SECURITY AGREEMENT
(PARTNERSHIP INTEREST)
THIS SECURITY AGREEMENT is entered into on June 23, 1998 between Congress
Financial Corporation (Western) ("Secured Party") and XIT Corporation
("Pledgor") in connection with that certain Loan and Security Agreement of even
date between Secured Party as lender and Pledgor, Microtel International, Inc.,
CXR Telcom Corporation and Hycomp, Inc., as borrowers (the "Loan Agreement").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. SECURITY INTEREST.
1.1 GRANT OF SECURITY INTEREST. Pledgor hereby pledges to Secured
Party and grants Secured Party a security interest in all of the following,
whether now owned or hereafter acquired (collectively, the "Collateral"):
(a) All of Pledgor's present and future interest in Capital Source
Partners, a Real Estate Partnership, a California general partnership (the
"Partnership"), including without limitation Pledgor's existing partnership
interest in the Partnership and all of Pledgor's present and future interest in
the capital, profits, income and distributions of the Partnership (collectively,
the "Partnership Interest"); and
(b) All rights to, and in connection with, the Security Loan (as
defined in Section 5.1(c) of the Partnership Agreement) (the "Security Loan");
and
(c) All payments on and with respect to, and all proceeds of, the
Partnership Interest and the Security Loan, including without limitation all
money, accounts, deposit accounts, chattel paper, documents, notes, drafts,
instruments, contract rights, general intangibles, equipment, inventory, goods,
insurance proceeds and all other tangible and intangible property resulting from
the sale, collection upon, distribution or payment on account of, or other
disposition of, the Partnership Interest or the Security Loan (collectively,
"Partnership Proceeds"); and
(d) All present and future books, records, data and other
documentation, relating to the Partnership or the Partnership Interest,
including without limitation all reports and financial statements;
TO SECURE the payment and performance of all debts, duties, obligations,
liabilities, representations, warranties and guaranties of Pledgor to Secured
Party, heretofore, now, or hereafter made, incurred or created, of every kind
and nature (collectively, the "Obligations"), including, but not limited to,
those arising under the Loan Agreement or any other documents relating thereto.
(The foregoing documents and agreements, the Loan Agreement, this Agreement, and
all other present and future instruments and agreements between Pledgor and
Secured Party are referred to in this Agreement as the "Loan Documents.")
1.2 DISTRIBUTIONS. From and after the date of this Agreement,
Pledgor shall remit to Secured Party all Partnership Proceeds received by
Pledgor, to be applied to the Revolving Loans (as defined in the Loan
Agreement), whether or not any Event of Default has
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occurred. (As used in this Agreement, "Obligor" shall mean the Partnership
and all other persons who now are or hereafter become in any way obligated,
liable or responsible for any payment or other distribution of any kind on
account of the Partnership Interest, or for any other payment of Partnership
Proceeds.) All Partnership Proceeds actually received by Secured Party in
cash shall be applied to the Revolving Loans. Pledgor shall not commingle
such Partnership Proceeds with any of Pledgor's other funds or property; and
shall hold such Partnership Proceeds separate and apart from Pledgor's other
funds and property in an express trust for Secured Party until paid or
delivered to Secured Party.
1.3 NOTICE TO OBLIGORS OF SECURITY INTEREST. Concurrently with
Pledgor's execution of this Agreement, Pledgor shall (a) send a notice to the
Partnership stating that Pledgor has granted a security interest in the
Collateral to Secured Party; (b) cause the Partnership to provide Secured Party
with a written agreement, satisfactory to Secured Party in form and substance,
in which the Partnership agrees to (i) pay or deliver all Partnership Proceeds
directly to Secured Party from and after the date written notice of an Event of
Default is given to the Partnership by Secured Party; and (ii) allow Secured
Party to make any capital or other contributions or payments (collectively
"Subsequent Contributions") on behalf of Pledgor should Secured Party desire to
do so, in its sole discretion. From time to time upon Secured Party's request,
Pledgor shall give written notice to any or all Obligors containing such
additional information and instructions concerning Secured Party's rights under
this Agreement as may be specified by Secured Party. The notices referred to in
this Section shall be in such form as Secured Party shall specify. From time to
time and without notice to Pledgor, Secured Party shall have the right to give
notice to any Obligor containing such information and instructions concerning
Secured Party's rights under this Agreement as Secured Party determines to be
necessary or appropriate.
1.4 RIGHT TO CURE DEFAULTS. If Pledgor fails to perform any of its
obligations under the Partnership Agreement, Secured Party, at its option and in
its sole and absolute discretion, shall have the right, but not the obligation,
to pay or perform any or all of such obligations in such manner and to such
extent as Secured Party determines to be necessary or appropriate to preserve or
protect Secured Party's security interest in the Collateral. Pledgor shall
provide Secured Party with copies of all notices to Pledgor from the Partnership
or from the general partners of the Partnership within two business days after
Pledgor's receipt of each such notice, including copies of all notices
requesting payment of any Subsequent Contribution. All costs and expenses,
including attorneys' fees and the amount of any Subsequent Contribution made by
Secured Party on Pledgor's behalf, incurred by Secured Party in connection with
the payment or performance of such obligations or any Subsequent Contribution
shall be payable by Pledgor to Secured Party on Secured Party's demand, shall
bear interest at the highest rate applicable to the Obligations from the date of
expenditure, and shall be secured by the Collateral. Nothing contained in this
Agreement shall be construed to obligate Secured Party to make all or part of
any Subsequent Contribution or to pay or perform any of Pledgor's obligations
under the Partnership Agreement, and no election by Secured Party to do so in
any instance shall obligate Secured Party to do so in any other instance, nor
shall it constitute a waiver of the Pledgor's default or of Secured Party's
other rights and remedies.
1.5 NO LIABILITY BY SECURED PARTY. Nothing contained in this
Agreement shall render Secured Party directly or indirectly liable or
responsible to Pledgor, the Partnership, or any other person for (a) the
control, operation, or management of the Partnership, (b) the performance or
observance of any or all of Pledgor's duties, obligations, representations, or
warranties as a
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partner under the Partnership Agreement or any other agreement or document
relating to any or all of the Collateral, or (c) any failure or delay by
Secured Party in enforcing or collecting any payment or distribution of any
Partnership Proceeds. Secured Party shall have no duty to make any inquiry
as to the sufficiency of any Partnership Proceeds received by Secured Party
or to collect the same.
2. PLEDGOR'S COVENANTS.
2.1 PLEDGOR'S PARTNERSHIP OBLIGATIONS. Pledgor shall at all times
perform and discharge all obligations of Pledgor under the Partnership Agreement
in accordance with the terms thereof. Pledgor shall not enter into any
amendment or supplement to the Partnership Agreement, nor waive or modify any
rights thereunder, nor exercise any voting or other rights or options
thereunder, without Secured Party's prior written consent, which shall not be
unreasonably withheld. After the occurrence of any Event of Default, Secured
Party shall have the right (but not the obligation) to enter into any amendment
or supplement to the Partnership Agreement on behalf of Pledgor, waive or modify
any rights of Pledgor thereunder, and exercise any voting or other rights or
options of Pledgor thereunder.
2.2 INSPECTION. Secured Party and its representatives shall have
access to all of Pledgor's books and records included in or relating to the
Collateral, at all reasonable times, for the purposes of examination,
inspection, verification, copying and for any other reasonable purpose.
2.3 REPORTS. Pledgor shall deliver to Secured Party copies of all
financial statements, reports and other information concerning the Partnership
and the business and affairs of the Partnership received by Pledgor from time to
time within ten (10) days after Pledgor's receipt of each such item. From time
to time upon Secured Party's request, Pledgor shall deliver to Secured Party
such reports and information concerning the Partnership Interest and the
business and affairs of Pledgor as Secured Party may reasonably request. Such
reports shall be in such form, for such periods, contain such information, and
shall be rendered with such frequency as Secured Party may designate. All
reports and information provided to Secured Party by Pledgor shall be complete
and accurate in all respects at the time provided.
2.4 NOTICE OF ADVERSE CLAIMS. Pledgor shall immediately notify
Secured Party in writing of (a) any claim, demand, right, lien, security
interest or encumbrance arising with respect to any or all of the Collateral;
(b) any material adverse change in the value of the Collateral and any other
occurrence which may materially and adversely affect Secured Party's security
interest in the Collateral; and (c) any event or condition which constitutes an
Event of Default under this Agreement.
2.5 FURTHER ASSURANCES. Pledgor shall take all actions which may be
reasonably necessary or appropriate to maintain, preserve, protect, and defend
the Collateral and Secured Party's security interest therein, including all such
actions as may be requested by Secured Party. Upon Secured Party's request,
Pledgor shall execute and deliver to Secured Party such further documents and
agreements, in form and substance satisfactory to Secured Party, as Secured
Party may require to effectuate this Agreement or to evidence, perfect,
maintain, preserve or protect Secured Party's first-priority security interest
in the Collateral.
2.6 LITIGATION COOPERATION. If any suit, action or proceeding is
instituted by or against Secured Party with respect to any or all of the
Collateral by any third person, Pledgor,
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at such times and in such manner as may be designated by Secured Party, shall
fully cooperate with Secured Party and make itself and its employees and
agents available to Secured Party in order to prosecute or defend any such
suit, action or proceeding.
2.7 NEGATIVE COVENANTS. Without Secured Party's prior written
consent, Pledgor shall not take any of the following actions: (a) sell, lease,
transfer, assign, pledge, mortgage, encumber, hypothecate or otherwise dispose
of or abandon any or all of the Collateral; or (b) cause or permit any or all of
the Collateral to be subject to any lien, security interest, mortgage, pledge,
or encumbrance, except for the security interest granted to Secured Party under
this Agreement.
3. REPRESENTATIONS AND WARRANTIES. Pledgor represents and warrants to
Secured Party that: (a) The sole Partnership Agreement of the Partnership is
the Partnership Agreement dated 1996 (but undated as to month and day) (the
"Partnership Agreement"), Pledgor has delivered true and correct copies of the
Partnership Agreement to Secured Party, the Partnership Agreement sets forth the
entirety of the agreement among the partners and any of them relating to the
Partnership and is presently in full force and effect; (b) Pledgor has an
undivided interest in the capital, profits, income and distributions of the
Partnership, as set forth in the Partnership Agreement; (c) Pledgor is not in
default in the performance or payment of any of his obligations under the
Partnership Agreement; (d) all financial statements and other information
provided by Pledgor to Secured Party concerning the Partnership have been true
and correct; (e) to the best of Pledgor's knowledge there is no litigation
pending or threatened against the Partnership or relating to the Partnership;
(e) No consent of any other person and no consent, approval, authorization or
other action by, or filing with, any governmental authority, bureau or agency is
required in connection with the execution, delivery and performance of Pledgor's
obligations under this Agreement; (f) Pledgor is the sole owner of, and has good
and marketable title to, the Partnership Interest and all other Collateral, and
the Partnership Interest and other Collateral is held free and clear and shall
at all times remain free and clear of all claims, demands, rights, liens,
security interests and encumbrances, other than the security interest granted to
Secured Party under this Agreement; (g) Pledgor's execution of this Agreement
and the performance of his obligations hereunder will not result in a breach or
violation of any law, governmental rule or regulation, judgment, writ,
injunction, decree or order of any court or governmental authority relating to
Pledgor or the Collateral, or the Partnership Agreement, or any agreement to
which Pledgor is a party or by which Pledgor is bound; and (h) There is no fact
which Pledgor has failed to disclose to Secured Party in writing which may
materially and adversely affect the properties, business, prospects, profits, or
condition of Pledgor or any of the Collateral, or may be necessary to disclose
in order to keep the representations and warranties made to Secured Party from
being misleading.
4. EVENTS OF DEFAULT; REMEDIES.
4.1 EVENTS OF DEFAULT. If any one or more of the following events
shall occur, any such event shall constitute an Event of Default and Pledgor
shall provide Secured Party with immediate notice thereof: Any Event of Default
under, or as defined in, the Loan Agreement or any other Loan Document shall
occur.
4.2. REMEDIES. If an Event of Default shall occur, Pledgor shall give
immediate written notice thereof to Secured Party. Upon the occurrence of an
Event of Default, and at any time thereafter, Secured Party shall have the
right, without notice to or demand upon Pledgor, to exercise any one or more of
the following remedies: collect all Partnership Proceeds
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and apply them to the Obligations in such order as Secured Party shall
determine in its sole discretion; sell or otherwise dispose of the
Collateral, at a public or private sale, for cash, or other property, or on
credit, with the authority to adjourn or postpone any such sale from time to
time without notice other than oral announcement at the time scheduled for
sale. Secured Party may directly or through any affiliate purchase the
Collateral, at any such public disposition, and if permissible under
applicable law, at any private disposition. Pledgor and Secured Party hereby
agree that it shall conclusively be deemed commercially reasonable for
Secured Party, in connection with any sale or disposition of the Collateral,
to impose restrictions and conditions as to the investment intent of a
purchaser or bidder, the ability of a purchaser or bidder to bear the
economic risk of an investment in the Collateral, the knowledge and
experience in business and financial matters of a purchaser or bidder, the
access of a purchaser or bidder to information concerning the Partnership, as
well as legend conditions and stop transfer instructions restricting
subsequent transfer of the Collateral, and any other restrictions or
conditions which Secured Party believes to be necessary or advisable in order
to comply with any state or federal securities or other laws. Pledgor
acknowledges that the foregoing restrictions may result in fewer proceeds
being received upon such sale then would otherwise be the case. Pledgor
hereby agrees to provide to Secured Party any and all information required by
Secured Party in connection with any sales of Collateral by Secured Party
hereunder. Any and all attorneys' fees, expenses, costs, liabilities and
obligations incurred by Secured Party in connection with the foregoing shall
be added to and become a part of the Obligations and shall be due from
Pledgor to Secured Party upon demand.
4.3. LIABILITY FOR DEFICIENCY. Pledgor shall at all times remain
liable for any deficiency remaining on the Obligations after any disposition of
any or all of the Collateral and after Secured Party's application of any
proceeds to the Obligations.
5. REMEDIES, CUMULATIVE; NO WAIVER. The failure of Secured Party to
enforce any of the provisions of this Agreement at any time or for any period of
time shall not be construed to be a waiver of any such provision or the right
thereafter to enforce the same. All remedies hereunder shall be cumulative and
shall be in addition to all rights, powers and remedies given to Secured Party
by law.
6. TERM. This Agreement and Secured Party's rights hereunder shall
continue in full force and effect until all of the Obligations have been fully
paid, performed and discharged and the Loan Agreement and all other Loan
Documents have been terminated.
7. POWER OF ATTORNEY. Pledgor irrevocably appoints Secured Party as the
attorney in fact of Pledgor, with full power of substitution, coupled with an
interest, with full power, in Secured Party's own name or in the name of
Pledgor, to execute and deliver all documents and instruments and take all
actions as Secured Party shall, in its discretion, deem necessary or advisable
in order to carry out the provisions or intent of this Agreement.
8. RELATIONSHIP OF PARTIES. Nothing contained in this Agreement
constitutes or shall be construed as (a) the formation of a partnership or joint
venture between Secured Party and Pledgor or any other person; or (b) the
creation of any confidential or fiduciary relationship of any kind between
Secured Party and Pledgor or any other Person. Secured Party shall not be
deemed to be a partner, joint venturer, trustee, or fiduciary with respect to
Pledgor or any other person as a result of this Agreement or the transactions
contemplated hereby. Pledgor acknowledges and agrees that Secured Party has at
all times acted only as a lender. Pledgor shall
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at all times have the right to determine and follow its own policies and
practices in the conduct of its business, subject to the terms and conditions
of this Agreement.
9. INDEMNIFICATION. Pledgor shall indemnify and hold Secured Party and
its agents, employees, officers, directors, attorneys, representatives,
affiliates, successors and assigns harmless from and against any and all claims,
demands, damages, liabilities, actions, causes of action, suits, costs and
expenses, including without limitation reasonable attorney's fees and costs,
arising out of or relating to Pledgor's breach of any of his obligations or
warranties under this Agreement or any other Loan Document, or any other act or
omission by Pledgor, or Secured Party's exercise of any or all of Secured
Party's rights or remedies under this Agreement or any other Loan Document.
10. ATTORNEYS' FEES. Upon Secured Party's demand, Pledgor shall reimburse
Secured Party for all reasonable costs and expenses, including reasonable
attorney's fees and costs, which are incurred by Secured Party, whether before
or after any Event of Default, in connection with any or all of the following:
(a) the exercise of any or all of Secured Party's rights and remedies under this
Agreement or any other Loan Document, whether or not any legal proceedings are
instituted by Secured Party; (b) the protection, preservation, management,
operation, or maintenance of any or all of the Collateral; (c) the sale or
disposition of any or all of the Collateral; (d) any suit, action, or proceeding
relating to Pledgor or the Collateral, or any of the Loan Documents, including
without limitation any action for relief from the automatic stay arising under
Bankruptcy Code Section362(a). Pledgor's obligation to reimburse Secured Party
under this Section shall include payment of interest on all amounts expended by
Secured Party from the date of expenditure at the highest rate of interest
applicable to any of the Obligations.
11. GENERAL PROVISIONS. This Agreement and the Loan Documents are the
entire and only agreements between Pledgor and Secured Party with respect to the
subject matter hereof, and all representations, warranties, agreements, or
undertakings heretofore or contemporaneously made, with respect to the subject
matter hereof, which are not set forth herein or therein, are superseded hereby.
All rights and remedies under this Agreement, the Loan Agreement and the other
Loan Documents are cumulative, and nothing in this Agreement limits any of the
terms or provisions of the Loan Agreement or the other Loan Documents. The
terms and provisions hereof may not be waived, altered, modified, or amended
except in a writing executed by Pledgor and Secured Party. All rights, benefits
and privileges hereunder shall inure to the benefit of and be enforceable by
Secured Party and its successors and assigns and shall be binding upon Pledgor
and its successors and assigns; provided that Pledgor may not transfer any of
its rights hereunder without the prior written consent of Secured Party.
Paragraph headings are used herein for convenience only. Pledgor acknowledges
that the same may not describe completely the subject matter of the applicable
paragraph, and the same shall not be used in any manner to construe, limit,
define or interpret any term or provision hereof. This Agreement and all acts
and transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed, and interpreted in accordance with the
internal laws (and not conflict of laws rules) of the State of California.
Pledgor hereby agrees that all actions or proceedings relating directly or
indirectly hereto may, at the option of Secured Party, be litigated in courts
located within said State, and Pledgor hereby expressly consents to the
jurisdiction of any such court and consents to the service of process in any
such action or proceeding by personal delivery or by certified or registered
mailing directed to Pledgor at its last address known to Secured Party.
12. MUTUAL WAIVER OF RIGHT TO JURY TRIAL AND OTHER WAIVERS. SECURED PARTY
AND PLEDGOR EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY
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ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO:
(I) THIS AGREEMENT; OR (II) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR
AGREEMENT BETWEEN SECURED PARTY AND PLEDGOR; OR (III) ANY CONDUCT, ACTS OR
OMISSIONS OF SECURED PARTY OR PLEDGOR OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SECURED
PARTY OR PLEDGOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE. Pledgor hereby waives: presentment for
payment, demand, protest, and notice thereof as to any instrument, and all
other notices and demands to which Pledgor might be entitled. Pledgor
further waives the benefit of all statutes of limitations.
IN WITNESS WHEREOF, the undersigned have executed this Pledge Agreement on
the date first above written.
Pledgor: Secured Party:
XIT Corporation Congress Financial Corporation (Western)
By By
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Title Title
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