Promissory Note Agreement between Westech Capital Corp. and First United Bank dated July 30, 2002
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Westech Capital Corp. has agreed to borrow $250,050 from First United Bank at a 7% annual interest rate, as outlined in this promissory note dated July 30, 2002. The loan is payable on demand, or in full by October 1, 2002, if no demand is made. If the borrower defaults or fails to meet the terms, the lender may accelerate repayment and apply a higher interest rate. The agreement also details conditions for prepayment, default, and other standard loan terms.
EX-10.12 3 d99050exv10w12.txt PROMISSORY NOTE AGREEMENT DATED JULY 31, 2002 EXHIBIT 10.12 [FIRST UNITED BANK LOGO] PROMISSORY NOTE - -----------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations. - --------------------------------------------------------------------------------
PROMISE TO PAY. WESTECH CAPITAL CORP. ("BORROWER") PROMISES TO PAY TO FIRST UNITED BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF TWO HUNDRED FIFTY THOUSAND FIFTY & 00/100 DOLLARS ($250,050.00), TOGETHER WITH INTEREST AT THE RATE OF 7.000% PER ANNUM ON THE UNPAID PRINCIPAL BALANCE FROM JULY 30, 2002, UNTIL MATURITY. PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND. PAYMENT IN FULL IS DUE IMMEDIATELY UPON LENDER'S DEMAND. IF NOT DEMAND IS MADE, BORROWER WILL PAY THIS LOAN IN ONE PRINCIPAL PAYMENT OF $250,050.00 PLUS INTEREST ON OCTOBER 1, 2002. THIS PAYMENT DUE ON OCTOBER 1, 2002, WILL BE FOR ALL PRINCIPAL AND ALL ACCRUED INTEREST NOT YET PAID. UNLESS OTHERWISE AGREED OR REQUIRED BY APPLICABLE LAW, PAYMENTS WILL BE APPLIED FIRST TO ACCRUED UNPAID INTEREST, THEN TO PRINCIPAL, AND ANY REMAINING AMOUNT TO ANY UNPAID COLLECTION COSTS. THE ANNUAL INTEREST RATE FOR THIS NOTE IS COMPUTED ON A 365/360 BASIS; THAT IS, BY APPLYING THE RATIO OF THE ANNUAL INTEREST RATE OVER A YEAR OF 360 DAYS, MULTIPLIED BY THE OUTSTANDING PRINCIPAL BALANCE, MULTIPLIED BY THE ACTUAL NUMBER OF DAYS THE PRINCIPAL BALANCE IS OUTSTANDING, UNLESS SUCH CALCULATION WOULD RESULT IN A USURIOUS RATE, IN WHICH CASE INTEREST SHALL BE CALCULATED ON A PER DIEM BASIS OF A YEAR OF 365 OR 366 DAYS, AS THE CASE MAY BE. BORROWER WILL PAY LENDER AT LENDER'S ADDRESS SHOWN ABOVE OR AT SUCH OTHER PLACE AS LENDER MAY DESIGNATE IN WRITING. PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Prepayment in full shall consist of payment of the remaining unpaid principal balance together with all accrued and unpaid interest and all other amounts, costs and expenses for which Borrower is responsible under this Note or any other agreement with Lender pertaining to this loan, and in no event will Borrower ever be required to pay any unearned interest. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: First United Bank, Lubbock Southwest Branch, 6604 Frankford, Lubbock, TX 79424. POST MATURITY RATE. The Post Maturity Rate on this Note is 18.000% per annum. Borrower will pay interest on all sums due after final maturity, whether by acceleration or otherwise, at that rate. DEFAULT. Each of the following shall constitute an event of default ("Event of Default") under this Note: PAYMENT DEFAULT. Borrower fails to make any payment when due under this Note. OTHER DEFAULTS. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. FALSE STATEMENTS. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter. INSOLVENCY. The dissolution or termination of borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note. In the event of a death, Lender, at its option, may, but shall not be required to, permit the Guarantor's estate to assume unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender, and, in doing so, cure any Event of Default. CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. ADVERSE CHANGE. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired. INSECURITY. Lender in good faith believes itself insecure. CURE PROVISIONS. If any default, other than a default in payment or failure to satisfy Lender's requirement in the Insufficient Market Value of Securities section is curable, it may be cured (and no event of default will have occurred) if Borrower, after receiving written notice from Lender demanding cure of such default: (1) cures the default within twenty (20) days; or (2) if the cure requires more than twenty (20) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. LENDER'S RIGHTS. Upon default, Lender may declare the entire indebtedness, including the unpaid principal balance on this Note, all accrued unpaid interest, and all other amounts, costs and expenses for which Borrower is responsible under this Note or any other agreement with Lender pertaining to this loan, immediately due, without notice, and then Borrower will pay that amount. ATTORNEYS' FEES; EXPENSES. Lender may hire an attorney to help collect this Note if Borrower does not pay, and Borrower will pay Lender's reasonable attorneys' fees. Borrower also will pay Lender all other amounts Lender actually incurs as court costs, lawful fees for filing, recording, releasing to any public office any instrument securing this Note; the reasonable cost actually expanded for repossessing, storing, preparing for sale, and selling any security; and fees for noting a lien on or transferring a certificate of title to any motor vehicle offered as security for this Note, or premiums or identifiable charges received in connection with the sale of authorized insurance. GOVERNING LAW. THIS NOTE WILL BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH FEDERAL LAW AND THE LAWS OF THE STATE OF TEXAS. THIS NOTE HAS BEEN ACCEPTED BY LENDER IN THE STATE OF TEXAS. CHOICE OF VENUE. If there is a lawsuit, and if the transaction evidenced by this Note occurred in Lubbock County, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Lubbock County, State of Texas. RIGHT OF SETOFF. To the extent permitted by applicable laws, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts. COLLATERAL. Borrower acknowledges this Note is secured by A SECURITY AGREEMENT FROM WESTECH CAPITAL CORP., A NEW YORK PROMISSORY NOTE LOAN NO: 656387 (CONTINUED) PAGE 2 ================================================================================ CORPORATION AND TEJAS SECURITIES GROUP, INC., A TEXAS CORPORATION TO FIRST UNITED BANK DATED 06/07/00 AND A PLEDGE AND SECURITY AGREEMENT FROM TEJAS SECURITIES GROUP HOLDING COMPANY TO FIRST UNITED BANK DATED 06/07/00. PURPOSE OF LOAN. Working Capital. SUCCESSOR INTEREST. The terms of this Note shall be binding upon Borrower, and upon Borrower's heirs, personal representatives, successors and assigns, and shall inure to the benefit of the Lender and its successors and assigns. NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES. Please notify us if we report any inaccurate information about your account(s) to a consumer reporting agency. Your written notice describing the specific inaccuracy(ies) should be sent to us at the following address: FIRST UNITED BANK P.O. BOX 16500 Lubbock, TX 79490 GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific default provisions or rights of Lender shall not preclude Lender's right to declare payment of this Note on its demand. NOTICE: Under no circumstances (and notwithstanding any other provisions of this Note) shall the interest charged, collected, or contracted for on this Note exceed the maximum rate permitted by law. The term "maximum rate permitted by law" as used in this Note means the greater of (a) the maximum rate of interest permitted under federal or other law applicable to the indebtedness evidenced by this Note, or (b) the higher, as of the date of this Note, of the "Weekly Ceiling" or the "Quarterly Ceiling" as referred to in Sections 303.002, 303.003 and 303.006 of the Texas Finance Code. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Borrower does not agree or intend to pay, and Lender does not agree or intend to contract for, charge, collect, take, reserve or receive (collectively referred to herein as "charge or collect"), any amount in the nature of interest or in the nature of a fee for this loan, which would in any way or event (including demand, prepayment, or acceleration) cause Lender to charge or collect more for this loan than the maximum Lender would be permitted to charge or collect by federal law or the law of the State of Texas (as applicable). Any such excess interest or unauthorized fee shall, instead of anything stated to the contrary, be applied first to reduce the principal balance of this loan, and when the principal has been paid in full, be refunded to Borrower. The right to accelerate maturity of sums due under this Note does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Lender does not intend to charge or collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the loan evidenced by this Note until payment in full so that the rate or amount of interest on account of the loan evidenced hereby does not exceed the applicable usury ceiling. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, notice of dishonor, notice of intent to accelerate the maturity of this Note, and notice of acceleration of the maturity of this Note. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs the Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew of extend (repeatedly and for any length of time) this loan or release any party of guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, BORROWER AGREES TO THE TERMS OF THE NOTE. BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE. BORROWER: WESTECH CAPITAL CORP. By:______________________________________ John Gorman, Chairman & CEO of WESTECH CAPITAL CORP. ================================================================================ [ILLEGIBLE] NOTICE OF FINAL AGREEMENT - -----------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations. - --------------------------------------------------------------------------------
THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. As used in this Notice, the following terms have the following meanings: LOAN. The term "Loan" means the following described loan: a non-precomputed Fixed Rate (7.000%) Nondisclosable Single Principal Payment (with periodic interest payments) Loan to a Corporation for $250,050.00 due on October 1, 2002. LOAN AGREEMENT. The term "Loan Agreement" means one or more promises, promissory notes, agreements, undertakings, security agreements, deeds of trust or other documents, or commitments, or any combination of these actions or documents, relating to the Loan, including without limitation the following: LOAN DOCUMENTS Business Loan Agreement TX Commercial Guaranty: John Gorman TX Commercial Pledge Agreement: 4,808,555 Shares of Tejas Securities Group, Inc. Stock; owned by WESTECH CAPITAL CORP. IRREVOCABLE STOCK OR BOND POWER: 4,808,555 Shares of Tejas Securities Group, Inc. Stock Disbursement Request and Authorization Promissory Note TX Commercial Security Agreement: All accounts, together with the following specifically described property; 4,808,555 shares of Tejas Securities Group, Inc. Certificate Number 76; owned by WESTECH CAPITAL CORP. Collateral Receipt; 4,808,555 Shares of Tejas Securities Group, Inc. Stock Notice of Final Agreement PARTIES. The term "Parties" means First United Bank and any and all [ILLEGIBLE] or individuals who are obligated to repay the loan or have pledged property as security for the Loan, including without limitation the following: Borrower: WESTECH CAPITAL CORP. Grantor(s): WESTECH CAPITAL CORP. Guarantor 1: John Gorman THIS NOTICE OF FINAL AGREEMENT IS GIVEN BY FIRST UNITED BANK PURSUANT TO SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE. Each Party who signs below, other than First United Bank, acknowledges, represents, and warrants to First United Bank that it has received, read and understood this Notice of Final Agreement. This notice is dated July 30, 2002. BORROWER: WESTECH CAPITAL CORP. By: /s/ JOHN GORMAN -------------------------------------- John Gorman, Chairman & CEO of WESTECH CAPITAL GROUP. GUARANTOR: By: /s/ JOHN GORMAN -------------------------------------- John Gorman, individually LENDER: FIRST UNITED BANK X /s/ [ILLEGIBLE] ---------------------------------------- Authorized Signer [FIRST UNITED BANK LOGO] DISBURSEMENT REQUEST AND AUTHORIZATION - -----------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations. - --------------------------------------------------------------------------------
LOAN TYPE. This is a non-precomputed Feed Rate (7.00%) Nondisclosure Single Principal Payment (with [ILLEGIBLE] interest payments) Loan to a Corporation for $250,050.00 due on October 1, 2002. PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for: [ ] Personal, Family or Household Purposes. [ ] Personal Investment. [ ] Motor Vehicle Purchase for Other Than Personal, Family or Household Purposes. [X] Business, Agriculture and All Other. SPECIFIC PURPOSE. The specific purpose of the loan is Working Capital. DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be disbursed until all of Lender's conditions for making this loan have been satisfied. Please disburse the loan proceeds of $250,050.00 as follows:
FINANCIAL CONDITION: BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS AUTHORIZATION IS DATED JULY 30, 2002. BORROWER: WESTECH CAPITAL CORP. By: /s/ JOHN GORMAN --------------------------------------------- JOHN GORMAN, Chairman & CEO of WESTECH CAPITAL CORP. - -------------------------------------------------------------------------------- [ILLEGIBLE] COLLATERAL [ILLEGIBLE] - -----------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations. - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- DESCRIPTION OF COLLATERAL CUSTODY CONTROL DATE RELEASED SIGNATURES - -------------------------------------------------------------------------------- 4,806,555 Shares of Tejas Securities Group, Inc. Stock - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Initial Delivery Return Receipt Instructions for Returning Acknowledgements: Acknowledgement: Collateral and Disposition of Coupons: ----------------- Grantor: [ILLEGIBLE] Grantor acknowledges -------------- the receipt of all ----------------------------- Grantors Signature collateral, including all unmatured coupons, ----------------------------- FIRST UNITED BANK if any. By: X ----------------------------- -------------------- --------------------- (Authorized Officer) (Grantor's Signature) ----------------------------- - -------------------------------------------------------------------------------- ================================================================================ [ILLEGIBLE] COMMERCIAL PLEDGE AGREEMENT - -----------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations. - --------------------------------------------------------------------------------
THIS COMMERCIAL PLEDGE AGREEMENT dated July 20, 2002, is made and executed between WESTECH CAPITAL CORP. ("Grantor") and First United Bank ("Lender"). GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to the other rights which Lender may have by law. COLLATERAL DESCRIPTION. The word "Collateral" as used in this Agreement means Grantor's present and future rights, title and interest in and to, together with any and all present and future additions thereto, substitutions therefore, and replacements thereof, together with any and all present and future certificates and/or instruments evidencing any Stock and further together with all Income and Proceeds as described herein: 4,301,555 Shares of Tejas Securities Group, Inc. Stock RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Grantor's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Grantor holds jointly with someone else and all accounts Grantor may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts. REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. Grantor represents and warrants to Lender that: OWNERSHIP. Grantor is the lawful owner of the Collateral free and clear of all security interests, liens, encumbrances and claims of others except as disclosed to and accepted by Lender in writing prior to execution of this Agreement. RIGHT TO PLEDGE. Grantor has the full right, power and authority to enter into the Agreement and to pledge the Collateral. AUTHORITY; BINDING EFFECT. Grantor has the full right, power and authority to enter into this Agreement and to grant a security interest in the Collateral to Lender. This Agreement is binding upon Grantor as well as Grantor's successors and assigns, and is legally enforceable in accordance with its terms. The foregoing representations and warranties, and all other representations and warranties contained in this Agreement are and shall be continuing in nature and shall remain in full force and effect until such time as this Agreement is terminated or canceled as provided herein. NO FURTHER ASSIGNMENT. Grantor has not, and shall not, sell, assign, transfer, encumber or otherwise dispose of any of Grantor's rights in the Collateral except as provided in this Agreement. NO DEFAULTS. There are no defaults existing under the Collateral, and there are no offsets or counterclaims to the same. Grantor will singly and promptly perform each of the terms, conditions, covenants and agreements, if any, contained in the Collateral which are to be performed by Grantor. NO VIOLATION. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement. FINANCING STATEMENTS. Grantor authorizes Lender to use a UCC-1 financing statement, or alternatively, a copy of this Agreement to perfect Lender's security interest. At Lender's request, Grantor additionally agrees to sign all other documents that are necessary to perfect, protect, and continue Lender's security interest in the Property. Grantor will pay all [ILLEGIBLE] fees, [ILLEGIBLE] transfer fees, and other fees and costs involved unless prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute financing statements and documents [ILLEGIBLE] this in Grantor's name and to [ILLEGIBLE] all documents necessary to [ILLEGIBLE]. Lender may keep a copy of this Agreement as a financing statement. If Grantor changes Grantor's name or address, or the name or address of any person granting a security interest under this Agreement changes, Grantor will promptly notify the Lender of such change. LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO THE COLLATERAL. Lender may hold the Collateral until all indebtedness has been paid and [ILLEGIBLE]. Thereafter Lender may deliver the Collateral to Grantor or to any other owner of the Collateral. Lender shall have the following rights in addition to all other rights Lender may have by law: MAINTENANCE AND PROTECTION OF COLLATERAL. Lender may, but shall not be obligated to, take such steps as it deems necessary or desirable to protect, maintain, [ILLEGIBLE], [ILLEGIBLE], or care for the Collateral, including paying of any liens or claims against the Collateral. This may include such things as hiring other people, such as attorneys, appraisers or other experts. Lender may charge Grantor for any cost incurred in so doing. While applicable law provides more than one method of protection of Lender's security interest, Lender may choose the method(s) to be used. If the Collateral consists of stock, bonds or other investment property for which no contracts have been issued, Grantor agrees, at Lender's request, either to request issuance of an appropriate certificate or to give instructions on Lender's forms to the issuer, transfer agent, mutual fund company, or Lender, as the case may be, to record [ILLEGIBLE] or records Lender's security interest in the Collateral. INCOME AND PROCEEDS FROM THE COLLATERAL. Lender may receive all Income and Proceeds and add it to the Collateral. Grantor agrees to deliver to Lender immediately upon receipt, in the exact form received and without commingling with other property, all Income and Proceeds from the Collateral which may be received by, paid, or delivered to Grantor or for Grantor's account, whether as an addition to, in discharge of, in substitution of, or [ILLEGIBLE] any of the Collateral. APPLICATION OF CASH. At Lender's option, Lender may apply any cash, whether included in the Collateral or received as Income and Proceeds or through liquidation, sale, or retirement, of the Collateral, to the satisfaction of the Indebtedness or such portion thereof as Lender shall choose, whether or not matured. TRANSACTIONS WITH OTHERS. Lender may (1) extend time for payment or other performance, (2) grant a renewal or change in terms or conditions, or (3) compromise, compound or release any obligation, with any one or more Obligors, endorsers, or Guarantors of the Indebtedness as Lender deems advisable, without obtaining the prior written consent of Grantor, and no [ILLEGIBLE] act or failure to act shall effect Lender's rights against Grantor of the Collateral. ALL COLLATERAL SECURES INDEBTEDNESS. All Collateral shall be security for the indebtedness. Whether the Collateral is located at one or more offices or branches of Lender. This will be the case whether or not the office or branch where Grantor obtained Grantor's loan knows about the Collateral or called upon this Collateral as security. COLLECTION OF COLLATERAL. Lender at Lender's option may, but need not, collect the Income and Proceeds directly from the Obligor. Grantor authorizes and directs the Obligors, if Lender ceases to collect the Income and Proceeds, to pay and deliver to Lender all Income and Proceeds from the Collateral and to accept Lender's receipts for the payments. POWER OF ATTORNEY. Grantor irrevocably appoints Lender as Grantor's attorney-in-fact, with full power of substitution, (a) to demand, collect, receive, receipt for, sue and recover all income and [ILLEGIBLE] and other sums of money and other property which may now or hereafter become due, owing or payable from the Obligors in accordance with the terms of the Collateral; (b) to execute, sign and endorse any and all instruments, [ILLEGIBLE], [ILLEGIBLE], [ILLEGIBLE] and warrants issued in payment for the Collateral; (c) to settle or compromise any and all claims arising under the Collateral, and in the place and stead of Grantor, execute and deliver Grantor's release and acquittance for Grantor; (d) to [ILLEGIBLE] any claim or claims or to take any action or institute or take part in any proceedings, either in Lender's own name or in the name of Grantor, or otherwise, which in the discretion of Lender may seem to be necessary or advisable; and (e) to execute in Grantor's name and to [ILLEGIBLE] to the Obligors on Grantor's behalf, at the time and in the manner specified by the Collateral, any necessary instruments or documents. PERFECTION OF SECURITY INTEREST. Upon Lender's request, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral. When applicable law provides more than one method of [ILLEGIBLE] of Lender's security interest. Lender may choose the method(s) to be used. Upon Lender's request, Grantor will sign and deliver any writings necessary to perfect Lender's security interest. If any of the Collateral consists of securities for which no [ILLEGIBLE] has been issued, Grantor agrees, at Lender's option, either to request issuance of an appropriate certificate or to execute appropriate instructions on Lender's terms instructing the issuer, transfer agent, mutual fund company, or [ILLEGIBLE], as the case may be, to record on the books or records, by book-entry or otherwise, Lender's security interest in the Collateral. Grantor hereby appoints Lender as Grantor's irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect, amend, or to continue the security interest granted in this Agreement or to demand termination of filings of other secured parties. COMMERCIAL PLEDGE AGREEMENT LOAN NO: 656387 (CONTINUED) PAGE 2 ================================================================================ LENDER'S EXPENDITURES. If any action or processing is commenced that would materially affect Lender's interest in the Collateral or if Granter fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Grantor's failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents. Lender on Grantor's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying off taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures paid by Lender for such purposes will then bear interest at the Note rate from the date paid by Lender to the date of repayment by Grantor. To the extent permitted by applicable law, all such expenses will become a part of the indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the form of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity. The Agreement also will secure payment of these amounts. Such rights shall be in addition to all other rights and remedies to which Lender may be entitled upon Default. LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable care in the physical preservation and custody of the Collateral in Lender's possession, but shall have no other obligation to protect the Collateral or its value. In particular, and without limitation, Lender shall have no responsibility for (A) any depreciation in value of the Collateral or for the collection or protection of any income and proceeds from the Collateral, (B) preservation of rights against parties to the Collateral or against third persons, (C) ascertaining any maturities, laws, conversions, [ILLEGIBLE], lenders, or similar matters relating to any of the Collateral, or (D) informing Grantor about any of the above, whether or not Lender has or is deemed to have knowledge of such matters. Except as provided above, Lender shall have no liability for depreciation or deterioration of the Collateral. DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: PAYMENT DEFAULT. Grantor fails to make any payment when due under the indebtedness. OTHER DEFAULTS. Grantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents as to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Grantor. FALSE STATEMENTS. Any warranty, representation or statement made or furnished to Lender by Grantor or on Grantor's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter. DEFECTIVE COLLATERALIZATION. The Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and permitted security interest or [ILLEGIBLE]) at any time and for any reason. INSOLVENCY. The dissolution or termination of Grantor's existence as a going business, the insolvency of Grantor, the appointment of a receiver for any part of Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor. CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or by any governmental agency against any collateral securing the indebtedness. This includes a garnishment of any of Grantor's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect to Grantor of any of the indebtedness or Guarantor dies or becomes incompetent or [ILLEGIBLE] or disputes the validity of, or liability under, any Guaranty of this indebtedness. ADVERSE CHANGE. A material adverse change occurs in Grantor's financial condition, or Lender believes the prospect of payment or performance of the indebtedness is impaired. INSECURITY. Lender in good faith believes that [ILLEGIBLE]. CURE PROVISIONS. If any default, other than a default in payment or failure to satisfy Lender's requirement in the Insufficient Market Value of Securities section is curable, it may be cured (and no event of default will have occurred) if Grantor, after receiving written notice from Lender [ILLEGIBLE] of such default (1) cures the default within twenty (20) days, or (2) if the other requires more than twenty (20) days, immediately initiates [ILLEGIBLE] which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender may exercise any one or more of the following rights and remedies: ACCELERATE INDEBTEDNESS. Declare all indebtedness immediately due and payable, without notice at any kind to Grantor. COLLECT THE COLLATERAL. Collect any of the Collateral and, at Lender's option and to the extent permitted by applicable law, retain possession of the Collateral while suing on the indebtedness. SELL THE COLLATERAL. Sell the Collateral, at Lender's discretion, as a unit or in parcels, at one or more public or private sales. Unless the Collateral is [ILLEGIBLE] or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender shall give or mail to Grantor, and other persons as required by law, notice at least ten (10) days in advance of the time and place of any public sale, or at the time after which any private sale may be made. However, no notice need be provided to any person who, after an Event of Default occurs, enters into and authenticates an [ILLEGIBLE] that person's right to [ILLEGIBLE]. Grantor agrees that any requirement of reasonable notice as to Grantor is satisfied if Lender mails notice by ordinary mail addressed to Grantor at the last address Grantor has given Lender in writing. If a public sale is held, there shall be sufficient compliance with all requirements of notice to the public by a single publication in any newspaper of general circulation in the county where the Collateral is located, setting forth the time and place of sale and a brief description of the property to be sold. Lender may be a purchaser at any public sale. SELL SECURITIES. Sell any securities included in the Collateral in a manner consistent with applicable federal and state securities laws. If, because of restrictions under such laws, Lender is unable, or believes Lender is unable, to sell the securities in open market transaction, Grantor agrees that Lender will have no obligation to delay sale until the securities can be registered. Then Lender may make a private sale to one or more persons or to a restricted group of persons, even though such sale may result in a price that is less favorable than might be [ILLEGIBLE] in an open market transaction. Such a sale will be considered commercially reasonable. If any securities held as Collateral are "restricted securities" as defined in the Rules of the Securities and Exchange Commission (such as Regulation D or Rule 144) or the [ILLEGIBLE] under state "Blue Sky" laws, or if Grantor or any other owner of the Collateral is an affiliate of the issuer of the securities, Grantor agrees that neither Grantor, nor any member of Grantor's family, nor any other person signing this Agreement will sell or dispose of any securities of such issuer without obtaining Lender's prior written consent. RIGHTS AND REMEDIES WITH RESPECT TO INVESTMENT PROPERTY, FINANCIAL ASSETS AND RELATED COLLATERAL. In addition to other rights and remedies granted under this Agreement and under applicable law, Lender may exercise any or all of the following rights and remedies: (1) register with any issuer or broker or other securities intermediary any of the Collateral consisting of investment property or financial assets (collectively herein, "investment property") in Lender's sole name or in the name of Lender's broker, agent or nominee; (2) cause any issuer, broker or other securities intermediary to deliver to Lender any of the Collateral consisting of securities, or investment property capable of being delivered; (3) enter into a control agreement of power of attorney with any issuer or securities intermediary with respect to any Collateral consisting of investment property, on such terms as Lender may deem appropriate, in its sole discretion, including without limitation, an agreement granting to Lender any of the rights provided hereunder without further notice to or consent by Grantor; (4) herewith any such control agreement on Grantor's behalf and in Grantor's name, and hereby irrevocably appoints Lender as agent and attorney-in-fact, coupled with an interest, for the purpose of executing such control agreement on Grantor's behalf; (5) exercise any and all rights of Lender under any such control agreement or power of attorney; (6) exercise any voting, conversion, registration, purchase, option, or other rights with respect to any Collateral; (7) collect, with or without legal action, and issue receipts concerning any [ILLEGIBLE], remittances or [ILLEGIBLE] that are paid or payable with respect to any Collateral consisting of investment property. Any control agreement entered with respect to any investment property shall contain the following provisions, at Lender's discretion. Lender shall be authorized to instruct the issuer, broker or other securities intermediary to take or refrain from taking such actions with respect to the investment property as Lender may instruct, without further notice or consent by Grantor. Such section may include without limitation the issuance of entitlement orders, account instructions, general trading or buy or sell orders, transfer or redemption orders, and stop loss orders. Lender shall be [ILLEGIBLE] to instruct the issuer, broker or securities intermediary to sell or to liquidate any investment property, or to pay the cash surrender or actual account termination value with respect to any and all investment property, and to deliver all such payments and liquidation proceeds to Lender. Any such control agreement shall contain such authorizations as are necessary to place Lender in "control" of such investment collateral, as contemplated under the provisions of the Uniform Commercial Code, and shall fully authorize Lender to issue "entitlement orders" concerning the transfer, redemption, liquidation or disposition of investment collateral, in conformance with the COMMERCIAL PLEDGE AGREEMENT LOAN NO:656387 (CONTINUED) PAGE 3 ================================================================================ provisions of the Uniform Commercial Code. FORECLOSURE. Maintain a judicial suit for foreclosure and sale of the Collateral. TRANSFER TITLE. Effect transfer of title upon sale of all or part of the Collateral. For this purpose, Grantor irrevocably appoints Lender as Grantor's attorney-in-fact to execute endorsements, assignments and instruments in the name of Grantor and each of them (if more than one) as shall be necessary or reasonable. OTHER RIGHTS AND REMEDIES. Have and exercise any or all of the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, at law, in equity, or otherwise. APPLICATION OF PROCEEDS. Apply any cash which is part of the Collateral, or which is received from the collection of sale of the Collateral, to reimbursement of any expenses, including any costs for registration of securities, commissions incurred in connection with a sale, Lender's reasonable attorneys' fees and court costs, whether or not there is a lawsuit and including any fees on appeal, incurred by Lender in connection with the collection and sale of such Collateral and to the payment of the indebtedness of Grantor to Lender, with any excess funds to be paid to Grantor as the interests of Grantor may appear. Grantor agrees, to the extent permitted by law, to pay any deficiency after application of the proceeds of the Collateral to the indebtedness. ELECTION OF REMEDIES. Except as may be prohibited by applicable law, all of Lender's rights and remedies, whether evidenced by this Agreement, the Related Documents, or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not execute pursuant of any minor remedy, and as election to make expenditures as to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and exercise its remedies. MISCELLANEOUS PROVISIONS. The foregoing miscellaneous provisions are a part of this Agreement. AMENDMENTS. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of Lender's costs and expenses, including Lender's reasonable attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement,and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's reasonable attorneys' fees and legal expenses whether or not there is a lawsuit, including Lender's reasonable attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or waive any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court. CAPTION HEADINGS. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. GOVERNING LAW. This Agreement will be governed by, construed and enforced in accordance with federal law and the laws of the State of Texas. This Agreement has been accepted by Lender in the State of Texas. CHOICE OF VENUE. If there is a lawsuit, and if the transaction evidenced by this Agreement occurred in Lubbock County, Grantor agrees upon Lender's request to submit to the jurisdiction of the courts of Lubbock County, State of Texas. NO WAIVER BY LENDER. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to enforce such compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent to Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted to withheld in the sole discretion of Lender. NOTICES. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor's current address. Unless otherwise provided or required by law, if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors. SEVERABILITY. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement. SUCCESSORS AND ASSIGNS. Subject to any limitations stated in this Agreement on transfer of Grantor's interest, this Agreement shall be binding upon and insure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor's successors with reference to this Agreement and the indebtedness by way of forbearance of extension without releasing Grantor from the obligations of this Agreement or liability under the Indebtedness. TIME IS OF THE ESSENCE. Time is of the essence in the performance of this Agreement. DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the company, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. AGREEMENT. The word "Agreement" means the Commercial Pledge Agreement, as this Commercial Pledge Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Pledge Agreement from time to time. BORROWER. The word "Borrower" means WESTECH CAPITAL CORP., and all other persons and entities signing the Note in whatever capacity. COLLATERAL. The word "Collateral" means all of Grantor's right, title and interest in and to all the Collateral as described in the Collateral Description section of this Agreement. DEFAULT. The word "Default" means the Default set forth in this Agreement in the section titled "Default". EVENT OF DEFAULT. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement. GRANTOR. The word "Grantor" means WESTECH CAPITAL CORP. GUARANTOR. The word "Guarantor" means any guarantor, surety or accommodated party of any or all of the indebtedness. GUARANTY. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or a part of the Note. INCOME AND PROCEEDS. The words "Income and Proceeds" mean all present and future income, proceeds, earnings, increases, and substitutions from or for the Collateral of every kind and nature, including without limitation all payments, interest, profits, distributions, benefits, rights, options, warrants, dividends, stock dividends, stock options, stock rights, regulatory dividends, subscriptions, monies, claims for money due and to become due, proceeds of any insurance on the Collateral, shares of stock of different par value or no par value issued in substitution or exchange for shares included in the Collateral, and all other property Grantor is entitled to receive on account of such Collateral, including accounts, documents, instruments, chattel paper, and general intangibles. INDEBTEDNESS. The word "indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents. LENDER. The word "Lender" means First Union Bank, its successors and assigns. COMMERCIAL PLEDGE AGREEMENT LOAN NO. 656387 (CONTINUED) PAGE 4 ================================================================================ NOTE. The word "Note" means the Note executed by WESTECH CAPITAL CORP. in the principal amount of $250,000.00 dated July 30, 2002, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement. OBLIGOR. The word "Obligor" means without limitation any and all persons obligated to pay money or to perform some other act under the Collateral. PROPERTY. The word "Property" means all of Grantor's right, title and interest in and to all the Property as described in the "Collateral Description" section of this Agreement. RELATED DOCUMENTS. The words "Related Documents" means all promissory notes, credit agreements, loan agreements, [ILLEGIBLE] agreements, guarantors, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the indebtedness. GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL PLEDGE AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY 30, 2002. GRANTOR: WESTECH CAPITAL CORP. By: /s/ JOHN GORMAN -------------------------------------- JOHN GORMAN, Chairman & CEO of WESTECH CAPITAL CORP. =============================================================================== [ILLEGIBLE] [FIRST UNITED BANK LOGO] COMMERCIAL SECURITY AGREEMENT - -----------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations. - --------------------------------------------------------------------------------
THIS COMMERCIAL SECURITY AGREEMENT dated July 30, 2002 is made and executed between WESTECH CAPITAL CORP. ("GRANTOR") and FIRST UNITED BANK ("LENDER"). GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the indebtedness and agrees that Lender [ILLEGIBLE] have the rights stated in this Agreement with respect to the Collateral. In addition to [ILLEGIBLE] rights which Lender may have by law. COLLATERAL DESCRIPTION. The word "Collateral" as used in this agreement means the following described property, whether now owned or hereafter acquired, whether now existing or thereafter arising, and wherever located, in which Grantor is giving to Lender a security interest for the payment of the indebtedness and performance of all other obligations under the Note and this Agreement: All accounts, together with the following specifically described property: 4,808,555 shares of Tejas Securities Group, Inc. Certificate Number [ILLEGIBLE] In addition, the word "Collateral" also includes all the following, whether now owned hereafter acquired, whether now existing or hereafter existing and whereever located: (A) All accessions, attachments, accessories, replacements of and additions to any of the collateral described herein, whether added now or later. (B) All products and [ILLEGIBLE] of any of the property described in this Collateral section. (C) All accounts, [ILLEGIBLE], instruments, [ILLEGIBLE], payments and all other rights [ILLEGIBLE] any of the property described in this Collateral section. (D) All proceeds (including insurance proceeds) from the safe, destruction, loss or other disposition of any of the property described in this Collateral section, and sums due from a third party who has damaged or destroyed the Collateral or from the [ILLEGIBLE] insurer, whether due to judgement, settlement or other process. (E) All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfishe, or electronic media, together with all of Grantor's right, title, and interest in and in all computer software required to [ILLEGIBLE] maintain, and process any such records or data on electronic media. Despite any other provision of this Agreement, Lender is not granted, and will not have, a nonpurchase money security interest in household goods, to the [ILLEGIBLE] such a security interest would be prohibited by applicable law. In addition, [ILLEGIBLE] because of the type of any Property, Lender is required to give a notice of the right to cancel under Truth in Lending for the indebtedness, then Lender will not have a security interest in such Collateral unless and until [ILLEGIBLE] a notice is given. RIGHT OF SETOFF. To the extent permitted by applicable law. [ILLEGIBLE] in all Grantor's accounts [ILLEGIBLE] Lender (whether checking, savings, or some other account). This includes all accounts Grantor holds jointly with someone else and all accounts Grantor may open in the [illegible]. However, this does not include any IRA or Koegh accounts, or any trust accounts for which setoff would be protected by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts. GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the Collateral, Grantor represents and promises to Lender that: [ILLEGIBLE] of Security Interest. Grantor agrees to execute financing statements and to [ILLEGIBLE] whatever [ILLEGIBLE] actions are requested by Lender to perfect and continue Lender's security interest in the Collateral. Upon request of Lender, Grantor will deliver any and all of the documents evidencing or [ILLEGIBLE] Collateral, and Grantor will note Lender's interest upon any and all [ILLEGIBLE] paper if not delivered to Lender for possession by Lender. NOTICES TO LENDER. Grantor will promptly notify Lender in writing at Lender's address shown above (or such other addresses as Lender may designate from time to time) prior to any (1) change in Grantor's name; (2) change in Grantor's assumed [ILLEGIBLE] name(s); (3) change in the management of the Corporation Grantor; (4) change in the authorized signer(s); (5) change in Grantor's principal office address; (6) change in Grantor's state of organization; (7) conversion of Grantor to a new or different type of business [ILLEGIBLE]; or (8) change in any other aspect of Grantor that directly or indirectly relates to any agreements between Grantor and Lender. No change in Grantor's [ILLEGIBLE] of organization will take effect until after Lender has received notice. NO VIOLATION. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor as to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any form or condition of this Agreement. ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, as defined by the Uniform Commercial Code, the Collateral is enforceable in accordance with its terms, is genuine and fully compliant with all applicable laws and regulations concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. At the time any Account becomes subject to a security interest in favor of Lender, the Account shall be a good and valid account representing an undisputed bona fide indebtedness [ILLEGIBLE] by the account debtor, for [ILLEGIBLE] subject to [ILLEGIBLE] instructions or previously shipped or delivered pursuant to contract of sale, or for services previously performed by Grantor with or for the account debtor. So long as the Agreement remains in effect, Grantor shall not, without Lender's prior written consent, compromise, settle, adjust, or extend payment under or with regard to any such Accounts. There shall be no [ILLEGIBLE] or [ILLEGIBLE] against any or the Collateral except those disclosed in Lender writing. LOCATION OF THE COLLATERAL. Except in the ordinary course of Grantor's business, Grantor agrees to keep the Collateral (or to the extent the Collateral consists of intangible property such as [ILLEGIBLE] or general [ILLEGIBLE], the records concerning the Collateral) at Grantor's address shown above or at such other locations as are acceptable to Lender. Upon Lender's request, Grantor will deliver to Lender in form satisfactory to Lender's schedule of real properties and Collateral locations relating to Collateral operations, including without limitation the following: (1) all real property Grantor owns or is purchasing; (2) all real property Grantor is [ILLEGIBLE] or leasing; (3) all storage facilities Grantor owns, rents, leases, or uses; and (4) all other properties where Collateral may be located. REMOVAL OF THE COLLATERAL. Except in the ordinary course of Grantor's business, Grantor shall not remove the Collateral from its existing location without Lender's prior written consent. Grantor shall, whenever requested, advise Lender of the exact location of the Collateral. TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts collected in the ordinary course of Grantor's business, or as otherwise provided for in this Agreement, Grantor shall not sell, offer to sell, or otherwise [ILLEGIBLE] of the Collateral. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security [ILLEGIBLE] even if [ILLEGIBLE] in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any deposition of the Collateral (for whatever reason) shall be [ILLEGIBLE] for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute [ILLEGIBLE] by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately [ILLEGIBLE] any such process to Leder. TITLE. Grantor represents and warrants to Lender [ILLEGIBLE] Grantor holds good and [ILLEGIBLE] to the Collateral, free and clear of all [ILLEGIBLE] encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall [ILLEGIBLE] Lender's COMMERCIAL SECURITY AGREEMENT LOAN NO: 656387 (CONTINUED) PAGE 2 ================================================================================ rights in the Collateral against the claims and demands of all other persons. REPAIRS AND MAINTENANCE. Grantor agrees to keep and maintain, and to cause others to keep and maintain, the Collateral in good order, repair and condition at all times while this Agreement remains in effect. Grantor further agrees to pay when [illegible] for work done on, or services rendered or material furnished in connection with the Collateral so that no [illegible] or encumbrance may ever attach to or be [illegible] against the Collateral. Inspection of Collateral. Lender and Lender's designated representatives and agents shall have the right of an reasonable place to examine and inspect the Collateral whereever located. TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement. Upon any promissory note or notes evidencing the indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and as long as Lender's interest in the Collateral is not jeopardized in Lender's [illegible]. In any contest, Grantor shall defend itself and [illegible] and shall [illegible] any final adverse judgement before enforcement against the Collateral. Grantor shall name Lender as an additional obliger under any surety bond furnished in the contest proceedings. Grantor further agrees to furnish Lender with evidence that such taxes, assessments, and governmental and other charges have been paid in full and in a timely manner. Grantor may withhold any such payment or may [illegible] to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized. Compliance with Governmental Requirements. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral. Including all laws or regulations relating to the undue erosion of highly-credible land or relating to the [illegible] of [illegible] of [illegible] product or commodity. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender's interest in the Collateral, in Lender's opinion, is not jeopardized. Hazardous Substances. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used in violation of any Environmental Laws or for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any Hazardous Substances. The representations and warranties contained herein are based on Grantor's due diligence in investigating the Collateral for Hazardous Substances. Grantor hereby (1) releases and waives any future claims against Lender for [illegible] or [illegible] in the event Grantor becomes [illegible] for cleanup or other costs under any Environmental Laws, and (2) agrees to indemnify and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement. This obligation to indemnify shall survive the payment of the indebtedness and the satisfaction of this Agreement. Maintenance of Casualty Insurance. Grantor shall procure and maintain [illegible] insurance, including without limitation fire, theft and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverage and basis reasonably acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or [illegible] or insurance in form satisfactory to Lender. Including stipulations that coverage will not be cancelled or diminished without at least ten (10) days prior written notice to Lender and not including any disclaimer of the Insurer's ability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such [illegible] payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including if Lender so chooses "single interest insurance," which will cover only Lender's interest in [illegible] Collateral. Application of Insurance Proceeds. Grantor shall promptly notify Lender of any loss or damage to the Collateral. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be paid by Lender as part of the Collateral. If Lender contests [illegible] replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the indebtedness, and [illegible] pay the balance to Grantor. Any proceeds have not been disbursed within six (6) months after their [illegible] and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the indebtedness. INSURANCE RESERVES. Lender may require Grantor to maintain with Lender reserves for payment of insurance premiums, which reserves shall be [illegible] by [illegible] Grantor of a sum estimated by Lender to be sufficient to produce, at least fifteen (15) days [illegible] due date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before payment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency to Lender. The reserve funds shall be [illegible] by Lender as a general [illegible] and shall constitute a non-interest-bearing account which Lender may satisfy by payment of the insurance premiums required to be paid by Grantor as they become due. Lender [illegible] shall not hold [illegible] in [illegible] for Grantor, and Lender is [illegible] the [illegible] of Grantor for payment of the insurance premiums required to be paid by Grantor. The responsibility for the payment of premiums shall remain Grantor's sole responsibility. INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may reasonably request including the following: (1) the name of the insurance; (2) the [illegible] insured; (3) the [illegible] of the policy; (4) the properly insured; (5) the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (6) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent [illegible] satisfactory to Lender [illegible], as applicable, the cash value of replacement cost of the Collateral. FINANCING STATEMENTS. Grantor authorizes Lender to file a UCC-1 financing statement, or alternatively, a copy of this Agreement to perfect Lender's security interest. At Lender's request, Grantor additionally agrees to sign as other documents that are necessary to perfect, protect, and [illegible] Lender's security interest in the Property. Grantor will pay all [illegible] fees, title transfer fees, and other fees and costs involved unless prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute financing [illegible] and documents of title in Grantor's name and to execute all documents necessary to transfer like of there is a default. Lender may [illegible] a copy of this Agreement as a financing statement. If Grantor changes Grantor's name or address, or the name of the address of any person granting a security interest under this Agreement changes, Grantor will promptly notify the Lender of such changes. GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except as otherwise provided below with respect to accounts, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the [illegible] Documents, provided that Grantor's right to possession and [illegible] use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender's security interest in such Collateral. Until otherwise notified by Lender, Grantor may collect any of the Collateral consisting of accounts. At any time and even [illegible] Event of Default [illegible] may exercise its rights to collect the accounts and to notify account debtors to make payments directly to Lender for application to the indebtedness. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable case in the [illegible] and preservation of the Collateral if Lender takes such action for that purpose as Grantor shall [illegible] sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to [illegible]. Lender shall not be required to take any [illegible] necessary to preserve any rights in the Collateral against prior [illegible], nor to protect, preserve or maintain any security interest given to secure the indebtedness. LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Grantor fails to comply with any provisions of this Agreement or any Related Documents, including but not limited to Grantor's failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents, Lender on Grantor's behalf may (but shall not be obligated to) take any action [illegible] appropriate, including but not limited to discharging or paying all taxes, [illegible], security interests, [illegible] and other claims, at any time [illegible] or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures paid by Lender for such purposes will then bear interest at the Note rate from the date paid by Lender to the date of repayment by Grantor. To the extent permitted by applicable law, all such expenses will become a part of [illegible] at Lender's option will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity. The agreement also will secure payment of those amounts. Such right shall be in addition to [illegible] rights and remedies to which Lender may be [illegible] upon Default. DEFAULT. Each of the following shall constitute an Event of Default under this Agreement. PAYMENT DEFICIT. Grantor fails to make any payment when due under the indebtedness. OTHER DEFAULTS. Grantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant, or condition [illegible] in any other agreement between Lender and Grantor. FALSE STATEMENTS. Any warranty, representation or statement made or furnished to Lender by Grantor or on Grantor's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at any time made or furnished or becomes false or misleading at any time thereafter. COMMERCIAL SECURITY AGREEMENT LOAN NO: 656387 (CONTINUED) PAGE 3 - -------------------------------------------------------------------------------- COLLECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and [ILLEGIBLE] security interest or lien) at any time and for any reason. INSOLVENCY. The [ILLEGIBLE]of Grantor's [ILLEGIBLE] as a going business, the insolvency of Grantor, the appointment of a [ILLEGIBLE] for any part of Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor. CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or by any governmental agency against any collateral securing the indebtedness. This includes a garnishment of any of Grantor's accounts, including deposit accounts, with Lender. However, this [ILLEGIBLE] shall not apply if there is a good faith dispute by Grantor as to the validity of reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. EVENTS AFFECTING GUARANTOR. any of the preceding events occurs with respect to Guarantor or any of the indebtedness or Guarantor dies or becomes incompetent or revokes or disputes the validity of, or liability under, any Guaranty of the indebtedness. ADVERSE CHANGE. A material adverse change occurs in Grantor's financial [ILLEGIBLE], or Lender believes the prospect of payment or performance of the indebtedness is [ILLEGIBLE]. INSECURITY. Lender in good faith believes itself insecure. CURE PROVISIONS. If any default, other than a default in payment is curable, it may be cured (and no event of default will have occurred) if Grantor, after receiving written notice from Lender demanding cure of such default: (1) cures the default within twenty (20) days; or (2) if the cure requires more than twenty (20) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have as the rights of a [ILLEGIBLE] party under the Texas Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies: ACCELERATE INDEBTEDNESS. Lender may declare the entire indebtedness immediately due and payable without notice of any kind to Grantor. ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter, provided Lender does so without breach of the peace or a trespass, upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains [ILLEGIBLE] goods not governed by this Agreement at the time of repossession, Grantor agrees Lender may have such other goods, provided that [ILLEGIBLE] Grantor after repossession. SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender's own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decrease [ILLEGIBLE] in value or is of a type customarily sold on a recognized market, Lender shall give Grantor, and other persons as required by law, reasonable notice of the time and place of any public sale, or the time after which any public sale or any other disposition of the Collateral is to be made. However, no notice need be provided to any person who, after Event of Default occurs, enters into and authenticates an agreement waiving that person's right in notification of sale. The requirements of reasonable notice shall be made if such notice is given at least ten (10) days before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation, the expenses of [ILLEGIBLE], holding, insuring, preparing for sale and selling the Collateral, shall become a part of the indebtedness secured by this Agreement and shall be payable on demand, with interest at the [ILLEGIBLE]. APPOINT RECEIVER. Lender shall have the right to have a receiver appointed to take possession of all or any part of the Collateral, with the power to protect and preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the Rents from the Collateral and apply the [ILLEGIBLE], over and above the sell of the receivership, against the [ILLEGIBLE]. The receiver may serve without bond if permitted by law. Lender's right to the appointment of a receiver shall exist whether or not the apparent value of the Collateral exceeds the indebtedness by a substantial amount. Employment by Lender shall not disqualify a person from serving as a receiver. COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a receiver, may collect the payments, rents, income and revenues from the Collateral. Lender may at any time in Lender's discretion transfer any Collateral into Lender's own name or that of Lender's nominee and receive the payments, rents, income and revenues therein and hold the same as security for the indebtedness or apply it to payment of the indebtedness in such order of performance as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattle paper, [ILLEGIBLE] in action, or similar property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclosed, or rushes on the Collateral as Lender may declare, whether or not indebtedness or Collateral is than due. For [ILLEGIBLE] purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; changes any address to which made and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and [ILLEGIBLE] pertaining to payment, shipment, or [ILLEGIBLE] of any Collateral. To [ILLEGIBLE] collection, Lender may [ILLEGIBLE] account [ILLEGIBLE] and obligors on any Collateral to make payments directly to Lender. OBTAIN DEFICIENCY. If Lender chooses to sell any or all the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining in the indebtedness due to Lender after application of all amounts received from the [ILLEGIBLE] of the rights provided in this Agreement. Grantor shall be liable for a deficiency even if the transaction described in this subsection is a [ILLEGIBLE] of accounts or chattle paper. OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise. ELECTION OF REMEDIES. Except as may be prohibited by applicable law, all of Lender's rights and remedies, whether evidenced by this Agreement, the [ILLEGIBLE] Occurrence, or by any other [ILLEGIBLE] shall be cumulative and may be [ILLEGIBLE] concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an [ILLEGIBLE] of Grantor under this Agreement, [ILLEGIBLE] Grantor's [ILLEGIBLE] to perform, shall not [ILLEGIBLE] Lender's right to declare a [ILLEGIBLE] and exercise its remedies. PURPOSE OF LOAN. Working Capital. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: AMENDMENTS. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or Amendment to this Agreement shall be effective unless given in writing [ILLEGIBLE] party or parties sought to be charged or bound by the alteration of amendment. ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of Lender's costs and expenses, including the Lender's reasonable attorneys' fees and Lender's legal expenses incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's reasonable attorneys' fees and legal expense whether or not there is a lawsuit, including Lender's reasonable attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate, any automatic stay or injunction), appeals and any anticipated post-judgment connection services. Grantor also shall pay all court costs and such [ILLEGIBLE] fees as may be directed by the court. CAPTION HEADINGS. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. GOVERNING LAW. This Agreement will be governed by, construed and enforced in accordance with federal law and the laws of the State of Texas. This Agreement has been accepted by lender in the State of Texas. CHOICE OF VENUE. If there is a lawsuit, and the transaction evidenced by this Agreement continued in Lubbock County, Grantor agrees upon Lender's request to submit in the jurisdiction of the courts of Lubbock County, State of Texas. NO WAIVER BY LENDER. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall [ILLEGIBLE] as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of the Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent in subsequent instances where such consent is required and in all [ILLEGIBLE] such consent may be granted or withheld in the sole discretion of Lender. COMMERCIAL SECURITY AGREEMENT LOAN NO:656387 (CONTINUED) PAGE 4 - -------------------------------------------------------------------------------- NOTICES. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor's current address. Unless otherwise provided or required by law, if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors. POWER OF ATTORNEY. Grantor hereby appoints Lender as Grantor's irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect, amend, or to continue the security interest granted in this Agreement or to demand termination of things of other secured parties. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the [ILLEGIBLE] and the continuation of the [ILLEGIBLE] of Lender's security interest in the Collateral. SEVERABILITY. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, of any provision of this Agreement shall not affect the legality, validity, or enforceability of any other provision of this Agreement. SUCCESSORS AND ASSIGNS. Subject to any limitations stated in this Agreement on transfer of Grantor's interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor's successors with reference to this Agreement and the indebtedness by way of forebearance or extension without releasing Grantor from the obligations of this Agreement or liability under the indebtedness. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations, warranties, and agreements made by Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as Grantor's indebtedness shall be paid in full. TIME IS OF THE ESSENCE. Time is of the essence in the performance of this Agreement. DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code: ACCOUNT. The word "Account" means a trade account, account receivable, other receivable, or other right to payment for goods sold or services rendered owing to Grantor (or to a third party grantor acceptable to Lender). AGREEMENT. The word "Agreement" means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time. BORROWER. The word "Borrower" means WESTECH CAPITAL CORP., and all other persons and entities signing the Note in whatever capacity. COLLATERAL. The word "Collateral" means all of Grantor's right, title and interest in and to all the Collateral as described in the Collateral Description section of this Agreement. DEFAULT. The word "Default" means the Default set forth in this Agreement in the section titled "Default". ENVIRONMENTAL LAWS. The words "Environmental Laws" mean any and all states, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 8601, at seq ("CERLA"), The Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SRARA"), the Hazardous [ELIGIBLE] Transportation Act, 49 U.S.C Section 1801, at seq., the Resource [ILLEGIBLE] and Recovery Act, 42 U.S.C Section 6801, at seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto. EVENT OF DEFAULT. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement. GRANTOR. The word "Grantor" means WESTECH CAPITAL CORP. GUARANTOR. The word "GUARANTOR" means any guarantor, surety, or accommodation party of any or all of the indebtedness. GUARANTY. The word "GUARANTY" means the [ILLEGIBLE] from [ILLEGIBLE] to lender, including without limitation a [ILLEGIBLE] of all of part of the [ILLEGIBLE]. HAZARDOUS SUBSTANCES. The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadcast sense and include without limitation any and all hazardous or [ILLEGIBLE] substances materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by products or any inaction thereof and [ILLEGIBLE]. INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents. LENDER. The word "Lender" means First United Bank, its successors and assigns. NOTE. The word "Note" means the Note executed by WESTECH CAPITAL CORP. in the principal amount of $250,050.00 dated July 30, 2002, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and [ILLEGIBLE] for the note or credit agreement. PROPERTY. The word "Property" means all of Grantor's right, title and interest in and to all the Property as described in the "Collateral Description" section of this Agreement. RELATED DOCUMENTS. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and as other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the indebtedness. GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY 30, 2002. GRANTOR: WESTECH CAPITAL CORP. By: /s/ JOHN GORMAN - -------------------------------------- John Gorman, Chairman & CEO of WESTECH CAPITAL CORP. - -------------------------------------------------------------------------------- [ILLEGIBLE]
