**Exhibit10.16**

 

**SECURITY AGREEMENT**

 

DEBTOR

 

LANCER PARTNERSHIP, LTD.,

a Texas limited partnership

 

 

6655 LANCER BLVD. SAN 

ANTONIO, TEXAS 78219

 

 

Theundersigned Debtor, Owner of Collateral, whether one or more, and INTERNATIONALBANK OF COMMERCE 130 E. TRAVIS. SAN ANTONIO. TEXAS 78205 (hereinafter called “SecuredParty”) enter into this Security Agreement and for good and valuableconsideration, the receipt of which is hereby acknowledged, and agree asfollows:

 

**SECTION I:Creation of Security Interest.**

Debtor herebygrants to Secured Party a first and exclusive lien and security interest in allof the personal property of Debtor, wherever located, and now owned orhereafter acquired, including the property described in Section II of thisSecurity Agreement (the “Collateral”) to secure payment and performance of theIndebtedness (described in Section III below).

 

**SECTION II:Description of Collateral.**

1.     Thesecurity interest is granted in the following collateral:

 

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

 

SEE EXHIBIT “A” ATTACHED HERETO AND INCORPORATED HEREIN.

 

 

b.                                      1     o    Theabove goods are to become fixtures on: (describe real estate; attach additionalsheet, if needed)

 

 

2     o    Theabove timber is standing on: (describe real estate; attach additional sheet, ifneeded)

 

 

3    o    Theabove minerals or the like (including oil and gas) or accounts will be financedat the well head or mine head of the well or mine located on: (describe realestate; attach additional sheet, if needed)

 

c.                                       If b.1, b.2, orb.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 sufficientlyspecific as to give constructive notice of a mortgage on the realty).

 

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

 

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

 

E                                         All propertysimilar to the above hereafter acquired by Debtor.

 

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

 

2.               Classifythe collateral under one or more of the following Texas Business And CommerceCode classifications:

 

o ConsumerGoods

ý Equipment(business use)

o Equipment(farm use)

o InvestmentProperty

o Instrument

ý Accounts

o DepositAccounts

o CommercialTort Claims

o AgriculturalLiens

o FarmProducts

o GeneralIntangibles

ý Inventory

o ChattelPaper

o Letter-Of-CreditRights

o SupportObligations

o Lienson Government Assets

o SalesOf Payment Intangibles and Promissory Notes

 

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

 

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

 

3. o                        If thisblock is checked, this is a purchase money security interest, and Debtor willuse funds advanced to purchase the Collateral, or Secured Party may disbursefunds direct to the seller of the Collateral, and to purchase insurance on theCollateral. To the extent Debtor uses the Loan to purchase Collateral, Debtor’srepayment of the Loan shall apply on a “first-in-first-out” basis so that theportion of the Loan used to purchase a particular item of Collateral shall bepaid in the chronological order the Debtor purchased the Collateral.

 

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

 

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

 

SECTION III:INDEBTEDNESS

 

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

 

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

and furtherwithout limitation to:

 

A.                                   any and allindebtedness of:

 

 

(if indebtedness is not solely of Debtor) or any of them if more thanone, to Assignee, jointly and/or severally, and in any capacity, whether asborrower, guarantor, or otherwise, now or hereafter owing, created and/orarising, and regardless of how evidenced or arising, including, withoutlimitation:

 

                                                                                                                                                                                                                                  

B.                                     any commercialloan or indebtedness;

C.                                     any credit card orother consumer type of loan;

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

E.                                      any expensesincurred in the protection or maintenance of the collateral securing any ofsuch liabilities, loans, and obligations;

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

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

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

I.                                         any otherindebtedness of Debtor and/or of the persons or entities set forth insubparagraph A. above to any financial institution affiliated with InternationalBancshares Corporation, jointly and/or severally, and in any capacity, whetheras borrower, guarantor, or otherwise, now or hereafter owing, created and/orarising, and regardless of how evidenced or arising;

J.                                        any and allextensions, modifications, substitutions and/or renewals of any of the abovedescribed indebtedness;

K.                                    any and all costsincurred by Secured Party to obtain, preserve and enforce this SecurityAgreement, collect the Indebtedness, and maintain and preserve the Collateralincluding without limitation, all taxes, assessments, attorneys’ fees and legalexpenses, and expenses of sale;

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

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

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

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

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

 

To the extentallowed by law, for purposes hereof it is intended that the Indebtednessinclude 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, loansfor consumer, agricultural, business or personal purposes.

 

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

 

**Notices:**  Notices and other communications pertainingto this Agreement shall be in writing and shall be effective only if deliveredin person or mailed U.S. certified mail, return receipt requested, postageprepaid, to Secured Party if sent to:

INTERNATIONALBANK 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 Debtoreither at the street address, the first shown hereinabove, or at the mailingaddress, 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 writingby 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 heretoshall be deemed effectively given on the date of personal delivery or, ifmailed, on the date such notice is deposited in the U.S. Mail, if received bySecured Party.

 

**SECTION IV:PERFECTION OF SECURITY INTERESTS.**

 

**1.****                                      FilingOf Financing Statement.**

 

(i)      Debtorhereby authorizes Secured Party to file a Financing Statement, an AmendedFinancing Statement and a Continuation Financing Statement (collectivelyreferred to as the “Financing Statement”) describing the Collateral.

(ii)     Debtorhereby “authorizes Secured Party to file a Financing Statement describing anyagricultural liens or other statutory liens held by Secured Party.

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

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

 

**2.****                                      Possession.**

 

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

 

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(ii)           WhereCollateral is in the possession of third party, Debtor will join with SecuredParty in satisfying the third party of Secured Party’s security interest andobtaining a Control Agreement from the third party that it is holding thecollateral for the benefit of Secured Party.

 

**3.****                                     ****Control Agreements.**                             Debtor will cooperate with Secured Party in obtaining a ControlAgreement in form and substance satisfactory to Secured Party with respect toCollateral 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 legendon the Chattel Paper acceptable to Secured Party indicating that Secured Partyhas a security Interest in the Chattel Paper.

 

**SECTION V: Debtor’sRepresentation. Warranties, and Agreements,**

 

**A.****                                   ****General Representations andWarranties**

 

Debtor represents, warrants and agreesthat:

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

 

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

 

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

 

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

 

(5)                                  Debtor shall provide to Secured Party, upon Secured Party’srequest, (i) financial information, including but not limited to a balancesheet, income statement, statement of cash flow, and such other financialinformation as may be requested by Secured Party; (ii) * an existing appraisalof the Collateral; (iii) tax receipts or copies of checks (iv) evidence ofinsurance, and (v) any other information required by Secured Party inconnection with the Indebtedness or the Collateral. * Upon the occurrence of anevent of Default, Debtor shall provide to Lender

 

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

 

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

 

(8)                                  Debtor shall pay prior to delinquency all taxes, charges, liensand 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 ofthe legality or validity thereof and the amount necessary to discharge thesame, Such payment shall become part of the Indebtedness secured by thisSecurity Agreement and shall be paid to Secured Party by Debtor immediately andwithout demand, with interest thereon at the maximum rate allowed by applicablelaw.

 

(9)                                  Certificates of hazard insurance must be furnished at all timesfor 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 GulfCoast), Hail and Collapse (including cost of debris removal) and such otherrisks as Secured Party may require, including standard extended coverage. Suchinsurance policies shall contain such terms, be in a form, for a period and bewritten by companies satisfactory to Secured Party. Federal flood insurance isalso required in those geographic areas that are subject to such loss. Thepolicy shall also contain a standard mortgagee’s endorsement providing forpayment of any loss to Secured Party. All policies of insurance shall providefor ten days written minimum cancellation notice to Secured Party.

 

Evidence of coverage must be a copy of theoriginal policy and loss payable clause. Certificates or letters of coveragewill not be accepted.

 

**Secured Party is authorized to act, asattorney-in-fact for Debtor in obtaining, adjusting, settling, and cancelingsuch 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 bereceived by it in payment of the indebtedness secured thereby, whether suchindebtedness is currently due or not. Secured Party reserves the right topurchase single Interest insurance (which provides only protection for SecuredParty) and add the premium for such insurance together with interest at theloan pre-maturity contract rate to the balance of the loan. This premium is dueupon demand, or may be paid in full at any agreed time. The single interestpremium is written by a company authorized to transact business in the State ofTexas 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 andwithout obligation on Secured Party to do so, may advance and pay sums onbehalf and for the benefit of Debtor for costs necessary for the protection andpreservation of the collateral and other costs that may be appropriate, inSecured Party’s sole discretion, including but not limited to insurancepremiums, 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 insurancepremiums, as aforesaid, including the costs, expenses, and attorney’s fees paidin any suit affecting said Collateral shall bear interest from the dates ofsuch payments at the loan contract interest rate applied to the unmaturedprincipal balance and shall be paid by Debtor to Secured Party upon demand, andshall be deemed a part of the debt and recoverable as such in all aspects. Anysum to be reimbursed shall be secured by this Security Agreement.

 

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

 

(11)                            Debtor shall not lend, rent, lease or otherwise dispose of theCollateral (other than in the ordinary course of business) or any interesttherein except as authorized in this Security Agreement or in writing bySecured Party, and Debtor shall keep the Collateral, including the proceedsthereof, 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 anyFinancing Statement or other document or procure any document, and pay allconnected costs, necessary to protect the security interest under this SecurityAgreement against the rights or interests of third persons. Debtor shall paythe costs of lien searches and certificates and all filing fees, continuationfees, and fees for certificates of good standing and other Information requiredby Secured Party.

 

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(13)                            Debtor shall at all times keep the Collateral and its proceedsseparate and distinct from other property of Debtor and shall keep accurate andcomplete records of the Collateral and its proceeds. Debtor shall present theCollateral 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 theCollateral has declined or may decline in value, or is otherwise insufficientto adequately secure the Indebtedness, or should Secured Party deem itselfinsecure as to payment of the Indebtedness, then Secured Party may call foradditional property to be pledged and/or covered by this Agreement satisfactoryto Secured Party.

 

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

 

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

 

(17)                            Debtor shall indemnify and hold harmless Secured Party from andagainst any and all claims, losses and liabilities growing out of or resultingfrom this Security Agreement (including, without limitation, enforcement ofthis Security Agreement), except claims, losses or liabilities resulting fromthe 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 ofany experts and agents, which Secured Party may incur in connection with (a)the preparation, execution, delivery, filing, recording or administration ofthis Security Agreement or the obtaining of advice from counsel with respect toits rights and remedies under this Security Agreement, (b) the custody,preservation, use or operation of, or the sale of, collection from, or otherrealization upon, any of the Collateral, (c) the exercise or enforcement of anyof the rights of Secured Party hereunder, (d) the defense by Secured Party ofany 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 Partyhereunder (save and except insurance) that are not paid when due at a rate perannum equal to the highest rate permitted by applicable law.

 

(18)                            ***As additional security for the Indebtedness, Debtor herebyassigns, pledges and grants to Secured Party a security interest, a lien andcontractual 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 timehereafter coming within, the custody or control of Secured Party or any memberBank or branch Bank of International Bancshares Corporation, whether held in ageneral or special account or deposit, or for safekeeping or otherwise. Everysuch security interest and right of set-off may be exercised without demand ornotice to Debtor. No security interest or right of set-off shall be deemed tohave been waived by any act or conduct on the part of Secured Party, or anyfailure 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 shallcontinue in full force and effect until such right of set-off or securityinterest is specifically waved or released by an instrument in writing executedby Secured Party. The foregoing is in addition to and no in lieu of any rightsof set-off allowed by law.

 

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***Upon the occurrence of an Eventy ofDefault,

 

(19)                            Debtor shall assist Secured Party in complying with the FederalAssignment of Claims Act (and any successor statutes) and similar laws toenable Secured Party to become an assignee under such Act and otherwise complywith 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 theCollateral, or in any fact or circumstances warranted or represented by Debtorin this agreement or furnished to Secured Patty, or if any Event of Defaultoccurs.

 

(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 thedate of the original note(s).

 

(22)                            Debtor shall comply with all environmental laws and regulationsapplicable to the Collateral and the premises in which the Collateral islocated and shall notify Secured Party upon receipt of any notice or otherinformation as to any environmental hazards or violation of such laws. SecuredParty may inspect all premises in which the Collateral is located and theCollateral as to its and their compliance with environmental law. Debtorindemnities and holds harmless Secured Party for any breach of the foregoingand for all losses, costs, fines, damages, including court costs and attorney’sfees, incurred by Secured Party to defend itself, or to protect or preserve theCollateral against environmental risks, hazards, fines, and other claimsrelating to the- Collateral.

 

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

 

a.                                       in one transaction or a series of related transactions, merge intoor consolidate with any other entity, sell all or substantially all of itsassets, 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 theCollateral or to preserve any rights relating to the Collateral.

 

**B.****                                   ****Special Representations andWarranties**.

 

Debtorrepresents, warrants and agrees-that:

 

(1)                                  If the Collateral includes Inventory:

(a)                                  Debtor will not sell, lease or otherwise dispose of any Collateralexcept in the ordinary course of business without the prior written consent ofSecured 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 heldby Debtor for such purpose, provided, however, that such use of the inventoryshall not be inconsistent with any other provisions of this Security Agreementor with the terms or conditions of any policies of insurance thereon. A sale inthe ordinary course of business does not include a transfer in partial or totalsatisfaction of a debt.

 

(2)                                  If the Collateral Includes accounts:

(a)                                  Each account in the Collateral will represent the valid, legallyenforceable obligation of third parties and will not be evidenced by anyinstrument or chattel paper, except for credits and offsets customary to Debtor’sbusiness.

(b)                                 The office where Debtor keeps its records concerning accounts, ifany, is the address of Debtor set forth at the beginning of this SecurityAgreement.

 

(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 interestin the Collateral. Delivery of the copy of the Security Agreement will alsoconstitute Debtor’s instruction to deliver to Secured Party certificates orother evidence of the Collateral as soon as it is available. Debtor willimmediately deliver to Secured Party all chattel paper and documents that areCollateral in Debtor’s possession. If that Collateral is hereafter acquired,Debtor will deliver it to Secured Party immediately following acquisition andeither endorse it to Secured Party’s order or give Secured Party appropriateexecuted powers. If any instruments, chattel paper, money or monies, ordocuments are, at any time or times, included in the

 

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Collateral, whether as proceeds or otherwise, Debtor will promptlydeliver thee to Secured Party upon the receipt thereof by Debtor, and in anyevent promptly upon demand therefore by Secured Party. If necessary, all Collateralwill either be endorsed to Secured Party’s order or accompanied by appropriateexecuted powers.

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

 

(4)                                  If the Collateralincludes property covered by a Certificate of Title: If any certificate oftitle or similar document is, at any time and pursuant to the laws of anyjurisdiction, issued or outstanding with respect to the Collateral or any partthereof, Debtor will promptly advise Secured Party thereof, and Debtor willpromptly cause the interest of Secured Party to be properly noted thereon, andif any certificate of title or similar document is so issued or outstanding atthe time this Security Agreement is executed by or on behalf of Debtor, thenDebtor shall have caused the interest of Secured Party so to have been properlynoted at or before the time of such execution; and Debtor will further promptlydeliver to Secured Party any such certificate of title or similar documentissued or outstanding at any time with respect to such Collateral.

 

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

 

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

 

(7)                                  All collateralconsisting of goods is located solely in the states and/or states previouslydesignated and warranted by Debtor to Secured Party.

 

(8)                                  Debtor’s:

(i)            chief executive officeis located in the state previously designated and warranted by Debtor toSecured Party;

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

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

 

**SECTION VI:EVENTS OF DEFAULT.**

 

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

 

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

 

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

 

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

 

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

 

(5)                                  Debtor’s death,dissolution, termination of existence, insolvency or business failure; theappointment of a receiver of all or any part of the property of Debtor; anassignment for the benefit of creditors by Debtor, the calling of a meeting ofcreditors of Debtor, or the commencement of any proceeding under any bankruptcyor insolvency laws by or against Debtor or any guarantor, surety or endorserfor 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 anyportion thereof.

 

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

 

(7)                                  The Collateralbecomes, in the judgment of Secured Party, unsatisfactory or insufficient incharacter or value.

 

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

 

(9)                                  The occurrence of anyenvironmentally hazardous spill, discharge or other similar event adverselyaffecting 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, orany guarantor, fails to timely deliver any and all financial statements, incometax returns, cash flow information, balance sheets, accounts receivablereports, or any other business, tax or financial information requested bySecured Party.

 

**SECTION VII:SECURED PARTY’S RIGHTS AND REMEDIES.**

 

**A.****                                    General.**

 

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

 

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

 

(2)                                  Secured Party mayrelease any Collateral in Secured Party’s possession to any Debtor, temporarilyor otherwise.

 

(3)                                  Secured Party maytake control of any funds generated by the Collateral, such as refunds from andproceeds of insurance, and reduce any part of the Indebtedness accordingly orpermit Debtor to use such funds to repair or replace damaged or destroyedCollateral covered by insurance.

 

(4)                                  Secured Party mayrequest Debtor from time to time, in Secured Party’s discretion to take anyaction and to execute any instrument which Secured Party may deem necessary oradvisable 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 dueunder or in respect of any Collateral; (b) to receive, endorse and collect anydrafts or other instruments, documents and chattel paper in connection with thepreceding actions; (c) to file any claims or take any action or institute anyproceedings which Secured Party may deem necessary or desirable for collectionof any of the Collateral or otherwise to enforce its rights with respect to anyof the Collateral, and (d) to complete and sign on behalf of Debtor one or morefinancing statements pertaining to the Collateral and file the same in anappropriate location. The powers conferred on Secured Party hereunder aresolely to protect its interest in the Collateral and shall not impose any dutyupon Secured Party to exercise any such powers. Debtor’s appointment of SecuredParty as Debtor’s agent is coupled with an interest and will survive anydisability of Debtor.

 

(5)                                  This SecurityAgreement, Secured Party’s rights hereunder and/or the Indebtedness herebysecured may be assigned in whole and in part from time to time, and in any suchcase Secured Party shall be fully discharged from all responsibility withrespect to the Collateral so assigned and the assignee shall be entitled to allof the rights, privileges and remedies granted in this Security Agreement toSecured Party to the extent the same are assigned, and Debtor will assert noclaim 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-offswhich Debtor could assert against Secured Party except defenses which cannot bewaived.

 

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(6)                                  Secured Party mayenter upon Debtors premises at any reasonable time to inspect the Collateraland Debtor’s books and records pertaining to the collateral, and Debtor shallassist the Secured Party in making any such inspection.

 

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

 

(8)                                  Secured Party mayrequire additional Collateral or reject as unsatisfactory any propertyhereafter offered by Debtor as Collateral.

 

(9)                                  Secured Party maydesignate, from time to time, a certain percentage of the Collateral as theloan value and require Debtor to maintain the Indebtedness at or below suchpercentage.

 

(10)                            Secured Party may presentfor conversion to cash any instrument or investment security or a combinationthereof. But Secured Party shall not have any duty to present for conversion,any instrument of Collateral in its possession unless it shall have receivedfrom 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 additionto, and not a limitation upon, any rights and powers of Secured Party given bylaw, elsewhere in this Security Agreement, or otherwise.

 

(11)                            Secured Party has noobligation to attempt to satisfy the Obligations by collecting them from anyother person liable for them and Secured Party may release, modify or waive anycollateral provided by any other person to secure any of the Obligations, allwithout affecting Secured Party’s rights against Debtor. Debtor waives anyright it may have to require Secured Party to pursue any third person for anyof the Obligations.

 

(12)                            Secured Party may complywith any applicable state or federal law requirements in connection with adisposition of the Collateral and compliance will not be considered adverselyto affect the commercial reasonableness of any sale of the Collateral.

 

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

 

(15)                            Secured Party have noobligation to marshall any assets in favor of Debtor, or against or in paymentof:

 

(i)                                     theNote,

(ij)                                  anyof the other Obligations, or

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

 

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

 

(17)                            Secured Party does notconsent to any assignment by Debtor except as expressly provided in thisSecurity Agreement.

 

# **B.Remedies in Event of Default**

 

During theexistence of any Event of Default, or in the event Secured Party deems itselfinsecure in the payment of the Indebtedness, Secured Party may declare theunpaid principal and unpaid and accrued interest of the Indebtednessimmediately due in whole or part, enforce the Indebtedness, and/or exercise anyrights and remedies granted by the Texas Business and Commercial Code or bythis Security Agreement, including the following:

 

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

 

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

 

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

 

(4)                                  sell, lease, orotherwise 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 AndCommerce Code after giving notice as required by those chapters; unless theCollateral threatens to decline rapidly in value, is perishable, or wouldtypically be sold on a recognized market, Secured Party will give Debtorreasonable notice of any public sale of the Collateral or of a time after whichit may be otherwise disposed of without further notice to Debtor; in thisevent, notice will be deemed reasonable if it is mailed, postage prepaid, toDebtor at the address specified in this agreement at least ten days before anypublic sale or ten days before the time when the Collateral may be otherwisedisposed of without further notice to Debtor. Debtor authorizes Secured Partyto 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 notrender the sale commercially unreasonable.

 

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

 

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

 

(7)                                  if disposition of theCollateral leaves the Indebtedness unsatisfied, collect the deficiency from allliable parties. Expenses of retaking, holding, preparing for sale, selling orthe like shall include Secured Party’s reasonable attorney’s fees and legalcosts 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 mayretain all or part of the Collateral in full and/or partial satisfaction of theIndebtedness pursuant to Section 9.620 of the Texas Business And CommerceCode;

 

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

 

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

 

**SECTION VIII:ADDITIONAL AGREEMENTS.**

 

(1)                                  All notices and othercommunications to Secured Party hereunder or in connection herewith shall bedeemed to have been given when received by Secured Party in writing at theaddress first shown hereinabove. Any notice or demand or other communication toDebtor hereunder or in connection herewith may be given and shall conclusivelybe deemed and considered to have been given and received upon the depositthereof in writing in the United States Mail, duly stamped and addressed toDebtor either at the street address, the first shown hereinabove, or at themailing 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 writingby 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 thisSecurity Agreement or any financing statement covering the Collateral issufficient and may be filed as a financing statement. Information concerningthis security interest may be obtained at the office of Secured Party shownabove.

 

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

 

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

 

(5)                                  Secured Party mayremedy any default without waiving it. No delay by Secured Party in exercisingits rights or partially exercising its rights or remedies shall waive furtherexercise of those remedies or rights. The failure of Secured Party to exerciseany remedies or rights does not waive subsequent exercise of those remedies orrights. Any waiver by Secured Party of any default shall not waive any furtherdefault. Secured Party may remedy any default without waiving it. Secured Party’swaiver of any right in this Security Agreement or any default is binding onlyif in writing.

 

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

 

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

 

(8)                                  This SecurityAgreement is being executed and delivered and is intended to be performed inthe State of Texas and shall be construed and enforced in accordance with thelaws of the State of Texas, except to the extent that the Code provides for theapplication of the law of the Debtor States. When the context requires,singular nouns and pronouns include the plural. The rights of Secured Partyunder this Security Agreement shall inure to the benefit of its successors andassigns. Any assignment of part of the Indebtedness and delivery by Secured Partyof any part of the Collateral will fully discharge Secured Party from any andall responsibility for that portion of the Collateral. Debtor’s Indebtednessunder 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 SecurityAgreement is unenforceable, the unenforceability of such provision will notaffect the enforceability of any other provision hereof and all otherprovisions will constitute valid provisions.

 

**SECTION IX:**

 

**ARBITRATION - THE PARTIES FURTHER AGREE ASFOLLOWS:**

 

**(a) ANY AND ALL CONTROVERSIES BETWEEN THE PARTIES SHALL BE RESOLVED BYARBITRATION IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICANARBITRATION ASSOCIATION IN EFFECT AT THE TIME OF FILING, UNLESS THE COMMERCIALARBITRATION RULES CONFLICT WITH THIS PROVISION, AND IN SUCH EVENT THE TERMS QFTHIS PROVISION SHALL CONTROL TO THE EXTENT OF THE CONFLICT. ANY ARBITRATIONHEREUNDER SHALL BE BEFORE AT LEAST THREE NEUTRAL ARBITRATORS ASSOCIATED WITHTHE AMERICAN ARBITRATION ASSOCIATION AND SELECTED IN ACCORDANCE WITH THECOMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. FAILUREOF ANY ARBITRATOR TO DISCLOSE ALL FACTS WHICH MIGHT TO AN OBJECTIVE OBSERVERCREATE A REASONABLE IMPRESSION OF THE ARBITRATOR’S PARTIALITY, AND/OR MATERIALERRORS OF LAW SHALL BE GROUNDS [IN ADDITION TO ALL OTHERS] FOR VACATUR OF ANAWARD RENDERED PURSUANT TO THIS AGREEMENT.**

 

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

 

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

 

**(d) THE PARTIES SHALL ALLOW AND PARTICIPATE IN DISCOVERY IN ACCORDANCEWITH THE FEDERAL RULES OF CIVIL PROCEDURE FOR A PERIOD OF ONE HUNDRED TWENTY(120) DAYS AFTER THE FILING OF THE ORIGINAL RESPONSIVE PLEADING. DISCOVERY MAYCONTINUE THEREAFTER AS AGREED BY THE PARTIES OR AS ALLOWED BY THE ARBITRATORS.UNRESOLVED DISCOVERY DISPUTES SHALL BE BROUGHT TO THE ATTENTION OF THEARBITRATORS BY WRITTEN MOTION FOR PROPER DISPOSITION, INCLUDING RULING ON ANYASSERTED OBJECTIONS, PRIVILEGES, AND PROTECTIVE ORDER REQUESTS AND AWARDINGREASONABLE 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 WRITTENREQUEST OF ANY PARTY, (1) PRIOR TO THE DISSEMINATION OF A LIST OF POTENTIALARBITRATORS, THE AMERICAN ARBITRATION ASSOCIATION SHALL CONDUCT AN IN PERSONADMINISTRATIVE CONFERENCE WITH THE PARTIES AND THEIR ATTORNEYS FOR THEFOLLOWING PURPOSES AND FOR SUCH ADDITIONAL PURPOSES AS THE PARTIES OR THEAMERICAN ARBITRATION ASSOCIATION MAY DEEM APPROPRIATE, (A) TO OBTAIN ADDITIONALINFORMATION ABOUT THE NATURE AND MAGNITUDE OF THE DISPUTE AND THE ANTICIPATEDLENGTH OF HEARINGS AND SCHEDULING; (B) TO DISCUSS THE VIEW OF THE PARTIES ABOUTANY TECHNICAL AND/OR OTHER SPECIAL QUALIFICATIONS OF THE ARBITRATORS; AND IC)TO CONSIDER, WHETHER MEDIATION OR OTHER METHODS OF DISPUTE RESOLUTION MIGHT BEAPPROPRIATE, AND (2) AS PROMPTLY AS PRACTICABLE AFTER THE SELECTION OF THEARBITRATORS, A PRELIMINARY HEARING SHALL BE HELD AMONG THE PARTIES, THEIRATTORNEYS AND THE ARBITRATORS. WITH THE AGREEMENT OF THE ARBITRATORS AND THEPARTIES, THE PRELIMINARY HEARING MAY BE CONDUCTED BY TELEPHONE CONFERENCE CALLRATHER THAN IN PERSON. AT THE PRELIMINARY HEARING THE MATTERS THAT MAY BECONSIDERED SHALL INCLUDE, WITHOUT LIMITATION, A PREHEARING SCHEDULING ORDERADDRESSING (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 ANDANY LEGAL AUTHORITIES THE PARTIES MAY WISH TO BRING TO THE ATTENTION OF THEARBITRATORS; (B) RESPONSES AND/OR REPLIES TO THE PLEADINGS FILED IN COMPLIANCEWITH SUBPART 2(A); (C) STIPULATIONS REGARDING ANY UNCONTESTED FACTS; (D)EXCHANGE AND PREMARKING OF ALL DOCUMENTS WHICH EACH PARTY BELIEVES MAY BEOFFERED AT THE FINAL ARBITRATION HEARING; (E) THE IDENTIFICATION ANDAVAILABILITY OF WITNESSES, INCLUDING EXPERTS, AND SUCH ADDITIONAL MATTERSREGARDING WITNESSES INCLUDING THEIR BIOGRAPHIES AND A SHORT SUMMARY OF THEIREXPECTED TESTIMONY, (F) WHETHER A STENOGRAPHIC OR OTHER OFFICIAL RECORD OF THEPROCEEDINGS SHALL BE MAINTAINED; AND (G) THE POSSIBILITY OF UTILIZING MEDIATIONOR OTHER ALTERNATIVE METHODS OF DISPUTE RESOLUTION.**

 

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

 

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**AND/ORREPRESENTATIVES OF ANY PARTY TO SUCH DOCUMENTS, AND SHALL INCLUDE ANY OTHEROWNER AND HOLDER OF THIS AGREEMENT.**

 

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

 

**(h) THE PARTIES AGREE THAT ANY ACTION REGARDING ANY CONTROVERSY BETWEENTHE PARTIES SHALL EITHER BE BROUGHT BY ARBITRATION, AS DESCRIBED HEREIN, OR BYJUDICIAL PROCEEDINGS, BUT SHALL NOT BE PURSUED SIMULTANEOUSLY IN DIFFERENT ORALTERNATIVE FORMS. A TIMELY WRITTEN NOTICE OF INTENT TO ARBITRATE PURSUANT TOTHIS AGREEMENT STAYS AND/OR ABATES ANY AND ALL ACTION IN A TRIAL COURT, SAVEAND EXCEPT A HEARING ON A MOTION TO COMPEL ARBITRATION AND/OR THE ENTRY OF ANORDER COMPELLING ARBITRATION AND STAYING AND/OR ABATING THE LITIGATION PENDINGTHE FILING OF THE FINAL AWARD OF THE ARBITRATORS. ALL REASONABLE AND NECESSARYATTORNEY’S FEES AND ALL TRAVEL COSTS SHALL BE AWARDED TO THE PREVAILING PARTYON 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 TOARBITRATE TO ANY AND ALL OPPOSING PARTIES WITHIN 360 DAYS AFTER DISPUTE HASARISEN. A DISPUTE IS DEFINED TO HAVE ARISEN ONLY UPON RECEIPT OF SERVICE OFJUDICIAL PROCESS, INCLUDING SERVICE OF A COUNTERCLAIM, FAILURE TO SERVE AWRITTEN NOTICE OF INTENT ‘TO ARBITRATE WITHIN THE TIME SPECIFIED ABOVE SHALL BEDEEMED A WAIVER OF THE AGGRIEVED PARTY’S RIGHT TO COMPEL ARBITRATION OF SUCHCLAIM. THE ISSUE OF WAIVER PURSUANT TO THIS AGREEMENT IS AN ARBITRABLE DISPUTE.**

 

**(j) ACTIVE PARTICIPATION IN PENDING LITIGATION DURING THE 360 DAYNOTICE PERIOD, WHETHER AS PLAINTIFF OR DEFENDANT, IS NOT A WAIVER OF THE RIGHTTO COMPEL ARBITRATION. ALL DISCOVERY OBTAINED IN THE PENDING LITIGATION MAY BEUSED IN ANY SUBSEQUENT ARBITRATION PROCEEDING.**

 

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

 

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

 

**(m) ALL STATUTES OF LIMITATIONS WHICH WOULD OTHERWISE BE APPLICABLESHALL APPLY TO ANY AND ALL CLAIMS ASSERTED IN ANY ARBITRATION PROCEEDINGHEREUNDER AND THE COMMENCEMENT OF ANY ARBITRATION PROCEEDING TOLLS SUCHSTATUTES OF LIMITATIONS.**

 

**(n) IN ANY ARBITRATION PROCEEDING SUBJECT TO THIS PROVISION, THEARBITRATORS, OR MAJORITY OF THEM, ARE SPECIFICALLY EMPOWERED TO DECIDE (BYDOCUMENTS ONLY, OR WITH A HEARING, AT THE ARBITRATORS’ SOLE DISCRETION)PRE-HEARING MOTIONS WHICH ARE SUBSTANTIALLY SIMILAR TO PRE-HEARING MOTIONS TODISMISS 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 TRANSACTIONINVOLVING INTERSTATE COMMERCE. THE FEDERAL ARBITRATION ACT SHALL GOVERN THEINTERPRETATION, ENFORCEMENT, AND PROCEEDINGS PURSUANT TO THE ARBITRATION CLAUSEOF THIS AGREEMENT.**

 

**(q) THE ARBITRATORS, OR A MAJORITY OF THEM, SHALL AWARD ATTORNEY’S FEESAND 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 CONSENTOF ALL PARTIES AND/OR COURT ORDER.**

 

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

 

**SECTION X.Miscellaneous.**

 

(a) SecurityInterest Absolute. All rights of the Secured Party and the securityinterests hereunder shall be absolute and unconditional irrespective of:

 

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

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

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

 

**(b) Indemnification.The Debtor agrees to indemnify the Secured Party and hold the Secured Partyharmless from and against any and all liabilities, obligations, losses,damages, penalties, actions, judgments, suits, costs, expenses or disbursementsof any kind of nature whatsoever which may be imposed on, incurred by, orasserted against the Secured Party in any way relating, in any way, arising outof or in connection with this Security Agreement, the Loan Documents or thetransactions contemplated hereby or thereby other than those arising out of theSecured Party’s breach, default, negligence or willful misconduct in itsobligations under this Security Agreement or the Loan Documents. Withoutlimitation of the foregoing, the Debtor will reimburse the Secured Party forall expenses (including expenses for legal services of every kind) of, orincidental to, the negotiation of, entering into and enforcement of any of theprovisions 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 assertingthe rights and claims of the Secured Party in respect thereof, and for the careof the Collateral and defending or asserting the rights and claims of theSecured Party in respect thereof, by litigation or otherwise, including expenseof insurance, and all such expenses shall be the Debtor’s Indebtedness.**

 

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**SECTION XI:NO ORAL AGREEMENTS**

 

**THISWRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAYNOT BE CONTRADICTED BY EVIDENCE OF PRIOR. CONTEMPORANEOUS OR SUBSEQUENT ORALAGREEMENT OF THE PARTIES.**

 

**THERE ARENO 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 |                           |    |   |
|                                     |                              |                                |         |        |  |  |  |  |  |  |

 

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EXHIBIT “A”

 

A.                                   Equipment. Allequipment of Debtor now or hereafter acquired by Debtor, including withoutlimitation, including without limitation, furniture, machinery, vehicles andtrade fixtures, together with any and all accessions, attachments and otheradditions to, substitutes and replacements for and improvements of theequipment, whether now owned or at any time hereafter acquired or made,together with all tools, parts and appurtenances now or at any timer hereafterused in and together with all proceeds of the equipment described or referredto above, including insurance payable by reason of loss or damage thereto, andall proceeds of any policy of insurance required on the Collateral by SecuredParty, including any refunds or unearned premiums in connection with anycancellation, adjustment or termination of any such policy of insurance.

 

B.                                     Inventory. Allinventory of Debtor, whenever acquired and whether now or hereafter existing,including but not limited to all goods, wares and merchandise intended for saleor lease by Debtor or to be furnished by Debtor, under contracts of service andall raw materials, goods in process, finished goods and supplies of everynature used or usable in connection with the manufacturing, processing,packing, shipping, advertising, selling, leasing or furnishing of suchservices, goods, wares and merchandise; all certificates of title, manufacture’sstatements of origin and other documents arising from or related to such inventory;and all accessions, attachments and other additions to, substitutes for, replacementsfor, 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 existingor hereafter arising, existing or created, now or hereafter attached to orincorporated into or used in or about the Debtor’s premises, including allfurniture, appliances, furnishings, goods, equipment, and machinery owned byDebtor and other tangible personal property now or hereafter affixed, attachedor related to such property or now or hereafter affixed, attached or related tosuch 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, substitutesand replacements for, and improvements of, the property described in (a) above,whether now owned or at any time hereafter acquired or made, together with alltools, 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 andany of the property described above, excluding proceeds used to replaceworn-out or obsolete equipment or other property.

 

D.                                    Accounts Receivable. Allaccounts and chattel paper of Debtor, whenever acquired and whether now orhereafter existing, including, but not limited to, accounts and chattel paper whicharise out of: (i) the sale or other disposition of goods; (ii) the furnishingof services; (iii) the furnishing of, the use of, or the lease of any of theCollateral, and (iv) the agreement to provide any of the above; and allproceeds relating to, resulting from or arising in connection with any suchaccounts and/or chattel paper.

 

This Security Agreement is being executedpursuant to the terms and provisions of that certain Loan Agreement of evendate herewith between Debtor and Secured Party and which Loan Agreement willgovern in case of conflict with this Agreement.

 

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

 

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