall apply
on a “first-in-first-out” basis so that the portion of the Loan used to purchase
a particular item of Collateral shall be paid in the chronological order the
Debtor purchased the Collateral.

 

4.                                       If any of the Collateral is accounts,
give the location of the office where the records concerning them are kept (if
other than Debtor’s address shown above):

 

5.                                       “Commercial Tort Claims”, a subcategory
of General Intangibles, means the Debtor’s claim
for                                            against

 

SECTION III: INDEBTEDNESS

 

This assignment and grant is made to Secured Party to secure the prompt and
unconditional payment of, and the first and exclusive security interest granted
hereby to Secured Party secures the payment and performance of, the following
(collectively, the. “Indebtedness”):

 

Any and all indebtedness, liabilities and/or obligations of Debtor, or any of
the undersigned if more than one, to Secured Party, jointly and/or severally,
and in any capacity, whether as borrower, guarantor, or otherwise, now or
hereafter owing, created and/or arising, and regardless of how evidenced or
arising, as to outstanding and unpaid principal, accrued and unpaid interest,
attorneys’ fees, collection costs, and all other sums owing by Debtor, or any of
the undersigned if more than one, including but not limited to that certain Real
Estate Lien Note dated of even date executed by Debtor and made payable to the
order of Secured Party in the original principal sum of $l5,OOO,OOO.OO

and further without limitation to:

 

A.                                   any and all indebtedness of:

 

 

(if indebtedness is not solely of Debtor) or any of them if more than one, to
Assignee, jointly and/or severally, and in any capacity, whether as borrower,
guarantor, or otherwise, now or hereafter owing, created and/or arising, and
regardless of how evidenced or arising, including, without limitation:

 

                                                                                                                                                                                                                                  

B.                                     any commercial loan or indebtedness;

C.                                     any credit card or other consumer type of
loan;

D.                                    any indebtedness relating to checking or
savings accounts (overdrafts, fees, etc.);

E.                                      any expenses incurred in the protection
or maintenance of the collateral securing any of such liabilities, loans, and
obligations;

F.                                      any expenses incurred in the collection
of any indebtedness and/or obligation;

G.                                     any letters of credit and/or indebtedness
arising out of, or advanced to pay, letters of credit transactions;

H.                                    any indebtedness, however, evidenced,
whether by promissory note, bookkeeping entry, electronic transfer, checks,
drafts or other items, or by any other manner or form;

I.                                         any other indebtedness of Debtor
and/or of the persons or entities set forth in subparagraph A. above to any
financial institution affiliated with International Bancshares Corporation,
jointly and/or severally, and in any capacity, whether as borrower, guarantor,
or otherwise, now or hereafter owing, created and/or arising, and regardless of
how evidenced or arising;

J.                                        any and all extensions, modifications,
substitutions and/or renewals of any of the above described indebtedness;

K.                                    any and all costs incurred by Secured
Party to obtain, preserve and enforce this Security Agreement, collect the
Indebtedness, and maintain and preserve the Collateral including without
limitation, all taxes, assessments, attorneys’ fees and legal expenses, and
expenses of sale;

L.                                      the sale by Debtor and the purchase by
Secured Party of Accounts;

M.                                 the sale by Debtor and the purchase by
Secured Party of Chattel Paper;

N.                                    the sale by Debtor and the purchase by
Secured Party of Payment Intangibles;

O.                                    the sale by Debtor and the purchase by
Secured Party of Promissory Notes; and

P.                                      any of the foregoing that arises after
the filing of a petition in bankruptcy by or against Debtor under the Bankruptcy
Code, even if the obligations do not accrue because of the automatic stay under
Bankruptcy Code 362 or otherwise.

 

To the extent allowed by law, for purposes hereof it is intended that the
Indebtedness include all classes of Indebtedness, whether evidenced by notes,
open accounts, overdrafts, or otherwise, and whether direct, indirect or
contingent, regardless of class, form or purpose and including but not limited
to, loans for consumer, agricultural, business or personal purposes.

 

The foregoing shall under no circumstances be limited to the existence or
non-existence of collateral for such Indebtedness, or the type of collateral
covered thereby. The Indebtedness does not include amounts owed pursuant to a
homestead equity loan.

 

Notices:  Notices and other communications pertaining to this Agreement shall be
in writing and shall be effective only if delivered in person or mailed U.S.
certified mail, return receipt requested, postage prepaid, to Secured Party if
sent to:

INTERNATIONAL BANK OF COMMERCE. 130 E. TRAVIS, SAN ANTONIO, TEXAS 78205
Attention: THOMAS L. TRAVIS, and sent via United States Mail to Debtor, duly
stamped and addressed to Debtor either at the street address, the first shown
hereinabove, or at the mailing address, if any, given by and/or for Debtor at
the beginning of this agreement (or at such other address as may have been
designated most recently in writing by Debtor to Secured Party); provided,
however, actual notice to Debtor, however given or received, shall always be
effective when given or received. Except as otherwise required by law, any
notice given or made pursuant hereto shall be deemed effectively given on the
date of personal delivery or, if mailed, on the date such notice is deposited in
the U.S. Mail, if received by Secured Party.

 

SECTION IV: PERFECTION OF SECURITY INTERESTS.

 

1.                                      Filing Of Financing Statement.

 

(i)      Debtor hereby authorizes Secured Party to file a Financing Statement,
an Amended Financing Statement and a Continuation Financing Statement
(collectively referred to as the “Financing Statement”) describing the
Collateral.

(ii)     Debtor hereby “authorizes Secured Party to file a Financing Statement
describing any agricultural liens or other statutory liens held by Secured
Party.

(iii)    Secured Party shall receive prior to the Closing an official report
from the Secretary of State of each Collateral State, the Chief Executive Office
State, and the Debtor State (each as defined below) (the “SOS Reports”)
indicating that Secured Party’s security interest is prior to all other security
interests or other interests reflected in the report.

(iv)    Secured Party shall receive at any time following the Closing an SOS
Report indicating that Secured Party’s security interest is prior to all other
security interests or other interests reflected in the report.

 

2.                                      Possession.

 

(i) Debtor shall have possession of the Collateral, except where expressly
otherwise provided in this Security Agreement or where Secured Party chooses to
perfect its security interest by possession only, or in addition to the filing
of a Financing Statement.

 

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(ii)           Where Collateral is in the possession of third party, Debtor will
join with Secured Party in satisfying the third party of Secured Party’s
security interest and obtaining a Control Agreement from the third party that it
is holding the collateral for the benefit of Secured Party.

 

3.                                      Control
Agreements.                             Debtor will cooperate with Secured Party
in obtaining a Control Agreement in form and substance satisfactory to Secured
Party with respect to Collateral consisting of:

 

(i)                                     Deposit Accounts,

(ii)                                  Investment Property,

(iii)                               Letter-Of-Credit Rights, and

(iv)                              Electronic Chattel Paper.

 

4.                                      Marking of Chattel Paper.   Debtor will
not create any Chattel Paper without placing a legend on the Chattel Paper
acceptable to Secured Party indicating that Secured Party has a security
Interest in the Chattel Paper.

 

SECTION V: Debtor’s Representation. Warranties, and Agreements,

 

A.                                    General Representations and Warranties

 

Debtor represents, warrants and agrees that:

(1)                                  Debtor has full power and authority to
enter into this Security Agreement; this Security Agreement has been duly
authorized, executed and delivered by Debtor and constitutes the valid and
binding obligation of Debtor enforceable in accordance with its terms. No
consent of third parties, a license, authorization or filing with any
governmental authority is required to be obtained or performed in connection
with the execution, delivery, and performance of this Security Agreement

 

(2)                                  All information supplied and statements
made by Debtor in any financial, credit or accounting statement or application
for credit prior to, contemporaneously with or subsequent to the execution of
this Security Agreement are and shall be true, correct, complete, valid, and
genuine.

 

(3)                                  Debtor owns, or will use the proceeds of
any loans by Secured Party to become the owner of the Collateral free from any
set-off, claim, restriction, lien, security interest or encumbrance except this
security interest and liens for taxes not yet due.

 

(4)                                  No Financing Statement covering the
Collateral or Its proceeds is on file in any public office and Debtor will not
permit any Financing Statement covering any of Debtor’s Collateral or the
proceeds thereof to hereafter be on file in any public office except as may be
filed pursuant to this Security Agreement.

 

(5)                                  Debtor shall provide to Secured Party, upon
Secured Party’s request, (i) financial information, including but not limited to
a balance sheet, income statement, statement of cash flow, and such other
financial information as may be requested by Secured Party; (ii) * an existing
appraisal of the Collateral; (iii) tax receipts or copies of checks (iv)
evidence of insurance, and (v) any other information required by Secured Party
in connection with the Indebtedness or the Collateral. * Upon the occurrence of
an event of Default, Debtor shall provide to Lender

 

(6)                                  Debtor will not use the Collateral or
permit the Collateral to be used in violation of any statute, ordinance or other
law or inconsistently with the terms of any policy of insurance thereon; and
Debtor will permit Secured Party and its agents representatives, and employees
to examine the Collateral at all reasonable times, and for such purpose, Secured
Party may enter upon or into any premises where the Collateral may be located
without being guilty of, and/or held liable for, trespass. Debtor will furnish
to Secured Party upon request all pertinent information regarding the
Collateral.

 

(7)                                  The Collateral shall remain (other than in
Debtor’s ordinary course of business) in Debtors possession or control at all
times at Debtor’s risk of loss unless Secured Party has taken possession of the
Collateral, and be kept at Debtor’s address set forth above where Secured Party
may inspect it at any time, except for its temporary removal in connection with
its ordinary use or unless Debtor notifies Secured Party in writing and Secured
Party consents in writing in advance of its removal to another location.

 

(8)                                  Debtor shall pay prior to delinquency all
taxes, charges, liens and assessments against the Collateral, and upon Debtor’s
failure to do so, Secured Party at its option, may pay any of them and shall be
the sole judge of the legality or validity thereof and the amount necessary to
discharge the same, Such payment shall become part of the Indebtedness secured
by this Security Agreement and shall be paid to Secured Party by Debtor
immediately and without demand, with interest thereon at the maximum rate
allowed by applicable law.

 

(9)                                  Certificates of hazard insurance must be
furnished at all times for the full amount of the Indebtedness with respect to
all Collateral (including coverage for all materials and equipment) against
risks of Fire, Windstorm, Hurricane (if the Collateral is written 100 miles of
the Gulf Coast), Hail and Collapse (including cost of debris removal) and such
other risks as Secured Party may require, including standard extended coverage.
Such insurance policies shall contain such terms, be in a form, for a period and
be written by companies satisfactory to Secured Party. Federal flood insurance
is also required in those geographic areas that are subject to such loss. The
policy shall also contain a standard mortgagee’s endorsement providing for
payment of any loss to Secured Party. All policies of insurance shall provide
for ten days written minimum cancellation notice to Secured Party.

 

Evidence of coverage must be a copy of the original policy and loss payable
clause. Certificates or letters of coverage will not be accepted.

 

**Secured Party is authorized to act, as attorney-in-fact for Debtor in
obtaining, adjusting, settling, and canceling such insurance end endorsing any
drafts drawn by Insurers of the Collateral. Secured Party may apply any and/or
all proceeds of such insurance, which may be received by it in payment of the
indebtedness secured thereby, whether such indebtedness is currently due or not.
Secured Party reserves the right to purchase single Interest insurance (which
provides only protection for Secured Party) and add the premium for such
insurance together with interest at the loan pre-maturity contract rate to the
balance of the loan. This premium is due upon demand, or may be paid in full at
any agreed time. The single interest premium is written by a company authorized
to transact business in the State of Texas at lawful rates not fixed or approved
by the State Board of Insurance. **Following receipt or prior written notice
from Secured Party,

 

Secured Party, in its sole, discretion and without obligation on Secured Party
to do so, may advance and pay sums on behalf and for the benefit of Debtor for
costs necessary for the protection and preservation of the collateral and other
costs that may be appropriate, in Secured Party’s sole discretion, including but
not limited to insurance premiums, ad valorem taxes, and attorney’s fees and
legal costs and expenses. Any sums which may be so paid by Secured Party and all
sums paid for insurance premiums, as aforesaid, including the costs, expenses,
and attorney’s fees paid in any suit affecting said Collateral shall bear
interest from the dates of such payments at the loan contract interest rate
applied to the unmatured principal balance and shall be paid by Debtor to
Secured Party upon demand, and shall be deemed a part of the debt and
recoverable as such in all aspects. Any sum to be reimbursed shall be secured by
this Security Agreement.

 

(10)                            Debtor shall, at its own expense, do, make,
procure, execute and deliver all acts, things, writings and assurances as
Secured Party may at any time reasonably request to protect, assure or enforce
its interests, rights end remedies created by, provided in or emanating from
this Security Agreement.

 

(11)                            Debtor shall not lend, rent, lease or otherwise
dispose of the Collateral (other than in the ordinary course of business) or any
interest therein except as authorized in this Security Agreement or in writing
by Secured Party, and Debtor shall keep the Collateral, including the proceeds
thereof, free from unpaid charges, including taxes, and from liens, encumbrances
and security interests other than that of Secured Party.

 

(12)                            Debtor shall sign and execute alone or with
Secured Party any Financing Statement or other document or procure any document,
and pay all connected costs, necessary to protect the security interest under
this Security Agreement against the rights or interests of third persons. Debtor
shall pay the costs of lien searches and certificates and all filing fees,
continuation fees, and fees for certificates of good standing and other
Information required by Secured Party.

 

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(13)                            Debtor shall at all times keep the Collateral
and its proceeds separate and distinct from other property of Debtor and shall
keep accurate and complete records of the Collateral and its proceeds. Debtor
shall present the Collateral and pay all costs necessary to do so, including
(but not limited to) feed, rent, storage costs, and expenses of sale.

 

(14)                            If Secured Party should at any time be of the
opinion that the Collateral has declined or may decline in value, or is
otherwise insufficient to adequately secure the Indebtedness, or should Secured
Party deem itself insecure as to payment of the Indebtedness, then Secured Party
may call for additional property to be pledged and/or covered by this Agreement
satisfactory to Secured Party.

 

(15)                            If any Collateral or proceeds include
obligations of third parties to Debtor, the transactions creating those
obligations will conform in all respects to applicable state and federal
consumer credit laws.

 

(16)                            In the event Debtor or any other person or
persons seeks to enjoin Secured Party from taking any action in connection with
the Indebtedness or the enforcement of Secured Party’s rights in the Collateral,
Debtor hereby agrees to give written notice to the President of Secured Party,
at the address of Secured Party set forth in the first paragraph of this
Security Agreement, or such other person or address as Secured Party may
designate in writing to Debtor, prior to seeking any such injunctive relief.

 

(17)                            Debtor shall indemnify and hold harmless Secured
Party from and against any and all claims, losses and liabilities growing out of
or resulting from this Security Agreement (including, without limitation,
enforcement of this Security Agreement), except claims, losses or liabilities
resulting from the gross negligence or willful misconduct of Secured Party.
Debtor agrees, upon demand, to pay to Secured Party the amount of any and all
expenses, including, but not limited to, the fees and disbursements of its
counsel and of any experts and agents, which Secured Party may incur in
connection with (a) the preparation, execution, delivery, filing, recording or
administration of this Security Agreement or the obtaining of advice from
counsel with respect to its rights and remedies under this Security Agreement,
(b) the custody, preservation, use or operation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (c) the exercise or
enforcement of any of the rights of Secured Party hereunder, (d) the defense by
Secured Party of any injunction proceeding related to the Indebtedness or the
Collateral, or (e) the failure by Debtor to perform or observe any of the
provisions hereof. Debtor agrees to pay Interest on any expense or other sums
due to Secured Party hereunder (save and except insurance) that are not paid
when due at a rate per annum equal to the highest rate permitted by applicable
law.

 

(18)                            ***As additional security for the Indebtedness,
Debtor hereby assigns, pledges and grants to Secured Party a security interest,
a lien and contractual right of set-off in and to all of the Debtor’s money,
credits, accounts, securities; certificates end/or other property now in, or at
any time hereafter coming within, the custody or control of Secured Party or any
member Bank or branch Bank of International Bancshares Corporation, whether held
in a general or special account or deposit, or for safekeeping or otherwise.
Every such security interest and right of set-off may be exercised without
demand or notice to Debtor. No security interest or right of set-off shall be
deemed to have been waived by any act or conduct on the part of Secured Party,
or any failure to exercise such right of set-off or to enforce such security
interest, or by any delay in so doing. Every right of set-off and security
interest shall continue in full force and effect until such right of set-off or
security interest is specifically waved or released by an instrument in writing
executed by Secured Party. The foregoing is in addition to and no in lieu of any
rights of set-off allowed by law.

 

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***Upon the occurrence of an Eventy of Default,

 

(19)                            Debtor shall assist Secured Party in complying
with the Federal Assignment of Claims Act (and any successor statutes) and
similar laws to enable Secured Party to become an assignee under such Act and
otherwise comply with such laws. Debtor shall preserve the liability of all
account debtors, obligors and secondary parties whose obligations are part of
the Collateral. Debtor shall notify the Secured Party of any change occurring in
or to the Collateral, or in any fact or circumstances warranted or represented
by Debtor in this agreement or furnished to Secured Patty, or if any Event of
Default occurs.

 

(20)                            Debtor will not allow the Collateral to be
affixed to real estate, except goods identified herein as fixtures

 

(21)                            All extended or renewed note(s) will be
considered executed on the date of the original note(s).

 

(22)                            Debtor shall comply with all environmental laws
and regulations applicable to the Collateral and the premises in which the
Collateral is located and shall notify Secured Party upon receipt of any notice
or other information as to any environmental hazards or violation of such laws.
Secured Party may inspect all premises in which the Collateral is located and
the Collateral as to its and their compliance with environmental law. Debtor
indemnities and holds harmless Secured Party for any breach of the foregoing and
for all losses, costs, fines, damages, including court costs and attorney’s
fees, incurred by Secured Party to defend itself, or to protect or preserve the
Collateral against environmental risks, hazards, fines, and other claims
relating to the- Collateral.

 

(23)                            Without providing Secured Party with at least
thirty (30) days prior written notice of Debtor’s intention to do so, Debtor,
until the indebtedness is paid in full, agrees that it will not:

 

a.                                       in one transaction or a series of
related transactions, merge into or consolidate with any other entity, sell all
or substantially all of its assets, or in any way jeopardize its corporate
existence,

b.                                      change the state of its incorporation,

c.                                       change its corporate name,

d.                                      change the address and/or location of
its Chief Executive Office;

e                                          file a UCC-1 Amendment form, and/or

f.                                         file 8 UCC-1 Termination form.

 

(24)                            Debtor has the risk of loss of the Collateral.

 

(25)                            Secured Party has no duty to collect any income
accruing on the Collateral or to preserve any rights relating to the Collateral.

 

B.                                    Special Representations and Warranties.

 

Debtor represents, warrants and agrees-that:

 

(1)                                  If the Collateral includes Inventory:

(a)                                  Debtor will not sell, lease or otherwise
dispose of any Collateral except in the ordinary course of business without the
prior written consent of Secured Party.

(b)                                 Until default Debtor may in the ordinary
course of business, sell, lease or furnish under contract of service any of the
inventory normally held by Debtor for such purpose, provided, however, that such
use of the inventory shall not be inconsistent with any other provisions of this
Security Agreement or with the terms or conditions of any policies of insurance
thereon. A sale in the ordinary course of business does not include a transfer
in partial or total satisfaction of a debt.

 

(2)                                  If the Collateral Includes accounts:

(a)                                  Each account in the Collateral will
represent the valid, legally enforceable obligation of third parties and will
not be evidenced by any instrument or chattel paper, except for credits and
offsets customary to Debtor’s business.

(b)                                 The office where Debtor keeps its records
concerning accounts, if any, is the address of Debtor set forth at the beginning
of this Security Agreement.

 

(3)                                  If the Collateral includes instruments,
chattel paper or -documents:

(a)                                  By delivering a copy of this Security
Agreement to the broker, seller, or other person in possession of Collateral
that is chattel paper or document, Security Party will effectively notify that
person of Secured Party’s interest in the Collateral. Delivery of the copy of
the Security Agreement will also constitute Debtor’s instruction to deliver to
Secured Party certificates or other evidence of the Collateral as soon as it is
available. Debtor will immediately deliver to Secured Party all chattel paper
and documents that are Collateral in Debtor’s possession. If that Collateral is
hereafter acquired, Debtor will deliver it to Secured Party immediately
following acquisition and either endorse it to Secured Party’s order or give
Secured Party appropriate executed powers. If any instruments, chattel paper,
money or monies, or documents are, at any time or times, included in the

 

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Collateral, whether as proceeds or otherwise, Debtor will promptly deliver thee
to Secured Party upon the receipt thereof by Debtor, and in any event promptly
upon demand therefore by Secured Party. If necessary, all Collateral will either
be endorsed to Secured Party’s order or accompanied by appropriate executed
powers.

(b)                                 By means satisfactory to Secured Party,
Debtor has perfected or will perfect a security interest in goods covered by
chattel paper, if any, in Collateral.

 

(4)                                  If the Collateral includes property covered
by a Certificate of Title: If any certificate of title or similar document is,
at any time and pursuant to the laws of any jurisdiction, issued or outstanding
with respect to the Collateral or any part thereof, Debtor will promptly advise
Secured Party thereof, and Debtor will promptly cause the interest of Secured
Party to be properly noted thereon, and if any certificate of title or similar
document is so issued or outstanding at the time this Security Agreement is
executed by or on behalf of Debtor, then Debtor shall have caused the interest
of Secured Party so to have been properly noted at or before the time of such
execution; and Debtor will further promptly deliver to Secured Party any such
certificate of title or similar document issued or outstanding at any time with
respect to such Collateral.

 

(5)                                  If the Collateral is or may become fixtures
on real property described herein: This Security Agreement, upon being filed for
record in the real property records of the county wherein such fixtures are
situated, shall operate also as a financing statement filed as a fixture filing
in accordance with Section 9.402(e) of the Texas Business and Commerce Code upon
such of the Collateral which is or may become fixtures.

 

(6)                                  Debtor has rights in or the power to
transfer the Collateral and its title to the Collateral is free of all adverse
claims, liens, security interests and restrictions on transfer or pledge except
as created by this Security Agreement.

 

(7)                                  All collateral consisting of goods is
located solely in the states and/or states previously designated and warranted
by Debtor to Secured Party.

 

(8)                                  Debtor’s:

(i)            chief executive office is located in the state previously
designated and warranted by Debtor to Secured Party;

(ij)           state of incorporation is the state previously designated and
warranted by Debtor to Secured Party; and

(iij)          exact legal name is as set forth in the first paragraph of this
Security Agreement.

 

SECTION VI: EVENTS OF DEFAULT.

 

Debtor shall be in default under this Security Agreement upon the happening of
any of the following events or conditions (herein called an “Event of Default”):

 

(1)                                  The failure by Debtor or any other liable
party to pay when due any of the Indebtedness either principal or interest, or
any other sum due under the terms of any instrument evidencing the Indebtedness.

 

(2)                                  Default by Debtor in the punctual
performance of any of the obligations, covenants, terms or provisions contained
or referred to in this Security Agreement.

 

(3)                                  Any warranty, representation, or statement
contained in this Security Agreement or made or furnished to Secured Party by or
on behalf of Debtor or any other person or party in connection with this
Security Agreement or to induce Secured Party to make the loans (described in
Section III) proves to have been false in any respect when made or furnished.

 

(4)                                  Loss, theft, substantial damage,
destruction, sale (except as authorized in this Security Agreement) or
encumbrance to or of any of the Collateral, or the making of any levy, seizure
or attachment thereof or thereon.

 

(5)                                  Debtor’s death, dissolution, termination of
existence, insolvency or business failure; the appointment of a receiver of all
or any part of the property of Debtor; an assignment for the benefit of
creditors by Debtor, the calling of a meeting of creditors of Debtor, or the
commencement of any proceeding under any bankruptcy or insolvency laws by or
against Debtor or any guarantor, surety or endorser for Debtor; or the
occurrence of any of such events described in this part (5) as to any person or
party liable for the payment of the obligations, or any portion thereof.

 

(6)                                  Any statement of the financial condition of
Debtor or of any maker, guarantor, surety or endorser of any of the Indebtedness
proves to be false.

 

(7)                                  The Collateral becomes, in the judgment of
Secured Party, unsatisfactory or insufficient in character or value.

 

(8)                                  Any maker, guarantor, surety or endorser
under or with respect to the Indebtedness defaults in any obligation or
liability to Secured Party.

 

(9)                                  The occurrence of any environmentally
hazardous spill, discharge or other similar event adversely affecting the
Collateral or the premises in which the Collateral is located, whether such
event occurs on such premises or on other premises.

 

(10)                            Debtor, or any of them, or any guarantor, fails
to timely deliver any and all financial statements, income tax returns, cash
flow information, balance sheets, accounts receivable reports, or any other
business, tax or financial information requested by Secured Party.

 

SECTION VII: SECURED PARTY’S RIGHTS AND REMEDIES.

 

A.                                    General.

 

Secured Party may exercise the following rights and remedies either before or
after an Event of Default:

 

(1)                                  Secured Party may take control of any
proceeds of the Collateral.

 

(2)                                  Secured Party may release any Collateral in
Secured Party’s possession to any Debtor, temporarily or otherwise.

 

(3)                                  Secured Party may take control of any funds
generated by the Collateral, such as refunds from and proceeds of insurance, and
reduce any part of the Indebtedness accordingly or permit Debtor to use such
funds to repair or replace damaged or destroyed Collateral covered by insurance.

 

(4)                                  Secured Party may request Debtor from time
to time, in Secured Party’s discretion to take any action and to execute any
instrument which Secured Party may deem necessary or advisable to accomplish the
purposes of this Security Agreement including, without limitation, (a) to ask,
demand, collect, sue for, recover, compound, receive and give acquittance and
receipts for monies due and to become due under or in respect of any Collateral;
(b) to receive, endorse and collect any drafts or other instruments, documents
and chattel paper in connection with the preceding actions; (c) to file any
claims or take any action or institute any proceedings which Secured Party may
deem necessary or desirable for collection of any of the Collateral or otherwise
to enforce its rights with respect to any of the Collateral, and (d) to complete
and sign on behalf of Debtor one or more financing statements pertaining to the
Collateral and file the same in an appropriate location. The powers conferred on
Secured Party hereunder are solely to protect its interest in the Collateral and
shall not impose any duty upon Secured Party to exercise any such powers.
Debtor’s appointment of Secured Party as Debtor’s agent is coupled with an
interest and will survive any disability of Debtor.

 

(5)                                  This Security Agreement, Secured Party’s
rights hereunder and/or the Indebtedness hereby secured may be assigned in whole
and in part from time to time, and in any such case Secured Party shall be fully
discharged from all responsibility with respect to the Collateral so assigned
and the assignee shall be entitled to all of the rights, privileges and remedies
granted in this Security Agreement to Secured Party to the extent the same are
assigned, and Debtor will assert no claim or defenses he may have against
Secured Party against the assignee, except those granted in this Security
Agreement. In addition, Debtor waives and will not assert against any claims,
defenses or set-offs which Debtor could assert against Secured Party except
defenses which cannot be waived.

 

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(6)                                  Secured Party may enter upon Debtors
premises at any reasonable time to inspect the Collateral and Debtor’s books and
records pertaining to the collateral, and Debtor shall assist the Secured Party
in making any such inspection.

 

(7)                                  Secured Party may notify the account
debtors or obligors of any accounts, chattel paper, negotiable instruments or
other evidence of indebtedness remitted by Debtor to Secured Party as proceeds
to pay Secured Party directly. Secured Party may contact account debtors
directly to verify information furnished by Debtor.

 

(8)                                  Secured Party may require additional
Collateral or reject as unsatisfactory any property hereafter offered by Debtor
as Collateral.

 

(9)                                  Secured Party may designate, from time to
time, a certain percentage of the Collateral as the loan value and require
Debtor to maintain the Indebtedness at or below such percentage.

 

(10)                            Secured Party may present for conversion to cash
any instrument or investment security or a combination thereof. But Secured
Party shall not have any duty to present for conversion, any instrument of
Collateral in its possession unless it shall have received from Debtor detailed
written instructions to that effect at a time reasonably, far in advance of the
final conversion date to make such conversion possible.

 

The foregoing rights and powers of Secured Party will be in addition to, and not
a limitation upon, any rights and powers of Secured Party given by law,
elsewhere in this Security Agreement, or otherwise.

 

(11)                            Secured Party has no obligation to attempt to
satisfy the Obligations by collecting them from any other person liable for them
and Secured Party may release, modify or waive any collateral provided by any
other person to secure any of the Obligations, all without affecting Secured
Party’s rights against Debtor. Debtor waives any right it may have to require
Secured Party to pursue any third person for any of the Obligations.

 

(12)                            Secured Party may comply with any applicable
state or federal law requirements in connection with a disposition of the
Collateral and compliance will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral.

 

(13)                            If Secured Party sells any of the Collateral
upon credit, Debtor will be credited only with payments actually made by the
purchaser, received by Secured Party and applied to the indebtedness of the
Purchaser. In the event the purchaser fails to pay for the Collateral, Secured
Party may resell the Collateral and Debtor shall be credited with the proceeds
of the sale.

 

(15)                            Secured Party have no obligation to marshall any
assets in favor of Debtor, or against or in payment of:

 

(i)                                     the Note,

(ij)                                  any of the other Obligations, or

(iij)                               any other obligation owed to Secured Party
by Debtor or any other person.

 

(16)                            This Security Agreement shall bind and shall
inure to the benefit of the heirs, legatees, executors, administrators,
successors and assigns of Secured Party and shall bind all persons who become
bound as a debtor to this Security Agreement.

 

(17)                            Secured Party does not consent to any assignment
by Debtor except as expressly provided in this Security Agreement.

 

B. REMEDIES IN EVENT OF DEFAULT

 

During the existence of any Event of Default, or in the event Secured Party
deems itself insecure in the payment of the Indebtedness, Secured Party may
declare the unpaid principal and unpaid and accrued interest of the Indebtedness
immediately due in whole or part, enforce the Indebtedness, and/or exercise any
rights and remedies granted by the Texas Business and Commercial Code or by this
Security Agreement, including the following:

 

(1)                                  require Debtor to deliver to Secured Party
all books and records relating to the Collateral;

 

(2)                                  require Debtor to assemble the Collateral
and make it available to Secured Party at a place reasonably convenient to both
parties;

 

(3)                                  take possession of any of the Collateral
and for this purpose enter any premises where it is located if this can be done
without breach of the peace and will not be guilty of, and/or held liable for,
trespass;

 

(4)                                  sell, lease, or otherwise dispose of any of
the Collateral in accord with the rights, remedies, and duties of a Secured
Party under Chapters 2 and 9 of the Texas Business And Commerce Code after
giving notice as required by those chapters; unless the Collateral threatens to
decline rapidly in value, is perishable, or would typically be sold on a
recognized market, Secured Party will give Debtor reasonable notice of any
public sale of the Collateral or of a time after which it may be otherwise
disposed of without further notice to Debtor; in this event, notice will be
deemed reasonable if it is mailed, postage prepaid, to Debtor at the address
specified in this agreement at least ten days before any public sale or ten days
before the time when the Collateral may be otherwise disposed of without further
notice to Debtor. Debtor authorizes Secured Party to disclaim or modify any and
all warranties set forth in Section 9.010(d) and stipulates and agrees that such
a disclaimer and/or modification will not render the sale commercially
unreasonable.

 

(5)                                  surrender any insurance policies covering
the Collateral and receive the unearned premium;

 

(6)                                  apply any proceeds from disposition of the
Collateral after default in the manner specified in Chapter 9 of the Texas
Business And Commerce Code, including payment of Secured Party’s reasonable
attorney’s fees and court expenses;

 

(7)                                  if disposition of the Collateral leaves the
Indebtedness unsatisfied, collect the deficiency from all liable parties.
Expenses of retaking, holding, preparing for sale, selling or the like shall
include Secured Party’s reasonable attorney’s fees and legal costs and/or
expenses, and Debtor agrees to pay such costs, expenses, and fees, plus interest
thereon at the maximum rate allowed by applicable law;

 

(8)                                  Secured Party may retain all or part of the
Collateral in full and/or partial satisfaction of the Indebtedness pursuant to
Section 9.620 of the Texas Business And Commerce Code;

 

(9)                                  Secured Party may, without demand or notice
of any kind, appropriate and apply toward the payment of any sums then owing to
Secured Party and in such order of application as the Secured Party may from
time to time elect, any property, balances, credits, deposits, accounts or
monies of Debtor which for any purpose is in the possession or control of the
Secured Party or any member Bank, branch Bank or other depository institution of
International Bancshares Corporation; and/or

 

(10)                            Secured Party may remedy any default without
waiving the default remedied and may waive any default without waiving any other
prior or subsequent default.

 

SECTION VIII: ADDITIONAL AGREEMENTS.

 

(1)                                  All notices and other communications to
Secured Party hereunder or in connection herewith shall be deemed to have been
given when received by Secured Party in writing at the address first shown
hereinabove. Any notice or demand or other communication to Debtor hereunder or
in connection herewith may be given and shall conclusively be deemed and
considered to have been given and received upon the deposit thereof in writing
in the United States Mail, duly stamped and addressed to Debtor either at the
street address, the first shown hereinabove, or at the mailing address, if any,
given by and/or for Debtor at the beginning of this agreement (or at such other
address as may have been designated most recently in writing by Debtor to
Secured Party); provided, however, actual notice to Debtor, however given or
received, shall always be effective when given or received.

 

(2)                                  A copy of this Security Agreement or any
financing statement covering the Collateral is sufficient and may be filed as a
financing statement. Information concerning this security interest may be
obtained at the office of Secured Party shown above.

 

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(3)                                  This Security Agreement may only be
modified or limited by an agreement in writing.

 

(4)                                  This security interest shall neither affect
nor be affected by any other security for any of the Indebtedness. Neither
extensions of any of the Indebtedness nor releases of any of the Collateral
shall affect the validity of this security interest with reference to any third
party. Additionally, foreclosure of this security interest by lawsuit does not
limit Secured Party’s remedies, including the right to sell the Collateral under
the terms of this Security Agreement. Secured Party shall have the right to
exercise all remedies at the same or different times and no remedy shall be a
defense to any other. Secured Party shall have all rights and remedies granted
by law or otherwise in addition to those provided in this Security Agreement.

 

(5)                                  Secured Party may remedy any default
without waiving it. No delay by Secured Party in exercising its rights or
partially exercising its rights or remedies shall waive further exercise of
those remedies or rights. The failure of Secured Party to exercise any remedies
or rights does not waive subsequent exercise of those remedies or rights. Any
waiver by Secured Party of any default shall not waive any further default.
Secured Party may remedy any default without waiving it. Secured Party’s waiver
of any right in this Security Agreement or any default is binding only if in
writing.

 

(6)                                  Debtor and Secured Party intend that the
Indebtedness shall be in strict compliance with applicable usury laws. If at any
time interest contracted for, charged or received under any Indebtedness secured
by this Security Agreement or otherwise in connection with this transaction
would be usurious under applicable law, then regardless of the provisions of
this Security Agreement or any other documents or instruments evidencing,
securing or otherwise executed in connection with any Indebtedness secured by
this Security Agreement or any action or event (including, without limitation,
prepayment of principal under the Note or acceleration of maturity by Secured
Party) which may occur with respect to the Note, it is agreed that all sums
determined to be usurious shall be immediately credited by Secured Party to
Debtor as a payment of principal under the Note or if the Note has already been
paid, immediately refunded to Debtor. All compensation which constitutes
interest under applicable law in connection with any Indebtedness secured by
this Security Agreement shall be amortized, prorated, allocated, and spread over
the full period of time any indebtedness is owed by Debtor, to the greatest
extent permissible without exceeding the applicable maximum rate allowed by
applicable law in effect from time to time during such period.

 

(7)                                  Secured Party may perform any obligation
which Debtor fails to perform and Debtor agrees on demand to reimburse Secured
Party immediately for any sums so paid by Secured Party, including attorneys’
fees and other legal expenses, plus interest on those sums from the dates of
payment at the rate stated in the Note for matured, unpaid amounts. Any sum to
be reimbursed shall be secured by this Security Agreement. [See Section IV, (9)
for insurance reimbursements].

 

(8)                                  This Security Agreement is being executed
and delivered and is intended to be performed in the State of Texas and shall be
construed and enforced in accordance with the laws of the State of Texas, except
to the extent that the Code provides for the application of the law of the
Debtor States. When the context requires, singular nouns and pronouns include
the plural. The rights of Secured Party under this Security Agreement shall
inure to the benefit of its successors and assigns. Any assignment of part of
the Indebtedness and delivery by Secured Party of any part of the Collateral
will fully discharge Secured Party from any and all responsibility for that
portion of the Collateral. Debtor’s Indebtedness under this Security Agreement
shall bind Debtor’s personal representatives, successors and assigns. If Debtor
is more than one, all their representatives, warranties and agreements are joint
and several. If any part of this Security Agreement is unenforceable, the
unenforceability of such provision will not affect the enforceability of any
other provision hereof and all other provisions will constitute valid
provisions.

 

SECTION IX:

 

ARBITRATION - THE PARTIES FURTHER AGREE AS FOLLOWS:

 

(a) ANY AND ALL CONTROVERSIES BETWEEN THE PARTIES SHALL BE RESOLVED BY
ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION IN EFFECT AT THE TIME OF FILING, UNLESS THE COMMERCIAL
ARBITRATION RULES CONFLICT WITH THIS PROVISION, AND IN SUCH EVENT THE TERMS QF
THIS PROVISION SHALL CONTROL TO THE EXTENT OF THE CONFLICT. ANY ARBITRATION
HEREUNDER SHALL BE BEFORE AT LEAST THREE NEUTRAL ARBITRATORS ASSOCIATED WITH THE
AMERICAN ARBITRATION ASSOCIATION AND SELECTED IN ACCORDANCE WITH THE COMMERCIAL
ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. FAILURE OF ANY
ARBITRATOR TO DISCLOSE ALL FACTS WHICH MIGHT TO AN OBJECTIVE OBSERVER CREATE A
REASONABLE IMPRESSION OF THE ARBITRATOR’S PARTIALITY, AND/OR MATERIAL ERRORS OF
LAW SHALL BE GROUNDS [IN ADDITION TO ALL OTHERS] FOR VACATUR OF AN AWARD
RENDERED PURSUANT TO THIS AGREEMENT.

 

(b) THE AWARD OF THE ARBITRATORS, OR A MAJORITY OF THEM, SHALL BE FINAL, AND
JUDGMENT UPON THE AWARD RENDERED MAY BE ENTERED IN ANY COURT, STATE OR FEDERAL,
HAVING JURISDICTION. THE ARBITRATION AWARD SHALL BE IN WRITING AND SPECIFY THE
FACTUAL AND LEGAL BASES FOR THE AWARD. UPON THE REQUEST OF ANY PARTY, THE AWARD
SHALL INCLUDE FINDINGS OF FACT AND CONCLUSIONS OF LAW.

 

(c) ARBITRABLE DISPUTES INCLUDE ANY AND ALL CONTROVERSIES OR CLAIMS BETWEEN THE
PARTIES OF WHATEVER TYPE OR MANNER, INCLUDING WITHOUT LIMITATION, ANY CLAIM
ARISING OUT OF OR RELATING TO THIS AGREEMENT, ALL PAST, PRESENT AND/OR FUTURE
CREDIT FACILITIES AND/OR AGREEMENTS INVOLVING THE PARTIES, ANY TRANSACTIONS
BETWEEN OR INVOLVING THE PARTIES, AND/OR ANY ASPECT OF ANY PAST OR PRESENT
RELATIONSHIP OF THE PARTIES, WHETHER BANKING OR OTHERWISE, SPECIFICALLY
INCLUDING ANY ALLEGED TORT COMMITTED BY ANY PARTY.

 

(d) THE PARTIES SHALL ALLOW AND PARTICIPATE IN DISCOVERY IN ACCORDANCE WITH THE
FEDERAL RULES OF CIVIL PROCEDURE FOR A PERIOD OF ONE HUNDRED TWENTY (120) DAYS
AFTER THE FILING OF THE ORIGINAL RESPONSIVE PLEADING. DISCOVERY MAY CONTINUE
THEREAFTER AS AGREED BY THE PARTIES OR AS ALLOWED BY THE ARBITRATORS. UNRESOLVED
DISCOVERY DISPUTES SHALL BE BROUGHT TO THE ATTENTION OF THE ARBITRATORS BY
WRITTEN MOTION FOR PROPER DISPOSITION, INCLUDING RULING ON ANY ASSERTED
OBJECTIONS, PRIVILEGES, AND PROTECTIVE ORDER REQUESTS AND AWARDING REASONABLE
ATTORNEY’S FEES TO THE PREVAILING PARTY.

 

(e) IN THE EVENT THE AGGREGATE OF ALL AFFIRMATIVE CLAIMS ASSERTED EXCEED
$500,000.00, EXCLUSIVE OF INTEREST AND ATTORNEY’S FEES, OR UPON THE WRITTEN
REQUEST OF ANY PARTY, (1) PRIOR TO THE DISSEMINATION OF A LIST OF POTENTIAL
ARBITRATORS, THE AMERICAN ARBITRATION ASSOCIATION SHALL CONDUCT AN IN PERSON
ADMINISTRATIVE CONFERENCE WITH THE PARTIES AND THEIR ATTORNEYS FOR THE FOLLOWING
PURPOSES AND FOR SUCH ADDITIONAL PURPOSES AS THE PARTIES OR THE AMERICAN
ARBITRATION ASSOCIATION MAY DEEM APPROPRIATE, (A) TO OBTAIN ADDITIONAL
INFORMATION ABOUT THE NATURE AND MAGNITUDE OF THE DISPUTE AND THE ANTICIPATED
LENGTH OF HEARINGS AND SCHEDULING; (B) TO DISCUSS THE VIEW OF THE PARTIES ABOUT
ANY TECHNICAL AND/OR OTHER SPECIAL QUALIFICATIONS OF THE ARBITRATORS; AND IC) TO
CONSIDER, WHETHER MEDIATION OR OTHER METHODS OF DISPUTE RESOLUTION MIGHT BE
APPROPRIATE, AND (2) AS PROMPTLY AS PRACTICABLE AFTER THE SELECTION OF THE
ARBITRATORS, A PRELIMINARY HEARING SHALL BE HELD AMONG THE PARTIES, THEIR
ATTORNEYS AND THE ARBITRATORS. WITH THE AGREEMENT OF THE ARBITRATORS AND THE
PARTIES, THE PRELIMINARY HEARING MAY BE CONDUCTED BY TELEPHONE CONFERENCE CALL
RATHER THAN IN PERSON. AT THE PRELIMINARY HEARING THE MATTERS THAT MAY BE
CONSIDERED SHALL INCLUDE, WITHOUT LIMITATION, A PREHEARING SCHEDULING ORDER
ADDRESSING (A) EACH PARTY’S DUTY TO SUBMIT A DETAILED STATEMENT OF CLAIMS,
DAMAGES AND/OR DEFENSES. A STATEMENT OF THE ISSUES ASSERTED BY EACH PARTY AND
ANY LEGAL AUTHORITIES THE PARTIES MAY WISH TO BRING TO THE ATTENTION OF THE
ARBITRATORS; (B) RESPONSES AND/OR REPLIES TO THE PLEADINGS FILED IN COMPLIANCE
WITH SUBPART 2(A); (C) STIPULATIONS REGARDING ANY UNCONTESTED FACTS; (D)
EXCHANGE AND PREMARKING OF ALL DOCUMENTS WHICH EACH PARTY BELIEVES MAY BE
OFFERED AT THE FINAL ARBITRATION HEARING; (E) THE IDENTIFICATION AND
AVAILABILITY OF WITNESSES, INCLUDING EXPERTS, AND SUCH ADDITIONAL MATTERS
REGARDING WITNESSES INCLUDING THEIR BIOGRAPHIES AND A SHORT SUMMARY OF THEIR
EXPECTED TESTIMONY, (F) WHETHER A STENOGRAPHIC OR OTHER OFFICIAL RECORD OF THE
PROCEEDINGS SHALL BE MAINTAINED; AND (G) THE POSSIBILITY OF UTILIZING MEDIATION
OR OTHER ALTERNATIVE METHODS OF DISPUTE RESOLUTION.

 

(f) FOR PURPOSES OF THIS PROVISION, “THE PARTIES” MEANS DEBTOR AND SECURED
PARTY, AND EACH AND ALL PERSONS AND ENTITIES SIGNING THIS AGREEMENT OR ANY OTHER
AGREEMENTS BETWEEN OR AMONG ANY OF THE PARTIES AS PART OF THIS TRANSACTION. “THE
PARTIES” SHALL ALSO INCLUDE INDIVIDUAL PARTNERS, AFFILIATES, OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS

 

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AND/OR REPRESENTATIVES OF ANY PARTY TO SUCH DOCUMENTS, AND SHALL INCLUDE ANY
OTHER OWNER AND HOLDER OF THIS AGREEMENT.

 

(g) THE PARTIES SHALL HAVE THE RIGHT TO INVOKE SELF-HELP REMEDIES (SUCH AS
SET-OFF, NOTIFICATION OF ACCOUNT DEBTORS, SEIZURE AND/OR FORECLOSURE OF
COLLATERAL, AND NON-JUDICIAL SALE OF PERSONAL PROPERTY AND REAL PROPERTY
COLLATERAL) BEFORE, DURING OR AFTER ANY ARBITRATION AND/OR REQUEST ANCILLARY OR
PROVISIONAL JUDICIAL REMEDIES (SUCH AS GARNISHMENT, ATTACHMENT; SPECIFIC
PERFORMANCE, RECEIVER, INJUNCTION OR RESTRAINING ORDER, AND SEQUESTRATION)
BEFORE OR AFTER ANY ARBITRATION. THE PARTIES NEED NOT AWAIT THE OUTCOME OF THE
ARBITRATION BEFORE USING SELF-HELP REMEDIES. USE OF SELF-HELP OR ANCILLARY
AND/OR PROVISIONAL JUDICIAL REMEDIES SHALL NOT OPERATE AS A WAIVER OF EITHER
PARTY’S RIGHT TO COMPEL ARBITRATION. ANY ANCILLARY OR PROVISIONAL REMEDY WHICH
WOULD BE AVAILABLE FROM A COURT AT LAW SHALL BE AVAILABLE FROM THE ARBITRATORS.

 

(h) THE PARTIES AGREE THAT ANY ACTION REGARDING ANY CONTROVERSY BETWEEN THE
PARTIES SHALL EITHER BE BROUGHT BY ARBITRATION, AS DESCRIBED HEREIN, OR BY
JUDICIAL PROCEEDINGS, BUT SHALL NOT BE PURSUED SIMULTANEOUSLY IN DIFFERENT OR
ALTERNATIVE FORMS. A TIMELY WRITTEN NOTICE OF INTENT TO ARBITRATE PURSUANT TO
THIS AGREEMENT STAYS AND/OR ABATES ANY AND ALL ACTION IN A TRIAL COURT, SAVE AND
EXCEPT A HEARING ON A MOTION TO COMPEL ARBITRATION AND/OR THE ENTRY OF AN ORDER
COMPELLING ARBITRATION AND STAYING AND/OR ABATING THE LITIGATION PENDING THE
FILING OF THE FINAL AWARD OF THE ARBITRATORS. ALL REASONABLE AND NECESSARY
ATTORNEY’S FEES AND ALL TRAVEL COSTS SHALL BE AWARDED TO THE PREVAILING PARTY ON
ANY MOTION TO COMPEL ARBITRATION AND MUST BE PAID TO SUCH PARTY WITHIN TEN (10)
DAYS OF THE SIGNING OF THE ORDER COMPELLING ARBITRATION.

 

(i) ANY AGGRIEVED PARTY SHALL SERVE A WRITTEN NOTICE OF INTENT TO ARBITRATE TO
ANY AND ALL OPPOSING PARTIES WITHIN 360 DAYS AFTER DISPUTE HAS ARISEN. A DISPUTE
IS DEFINED TO HAVE ARISEN ONLY UPON RECEIPT OF SERVICE OF JUDICIAL PROCESS,
INCLUDING SERVICE OF A COUNTERCLAIM, FAILURE TO SERVE A WRITTEN NOTICE OF INTENT
‘TO ARBITRATE WITHIN THE TIME SPECIFIED ABOVE SHALL BE DEEMED A WAIVER OF THE
AGGRIEVED PARTY’S RIGHT TO COMPEL ARBITRATION OF SUCH CLAIM. THE ISSUE OF WAIVER
PURSUANT TO THIS AGREEMENT IS AN ARBITRABLE DISPUTE.

 

(j) ACTIVE PARTICIPATION IN PENDING LITIGATION DURING THE 360 DAY NOTICE PERIOD,
WHETHER AS PLAINTIFF OR DEFENDANT, IS NOT A WAIVER OF THE RIGHT TO COMPEL
ARBITRATION. ALL DISCOVERY OBTAINED IN THE PENDING LITIGATION MAY BE USED IN ANY
SUBSEQUENT ARBITRATION PROCEEDING.

 

(k) THE PARTIES FURTHER AGREE THAT (i) NO ARBITRATION PROCEEDING HEREUNDER SHALL
BE CERTIFIED AS A CLASS ACTION OR PROCEED AS A CLASS ACTION, OR ON A BASIS
INVOLVING CLAIMS BROUGHT IN A PURPORTED REPRESENTATIVE CAPACITY ON BEHALF OF THE
GENERAL PUBLIC, OTHER CUSTOMERS OR POTENTIAL CUSTOMERS OR PERSONS SIMILARLY
SITUATED AND (ii) NO ARBITRATION PROCEEDING HEREUNDER SHALL BE CONSOLIDATED
WITH, OR JOINED IN ANY WAY WITH, ANY OTHER ARBITRATION PROCEEDING.

 

(l) ANY ARBITRATOR SELECTED SHALL BE KNOWLEDGEABLE IN THE SUBJECT MATTER OF THE
DISPUTE. EACH OF THE PARTIES SHALL PAY AN EQUAL SHARE OF THE ARBITRATION COSTS,
FEES, EXPENSES, AND OF THE ARBITRATORS’ FEES, COSTS AND EXPENSES.

 

(m) ALL STATUTES OF LIMITATIONS WHICH WOULD OTHERWISE BE APPLICABLE SHALL APPLY
TO ANY AND ALL CLAIMS ASSERTED IN ANY ARBITRATION PROCEEDING HEREUNDER AND THE
COMMENCEMENT OF ANY ARBITRATION PROCEEDING TOLLS SUCH STATUTES OF LIMITATIONS.

 

(n) IN ANY ARBITRATION PROCEEDING SUBJECT TO THIS PROVISION, THE ARBITRATORS, OR
MAJORITY OF THEM, ARE SPECIFICALLY EMPOWERED TO DECIDE (BY DOCUMENTS ONLY, OR
WITH A HEARING, AT THE ARBITRATORS’ SOLE DISCRETION) PRE-HEARING MOTIONS WHICH
ARE SUBSTANTIALLY SIMILAR TO PRE-HEARING MOTIONS TO DISMISS AND MOTIONS FOR
SUMMARY ADJUDICATION.

 

(o) THIS ARBITRATION PROVISION SHALL SURVIVE ANY TERMINATION, AMENDMENT, OR
EXPIRATION OF THE AGREEMENT IN WHICH THIS PROVISION IS CONTAINED, UNLESS ALL OF
THE PARTIES OTHERWISE EXPRESSLY AGREE IN WRITING.

 

(p) THE PARTIES ACKNOWLEDGE THAT THIS AGREEMENT EVIDENCES A TRANSACTION
INVOLVING INTERSTATE COMMERCE. THE FEDERAL ARBITRATION ACT SHALL GOVERN THE
INTERPRETATION, ENFORCEMENT, AND PROCEEDINGS PURSUANT TO THE ARBITRATION CLAUSE
OF THIS AGREEMENT.

 

(q) THE ARBITRATORS, OR A MAJORITY OF THEM, SHALL AWARD ATTORNEY’S FEES AND
COSTS TO THE PREVAILING PARTY PURSUANT TO THE TERMS OF THIS AGREEMENT.

 

(r) NEITHER THE PARTIES NOR THE ARBITRATORS MAY DISCLOSE THE EXISTENCE, CONTENT,
OR RESULTS OF ANY ARBITRATION HEREUNDER WITHOUT PRIOR WRITTEN CONSENT OF ALL
PARTIES AND/OR COURT ORDER.

 

(s) VENUE OF ANY ARBITRATION PROCEEDING HEREUNDER SHALL BE IN BEXAR COUNTY,
TEXAS.

 

SECTION X. Miscellaneous.

 

(a) Security Interest Absolute. All rights of the Secured Party and the security
interests hereunder shall be absolute and unconditional irrespective of:

 

(i)            any change in the time, manner, amount or place of payment of, or
in any other term of, all or any of the Indebtedness, or any other amendment or
waiver of or any consent to any departure from the Promissory Note or any other
Loan Document;

(ii)           any exchange or release or nonperfection of all or any part of
the Collateral or any other collateral, or any release from, amendment to,
waiver of or consent to departure from any guaranty, for all or any of the
Indebtedness; or.

(iii)          to the fullest extent permitted by law, any other circumstances
which might otherwise constitute a defense available to, or a discharge of the
Debtor or a third party pledgor.

 

(b) Indemnification. The Debtor agrees to indemnify the Secured Party and hold
the Secured Party harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind of nature whatsoever which may be imposed
on, incurred by, or asserted against the Secured Party in any way relating, in
any way, arising out of or in connection with this Security Agreement, the Loan
Documents or the transactions contemplated hereby or thereby other than those
arising out of the Secured Party’s breach, default, negligence or willful
misconduct in its obligations under this Security Agreement or the Loan
Documents. Without limitation of the foregoing, the Debtor will reimburse the
Secured Party for all expenses (including expenses for legal services of every
kind) of, or incidental to, the negotiation of, entering into and enforcement of
any of the provisions hereof and of the Indebtedness, and any actual or
attempted sale, lease or other disposition of, and any exchange, enforcement,
collection, compromise or settlement of any of the Collateral and defending or
asserting the rights and claims of the Secured Party in respect thereof, and for
the care of the Collateral and defending or asserting the rights and claims of
the Secured Party in respect thereof, by litigation or otherwise, including
expense of insurance, and all such expenses shall be the Debtor’s Indebtedness.

 

8

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SECTION XI: NO ORAL AGREEMENTS

 

THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR. CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENT OF THE PARTIES.

 

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

Dated

DECEMBER 17, 2004

 

 

 

 

 

 

LANCER PARTNERSHIP, LTD.

 

 

 

DEBTOR: a Texas limited partnership

DEBTOR:

 

By: Lancer Capital Corporation,

 

 

a Delaware corporation,

By:

 

General Partner

 

 

 

 

 

By:

/s/ Scott Adams

 

 

 

Name:

Scott Adams

 

DEBTOR:

 

Title:

Treasurer

 

 

 

 

 

 

 

DEBTOR

 

By:

 

 

 

 

 

 

 

By:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DEBTOR:

 

 

 

 

 

 

Debtor:

 

 

By:

 

 

 

 

 

 

 

 

 

 

 

By:

 

 

DEBTOR:

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

 

DEBTOR

 

 

 

 

 

 

 

SECURED PARTY

International Bank of Commerce

 

 

 

 

 

By:

 

 

By: /s/ Richard L. Capps

 

 

 

 

Signature

 

 

 

 

Name: Richard L. Capps

 

 

 

 

 

 

 

 

 

Title: Senior Vice President

 

 

 

 

9

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EXHIBIT “A”

 

A.                                   Equipment. All equipment of Debtor now or
hereafter acquired by Debtor, including without limitation, including without
limitation, furniture, machinery, vehicles and trade fixtures, together with any
and all accessions, attachments and other additions to, substitutes and
replacements for and improvements of the equipment, whether now owned or at any
time hereafter acquired or made, together with all tools, parts and
appurtenances now or at any timer hereafter used in and together with all
proceeds of the equipment described or referred to above, including insurance
payable by reason of loss or damage thereto, and all proceeds of any policy of
insurance required on the Collateral by Secured Party, including any refunds or
unearned premiums in connection with any cancellation, adjustment or termination
of any such policy of insurance.

 

B.                                     Inventory. All inventory of Debtor,
whenever acquired and whether now or hereafter existing, including but not
limited to all goods, wares and merchandise intended for sale or lease by Debtor
or to be furnished by Debtor, under contracts of service and all raw materials,
goods in process, finished goods and supplies of every nature used or usable in
connection with the manufacturing, processing, packing, shipping, advertising,
selling, leasing or furnishing of such services, goods, wares and merchandise;
all certificates of title, manufacture’s statements of origin and other
documents arising from or related to such inventory; and all accessions,
attachments and other additions to, substitutes for, replacements for,
improvements to and returns of such inventory; and all proceeds of such
inventory.

 

C.                                     Fixtures.

 

(1)                                  All of the property, personal or otherwise,
whether now existing or hereafter arising, existing or created, now or hereafter
attached to or incorporated into or used in or about the Debtor’s premises,
including all furniture, appliances, furnishings, goods, equipment, and
machinery owned by Debtor and other tangible personal property now or hereafter
affixed, attached or related to such property or now or hereafter affixed,
attached or related to such property or used in connection therewith, and all
replacements, substitutions and additions for or to any of the foregoing;

 

(2)                                  All accessories, attachments and other
additions to, substitutes and replacements for, and improvements of, the
property described in (a) above, whether now owned or at any time hereafter
acquired or made, together with all tools, parts and appurtenances now or at any
time used in connection therewith;

 

(3)                                  All products and proceeds, including,
without limitation, insurance proceed of, and additions, improvements and
accessions to, all and any of the property described above, excluding proceeds
used to replace worn-out or obsolete equipment or other property.

 

D.                                    Accounts Receivable. All accounts and
chattel paper of Debtor, whenever acquired and whether now or hereafter
existing, including, but not limited to, accounts and chattel paper which arise
out of: (i) the sale or other disposition of goods; (ii) the furnishing of
services; (iii) the furnishing of, the use of, or the lease of any of the
Collateral, and (iv) the agreement to provide any of the above; and all proceeds
relating to, resulting from or arising in connection with any such accounts
and/or chattel paper.

 

This Security Agreement is being executed pursuant to the terms and provisions
of that certain Loan Agreement of even date herewith between Debtor and Secured
Party and which Loan Agreement will govern in case of conflict with this
Agreement.

 

Together with all books, records, files, computer software, documents and other
information pertaining to, and all containers and packages for, the property
described or referred to in subsections A through D above, and the proceeds of
all of the foregoing.

 

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