8-K

 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 8‑K

CURRENT REPORT Pursuant

to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report  (Date of earliest event reported): December 13, 2005

TOR Minerals International, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of Incorporation)

0-17321	74-2081929
(Commission File Number)	(IRS Employer Identification No.)
722 Burleson Street Corpus Christi, Texas	78402
(Address of Principal Executive Offices)	(Zip Code)

(361) 883-5591
(Registrant’s Telephone Number, Including Area Code)

N/A
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

___	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
___	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
___	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
___	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

1

ITEM 1.01.  ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.

On September December 13, 2005, TOR Minerals International, Inc. (the “Company”) amended and restated its current loan agreement with Bank of America (the “Bank”).  Under the terms of the amendment, the Bank revised the maturity date on Company’s Line of Credit from October 1, 2006, to October 1, 2007.  In addition, the Company entered into a new term loan in the amount of $1,029,000 which is secured by the Company’s real estate and leasehold improvements.  The principal amount of this loan shall be due and payable in 60 successive monthly installments of $12,250 each, commencing on December 30, 2005 and continuing on the 30th day of each successive month thereafter, and one final installment of the balance remaining of November 30, 2010.  Interest, which is a rate equal to the Bank’s Prime Rate (currently 7.25%), shall be due and payable monthly with the first payment to be made on December 30, 2005 and continuing on the 30th day of each successive month thereafter.  The proceeds of the loan will be used for working capital.

ITEM 2.03.  CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT.

See our discussion in Item 1.01 with respect to the Company’s new/amended loan agreement with Bank of America.

ITEM 9.01  FINANCIAL STATEMENTS AND EXHIBITS

(a)	Financial Statements of Businesses Acquired. Not applicable.
(b)	Pro Forma Financial Information. Not applicable.
(c)	Shell company transactions. Not applicable.
(d)	Exhibits.

The following exhibit is filed in accordance with the provisions of Item 601 of Regulation S-B:

Exhibit No.	Description
10.1	Real Estate Term Loan
10.2	First Amendment to Second Amended and Restated Loan Agreement
10.3	Assignment of Leases and Rents (Deed of Trust)
10.4	Assignment of Leases and Rents (Leasehold Deed of Trust)
10.5	Deed of Trust
10.6	Leasehold Deed of Trust

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	TOR MINERALS INTERNATIONAL, INC. _____________________ (Registrant)
Date: December 16, 2005	LAWRENCE W. HAAS
	Lawrence W. Haas Treasurer and CFO

EXHIBIT INDEX

Exhibit No.	Description
10.1	Real Estate Term Loan
10.2	First Amendment to Second Amended and Restated Loan Agreement
10.3	Assignment of Leases and Rents (Deed of Trust)
10.4	Assignment of Leases and Rents (Leasehold Deed of Trust)
10.5	Deed of Trust
10.6	Leasehold Deed of Trust

2

EX-10

EXHIBIT 10.1

PROMISSORY NOTE
(Real Estate Term Loan)

Date:  December 13, 2005	[   ] Renewal	Amount:  $1,029,000.00
Maturity Date:   November 30, 2010

Lender: Bank of America, N.A.
700 Louisiana, 7^th Floor Houston, Texas  77002 Borrower: TOR Minerals International, Inc.
722 Burleson Street
P. O. Box 2544
Corpus Christi, Nueces County, Texas 78403

FOR VALUE RECEIVED, the undersigned Borrower unconditionally promises to pay to the order of Lender, its successors and assigns, without setoff, at its offices indicated at the beginning of this Note or at such other place as may be designated by Lender, the principal amount of One Million Twenty Nine Thousand and 00/100 Dollars ($1,029,000.00) or so much thereof as may be advanced from time to time in immediately available funds, together with interest computed daily on the outstanding principal balance hereunder, at an annual interest rate, and in accordance with the payment schedule, indicated below.

1.                  Rate [Prime Rate]

The interest rate is a rate per year equal to the Lender’s Prime Rate. The Prime Rate is the rate of interest publicly announced from time to time by the Lender as its Prime Rate (the “Index”).  The Prime Rate is set by the Lender based on various factors, including the Lender’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans.  The Lender may price loans to its customers at, above, or below the Prime Rate. Any change in the Prime Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Lender’s Prime Rate.  The Index is not necessarily the lowest rate charged by Lender on its loans and is set by Lender in its sole discretion. If the Index becomes unavailable during the term of this loan, Lender shall substitute an index determined by Lender to be comparable, in its sole discretion, and will notify Borrower accordingly.  Lender will tell Borrower the current Index rate upon Borrower’s request.

2.                  Usury Savings Clause

Notwithstanding any provision of this Note, Lender does not intend to charge and Borrower shall not be required to pay any amount of interest or other charges in excess of the maximum permitted by applicable law.  Borrower and Lender agree that the total amount of interest contracted for, charged, collected or received by Lender under this Agreement shall not exceed the Maximum Lawful Rate (as defined in the Loan Agreement defined below).  To the extent, if any, that Chapter 303 of the Texas Finance Code (the “Finance Code”) is relevant to Lender for purposes of determining the Maximum Lawful Rate, the parties elect to determine the Maximum Lawful Rate under the Finance Code pursuant to the “weekly ceiling” from time to time in effect, as referred to and defined in § 303.001-303.016 of the Finance Code; subject, however, to any right Lender subsequently may have under applicable law to change the method of determining the Maximum Lawful Rate. 

Term Loan

3.                  Accrual Method

Unless otherwise indicated, interest at the Rate set forth above will be calculated by the 365/360 day method (a daily amount of interest is computed for a hypothetical year of 360 days; that amount is multiplied by the actual number of days for which any principal is outstanding hereunder).

4.                  Rate Change Date

Any Rate based on a fluctuating index or base rate will change, unless otherwise provided, each time and as of the date that the index or base rate changes.

5.                  Payment Schedule

All payments received hereunder shall be applied, first to the payment of any expense or charges payable hereunder or under any other loan documents executed in connection with this Note, then to interest due and payable, with the balance applied to principal, or in such other order as Lender shall determine at its option.

6.                  Level Principal Plus Accrued Interest

The principal amount of this note shall be due and payable in 60 successive monthly installments of $12,250.00 each, commencing on December 30, 2005 and continuing on the 30th day of each successive month thereafter, and one final installment of the balance remaining on November 30, 2010. Interest shall be due and payable monthly, with the first payment to be made on December 30, 2005 and continuing on the 30th day of each successive month thereafter.

7.                  Delinquency Charge

Lender shall be entitled to charge a delinquency charge on commercial loans on the amount of any installment or other amount in default for a period of not less than 15 days, in a reasonable amount not to exceed 4% of the amount of the delinquent installment, in addition to the interest provided for herein.

8.                  Automatic Payment

Borrower has elected to authorize Lender to effect payment of sums due under this Note by means of debiting Borrower’s account number 6110107387. This authorization shall not affect the obligation of Borrower to pay such sums when due, without notice, if there are insufficient funds in such account to make such payment in full on the due date thereof, or if Lender fails to debit the account.

9.                  Representations, Waivers, Consents and Covenants

Term Loan                                                                              2

Borrower and Lender have entered into that certain Second Amended and Restated Loan Agreement dated December 21, 2004 (as amended, restated, or supplemented from time to time, the “Loan Agreement”). Borrower represents that all of the representations in the Loan Agreement are true and correct as of this date. Borrower covenants that it will keep all of the covenants and agreements set forth in the Loan Agreement. No waiver, consent, modification or amendment with respect to this Note shall be effective without compliance with the provisions of the Loan Agreement. Borrower, any endorser or guarantor hereof, or any other party hereto (individually an “Obligor” and collectively “Obligors”) and each of them jointly and severally: (a) waive presentment, demand, protest, notice of demand, notice of intent to accelerate, notice of acceleration of maturity, notice of protest, notice of nonpayment, notice of dishonor, and any other notice required to be given under the law to any Obligor in connection with the delivery, acceptance, performance, default or enforcement of this Note, any endorsement or guaranty of this Note, or any other documents executed in connection with this Note or any other note or other loan documents now or hereafter executed in connection with any obligation of Borrower to Lender (the “Loan Documents”); (b) consent to all delays, extensions, renewals or other modifications of this Note or the Loan Documents, or waivers of any term hereof or of the Loan Documents, or release or discharge by Lender of any of Obligors, or release, substitution or exchange of any security for the payment hereof, or the failure to act on the part of Lender, or any indulgence shown by Lender (without notice to or further assent from any of Obligors), and agree that no such action, failure to act or failure to exercise any right or remedy by Lender shall in any way affect or impair the obligations of any Obligors or be construed as a waiver by Lender of, or otherwise affect, any of Lender’s rights under this Note, under any endorsement or guaranty of this Note or under any of the Loan Documents; and (c) after default, agree to pay, on demand, all costs and expenses of collection or defense of this Note or of any endorsement or guaranty hereof and/or the enforcement or defense of Lender’s rights with respect to, or the administration, supervision, preservation, or protection of, or realization upon, any property securing payment hereof, including, without limitation, reasonable attorney’s fees, including fees related to any suit, mediation or arbitration proceeding, out of court payment agreement, trial, appeal, bankruptcy proceedings or other proceeding, in such amount as may be determined reasonable by any arbitrator or court, whichever is applicable.

10.              Prepayments

Prepayments may be made in whole or in part at any time on any principal amounts, without premium or penalty.

11.              Events of Default

The occurrence of any Event of Default specified in the Loan Agreement, unless cured within the time specified therein, shall constitute an Event of Default under this Note.  The following are also events of default hereunder: (a) the failure to pay or perform any obligation, liability or indebtedness of any Obligor to Lender, or to any affiliate or subsidiary of Bank of America Corporation, whether under this Note or any Loan Documents, as and when due (whether upon demand, at maturity or by acceleration); (b) the failure to pay or perform any other obligation, liability or indebtedness of any Obligor to any other party; (c) the commencement of a proceeding against any Obligor for dissolution or liquidation, the voluntary or involuntary termination or dissolution of any Obligor or the merger or consolidation of any Obligor with or into another entity; (d) the insolvency of, the business failure of, the appointment of a custodian, trustee, liquidator or receiver for or for any of the property of, the assignment for the benefit of creditors by, or the filing of a petition under bankruptcy, insolvency or debtor’s relief law or the filing of a petition for any adjustment of indebtedness, composition or extension by or against any Obligor; (e) Borrower has given Lender any representation or information which was, when it was made, false or materially misleading; (f) the failure of any Obligor to timely deliver such financial statements, including tax returns, other statements of condition or other information, as Lender shall request from time to time; (g) the entry of a judgment against any Obligor which Lender deems to be of a material nature, in Lender’s sole discretion; (h) the seizure or forfeiture of, or the issuance of any writ of possession, garnishment or attachment, or any turnover order for any property of any Obligor; or (i) the failure of Borrower’s business to comply with any law or regulation controlling its operation.

12.              Remedies upon Default

Term Loan                                                                              3

The effect of the occurrence of any Event of Default under this Note shall be as specified in the Loan Agreement.  In addition, upon the occurrence of an Event of Default which is not cured within the time specified therein, (a) the Rate of Interest on this Note shall be increased, from and after such date, to the Prime Rate plus 4.0% per annum, not to exceed the maximum rate allowed by law (“Default Rate”) and (b) the entire balance outstanding under this Note and all other obligations of Borrower to Lender shall, at the option of Lender, become immediately due and payable, and any obligation of Lender to permit further borrowing under this Note shall immediately cease and terminate.  The provisions herein for a Default Rate shall not be deemed to extend the time for any payment hereunder or to constitute a grace period giving Obligors a right to cure any default.  At Lender’s option, any accrued and unpaid interest, fees or charges may, for purposes of computing and accruing interest on a daily basis after the due date of the Note or any installment thereof, shall be deemed to be a part of the principal balance, and interest shall accrue on a daily compounded basis after such date at the Default Rate provided in this Note until the entire outstanding balance of principal and interest is paid in full.  Upon a default under this Note, Lender is hereby authorized at any time, at its option and without notice or demand, to set off and charge against any deposit accounts of any Obligor (as well as any money, instruments, securities, documents, chattel paper, credits, claims, demands, income and any other property, rights and interests of any Obligor), which at any time shall come into the possession or custody or under the control of Lender or any of its agents, affiliates or correspondents, any and all obligations due hereunder. Additionally, Lender shall have all rights and remedies available under each of the Loan Documents, as well as all rights and remedies available at law or in equity.

13.              Non-Waiver

The failure at any time of Lender to exercise any of its options or any other rights hereunder shall not constitute a waiver thereof, nor shall it be a bar to the exercise of any of its options or rights at a later date.  All rights and remedies of Lender shall be cumulative and may be pursued singly, successively or together, at the option of Lender.  The acceptance by Lender of any partial payment shall not constitute a waiver of any default or of any of Lender’s rights under this Note.  No waiver of any of its rights hereunder, and no modification or amendment of this Note, shall be deemed to be made by Lender unless the same shall be in writing, duly signed on behalf of Lender; each such waiver shall apply only with respect to the specific instance involved, and shall in no way impair the rights of Lender or the obligations of Obligors to Lender in any other respect at any other time.

14.              Applicable Law, Venue and Jurisdiction

Borrower agrees that this Note shall be deemed to have been made in the State of Texas at Lender’s address indicated at the beginning of this Note and shall be governed by, and construed in accordance with, the laws of the State of Texas.  In any litigation in connection with or to enforce this Note or any endorsement or guaranty of this Note or any Loan Documents, Obligors, and each of them, irrevocably consent to and confer personal jurisdiction on the courts of the State of Texas or the United States courts located within the State of Texas.  Nothing contained herein shall, however, prevent Lender from bringing any action or exercising any rights within any other state or jurisdiction or from obtaining personal jurisdiction by any other means available under applicable law.

15.              Partial Invalidity

The unenforceability or invalidity of any provision of this Note shall not affect the enforceability or validity of any other provision herein and the invalidity or unenforceability of any provision of this Note or of the Loan Documents to any person or circumstance shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances.

Term Loan                                                                              4

16.              Binding Effect

This Note shall be binding upon and inure to the benefit of Borrower, Obligors and Lender and their respective successors, assigns, heirs and personal representatives, provided, however, that no obligations of Borrower or Obligors hereunder can be assigned without prior written consent of Lender.

17.              Controlling Document

To the extent that this Note conflicts with or is in any way incompatible with any other document related specifically to the loan evidenced by this Note, this Note shall control over any other such document, and if this Note does not address an issue, then each other such document shall control to the extent that it deals most specifically with an issue.

18.              ARBITRATION AND WAIVER OF JURY TRIAL.

A.                 This section concerns the resolution of any controversies or claims between Borrower or Lender, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to (i) this Note (including any renewals, extensions or modifications), or (ii) any document related to this Note (collectively a “Claim”).  For the purposes of this arbitration provision only, the term “parties” shall include any parent corporation, subsidiary or affiliate of Lender involved in the servicing, management or administration of any obligation described or evidenced by this Note.

B.                 At the request of Borrower or Lender, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U.S. Code) (the “Act”).  The Act will apply even though this Note provides that it is governed by the law of a specified state.

C.                 Arbitration proceedings will be determined in accordance with the Act, the applicable rules and procedures for the arbitration of disputes of JAMS or any successor thereof (“JAMS”), and the terms of this section.  In the event of any inconsistency, the terms of this section shall control.

D.                 The arbitration shall be administered by JAMS and conducted, unless otherwise required by law, in any U.S. state where real or tangible personal property collateral for this credit is located or if there is no such collateral, in Texas. All Claims shall be determined by one arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims shall be decided by three arbitrators.  All arbitration hearings shall commence within ninety (90) days of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of the close of the hearing.  However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days.  The arbitrator(s) shall provide a concise written statement of reasons for the award.  The arbitration award may be submitted to any court having jurisdiction to be confirmed and enforced.

Term Loan                                                                              5

E.                  The arbitrator(s) will have the authority to decide whether any Claim is barred by the statute of limitations and, if so, to dismiss the arbitration on that basis.  For purposes of the application of the statute of limitations, the service on JAMS under applicable JAMS rules of a notice of Claim is the equivalent of the filing of a lawsuit.  Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s).  The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this agreement.

F.                  This section does not limit the right of Borrower or Lender: (i) exercise self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or non-judicial foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies.

G.                 The filing of a court action is not intended to constitute a waiver of the right of any party, including the suing party, thereafter to require submittal of the Claim to arbitration.

H.                 By agreeing to binding arbitration, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of any Claim.  Furthermore, without intending in any way to limit this agreement to arbitrate, to the extent any Claim is not arbitrated, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of such Claim.  This provision is a material inducement for the parties entering into this agreement.

Borrower represents to Lender that the proceeds of this loan are to be used primarily for business, commercial or agricultural purposes. Borrower acknowledges having read and understood, and agrees to be bound by, all terms and conditions of this Note.

NOTICE OF FINAL AGREEMENT:

19.              THIS WRITTEN PROMISSORY NOTE AND THE LOAN DOCUMENTS REPRESENT 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.

[Signatures appear on the following page.]

Term Loan                                                                              6

LENDER:	BORROWER:
BANK OF AMERICA, N.A.	TOR MINERALS INTERNATIONAL, INC.
By:	By:
Victor N. Tekell	RICHARD BOWERS
Senior Vice President	President and CEO

Signature Page to Promissory Note (Real Estate Term Note)

EX-10

EXHIBIT 10.2

FIRST AMENDMENT
TO
SECOND AMENDED AND RESTATED LOAN AGREEMENT

THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT (this “Amendment”) is entered into as of December 13, 2005 between TOR Minerals International, Inc., a Delaware corporation (“Borrower”) and BANK OF AMERICA, N.A., a national banking association (“Lender”).  Capitalized terms used but not defined in this Amendment have the meaning given them in the Loan Agreement (defined below).

RECITALS

A.        Borrower and Lender entered into that certain Second Amended and Restated Loan Agreement dated as of December 21, 2004 (as amended, restated or supplemented the “Loan Agreement”).

B.         Borrower and Lender have agreed to amend the Loan Agreement, subject to the terms and conditions of this Amendment.

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, the undersigned hereby agree as follows:

1.                  Amendments to Loan Agreement.

(a)                Section 1 of the Loan Agreement is amended to add the following definitions in their entirety, in their appropriate alphabetical order:

Deeds of Trust is defined in Section 2.I of this Agreement.

Real Estate Term Loan is defined in Section 2.K of this Agreement.

Term Note is defined in Section 2.F of this Agreement.

(b)               The first sentence of Section 2.A of the Loan Agreement is amended to delete the date “October 1, 2006” where it appears and to replace it with “October 1, 2007” so that such sentence shall read in its entirety as follows:

“Lender agrees to establish a revolving line of credit for Loans to be made to Borrower, which shall be evidenced by the promissory note maturing October 1, 2007 (or earlier if Lender’s commitment to make Loans under the Revolving Note is otherwise canceled or terminated in accordance with Section 7 of this Agreement or otherwise), which is in the form attached as Exhibit A-1, to which reference is here made for all purposes (the “Revolving Note”).”

First Amendment to Second AR Credit Agreement

(c)                Section 2.D of the Loan Agreement is amended to reduce the LC fee by replacing “2.0%” where it appears with “1.5%” so that such section shall read in its entirety as follows:

“LC Fees.  At the time of issuance, Borrower shall pay to Lender an LC fee for each LC equal to the greater of (i) 1.5% of the maximum amount available to be drawn under such LC, or (ii) $300.00.”

(d)               Section 2.H of the Loan Agreement is amended to add a new clause (ii) in its entirety as follows:

“ii.        Real Estate Term Loan.  Prior to funding the Real Estate Term Loan, Borrower shall furnish Lender with all of the items set forth on Schedule 1 hereto.”

(e)                Section 2.I of the Loan Agreement is amended to delete clause (iii) in its entirety, and to replace it with clauses (iii) and (iv) below, so that such clauses shall read in their entirety as follows:

“iii.       A first and prior security interest in the “Mortgaged Property” described in that certain Leasehold Deed of Trust, Security Agreement and UCC Financing Statement for Fixture Filing dated December 13, 2005, filed of record in Nueces County, Texas, and executed by Borrower to PRLAP, Inc. for the benefit of Lender and that certain Deed of Trust, Security Agreement and UCC Financing Statement for Fixture Filing dated December 13, 2005, filed of record in Nueces County, Texas, and executed by Borrower to PRLAP, Inc. for the benefit of Lender (collectively, the “Deeds of Trust”); and

iv.        Any other collateral described in that Security Agreement of even date herewith from Borrower to Lender, and additional collateral which may be given to Lender at any time.”

(f)                 Section 2 of the Loan Agreement is amended to add a new Section 2.K in its entirety as follows:

“K.       Real Estate Term Loan.  Lender agrees to make a single advance term loan to Borrower in the amount of $1,029,000.00 (the “Real Estate Term Loan”), which shall be evidenced by that certain Promissory Note maturing November 30, 2010 or earlier if accelerated under the terms of this Agreement, which promissory note is in the form attached as Exhibit A-3, to which reference is here made for all purposes (the “Real Estate Term Note”).”

(g)                Section 6 of the Loan Agreement is amended to delete the word “and” at the end of Section 6.H, to replace the  “.” at the end of Section 6.I with “; and” and to add a new Section 6.J so that such sections read in their entirety as follows:

First Amendment to Second AR Credit Agreement                  2

“H.       Lender is served with, or become subject to, a court order, injunction, or other process or decree restraining or seeking to restrain it from paying any amount under any LC and either (i) a drawing has occurred under the LC and Borrower has refused to reimburse Lender for payment or (ii) the expiration date of the LC has occurred but the right of any beneficiary thereunder to draw under the LC has been extended past the expiration date in connection with the pendency of the related court action or proceeding and Borrower has failed to Cash Collateralize the then outstanding LC Exposure;

I.          Borrower notifies Lender of the existence of a Material Adverse Event; and

J.         The occurrence of a default or an “Event of Default” as defined in the Revolving Note, Term Note, Real Estate Term Note or the Deeds of Trust.”

(h)                Section 8 of the Loan Agreement is amended to change the address of Porter & Hedges, L.L.P. as follows:

“Porter & Hedges, L.L.P.

1000 Main Street, 36^th Floor

Houston, Texas  77002

Attn: Nick H. Sorensen

Fax No. 713-226-6277”

2.                  Schedules.  The Loan Agreement is amended to add Schedule 1 (Conditions Precedent to Real Estate Term Loan) in the form of Schedule 1 to this Amendment.

3.                  Exhibits.  The Loan Agreement is amended to add Exhibit A-3 (Real Estate Term Note) in the form of Exhibit A-3 to this Amendment.

4.                  Conditions.  This Amendment shall be effective once each of the following have been delivered to Lender:

(a)                this Amendment executed by Borrower and Lender;

(b)               the items listed on Schedule 1;

(c)                Certificates of Existence and Good Standing of Borrower from its jurisdiction of organization and Certificates of Good Standing and Authority to do Business of Borrower from the State of Texas; and

(d)               such other documents as Lender may reasonably request.

First Amendment to Second AR Credit Agreement                  3

5.                  Representations and Warranties.  Borrower represents and warrants to Lender that (a) it possesses all requisite power and authority to execute, deliver and comply with the terms of this Amendment, (b) this Amendment has been duly authorized and approved by all requisite corporate action on the part of Borrower, (c) no other consent of any person, governmental authority, or entity (other than Lender) is required for this Amendment to be effective, (d) the execution and delivery of this Amendment does not violate its organizational documents, (e) the representations and warranties in each Loan Document to which it is a party are true and correct in all material respects on and as of the date of this Amendment as though made on the date of this Amendment (except to the extent that such representations and warranties speak to a specific date), (f) it is in full compliance with all covenants and agreements contained in each Loan Document to which it is a party, and (g) no Event of Default has occurred and is continuing.  The representations and warranties made in this Amendment shall survive the execution and delivery of this Amendment.  No investigation by Lender is required for Lender to rely on the representations and warranties in this Amendment.

6.                  Scope of Amendment; Reaffirmation; Release.  All references to the Loan Agreement shall refer to the Loan Agreement as amended by this Amendment.  Except as affected by this Amendment, the Loan Documents are unchanged and continue in full force and effect.  However, in the event of any inconsistency between the terms of the Loan Agreement (as amended by this Amendment) and any other Loan Document, the terms of the Loan Agreement shall control and such other document shall be deemed to be amended to conform to the terms of the Loan Agreement.  Borrower hereby reaffirms its obligations under the Loan Documents to which it is a party and agrees that all Loan Documents to which they are a party remain in full force and effect and continue to be legal, valid, and binding obligations enforceable in accordance with their terms (as the same are affected by this Amendment).  Borrower hereby releases Lender from any liability for actions or omissions in connection with the Loan Agreement and the other Loan Documents prior to the date of this Amendment.

7.                  Miscellaneous.

(a)                No Waiver of Defaults.  This Amendment does not constitute (i) a waiver of, or a consent to, (A) any provision of the Loan Agreement or any other Loan Document not expressly referred to in this Amendment, or (B) any present or future violation of, or default under, any provision of the Loan Documents, or (ii) a waiver of Lender’s right to insist upon future compliance with each term, covenant, condition and provision of the Loan Documents.

(b)               Form.  Each agreement, document, instrument or other writing to be furnished to Lender under any provision of this Amendment must be in form and substance satisfactory to Lender and its counsel.

(c)                Headings.  The headings and captions used in this Amendment are for convenience only and will not be deemed to limit, amplify or modify the terms of this Amendment, the Loan Agreement or the other Loan Documents.

(d)               Costs, Expenses and Attorneys’ Fees.  Borrower agrees to pay or reimburse Lender on demand for all its reasonable out-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of this Amendment, including, without limitation, the reasonable fees and disbursements of Lender’s counsel.

First Amendment to Second AR Credit Agreement                  4

(e)                Successors and Assigns.  This Amendment shall be binding upon and inure to the benefit of each of the undersigned and their respective successors and permitted assigns.

(f)                 Multiple Counterparts.  This Amendment may be executed in any number of counterparts with the same effect as if all signatories had signed the same document.  All counterparts must be construed together to constitute one and the same instrument.  This Amendment may be transmitted and signed by facsimile.  The effectiveness of any such documents and signatures shall, subject to applicable law, have the same force and effect as manually-signed originals and shall be binding on Borrower and Lender.  Lender may also require that any such documents and signatures be confirmed by a manually-signed original; provided that the failure to request or deliver the same shall not limit the effectiveness of any facsimile document or signature.

(g)                Governing Law.  This Amendment and the other Loan Documents must be construed, and their performance enforced, under Texas law.

(h)                Arbitration.  Upon the demand of any party to this Amendment, any dispute shall be resolved by binding arbitration as provided for in Section 11 of the Loan Agreement.

(i)                  Entirety.  The Loan Documents (as amended hereby) Represent the Final Agreement Between Borrower and Lender and May Not Be Contradicted by Evidence of Prior, Contemporaneous, or Subsequent Oral Agreements by the Parties.  There Are No Unwritten Oral Agreements among the Parties.

[Signatures appear on the next page.]

First Amendment to Second AR Credit Agreement                                     5

The Amendment is executed as of the date set out in the preamble to this Amendment.

TOR MINERALS INTERNATIONAL, INC.

By:                    Richard L. Bowers
      President and Chief Executive   Officer

Signature Page to the First Amendment to Second Amended and Restated Loan Agreement

BANK OF AMERICA, N.A.

By:                      Victor N. Tekell
                Senior Vice President

Signature Page to the First Amendment to Second Amended and Restated Loan Agreement

Schedule 1

Conditions Precedent to Real Estate Term Loan

1.         Real Estate Term Note executed by Borrower and Lender

2.         Leasehold Deed of Trust, Security Agreement and UCC Financing Statement for Fixture Filing executed by Borrower covering Borrower’s interest in the ground leases and improvements located at 722 Burleson Street, Corpus Christi, Texas, accompanied by an Assignment of Leases and Rents

3.         Deed of Trust, Security Agreement and UCC Financing Statement for Fixture Filing executed by Borrower covering Borrower’s interest in real estate located at 722 Burleson Street, Corpus Christi, Texas, accompanied by an Assignment of Leases and Rents

4.         Mutual Recognition, Landlord’s Consent and Subordination executed by the Port of Corpus Christi Authority of Nueces County, Texas, Lender and Borrower

5.         Secretary’s Certificate of Borrower

                        a.         Resolutions

            b.         Articles of Incorporation

                        c.         Bylaws

                        d.         Incumbency

                        e.         Certificates of Existence/Good Standing

6.         Real Estate Due Diligence Regarding 722 Burleson Street, Corpus Christi, Texas

                        a.         Survey

                        b.         Mortgagee’s Title Commitment

                        c.         Copies of Ground Leases (including Third Amendment to Lease)

                        d.         Flood Determination Certification

7.         Memorandum of Lease

8.         Certificates of Insurance naming Lender as loss payee or additional insured (as applicable), of general liability, property, flood, and other insurance

9.         Satisfactory completion of Lender’s due diligence with respect to Borrower’s taxes, accounting, financial statements, labor matters, insurance, material contracts, environmental matters, litigation, pension matters, property matters, debt agreements and other contingent liabilities

Schedule 1

Exhibit A-3

PROMISSORY NOTE

(Real Estate Term Loan)

Date:                December 13, 2005                   [   ] Renewal                              Amount:  $1,029,000.00
Maturity Date:   November 30, 2010

Lender: Bank of America, N.A.
700 Louisiana, 7^th floor Houston, Texas  77002 Borrower: Tor Minerals International, Inc.
722 Burleson Street
P. O. Box 2544
Corpus Christi, Nueces County, Texas 78403

FOR VALUE RECEIVED, the undersigned Borrower unconditionally promises to pay to the order of Lender, its successors and assigns, without setoff, at its offices indicated at the beginning of this Note or at such other place as may be designated by Lender, the principal amount of One Million Twenty Nine Thousand and 00/100 Dollars ($1,029,000.00) or so much thereof as may be advanced from time to time in immediately available funds, together with interest computed daily on the outstanding principal balance hereunder, at an annual interest rate, and in accordance with the payment schedule, indicated below.

1.         Rate [Prime Rate].  The interest rate is a rate per year equal to the Lender’s Prime Rate. The Prime Rate is the rate of interest publicly announced from time to time by the Lender as its Prime Rate (the “Index”).  The Prime Rate is set by the Lender based on various factors, including the Lender’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans.  The Lender may price loans to its customers at, above, or below the Prime Rate. Any change in the Prime Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Lender’s Prime Rate.  The Index is not necessarily the lowest rate charged by Lender on its loans and is set by Lender in its sole discretion. If the Index becomes unavailable during the term of this loan, Lender shall substitute an index determined by Lender to be comparable, in its sole discretion, and will notify Borrower accordingly.  Lender will tell Borrower the current Index rate upon Borrower’s request.

Exhibit A-3

2.         Usury Savings Clause.  Notwithstanding any provision of this Note, Lender does not intend to charge and Borrower shall not be required to pay any amount of interest or other charges in excess of the maximum permitted by applicable law.  Borrower and Lender agree that the total amount of interest contracted for, charged, collected or received by Lender under this Agreement shall not exceed the Maximum Lawful Rate (as defined in the Loan Agreement defined below).  To the extent, if any, that Chapter 303 of the Texas Finance Code (the “Finance Code”) is relevant to Lender for purposes of determining the Maximum Lawful Rate, the parties elect to determine the Maximum Lawful Rate under the Finance Code pursuant to the “weekly ceiling” from time to time in effect, as referred to and defined in § 303.001-303.016 of the Finance Code; subject, however, to any right Lender subsequently may have under applicable law to change the method of determining the Maximum Lawful Rate. 

3.         Accrual Method.  Unless otherwise indicated, interest at the Rate set forth above will be calculated by the 365/360 day method (a daily amount of interest is computed for a hypothetical year of 360 days; that amount is multiplied by the actual number of days for which any principal is outstanding hereunder).

4.         Rate Change Date.  Any Rate based on a fluctuating index or base rate will change, unless otherwise provided, each time and as of the date that the index or base rate changes.

5.         Payment Schedule. All payments received hereunder shall be applied, first to the payment of any expense or charges payable hereunder or under any other loan documents executed in connection with this Note, then to interest due and payable, with the balance applied to principal, or in such other order as Lender shall determine at its option.

6.         Level Principal Plus Accrued Interest.  The principal amount of this note shall be due and payable in 60 successive monthly installments of $12,250.00 each, commencing on December 30, 2005 and continuing on the 30th day of each successive month thereafter, and one final installment of the balance remaining on November 30, 2010. Interest shall be due and payable monthly, with the first payment to be made on December 30, 2005 and continuing on the 30th day of each successive month thereafter.

7.         Delinquency Charge.  Lender shall be entitled to charge a delinquency charge on commercial loans on the amount of any installment or other amount in default for a period of not less than 15 days, in a reasonable amount not to exceed 4% of the amount of the delinquent installment, in addition to the interest provided for herein.

8.         Automatic Payment.  Borrower has elected to authorize Lender to effect payment of sums due under this Note by means of debiting Borrower’s account number 6110107387. This authorization shall not affect the obligation of Borrower to pay such sums when due, without notice, if there are insufficient funds in such account to make such payment in full on the due date thereof, or if Lender fails to debit the account.

Exhibit A-3

9.         Representations, Waivers, Consents and Covenants. Borrower and Lender have entered into that certain Second Amended and Restated Loan Agreement dated December 21, 2004 (as amended, restated, or supplemented from time to time, the “Loan Agreement”). Borrower represents that all of the representations in the Loan Agreement are true and correct as of this date. Borrower covenants that it will keep all of the covenants and agreements set forth in the Loan Agreement. No waiver, consent, modification or amendment with respect to this Note shall be effective without compliance with the provisions of the Loan Agreement. Borrower, any endorser or guarantor hereof, or any other party hereto (individually an “Obligor” and collectively “Obligors”) and each of them jointly and severally: (a) waive presentment, demand, protest, notice of demand, notice of intent to accelerate, notice of acceleration of maturity, notice of protest, notice of nonpayment, notice of dishonor, and any other notice required to be given under the law to any Obligor in connection with the delivery, acceptance, performance, default or enforcement of this Note, any endorsement or guaranty of this Note, or any other documents executed in connection with this Note or any other note or other loan documents now or hereafter executed in connection with any obligation of Borrower to Lender (the “Loan Documents”); (b) consent to all delays, extensions, renewals or other modifications of this Note or the Loan Documents, or waivers of any term hereof or of the Loan Documents, or release or discharge by Lender of any of Obligors, or release, substitution or exchange of any security for the payment hereof, or the failure to act on the part of Lender, or any indulgence shown by Lender (without notice to or further assent from any of Obligors), and agree that no such action, failure to act or failure to exercise any right or remedy by Lender shall in any way affect or impair the obligations of any Obligors or be construed as a waiver by Lender of, or otherwise affect, any of Lender’s rights under this Note, under any endorsement or guaranty of this Note or under any of the Loan Documents; and (c) after default, agree to pay, on demand, all costs and expenses of collection or defense of this Note or of any endorsement or guaranty hereof and/or the enforcement or defense of Lender’s rights with respect to, or the administration, supervision, preservation, or protection of, or realization upon, any property securing payment hereof, including, without limitation, reasonable attorney’s fees, including fees related to any suit, mediation or arbitration proceeding, out of court payment agreement, trial, appeal, bankruptcy proceedings or other proceeding, in such amount as may be determined reasonable by any arbitrator or court, whichever is applicable.

10.       Prepayments.  Prepayments may be made in whole or in part at any time on any principal amounts, without premium or penalty.

11.       Events of Default. The occurrence of any Event of Default specified in the Loan Agreement, unless cured within the time specified therein, shall constitute an Event of Default under this Note.  The following are also events of default hereunder: (a) the failure to pay or perform any obligation, liability or indebtedness of any Obligor to Lender, or to any affiliate or subsidiary of Bank of America Corporation, whether under this Note or any Loan Documents, as and when due (whether upon demand, at maturity or by acceleration); (b) the failure to pay or perform any other obligation, liability or indebtedness of any Obligor to any other party; (c) the commencement of a proceeding against any Obligor for dissolution or liquidation, the voluntary or involuntary termination or dissolution of any Obligor or the merger or consolidation of any Obligor with or into another entity; (d) the insolvency of, the business failure of, the appointment of a custodian, trustee, liquidator or receiver for or for any of the property of, the assignment for the benefit of creditors by, or the filing of a petition under bankruptcy, insolvency or debtor’s relief law or the filing of a petition for any adjustment of indebtedness, composition or extension by or against any Obligor; (e) Borrower has given Lender any representation or information which was, when it was made, false or materially misleading; (f) the failure of any Obligor to timely deliver such financial statements, including tax returns, other statements of condition or other information, as Lender shall request from time to time; (g) the entry of a judgment against any Obligor which Lender deems to be of a material nature, in Lender’s sole discretion; (h) the seizure or forfeiture of, or the issuance of any writ of possession, garnishment or attachment, or any turnover order for any property of any Obligor; or (i) the failure of Borrower’s business to comply with any law or regulation controlling its operation.

Exhibit A-3

12.       Remedies upon Default.  The effect of the occurrence of any Event of Default under this Note shall be as specified in the Loan Agreement.  In addition, upon the occurrence of an Event of Default which is not cured within the time specified therein, (a) the Rate of Interest on this Note shall be increased, from and after such date, to the Prime Rate plus 4.0% per annum, not to exceed the maximum rate allowed by law (“Default Rate”) and (b) the entire balance outstanding under this Note and all other obligations of Borrower to Lender shall, at the option of Lender, become immediately due and payable, and any obligation of Lender to permit further borrowing under this Note shall immediately cease and terminate.  The provisions herein for a Default Rate shall not be deemed to extend the time for any payment hereunder or to constitute a grace period giving Obligors a right to cure any default.  At Lender’s option, any accrued and unpaid interest, fees or charges may, for purposes of computing and accruing interest on a daily basis after the due date of the Note or any installment thereof, shall be deemed to be a part of the principal balance, and interest shall accrue on a daily compounded basis after such date at the Default Rate provided in this Note until the entire outstanding balance of principal and interest is paid in full.  Upon a default under this Note, Lender is hereby authorized at any time, at its option and without notice or demand, to set off and charge against any deposit accounts of any Obligor (as well as any money, instruments, securities, documents, chattel paper, credits, claims, demands, income and any other property, rights and interests of any Obligor), which at any time shall come into the possession or custody or under the control of Lender or any of its agents, affiliates or correspondents, any and all obligations due hereunder. Additionally, Lender shall have all rights and remedies available under each of the Loan Documents, as well as all rights and remedies available at law or in equity.

13.       Non-Waiver.  The failure at any time of Lender to exercise any of its options or any other rights hereunder shall not constitute a waiver thereof, nor shall it be a bar to the exercise of any of its options or rights at a later date.  All rights and remedies of Lender shall be cumulative and may be pursued singly, successively or together, at the option of Lender.  The acceptance by Lender of any partial payment shall not constitute a waiver of any default or of any of Lender’s rights under this Note.  No waiver of any of its rights hereunder, and no modification or amendment of this Note, shall be deemed to be made by Lender unless the same shall be in writing, duly signed on behalf of Lender; each such waiver shall apply only with respect to the specific instance involved, and shall in no way impair the rights of Lender or the obligations of Obligors to Lender in any other respect at any other time.

14.       Applicable Law, Venue and Jurisdiction.  Borrower agrees that this Note shall be deemed to have been made in the State of Texas at Lender’s address indicated at the beginning of this Note and shall be governed by, and construed in accordance with, the laws of the State of Texas.  In any litigation in connection with or to enforce this Note or any endorsement or guaranty of this Note or any Loan Documents, Obligors, and each of them, irrevocably consent to and confer personal jurisdiction on the courts of the State of Texas or the United States courts located within the State of Texas.  Nothing contained herein shall, however, prevent Lender from bringing any action or exercising any rights within any other state or jurisdiction or from obtaining personal jurisdiction by any other means available under applicable law.

Exhibit A-3

15.       Partial Invalidity. The unenforceability or invalidity of any provision of this Note shall not affect the enforceability or validity of any other provision herein and the invalidity or unenforceability of any provision of this Note or of the Loan Documents to any person or circumstance shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances.

16.       Binding Effect.  This Note shall be binding upon and inure to the benefit of Borrower, Obligors and Lender and their respective successors, assigns, heirs and personal representatives, provided, however, that no obligations of Borrower or Obligors hereunder can be assigned without prior written consent of Lender.

17.       Controlling Document.  To the extent that this Note conflicts with or is in any way incompatible with any other document related specifically to the loan evidenced by this Note, this Note shall control over any other such document, and if this Note does not address an issue, then each other such document shall control to the extent that it deals most specifically with an issue.

18.       ARBITRATION AND WAIVER OF JURY TRIAL.

A.        This section concerns the resolution of any controversies or claims between Borrower or Lender, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to (i) this Note (including any renewals, extensions or modifications), or (ii) any document related to this Note (collectively a “Claim”).  For the purposes of this arbitration provision only, the term “parties” shall include any parent corporation, subsidiary or affiliate of Lender involved in the servicing, management or administration of any obligation described or evidenced by this Note.

B.         At the request of Borrower or Lender, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U.S. Code) (the “Act”).  The Act will apply even though this Note provides that it is governed by the law of a specified state.

C.        Arbitration proceedings will be determined in accordance with the Act, the applicable rules and procedures for the arbitration of disputes of JAMS or any successor thereof (“JAMS”), and the terms of this section.  In the event of any inconsistency, the terms of this section shall control.

Exhibit A-3

D.        The arbitration shall be administered by JAMS and conducted, unless otherwise required by law, in any U.S. state where real or tangible personal property collateral for this credit is located or if there is no such collateral, in Texas. All Claims shall be determined by one arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims shall be decided by three arbitrators.  All arbitration hearings shall commence within ninety (90) days of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of the close of the hearing.  However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days.  The arbitrator(s) shall provide a concise written statement of reasons for the award.  The arbitration award may be submitted to any court having jurisdiction to be confirmed and enforced.

E.         The arbitrator(s) will have the authority to decide whether any Claim is barred by the statute of limitations and, if so, to dismiss the arbitration on that basis.  For purposes of the application of the statute of limitations, the service on JAMS under applicable JAMS rules of a notice of Claim is the equivalent of the filing of a lawsuit.  Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s).  The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this agreement.

F.         This section does not limit the right of Borrower or Lender: (i) exercise self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or non-judicial foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies.

G.        The filing of a court action is not intended to constitute a waiver of the right of any party, including the suing party, thereafter to require submittal of the Claim to arbitration.

H.        By agreeing to binding arbitration, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of any Claim.  Furthermore, without intending in any way to limit this agreement to arbitrate, to the extent any Claim is not arbitrated, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of such Claim.  This provision is a material inducement for the parties entering into this agreement.

Borrower represents to Lender that the proceeds of this loan are to be used primarily for business, commercial or agricultural purposes. Borrower acknowledges having read and understood, and agrees to be bound by, all terms and conditions of this Note.

NOTICE OF FINAL AGREEMENT:

19.       THIS WRITTEN PROMISSORY NOTE AND THE LOAN DOCUMENTS REPRESENT 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.

[Signatures appear on the following page.]

Exhibit A-3

LENDER:                                                        BORROWER:

BANK OF AMERICA, N.A.                          TOR MINERALS INTERNATIONAL, INC.

By:                                                                   By:

Name:                                                              Name:

Title:                                                                 Title:

Exhibit A-3

EX-10

EXHIBIT 10.3

NOTICE OF CONFIDENTIALITY RIGHTS:  IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE  FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS:  YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.

ASSIGNMENT OF LEASES AND RENTS

(Deed of Trust)

THE STATE OF TEXAS                      §

                                                            §

COUNTY OF NUECES                       §

THIS ASSIGNMENT OF LEASES AND RENTS (this “Assignment”) is made as of December 13, 2005, by TOR MINERALS INTERNATIONAL, INC., a Delaware corporation (the “Assignor”), for the benefit of BANK OF AMERICA, N.A., a national banking association (the “Assignee”).  All capitalized terms used in this Assignment but which are not defined in this Assignment, shall have the meanings given them in the Loan Agreement (as defined below).  As used in this Assignment, the following terms shall have the following meanings:

Governmental Authority means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of, or pertaining to, government.

Debtor Relief Laws means Title 11 of the United States Code and all other applicable liquidation, conservatorship, bankruptcy, fraudulent transfer, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

Laws means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority (whether or not such orders, requests, licenses, authorizations, permits or agreements have the force of law).

Loan Agreement means that certain Second Amended and Restated Loan Agreement dated December 21, 2004, executed by Assignor and Assignee, as amended, restated, supplemented or otherwise modified from time to time. 

Assignment of Leases and Rents (Deed of Trust)

Obligation means all present and future debt, liabilities and obligations (including the obligations under any Swap Contract), whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, and all renewals, increases and extensions thereof, or any part thereof, now or in the future owed to Assignee by Assignor under any Loan Document, together with all interest accruing thereon, reasonable fees, costs and expenses payable under the Loan Documents or in connection with the enforcement of any rights under the Loan Documents, including interest and fees that accrue after the commencement by or against Assignee of any proceeding under any Debtor Relief Law naming such party as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

FOR VALUE RECEIVED, the Assignor hereby absolutely, irrevocably and unconditionally grants, transfers, and assigns to the Assignee all of the Assignor’s right, title, and interest in and to any and all (a) leases, subleases, licenses, rental contracts, and occupancy agreements (regardless of their form) currently in existence or which may be executed in the future, covering or affecting all or any part of the Property (as defined below), together with any and all extensions, renewals, modifications, or replacements thereof and all guarantees (if any) of the obligations of the tenants, licensees, and occupants thereunder (all such leases, subleases, licenses, rental contracts, occupancy agreements, and guarantees, collectively, the “Leases”) and (b) deposits (whether for security or otherwise), rentals, issues, profits, proceeds, and income of every nature (collectively, the “Rents”), now or hereafter received or receivable by the Assignor in connection with and as they relate to that certain real estate described on attached Exhibit “A”, and all improvements now or hereafter situated thereon (the “Property”).

THIS ASSIGNMENT IS INTENDED BY THE ASSIGNOR AND THE ASSIGNEE TO CREATE, AND SHALL BE CONSTRUED TO CREATE, AN ABSOLUTE, IRREVOCABLE AND UNCONDITIONAL ASSIGNMENT TO THE ASSIGNEE, SUBJECT ONLY TO THE TERMS AND PROVISIONS HEREOF, AND NOT AS AN ASSIGNMENT AS SECURITY FOR THE PERFORMANCE OF THE OBLIGATIONS EVIDENCED BY THE LOAN DOCUMENTS, OR ANY OTHER INDEBTEDNESS OF THE ASSIGNOR.  IT SHALL NEVER BE NECESSARY FOR ASSIGNEE TO INSTITUTE LEGAL PROCEEDINGS OF ANY KIND WHATSOEVER TO ENFORCE THE PROVISIONS OF THIS ASSIGNMENT.

In connection with and as part of this Assignment, the Assignor hereby makes the following grants, covenants, agreements, representations, and warranties:

1.                   Assignee’s Authority.  Subject to the provisions of Paragraph 3 below granting the Assignor a revocable, limited license, the Assignee shall have the right, power, and authority:  (a) to notify any and all tenants and other obligors on Leases that the Leases have been assigned to the Assignee and that all Rents are to be paid directly to the Assignee whether or not the Assignee has foreclosed or commenced foreclosure proceedings against the Property and whether or not the Assignee has taken possession of the Property; (b) to settle, compromise, or release, on terms acceptable to the Assignee, in whole or in part, any Rents and any amounts owing on the Leases; (c) to enforce payment of Rents, prosecute any action or proceeding, and to defend legal proceedings with respect to any and all Rents and Leases; (d) to extend the time of payment, make allowances, adjustments, and discounts under the Leases; (e) to enter upon, take possession of, and operate the Property; (f) to lease all or any part of the Property; and/or (g) to enforce all other rights of the lessor or sublessor under the Leases.  Notwithstanding anything herein to the contrary,  the Assignee shall not be obligated to perform or discharge, and the Assignee does not undertake to perform or discharge, any obligation, duty, or liability (including, without limitation, liability under any covenant of quiet enjoyment contained in any Lease or under the law of any state in the event that any tenant shall be joined as a party defendant in any action to foreclose the Deed of Trust (as defined below), and shall have been barred and foreclosed thereby of all right, title, interest, and equity of redemption in the Property) with respect to the Leases or the Rents under or by reason of this Assignment.  This Assignment shall not operate to place responsibility for the control, care, maintenance, or repair of the Property upon Assignee or to make Assignee responsible or liable for any waste committed on the Property by any tenant or other person, for any dangerous or defective condition of the Property, or for the acts or omissions of Assignor or any tenant or other person in the management, upkeep, repair, or control of the Property.

Assignment of Leases and Rents (Deed of Trust)                     2

2.                   Assignee’s Application of Rents.  Subject to the provisions of Paragraph 3 below granting the Assignor a revocable, limited license, the Assignee has the right, power, and authority to use and apply any Rents received hereunder as Assignee may in its sole and absolute discretion deem advisable (a) for the payment of any and all costs and expenses incurred in connection with enforcing or defending the terms of this Assignment, or the rights of the Assignee hereunder, and collecting any Rents and (b) for the operation and maintenance of the Property and the payment of all costs and expenses in connection therewith including, without limitation, the payment of (i) rentals and other charges payable by the Assignor under any Lease affecting the Property, (ii) interest, principal, or other amounts with respect to any and all loans secured by deeds of trust on the Property, including, without limitation, that certain Deed of Trust, Security Agreement and UCC Financing Statement for Fixture Filing (as amended, restated or supplemented, the “Deed of Trust”), dated of even date herewith, executed by the Assignor to PRLAP, Inc., Trustee, for the benefit of the Assignee, covering the Property, (iii) electricity, telephone, water, and other utility costs, taxes, assessments, standby fees, water charges, and sewer rents and other utility and governmental charges levied, assessed, or imposed against the Property or any part thereof, (iv) insurance premiums, (v) costs and expenses with respect to any litigation affecting the Property, the Leases, or the Rents, (vi) wages and salaries of employees, commissions of agents, and reasonable attorneys’ fees, and (vii) all other carrying costs, fees, charges, and expenses whatsoever relating to the Property.  After the payment of all such costs and expenses and after the Assignee shall have set up such reserves as it, in its sole discretion, shall deem necessary for the proper management of the Property, the Assignee shall apply all remaining Rents collected and received by it to the reduction of the it to the reduction of the Obligations.  Exercise or nonexercise by the Assignee of the rights granted in this Assignment, or collection and application of Rents, by the Assignee or its agent shall not be a waiver of any default by the Assignor under this Assignment, the Loan Agreement, the Deed of Trust or any other Loan Document.  No action or failure to act by the Assignee with respect to (x) any of the Assignor’s obligations under the Loan Documents, (y) any security or guarantee given for the payment or performance thereof, or (z) any other document or instrument evidencing or relating to such obligations, shall in any manner affect, impair, or prejudice any of the Assignee’s rights and privileges under this Assignment or discharge, release, or modify any of the Assignor’s duties or obligations hereunder.

3.                   Revocable License.  In connection with and as part of this Assignment, Assignee makes the following grant and agreement:  The Assignor shall have a revocable license to collect and receive the Rents and to retain, use, and enjoy such Rents subject to the terms and conditions hereof.  Such license may be revoked by the Assignee, without notice to the Assignor, upon the occurrence of an “Event of Default” (under and as defined in the Loan Agreement).  Unless and until such license is so revoked, the Assignor agrees to apply the proceeds of Rents to the payment of debt service on the Property and of taxes, assessments, standby fees, water charges, sewer rents, and other governmental charges levied, assessed or imposed against the Property or any part thereof, insurance premiums, tenant finish, and other obligations of the Assignor as lessor under the Leases, and to operation and maintenance charges relating to the Property which are due and payable at the time of collection of such proceeds of Rents before using such proceeds for any other purpose.

4.                   Representations and Warranties.  The Assignor hereby represents and warrants the following to the Assignee:

(a)                The Leases which affect the Property are valid, subsisting, and are in full force and effect, and have been duly executed and unconditionally delivered by Assignor and the tenants under the Leases.

(b)                The Assignor has not executed or granted any modifications or amendments of any presently existing Leases either orally or in writing not previously disclosed to the Assignee.

Assignment of Leases and Rents (Deed of Trust)                     3

(c)                There are no material defaults now existing under any of the Leases and, to the best of the Assignor’s knowledge and belief, there are no other defaults now existing under any of the Leases and no event has occurred which, with the delivery of notice or the passage of time or both, would constitute such a default or which would entitle the Assignor or the tenants under the Leases to cancel the same or otherwise avoid their obligations thereunder.

(d)                The Assignor has not executed a currently effective assignment or pledge of any of the Leases or of its right, title and interest therein.

5.                   Covenants and Agreements.  The Assignor shall (a) observe and perform faithfully every obligation which the Assignor is required to perform under the Leases, (b) enforce or secure the performance of, at its sole cost and expense, every obligation to be performed by the tenant under the Leases if same is prudent, (c) promptly give notice to the Assignee of any notice of default received by the Assignor from any tenant under the Leases, (d) not collect any Rents for more than thirty (30) days in advance of the time when the same shall become due, or anticipate any payments under any of the Leases, except for bona fide security deposits, (e) not further assign any of the Leases or the Rents, (f) comply with all Laws and requirements of all Governmental Authorities relating to the Property, and (g) appear in and defend against, at the Assignor’s sole cost and expense, any action or proceeding arising under, or in any manner connected with the Leases, the Rents or the obligations, duties or liabilities of the lessor, tenants or guarantors thereunder.

6.                   Indemnification.  The Assignor shall indemnify and hold the Assignee harmless from and against any and all (a) liability, loss, damage, cost, or expense, including reasonable attorneys’ fees, which it may incur under any of the Leases or with respect to this Assignment or any NEGLIGENCE, action by the Assignee or failure of the Assignee to act hereunder and (b) claims and demands whatsoever which may be asserted against the Assignee by reason of any alleged obligation or undertaking on its part to perform or discharge any of the terms, covenants and conditions of any of the Leases or with respect to any Rents, except to the extent such liability, loss, damage, cost, or expense arises out of the sole NEGLIGENCE, gross negligence or willful misconduct of the Assignee.  In the event that the Assignee incurs any such liability, loss, damage, cost, or expense, the amount thereof, together with interest thereon from the date such amount was incurred by the Assignee until the same is paid by the Assignor to the Assignee, at a rate equal to the “Maximum Lawful Rate” (as defined in the Loan Agreement), shall be payable by the Assignor to the Assignee immediately upon demand, or at the option of the Assignee, the Assignee may reimburse itself therefor out of any Rents collected by the Assignee.

7.                   Assignee’s Liability.  The Assignee shall not in any way be liable to the Assignor for any act done or anything omitted to be done to the Property, the Leases, or the Rents by or on behalf of the Assignee in connection with this Assignment except for the consequences of its own gross negligence or willful misconduct.  The Assignee shall not be liable for any act or omission of its agents, servants, employees, or attorneys, provided that reasonable care is used by the Assignee in the selection of such agents, servants, employees, and attorneys.  The Assignee shall be accountable to the Assignor only for monies actually received by the Assignee pursuant to this Assignment.

Assignment of Leases and Rents (Deed of Trust)                     4

8.                   Binding Effect and Assignment.  All of the representations, warranties, covenants, agreements, and provisions in this Assignment by or for the benefit of the Assignee shall bind, and inure to the benefit of, its successors and assigns.  The Assignee’s successors and assigns shall include any receiver in possession of the Property and any purchaser upon a foreclosure of the liens created by the Deed of Trust.  The Assignor shall not assign this Assignment without the Assignee’s prior written consent.  This Assignment shall be binding upon and enforceable against the Assignor’s successors and assigns.

9.                   Amendment.  This Assignment may only be modified or amended by an agreement in writing signed by the party against whom enforcement of any modification or amendment is sought.

10.               Governing Law.  THIS ASSIGNMENT MUST BE CONSTRUED, AND ITS PERFORMANCE ENFORCED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND, AS APPLICABLE, THE LAWS OF THE UNITED STATES OF AMERICA.

11.               Term and Release.  Except for the agreements contained in Section 6 and Section 7 above, this Assignment shall continue in full force and effect until the Obligation has been fully paid and satisfied, at which time this Assignment and the authority and powers herein granted by the Assignor to the Assignee shall terminate, as evidenced by the Assignee’s release of this Assignment to be recorded in the Official Public Records of the Real Property of the county in which the Property is located.

[Signatures and Acknowledgements are on the following page.] Assignment of Leases and Rents (Deed of Trust)         5

            This Assignment is executed as of the date set out in the Preamble.

ASSIGNOR:

                                                                               TOR MINERALS INTERNATIONAL, INC.,

                                                                               a Delaware corporation

                                                                               By:

                                                                                        Richard L. Bowers, President and

                                                                                        Chief Executive Officer

ASSIGNEE:

                                                                               BANK OF AMERICA, N.A., a national banking

                                                                               association

                                                                               By:

                                                                                        Victor N. Tekell

                                                                                                                     Senior Vice President

STATE OF TEXAS                              §

§

COUNTY OF _______________        §

This instrument was acknowledged before me on December __, 2005, by Richard L. Bowers, President and Chief Executive Officer of Tor Minerals International, Inc., a Delaware corporation, on behalf of said corporation.

                                                                               NOTARY PUBLIC IN AND FOR THE

                                                                               STATE OF TEXAS

STATE OF TEXAS                              §

§

COUNTY OF HARRIS                                    §

This instrument was acknowledged before me on December____, 2005, by Victor N. Tekell, Senior Vice President of Bank of America, N.A., a national banking association, on behalf of said association.

                                                                               NOTARY PUBLIC IN AND FOR THE

                                                                               STATE OF TEXAS

AFTER RECORDING RETURN TO

Nick H. Sorensen

Porter & Hedges, L.L.P.

1000 Main St., 36th Floor

Houston, Texas  77002

ATTACHMENT: Exhibit “A” - Property Description

                                Signature and Acknowledgment Page to Assignment of Leases and Rents

(Deed of Trust)

EX-10

EXHIBIT 10.4 

NOTICE OF CONFIDENTIALITY RIGHTS:  IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE  FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS:  YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.

ASSIGNMENT OF LEASES AND RENTS

(Leasehold Deed of Trust)

THE STATE OF TEXAS                      §

                                                            §

COUNTY OF NUECES                       §

THIS ASSIGNMENT OF LEASES AND RENTS (this “Assignment”) is made as of December 13, 2005, by TOR MINERALS INTERNATIONAL, INC., a Delaware corporation (the “Assignor”), for the benefit of BANK OF AMERICA, N.A., a national banking association (the “Assignee”).  All capitalized terms used in this Assignment but which are not defined in this Assignment, shall have the meanings given them in the Loan Agreement (as defined below).  As used in this Assignment, the following terms shall have the following meanings:

Governmental Authority means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of, or pertaining to, government.

Debtor Relief Laws means Title 11 of the United States Code and all other applicable liquidation, conservatorship, bankruptcy, fraudulent transfer, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

Laws means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority (whether or not such orders, requests, licenses, authorizations, permits or agreements have the force of law).

Loan Agreement means that certain Second Amended and Restated Loan Agreement dated December 21, 2004, executed by Assignor and Assignee, as amended, restated, supplemented or otherwise modified from time to time. 

Assignment of Leases and Rents (Leasehold Deed of Trust)

Obligation means all present and future debt, liabilities and obligations (including the obligations under any Swap Contract), whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, and all renewals, increases and extensions thereof, or any part thereof, now or in the future owed to Assignee by Assignor under any Loan Document, together with all interest accruing thereon, reasonable fees, costs and expenses payable under the Loan Documents or in connection with the enforcement of any rights under the Loan Documents, including interest and fees that accrue after the commencement by or against Assignee of any proceeding under any Debtor Relief Law naming such party as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

FOR VALUE RECEIVED, the Assignor hereby absolutely, irrevocably and unconditionally grants, transfers, and assigns to the Assignee all of the Assignor’s right, title, and interest in and to any and all (a) leases, subleases, licenses, rental contracts, and occupancy agreements (regardless of their form) currently in existence or which may be executed in the future, covering or affecting all or any part of the Property (as defined below), together with any and all extensions, renewals, modifications, or replacements thereof and all guarantees (if any) of the obligations of the tenants, licensees, and occupants thereunder (all such leases, subleases, licenses, rental contracts, occupancy agreements, and guarantees, collectively, the “Leases”) and (b) deposits (whether for security or otherwise), rentals, issues, profits, proceeds, and income of every nature (collectively, the “Rents”), now or hereafter received or receivable by the Assignor in connection with and as they relate to that certain real estate described on attached Exhibit “A”, and all improvements now or hereafter situated thereon (the “Property”).

THIS ASSIGNMENT IS INTENDED BY THE ASSIGNOR AND THE ASSIGNEE TO CREATE, AND SHALL BE CONSTRUED TO CREATE, AN ABSOLUTE, IRREVOCABLE AND UNCONDITIONAL ASSIGNMENT TO THE ASSIGNEE, SUBJECT ONLY TO THE TERMS AND PROVISIONS HEREOF, AND NOT AS AN ASSIGNMENT AS SECURITY FOR THE PERFORMANCE OF THE OBLIGATIONS EVIDENCED BY THE LOAN DOCUMENTS, OR ANY OTHER INDEBTEDNESS OF THE ASSIGNOR.  IT SHALL NEVER BE NECESSARY FOR ASSIGNEE TO INSTITUTE LEGAL PROCEEDINGS OF ANY KIND WHATSOEVER TO ENFORCE THE PROVISIONS OF THIS ASSIGNMENT.

In connection with and as part of this Assignment, the Assignor hereby makes the following grants, covenants, agreements, representations, and warranties:

Assignment of Leases and Rents (Leasehold Deed of Trust)     2

1.                   Assignee’s Authority.  Subject to the provisions of Paragraph 3 below granting the Assignor a revocable, limited license, the Assignee shall have the right, power, and authority:  (a) to notify any and all tenants and other obligors on Leases that the Leases have been assigned to the Assignee and that all Rents are to be paid directly to the Assignee whether or not the Assignee has foreclosed or commenced foreclosure proceedings against the Property and whether or not the Assignee has taken possession of the Property; (b) to settle, compromise, or release, on terms acceptable to the Assignee, in whole or in part, any Rents and any amounts owing on the Leases; (c) to enforce payment of Rents, prosecute any action or proceeding, and to defend legal proceedings with respect to any and all Rents and Leases; (d) to extend the time of payment, make allowances, adjustments, and discounts under the Leases; (e) to enter upon, take possession of, and operate the Property; (f) to lease all or any part of the Property; and/or (g) to enforce all other rights of the lessor or sublessor under the Leases.  Notwithstanding anything herein to the contrary,  the Assignee shall not be obligated to perform or discharge, and the Assignee does not undertake to perform or discharge, any obligation, duty, or liability (including, without limitation, liability under any covenant of quiet enjoyment contained in any Lease or under the law of any state in the event that any tenant shall be joined as a party defendant in any action to foreclose the Leasehold Deed of Trust (as defined below), and shall have been barred and foreclosed thereby of all right, title, interest, and equity of redemption in the Property) with respect to the Leases or the Rents under or by reason of this Assignment.  This Assignment shall not operate to place responsibility for the control, care, maintenance, or repair of the Property upon Assignee or to make Assignee responsible or liable for any waste committed on the Property by any tenant or other person, for any dangerous or defective condition of the Property, or for the acts or omissions of Assignor or any tenant or other person in the management, upkeep, repair, or control of the Property.

2.                   Assignee’s Application of Rents.  Subject to the provisions of Paragraph 3 below granting the Assignor a revocable, limited license, the Assignee has the right, power, and authority to use and apply any Rents received hereunder as Assignee may in its sole and absolute discretion deem advisable (a) for the payment of any and all costs and expenses incurred in connection with enforcing or defending the terms of this Assignment, or the rights of the Assignee hereunder, and collecting any Rents and (b) for the operation and maintenance of the Property and the payment of all costs and expenses in connection therewith including, without limitation, the payment of (i) rentals and other charges payable by the Assignor under any Lease affecting the Property, (ii) interest, principal, or other amounts with respect to any and all loans secured by deeds of trust on the Property, including, without limitation, that certain Leasehold Deed of Trust, Security Agreement and UCC Financing Statement for Fixture Filing (as amended, restated or supplemented, the “Leasehold Deed of Trust”), dated of even date herewith, executed by the Assignor to PRLAP, Inc., Trustee, for the benefit of the Assignee, covering the Property, (iii) electricity, telephone, water, and other utility costs, taxes, assessments, standby fees, water charges, and sewer rents and other utility and governmental charges levied, assessed, or imposed against the Property or any part thereof, (iv) insurance premiums, (v) costs and expenses with respect to any litigation affecting the Property, the Leases, or the Rents, (vi) wages and salaries of employees, commissions of agents, and reasonable attorneys’ fees, and (vii) all other carrying costs, fees, charges, and expenses whatsoever relating to the Property.  After the payment of all such costs and expenses and after the Assignee shall have set up such reserves as it, in its sole discretion, shall deem necessary for the proper management of the Property, the Assignee shall apply all remaining Rents collected and received by it to the reduction of the Obligations.  Exercise or nonexercise by the Assignee of the rights granted in this Assignment, or collection and application of Rents, by the Assignee or its agent shall not be a waiver of any default by the Assignor under this Assignment, the Loan Agreement, the Leasehold Deed of Trust or any other Loan Document.  No action or failure to act by the Assignee with respect to (x) any of the Assignor’s obligations under the Loan Documents, (y) any security or guarantee given for the payment or performance thereof, or (z) any other document or instrument evidencing or relating to such obligations, shall in any manner affect, impair, or prejudice any of the Assignee’s rights and privileges under this Assignment or discharge, release, or modify any of the Assignor’s duties or obligations hereunder.

3.                   Revocable License.  In connection with and as part of this Assignment, Assignee makes the following grant and agreement:  The Assignor shall have a revocable license to collect and receive the Rents and to retain, use, and enjoy such Rents subject to the terms and conditions hereof.  Such license may be revoked by the Assignee, without notice to the Assignor, upon the occurrence of an “Event of Default” (under and as defined in the Loan Agreement).  Unless and until such license is so revoked, the Assignor agrees to apply the proceeds of Rents to the payment of debt service on the Property and of taxes, assessments, standby fees, water charges, sewer rents, and other governmental charges levied, assessed or imposed against the Property or any part thereof, insurance premiums, tenant finish, and other obligations of the Assignor as lessor under the Leases, and to operation and maintenance charges relating to the Property which are due and payable at the time of collection of such proceeds of Rents before using such proceeds for any other purpose.

4.                   Representations and Warranties.  The Assignor hereby represents and warrants the following to the Assignee:

(a)                The Leases which affect the Property are valid, subsisting, and are in full force and effect, and have been duly executed and unconditionally delivered by Assignor and the tenants under the Leases.

Assignment of Leases and Rents (Leasehold Deed of Trust)     3

(b)                The Assignor has not executed or granted any modifications or amendments of any presently existing Leases either orally or in writing not previously disclosed to the Assignee.

(c)                There are no material defaults now existing under any of the Leases and, to the best of the Assignor’s knowledge and belief, there are no other defaults now existing under any of the Leases and no event has occurred which, with the delivery of notice or the passage of time or both, would constitute such a default or which would entitle the Assignor or the tenants under the Leases to cancel the same or otherwise avoid their obligations thereunder.

(d)                The Assignor has not executed a currently effective assignment or pledge of any of the Leases or of its right, title and interest therein.

5.                   Covenants and Agreements.  The Assignor shall (a) observe and perform faithfully every obligation which the Assignor is required to perform under the Leases, (b) enforce or secure the performance of, at its sole cost and expense, every obligation to be performed by the tenant under the Leases if same is prudent, (c) promptly give notice to the Assignee of any notice of default received by the Assignor from any tenant under the Leases, (d) not collect any Rents for more than thirty (30) days in advance of the time when the same shall become due, or anticipate any payments under any of the Leases, except for bona fide security deposits, (e) not further assign any of the Leases or the Rents, (f) comply with all Laws and requirements of all Governmental Authorities relating to the Property, and (g) appear in and defend against, at the Assignor’s sole cost and expense, any action or proceeding arising under, or in any manner connected with the Leases, the Rents or the obligations, duties or liabilities of the lessor, tenants or guarantors thereunder.

6.                   Indemnification.  The Assignor shall indemnify and hold the Assignee harmless from and against any and all (a) liability, loss, damage, cost, or expense, including reasonable attorneys’ fees, which it may incur under any of the Leases or with respect to this Assignment or any NEGLIGENCE, action by the Assignee or failure of the Assignee to act hereunder and (b) claims and demands whatsoever which may be asserted against the Assignee by reason of any alleged obligation or undertaking on its part to perform or discharge any of the terms, covenants and conditions of any of the Leases or with respect to any Rents, except to the extent such liability, loss, damage, cost, or expense arises out of the sole NEGLIGENCE, gross negligence or willful misconduct of the Assignee.  In the event that the Assignee incurs any such liability, loss, damage, cost, or expense, the amount thereof, together with interest thereon from the date such amount was incurred by the Assignee until the same is paid by the Assignor to the Assignee, at a rate equal to the “Maximum Lawful Rate” (as defined in the Loan Agreement), shall be payable by the Assignor to the Assignee immediately upon demand, or at the option of the Assignee, the Assignee may reimburse itself therefor out of any Rents collected by the Assignee.

7.                   Assignee’s Liability.  The Assignee shall not in any way be liable to the Assignor for any act done or anything omitted to be done to the Property, the Leases, or the Rents by or on behalf of the Assignee in connection with this Assignment except for the consequences of its own gross negligence or willful misconduct.  The Assignee shall not be liable for any act or omission of its agents, servants, employees, or attorneys, provided that reasonable care is used by the Assignee in the selection of such agents, servants, employees, and attorneys.  The Assignee shall be accountable to the Assignor only for monies actually received by the Assignee pursuant to this Assignment.

Assignment of Leases and Rents (Leasehold Deed of Trust)     4

8.                   Binding Effect and Assignment.  All of the representations, warranties, covenants, agreements, and provisions in this Assignment by or for the benefit of the Assignee shall bind, and inure to the benefit of, its successors and assigns.  The Assignee’s successors and assigns shall include any receiver in possession of the Property and any purchaser upon a foreclosure of the liens created by the Leasehold Deed of Trust.  The Assignor shall not assign this Assignment without the Assignee’s prior written consent.  This Assignment shall be binding upon and enforceable against the Assignor’s successors and assigns.

9.                   Amendment.  This Assignment may only be modified or amended by an agreement in writing signed by the party against whom enforcement of any modification or amendment is sought.

10.               Governing Law.  THIS ASSIGNMENT MUST BE CONSTRUED, AND ITS PERFORMANCE ENFORCED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND, AS APPLICABLE, THE LAWS OF THE UNITED STATES OF AMERICA.

11.               Term and Release.  Except for the agreements contained in Section 6 and Section 7 above, this Assignment shall continue in full force and effect until the Obligation has been fully paid and satisfied, at which time this Assignment and the authority and powers herein granted by the Assignor to the Assignee shall terminate, as evidenced by the Assignee’s release of this Assignment to be recorded in the Official Public Records of Real Property of the county in which the Property is located.

[Signatures and Acknowledgements are on the following page.] Assignment of Leases and Rents (Leasehold Deed of Trust)    5

            This Assignment is executed as of the date set out in the Preamble.

ASSIGNOR:

                                                                               TOR MINERALS INTERNATIONAL, INC.,

                                                                               a Delaware corporation

                                                                               By:

                                                                                        Richard L. Bowers, President and

                                                                                        Chief Executive Officer

ASSIGNEE:

                                                                               BANK OF AMERICA, N.A., a national banking

                                                                               association

                                                                               By:

                                                                                        Victor N. Tekell

                                                                                        Senior Vice President

STATE OF TEXAS                              §

§

COUNTY OF _______________        §

This instrument was acknowledged before me on December ___, 2005, by Richard L. Bowers, President and Chief Executive Officer of Tor Minerals International, Inc., a Delaware corporation, on behalf of said corporation.

                                                                               NOTARY PUBLIC IN AND FOR THE

                                                                               STATE OF TEXAS

STATE OF TEXAS                              §

§

COUNTY OF HARRIS                                    §

This instrument was acknowledged before me on December ___, 2005, by Victor N. Tekell, Senior Vice President of Bank of America, N.A., a national banking association, on behalf of said association.

                                                                               NOTARY PUBLIC IN AND FOR THE

                                                                               STATE OF TEXAS

AFTER RECORDING RETURN TO

Nick H. Sorensen

Porter & Hedges, L.L.P.

1000 Main St., 36th Floor

Houston, Texas  77002

ATTACHMENT:

Exhibit “A” - Property Description

                                Signature and Acknowledgment Page to Assignment of Leases and Rents

(Leasehold Deed of Trust)

EX-10

EXHIBIT 10.5

NOTICE OF CONFIDENTIALITY RIGHTS:  IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS:  YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER'S LICENSE NUMBER.

DEED OF TRUST, SECURITY AGREEMENT
AND UCC FINANCING STATEMENT FOR FIXTURE FILING

by

TOR MINERALS INTERNATIONAL, INC.

a Delaware corporation,
as Grantor,

to

PRLAP, INC.,

a Texas corporation,

as Trustee,

for the benefit of
BANK OF AMERICA, N.A.,

a national banking association,
as Beneficiary

This Instrument shall be effective as a

UNIFORM COMMERCIAL CODE FINANCING STATEMENT FILED AS A
FIXTURE FILING

By
Debtor:                         Tor Minerals International, Inc.

722 Burleson Street
P. O. Box 2544
Corpus Christi, Nueces County, Texas 78403

Attn:  Richard L. Bowers

To
Secured Party:              Bank of America, N.A.
                                    700 Louisiana Street, 7th Floor
                                    Houston, Texas 77002

                                    Attn:  Mark Montgomery

This Financing Statement covers goods described herein by item or type some or all of which are affixed or are to be affixed to the real property described in Exhibit A attached hereto.

Deed of Trust.htm

TABLE OF CONTENTS

i

Deed of Trust.htm                                                                          ii

EXHIBITS

Exhibit A         Description of Land

Exhibit B         Permitted Encumbrances

1

DEED OF TRUST, SECURITY AGREEMENT
AND UCC FINANCING STATEMENT FOR FIXTURE FILING

STATE OF TEXAS                  §
                                                §
COUNTY OF NUECES           §

This DEED OF TRUST, SECURITY AGREEMENT AND UCC FINANCING STATEMENT FOR FIXTURE FILING (as amended, restated, or supplemented, this "Deed of Trust") is executed as of December 13, 2005, by TOR MINERALS INTERNATIONAL, INC., a Delaware corporation ("Grantor"), to PRLAP, Inc., a Texas corporation, Trustee, and its successors in the trust hereby created (such Trustee and any successors in trust, the "Trustee") for the benefit of Bank of America, N.A., a national banking association ("Beneficiary").

SECTION 1.         DEFINITIONS

.  Unless otherwise defined in this Deed of Trust, or unless the context otherwise requires, each capitalized term used in this Deed of Trust shall have the meaning given such term in the Loan Agreement, as hereinafter defined.  As used in this Deed of Trust, the following terms shall have the following meanings:

Beneficiary means Bank of America, N.A., a national banking association, and its successors and assigns.

Debtor Relief Laws means Title 11 of the United States Code and all other applicable liquidation, conservatorship, bankruptcy, fraudulent transfer, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

Default means an "Event of Default" as defined in the Loan Agreement.

Fixtures means all materials, supplies, equipment, apparatus, and other items now or hereafter attached to, installed on or in the Land or the Improvements, or which in some fashion are deemed to be fixtures to the Land or Improvements under the laws of the State of Texas, including the Texas Business and Commerce Code, other than those owned by tenants under any Lease.  The term "Fixture" shall include, without limitation, all items of Personalty to the extent that the same may be deemed fixtures under applicable law or Legal Requirements.

Governmental Authority means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of, or pertaining to, government.

Grantor means the above defined Grantor and any and all subsequent record or equitable owners of the Mortgaged Property.

Deed of Trust.htm                                                                          1

Impositions means all real estate and personal property taxes; water, gas, sewer, electricity, and other utility rates and charges; charges for any easement, license, or agreement maintained for the benefit of the Mortgaged Property, and all other taxes, standby fees, charges, and assessments and any interest, costs, or penalties with respect thereto of any kind and or character whatsoever which at any time before or after the execution of this Deed of Trust may be assessed, levied, or imposed upon the Mortgaged Property or the ownership, use, occupancy, or enjoyment thereof.

Improvements means all buildings, structures, open parking areas, and other improvements, and any and all accessions, additions, replacements, substitutions, or alterations thereof or appurtenances thereto, now or at any time hereafter situated, placed, constructed, or renovated upon the Land or any part thereof.

Indebtedness means (a) the Obligation (as defined below), including, without limitation, amounts that would become due but for operation of any applicable provision of Title 11 of the United States Code (including 11 U.S.C. §§ 502 and 506), together with all pre- and post-maturity interest thereon, which shall include, without limitation, all post-petition interest if Grantor voluntarily or involuntarily files for bankruptcy protection, (b) all indebtedness, liabilities, and obligations of Grantor arising under this Deed of Trust, (c) interest accruing on, and reasonable attorneys' fees, court costs, and other costs of collection reasonably incurred in the collection or enforcement of, any of the indebtedness, liabilities, or obligations described in clauses (a) and (b) above, and (d) any and all renewals and extensions of, or amendments to, any of the indebtedness, liabilities, and obligations described in clauses (a) through (c) above, together with all funds hereafter advanced by Beneficiary to or for the benefit of Grantor as contemplated by any covenant or provision contained in any Loan Document including this Deed of Trust, it being contemplated that Grantor may hereafter become indebted to Beneficiary in further sum or sums.

Land means the real estate or any interest therein described in Exhibit A attached hereto and made a part hereof, together with all Improvements and Fixtures and all rights, titles, and interests appurtenant thereto.

Laws means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority (whether or not such orders, requests, licenses, authorizations, permits or agreements have the force of law).

Leases means any and all leases, subleases, licenses, concessions, or other agreements (written or oral, now or hereafter in effect) which grant a possessory interest in and to, or the right to extract from, mine, occupy, sell or use the Mortgaged Property, and all other agreements, including, but not limited to, utility contracts, maintenance agreements, and service contracts which in any way relate to the use, occupancy, operations, maintenance, enjoyment, or ownership of the Mortgaged Property, save and except any and all leases, subleases, or other agreements pursuant to which Grantor is granted a possessory interest in the Land.

Deed of Trust.htm                                                                          2

Lien means any lien (statutory or other), mortgage, security interest, financing statement, collateral assignment, pledge, assignment, charge, hypothecation, deposit arrangement or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing), or encumbrance of any kind, and any other right of or arrangement with any creditor (whether based on common law, constitutional provision, statute or contract) to have its claim satisfied out of any property or assets, or their proceeds, before the claims of the general creditors of the owner of the property or assets.

Legal Requirements means (a) any and all present and future Laws in any way applicable to Grantor, or the Mortgaged Property, including but not limited to those respecting the ownership, use, occupancy, possession, operation, maintenance, alteration, repair, or reconstruction thereof, (b) Grantor's presently or subsequently effective organizational documents, (c) any and all Leases and other contracts (written or oral) of any nature to which Grantor may be bound, and (d) any and all restrictions, reservations, conditions, easements, or other covenants or agreements of record affecting the Mortgaged Property.

Mortgaged Property means the Land, Improvements, Fixtures, Personalty, Leases, and Rents, together with:

(a)                all rights, privileges, tenements, hereditaments, rights‑of‑way, easements, appendages, and appurtenances in anywise appertaining thereto, and all of Grantor's right, title and interest in and to any streets, ways, alleys, strips, or gores of land adjoining the Land or any part therein;

(b)                all betterments, accessions, additions, appurtenances, substitutions, replacements, and revisions thereof and thereto and all reversions and remainders therein; and

(c)                all other interest of every kind and character which Grantor now has or at anytime hereafter acquires in and to the above described and all property which is used or useful in connection therewith, including rights of ingress and egress, easements, licenses, and all reversionary rights or interests of Grantor with respect to such property.  To the extent permitted by applicable law and the Legal Requirements, all of the Personalty and Fixtures are to be deemed and held to be a part of and affixed to the Land. 

As used in this Deed of Trust, the term "Mortgaged Property" is expressly defined as meaning all or any portion of the above and any interest therein.

Loan Agreement means that certain Third Amended and Restated Loan Agreement dated as of even date herewith, between Grantor and Beneficiary, as amended, supplemented, restated or otherwise modified from time to time.

Obligation means all present and future debt, liabilities and obligations (including the obligations under any Swap Contract), whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, and all renewals, increases and extensions thereof, or any part thereof, now or in the future owed to Assignee by Assignor under any Loan Document, together with all interest accruing thereon, reasonable fees, costs and expenses payable under the Loan Documents or in connection with the enforcement of any rights under the Loan Documents, including interest and fees that accrue after the commencement by or against Assignee of any proceeding under any Debtor Relief Law naming such party as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

Permitted Encumbrances means (a) the Liens, easements, building lines, restrictions, security interests, and other matters (if any) as set out on attached Exhibit B and (b) the Liens in favor of Lender.

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Person means any individual, partnership, limited partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, syndicate, Governmental Authority or other entity or organization of whatever nature.

Personalty means all of Grantor's right, title, and interest in and to all tangible and intangible personal property, whether or not Fixtures or otherwise constituting fixtures under the Texas Business and Commerce Code, including all equipment, inventory, goods, consumer goods, accounts, chattel paper, instruments, money, general intangibles, documents, minerals, crops, and timber (as those terms are defined in the Texas Business and Commerce Code) which are attached to, installed, placed or used on or in connection with, or is acquired for such attachment, installation, placement, or use, or which arises out of the improvement, financing, leasing, operation, or use of, the Land, the Improvements, Fixtures, or other goods located on the Land or Improvements, together with all additions, accessions, accessories, amendments, and modifications thereto, extensions, renewals, enlargements, and proceeds thereof, substitutions therefor, and income and profits therefrom.  The following are included, without limitation, in the definition of Personalty: furnishings, building materials, supplies, machines, engines, boilers, stokers, pumps, fans, vents, blowers, dynamos, furnaces, elevators, ducts, shafts, pipes, furniture cabinets, shades, blinds, screens; plumbing, heating, air conditioning, lighting, lifting, ventilating, refrigerating, cooking, medical, laundry and incinerating equipment; partitions, drapes, carpets, rugs and other floor coverings, and awnings; call and sprinkler systems, fire prevention and extinguishing apparatus and equipment, water tanks, compressors, vacuum cleaning systems; disposals, swimming pools, dishwashers, ranges, ovens, kitchen equipment, and cafeteria equipment; recreational equipment; loan commitments, financing arrangements, bonds, leases, licenses, permits, sales contracts, insurance policies, and the proceeds therefrom, plans and specifications, surveys, rent rolls, books and records, funds, bank deposits; all trademarks, service marks, trade names, and symbols used in connection therewith; any award, remuneration, settlement, or compensation heretofore made or hereafter to be made by any Tribunal to Grantor, including those for any vacation of or change of grade in any streets affecting the Land or the Improvements; all plans and specifications for the Improvements; all contracts and subcontracts relating to the Improvements; all deposits (including tenants' security deposits), funds, accounts, contract rights or documents; arising from or by virtue of any transactions involving an interest in the property described herein; all permits, licenses, franchises, certificates, and other rights and privileges obtained in connection with the property described herein; all proceeds arising from or by virtue of the sale, lease, or other disposal of all or any part of the Mortgaged Property (consent to same not granted or to be implied hereby); and all proceeds (including premium refunds) payable or to be payable under each policy of insurance relating to the Mortgaged Property.

Rents means all of the rents, revenues, income, proceeds, royalties, profits, and other benefits paid or payable for using, leasing, licensing, possessing, operating from or in, residing in, selling, mining, extracting, or otherwise enjoying or using the Mortgaged Property.

SECTION 2.         GRANT OF LIEN; HABENDUM CLAUSE.

2.1               Grant of Lien; Habendum Clause

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.  To secure the full and timely payment of the Indebtedness and the full and timely performance and discharge of Grantor's obligations under this Deed of Trust, Grantor has GRANTED, BARGAINED, SOLD, and CONVEYED, and by these presents does GRANT, BARGAIN, SELL, and CONVEY unto the Trustee the Mortgaged Property, subject to the Permitted Encumbrances, TO HAVE AND TO HOLD the Mortgaged Property unto the Trustee, the Trustee's successors in trust, and the Trustee's assigns forever, in trust with power of sale, and Grantor does hereby bind itself, its successors, legal representatives, and assigns to warrant and forever defend the title to the Mortgaged Property unto the Trustee against every Person whomsoever lawfully claiming or to claim the same or any part thereof by, through or under Grantor, but not otherwise; provided that, if the Indebtedness has been irrevocably paid in full and the Beneficiary's commitment to lend under the Loan Agreement has finally terminated, then the Liens, security interests, estates, and rights granted in this Deed of Trust shall terminate; otherwise the same shall remain in full force and effect.

2.2               Subrogation

.  The Trustee and Beneficiary are hereby subrogated to the claims and liens of all parties whose claims or liens are fully or partially discharged or paid with the proceeds of the Indebtedness secured by this Deed of Trust, notwithstanding that such claims or liens may have been cancelled and satisfied of record.

SECTION 3.         WARRANTIES AND REPRESENTATIONS

.  Grantor acknowledges that certain representations and warranties in the Loan Agreement are applicable to it and confirms that each such representation and warranty is true and correct.  Furthermore, Grantor hereby unconditionally warrants and represents to the Beneficiaries as follows:

3.1               Lien of this Instrument

.  This Deed of Trust constitutes a valid, subsisting lien on the Land, the Improvements, and the Fixtures, and a valid, subsisting security interest in and to the Personalty.

3.2               Litigation

.  There are no actions, suits, or proceedings pending or, to the knowledge of Grantor, threatened against or affecting the Mortgaged Property or involving the validity or enforceability of this Deed of Trust or the priority of the lien and security interest hereof.

3.3               Acknowledgment by Grantor

.  Grantor acknowledges that the execution and delivery of this Deed of Trust is a requirement to Beneficiary's extension of credit to Grantor under the Loan Agreement and is an integral part of the transactions contemplated by the Loan Documents and is a condition precedent to the effectiveness of the Loan Agreement.

3.4               Environmental

.  In addition to the representations set out above, Grantor expressly incorporates into this Deed of Trust, and restates, the representation set forth in Section 3.J of the Loan Agreement.

SECTION 4.         AFFIRMATIVE COVENANTS

.  Grantor acknowledges that certain covenants in the Loan Agreement are applicable to it and Grantor covenants and agrees to comply with each of them.  Furthermore, Grantor hereby unconditionally covenants and agrees with Beneficiary as follows, until the entire Indebtedness is paid and performed in full and the Beneficiary's commitment to lend under the Loan Agreement is finally terminated:

4.1               Payment and Performance

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.  Grantor will pay the Indebtedness as and when called for in the Loan Documents and will perform all of its obligations under this Deed of Trust on or before the dates they are to be performed.

4.2               Payment of Impositions

.  Grantor will pay and discharge, or cause to be paid and discharged, the Impositions and Grantor's obligations to materialmen, mechanics, carriers, warehousemen, or other like Persons as and when required to be paid pursuant to the terms of the Loan Agreement unless contested in good faith by appropriate proceedings.

4.3               Repair

.  Grantor will keep the Mortgaged Property in good order and condition and presenting a good appearance and will make all repairs and replacements, renewals, additions, betterments, improvements and alterations thereof and thereto, interior and exterior, structural and nonstructural, ordinary and extraordinary, foreseen and unforeseen, which are necessary or reasonably appropriate to keep same in such order and condition.  Grantor will also use its best efforts to prevent any act or occurrence which might materially impair the value or usefulness of the Mortgaged Property for its intended usages as set forth in any plans and specifications for the Improvements submitted to Beneficiary or in the Loan Documents.  In instances where repairs, replacements, renewals, additions, betterments, improvements, or alterations are required in and to the Mortgaged Property on an emergency basis to prevent loss, damage, waste or destruction thereof, Grantor shall proceed to construct same, or cause same to be constructed, notwithstanding anything to the contrary contained in Section 5.2 below; provided that, in instances where such emergency measures are to be taken, Grantor will promptly notify Beneficiary in writing of the commencement of such emergency measures and, when same are completed, the completion date and the measures actually taken.

4.4               Insurance

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.  In addition to the requirements of Section 4.E of the Loan Agreement, Grantor shall obtain and maintain insurance upon and relating to the Mortgaged Property insuring against personal injury and death, loss by fire and such other hazards, casualties, and contingencies (including but not limited to fire, lightning, hail, windstorm, explosion, malicious mischief, vandalism, and rent loss or extra expense insurance covering loss of Rents) as are covered by extended coverage policies in effect where the Land is located and such other risks as may be reasonably specified by Beneficiary from time to time, all in such amounts and with such insurers of recognized responsibility as are reasonably acceptable to Beneficiary; provided that, absent written direction from Beneficiary, such insurance shall be in an amount not less than the full insurable replacement value of the Mortgaged Property.  If, and to the extent that the Mortgaged Property is located within an area that has been or is hereafter designated or identified as an area having any type of flood, mudslide, or flood-related erosion hazard by the Federal Emergency Management Agency or by such other official as shall from time to time be authorized by federal or state law to make such designation pursuant to the National Flood Insurance Act of 1968, as such act may from time to time be amended and in effect, or pursuant to any other national or state program of flood insurance, Grantor shall carry flood insurance with respect to the Mortgaged Property in an amount not less than the maximum amount available under the Flood Disaster Protection Act of 1973 and the regulations issued pursuant thereto, as amended from time to time, in form complying with the "insurance purchase" requirement of that Act.  Each insurance policy issued in connection with the Mortgaged Property shall provide, by way of endorsements, riders, or otherwise, that proceeds will be payable to Beneficiary as its interest may appear and should be cancelable only after Beneficiary is given thirty (30) days written notice of such cancellation.  All renewal and substitute policies of insurance or certified copies thereof shall be delivered at the office of Beneficiary, premiums then due and payable paid, at least fifteen (15) days before termination of policies theretofore delivered to Beneficiary.  Beneficiary shall have the right, but not the obligation, to make premium payments, at Grantor's expense, to prevent any cancellation, endorsement, alteration or reissuance, and such payments shall be accepted by the insurer to prevent same.

4.5               Restoration Following Casualty

.  If any act or occurrence of any kind or nature (including any casualty for which insurance was not obtained or obtainable) shall result in damage to or loss or destruction of the Mortgaged Property, Grantor shall give notice thereof to Beneficiary.  If any of the Mortgaged Property covered by insurance is destroyed or damaged by any casualty against which insurance shall have been required hereunder, the Beneficiary shall have the right to collect, and the Grantor hereby assigns to the Beneficiary, any an all monies that may become payable under any insurance policies required hereunder by reason of damage to, or loss or destruction of the Mortgaged Property or any part thereof.  The Beneficiary may apply said monies, or any part thereof, to the Obligations in the order and manner in its sole discretion. 

4.6               Defense of Title

.  If the title of the Trustee to, or the interest of Beneficiary in, the Mortgaged Property or any part thereof, shall be endangered or shall be attacked, directly or indirectly, Grantor shall, at Grantor's expense, take all necessary and proper steps for the defense of such title or interest, including the employment of counsel, the prosecution or defense of litigation, and the compromise or discharge of claims made against such title or interest in the Mortgaged Property.  In the event of Grantor's failure or inability to proceed initially as provided above, the Trustee and Beneficiary or either of them (whether or not named as parties to legal proceedings with respect thereto) are hereby authorized and empowered to take, at Grantor's expense, such additional steps as in their reasonable judgment may be necessary or proper for the defense of any such legal proceedings or the protection of the validity or priority of this Deed of Trust and the rights, titles, liens and security interests created or evidenced hereby.

4.7               Future Impositions

.  If at any time any law shall be enacted imposing or authorizing the imposition of any tax upon this Deed of Trust or upon any rights, titles, liens, or security interests created hereby, or any part thereof, Grantor shall promptly pay all such taxes to the extent it can lawfully do so.  In the event of the enactment of such a law, if it is unlawful for Grantor to pay such taxes, payment of such tax shall be deemed an obligation which Beneficiary may pay pursuant to Section 10.6 of this Deed of Trust.

4.8               Environmental Indemnification

.  In addition to the covenants set out in Sections 4 and 5 of this Deed of Trust, Grantor expressly incorporates into this Deed of Trust, and restates, the indemnification set forth in Section 10.L of the Loan Agreement.

4.9               Information About Mortgaged Property

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.  Grantor will maintain at its chief executive office, a current record of the location of all Mortgaged Property, and furnish to Beneficiary, at such intervals as Beneficiary may reasonably request, lists, descriptions, and other information as may be necessary or proper to keep Beneficiary informed with respect to the identity, location, status, condition and value of the Mortgaged Property.  Grantor will promptly notify Beneficiary of any change in any material fact or circumstance represented or warranted by Grantor with respect to any of the Mortgaged Property, or any material claim, action or proceeding affecting title to any of the Mortgaged Property.

4.10            Further Assurances

. Grantor will from time to time promptly execute and deliver to Beneficiary all such other assignments, certificates, supplemental documents, and financing statements, and do all other acts or things as Beneficiary may reasonably request in order to more fully create, evidence, perfect, continue and preserve the priority of the Lien created by this Deed of Trust.

4.11            Appraisal

.  Grantor shall be liable for the costs, fees, and expenses relating to (a) the appraisal of the Mortgaged Property to be delivered prior to the date of this Deed of Trust, (b) one additional appraisal of the Mortgaged Property if required by Beneficiary in its reasonable judgment and in accordance with its customary practices prior to full and complete payment of the Indebtedness, and (c) any appraisal of the Mortgaged Property as may be required by government regulators or auditors or the Beneficiary's internal policies.  Grantor is required to reimburse Beneficiary for the cost and expense of any appraisal obtained in connection with this Deed of Trust.  Such reimbursement shall be due within ten (10) days after Beneficiary's written request for reimbursement.

SECTION 5.         NEGATIVE COVENANTS

.  Grantor acknowledges that certain covenants in the Loan Agreement are applicable to it and covenants and agrees to comply with each of them.  Furthermore, Grantor hereby covenants and agrees that, until the entire Indebtedness is paid in full and the Beneficiary's commitment to lend under the Loan Agreement is finally terminated:

5.1               Use Violations

.  Grantor will not use, maintain, operate, or occupy, or allow the use, maintenance, operation, or occupancy of the Mortgaged Property in any manner which, in case of any of the following would constitute a Material Adverse Event, (a) violates any Legal Requirement, (b) may be dangerous unless safeguarded as required by law, or (c) constitutes a public or private nuisance.

5.2               Alterations

.  Grantor will not commit or permit any waste of the Mortgaged Property that would constitute a Material Adverse Event on its value as security for the Indebtedness and will not (subject to the provisions of Section 4.3 herein), without the advance written notice to Beneficiary, make or permit to be made any alterations or additions to the Mortgaged Property of a material nature.

5.3               Prohibition on Transfer

.  Grantor will not sell, trade, transfer, assign, exchange, or otherwise dispose of any of the Mortgaged Property.

5.4               Replacement of Fixtures and Personalty

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.  Grantor will not, without Beneficiary's prior written consent, permit any of the Fixtures or Personalty to be removed at any time from the Land or Improvements unless the removed item is removed temporarily for maintenance and repair or, if removed permanently, is replaced by an article of equal suitability and value, owned by Grantor, free and clear of any lien or security interest except such as may be first approved in writing by Beneficiary or any Permitted Encumbrance.

5.5               No Further Encumbrances

.  Grantor will not, without Beneficiary's prior written consent, create, place, suffer, or permit to be created or placed or, through any act or failure to act, acquiesce in the placing of or allow to remain, any mortgage, pledge, lien (statutory, constitutional, or contractual), security interest, encumbrance, or charge on, or conditional sale or other title retention agreement, regardless of whether same are expressly subordinate to the liens of the Loan Documents, with respect to the Mortgaged Property, other than the Permitted Encumbrances.

SECTION 6.         DEFAULT AND FORECLOSURE.

6.1               Remedies

.  If a Default occurs and is continuing, Beneficiary may, in accordance with the Loan Agreement, by and through the Trustee or otherwise, exercise any or all of the following rights, remedies and recourses to the extent permitted by applicable Law:

(a)                Declare the Indebtedness immediately due and payable in accordance with the terms of the Loan Agreement whereupon the same shall become immediately due and payable.  Except as expressly provided in the Loan Agreement, Grantor expressly waives any notice of intent to accelerate, notice of acceleration, or any other notice, presentment, protest, demand or action of any kind or nature whatsoever.

(b)                Enter upon the Mortgaged Property and take exclusive possession thereof and of all books, records, and accounts relating thereto without notice and without being guilty of trespass.  If Grantor remains in possession of all or any part of the Mortgaged Property, and without Beneficiary's prior written consent thereto, Beneficiary may, without notice to Grantor, invoke any and all legal remedies to dispossess Grantor, including specifically one or more actions for forcible entry and detainer, trespass to try title, and writ of restitution.  Nothing contained in the foregoing sentence shall, however, be construed to impose any greater obligation or any prerequisites to acquiring possession of the Mortgaged Property after a Default than would have existed in the absence of such sentence.

(c)                Hold, lease, manage, operate, or otherwise use or permit the use of the Mortgaged Property, either itself or by other persons, firms or entities, in such manner, for such time and upon such other terms as Beneficiary may deem to be prudent and reasonable under the circumstances (making such repairs thereto and taking any and all other action with reference thereto, from time to time, as Beneficiary shall deem reasonably necessary for the purpose of maintaining the Mortgaged Property in its then current condition but not making any material capital improvements thereto) and apply all Rents and other amounts collected by the Trustee in connection therewith in accordance with the provisions of Section 6.8 of this Deed of Trust.

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(d)                Request the Trustee to proceed with foreclosure.  Upon the request, the Trustee is authorized and empowered, and it shall be his special duty, to sell or offer for sale the Mortgaged Property.  The Mortgaged Property shall be sold at public auction to the highest bidder for cash or other consideration approved by Beneficiary.  The Mortgaged Property may be sold or offered for sale in such order and in such portions or parcels as Beneficiary may determine whether or not such portions or parcels are contiguous, with or without having first taken possession of same, and without the necessity of having any Personalty present at such sale. The sale shall be conducted at the county courthouse in the county where the Land is located, at the area of the county courthouse designated by the Commissioner's Court of such county as the area in which foreclosure sales are to take place, as evidenced by the designation recorded in the real property records of such county and, if no area is so designated, then in the area designated in the Trustee's, or Substitute Trustee's, Notice of Sale as being the area for such foreclosure sale.  If the Land, or any portion thereof to be sold, is located in more than one county, the sale may occur at the designated area of the county courthouse in any county in which the Land is located.  The foreclosure sale shall take place on the first Tuesday of any month between the hours of 10:00 a.m. and 4:00 p.m.  When conducting the sale, the Trustee may adjourn and reconvene as often as Trustee deems appropriate.  Notice of the sale must be given at least twenty‑one (21) days before the date of the sale.  The Notice of sale must include a statement of the earliest time at which the sale will occur and the sale must begin at that time or not later than three (3) hours after that time.  Notice of the sale must be given:

(i)                  by posting or causing to be posted at the courthouse door of each county in which the Land (or any portion to be sold) is located a written or printed notice designating the county in which the Mortgaged Property will be sold, and

(ii)                by filing in the office of the county clerk of each county in which the Land (or any portion to be sold) is located a copy of the notice, and

(iii)               by certified mail on each debtor who, according to the records of Beneficiary or other holder of the Indebtedness, is obligated to pay the Indebtedness secured by this Deed of Trust.

Notice may be served, given, filed, posted, or mailed by the Trustee or by any person acting for the Trustee.  The affidavit of any person having knowledge of the facts to the effect that such service was completed shall be prima facie evidence of the fact of service.  Beneficiary may, at its option, accomplish all or any of the aforesaid in the manner permitted or required under (i) Section 51.002 of the Texas Property Code, as amended and restated, relating to the sale of real property under a power of sale or, (ii) with respect to the Personalty sold separately from the rest of the Mortgaged Property, Chapter 9 of the Texas Business and Commerce Code relating to the sale of collateral after default by a debtor or by any other amendment or successor to either statute.  Nothing contained in this Section 6.1(d) shall be construed to limit in any way the Trustee's rights to sell the Personalty by private sale if, and to the extent that, such private sale is permitted under the laws of the State of Texas or by public or private sale after entry of a judgment by any court of competent jurisdiction ordering same.  At any sale of the Mortgaged Property whether made under the power of sale contained in this Deed of Trust, Section 51.002 of the Texas Property Code, Chapter 9 of the Texas Business and Commerce Code, any other Legal Requirement, or by virtue of any judicial proceedings or any other legal right, remedy, or recourse,

(iv)              the Trustee need not have the Mortgaged Property physically present or have constructive possession of the Mortgaged Property; provided that, the title to and right of possession of any such Mortgaged Property shall pass to the purchaser thereof as completely as if the same had been actually present and delivered to purchaser at such sale;

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(v)                each conveyance instrument executed by the Trustee shall contain a special warranty of title binding upon Grantor;

(vi)              each and every recital contained in any conveyance instrument executed by the Trustee shall constitute prima facie evidence of the truth and accuracy of the matters recited therein including, without limitation, appointment of any successor Trustee hereunder, nonpayment of the Indebtedness, notice, filing, posting, and conduct of the sale in the manner provided herein and by law;

(vii)             all prerequisites to the validity of the sale shall be rebuttably presumed to have been performed;

(viii)           the receipt from the Trustee, or such other party or officer conducting the sale, shall be sufficient to discharge the purchaser for his purchase money, and no purchaser or his assigns or personal representatives, shall thereafter be obligated to see to the application of such purchase money or be in any way answerable for any loss, misapplication, or non‑application thereof;

(ix)              Grantor shall be completely and irrevocably divested of all of its right, title, interest, claim, and demand whatsoever, either at law or in equity, in and to the property sold, and such sale shall be a perpetual bar both at law and in equity against Grantor and against all other persons claiming or to claim the property sold or any part thereof by, through or under Grantor; and

(x)                Beneficiary may be a purchaser at any such sale and may credit the bid against the Indebtedness.

(e)                Beneficiary or the Trustee may make application to a court of competent jurisdiction, as a matter of strict right and without notice to Grantor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, for appointment of a receiver of the Mortgaged Property.  Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to sell, rent, maintain, and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply the Rents in accordance with the provisions of Section 6.8 in this Deed of Trust.

(f)                 Pursuant to Section 21.48A of the Texas Insurance Code, in the event Beneficiary is the successful bidder at a foreclosure sale of all or any part of the Mortgaged Property, it shall have the right to cancel any insurance policy covering the property foreclosed upon and collect any unearned premiums from said policy.

(g)                Exercise any and all other rights, remedies, and recourses granted under the Loan Documents or now or hereafter existing in equity, at law, by virtue of statute, or otherwise.

6.2               Divestment of Rights, Tenant at Sufferance

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.  After sale of the Mortgaged Property, or any portion thereof, Grantor shall be divested of any and all interest and claim thereto, including any interest or claim to all insurance policies, bonds, loan commitments, contracts, and other intangible property covered by this Deed of Trust.  Additionally, with respect to the Land, Improvements, Fixtures, and Personalty, after a sale of all or any portion thereof, Grantor will be considered a tenant at sufferance of the purchaser of the same, and said purchaser shall be entitled to immediate possession thereof, and if Grantor shall fail to vacate the Mortgaged Property immediately, said purchaser may and shall have the right, without further notice to Grantor, to go into any justice court in any precinct or county in which the Land and Improvements are located and file an action in forcible entry and detainer or forcible detainer, which action shall lie against Grantor or its assigns or legal representatives as a tenant at sufferance.

6.3               Separate Sales

.  If a Default occurs and is continuing, the Trustee may sell all or any portion of the Mortgaged Property together or in lots or parcels and in such manner and order as the Trustee, in its sole discretion, may elect.  The sale or sales by the Trustee of less than the whole of the Mortgaged Property shall not exhaust the power of sale granted in this Deed of Trust, and the Trustee is specifically empowered to make successive sale or sales under such power until the whole of the Mortgaged Property shall be sold; and if the proceeds of such sale or sales of less than the whole of such Mortgaged Property shall be less than the aggregate of the Indebtedness and the expense of executing this trust, this Deed of Trust and the lien, security interest and assignment hereof shall remain in full force and effect as to the unsold portion of the Mortgaged Property just as though no sale or sales had been made; provided that, Grantor shall never have any right to require the sale or sales of less than the whole of the Mortgaged Property, but Beneficiary shall have the right, at its sole election, to request the Trustee to sell less than the whole of the Mortgaged Property.  As among the various counties in which items of the Mortgaged Property may be situated, sales in such counties may be conducted in any order that the Trustee may deem expedient; and any one or more of such sales may be conducted in the same month, or in successive or different months, as the Trustee may deem expedient.  If Default occurs as to nonpayment of part of the Indebtedness, Beneficiary shall have the option to proceed as if under a full foreclosure, conducting the sale as herein provided without declaring the entire Indebtedness due, and if sale is made because of default of an installment, or a part of an installment, such sale may be made subject to the unmatured part of the Indebtedness; and such sale, if so made, shall not in any manner affect the unmatured part of the Indebtedness but as to such unmatured part, this Deed of Trust shall remain in full force and effect as though no sale had been made under the provisions of this Deed of Trust.  Any number of sales may be made under this Deed of Trust without exhausting the right of sale for any unmatured part of the Indebtedness secured hereby.

6.4               Remedies Cumulative, Concurrent, and Nonexclusive

.  The Trustee and Beneficiary shall have all rights, remedies, and recourses granted in the Loan Documents and available at law or equity (including specifically those granted by the Texas Business and Commerce Code, as amended but taking into account the provisions of the Loan Agreement) and same (a) shall be cumulative and concurrent; (b) may be pursued separately, successively, or concurrently against Grantor or others obligated under the Loan Agreement, or against the Mortgaged Property, or against any one or more of them at the sole discretion of Beneficiary; (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy, or recourse; and (d) are intended to be, and shall be, nonexclusive.

6.5               Release of and Resort to Collateral

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.  Any part of the Mortgaged Property may be released by Beneficiary in accordance with the Loan Agreement without affecting, subordinating, or releasing the lien, security interest, and assignment hereof against the remainder of the Mortgaged Property.  The lien, security interest, and other rights granted hereby shall not affect or be affected by any other security taken for the Indebtedness or any part thereof.  The taking of additional security or the rearrangement, extension, or renewal of the Indebtedness, or any part thereof, shall not release or impair the lien, security interest, and other rights granted hereby or affect the liability of any endorser, guarantor, or surety or, improve the right of any permitted junior lienholder; and this Deed of Trust, as well as any instrument given to secure any rearrangement, renewal, or extension of the Indebtedness secured hereby, or any part thereof, shall be and remain a first and prior lien, except as otherwise provided herein, on all of the Mortgaged Property not expressly released until the Indebtedness is completely paid.

6.6               Waiver of Redemption, Notice, and Marshaling of Assets

.  To the fullest extent permitted by Law, Grantor hereby irrevocably and unconditionally waives and releases (a) all benefits that might accrue to Grantor by any present or future laws exempting the Mortgaged Property from attachment, levy, or sale on execution or providing for any appraisement, valuation, stay of execution, exemption from civil process, redemption, or extension of time for payment, (b) except as may be provided for under the terms hereof or the other Loan Documents, all notices of any Default or of Beneficiary's or the Trustee's election to exercise or the actual exercise of any right, remedy, or recourse provided for under the Loan Documents, (c) any right to appraisal or marshaling of assets or a sale in inverse order of alienation, (d) the exemption of homestead, and (e) the administration of estates of decedents or other matters whatever to defeat, reduce, or affect the right of Beneficiary under the terms of this Deed of Trust to sell the Mortgaged Property for the collection of the Indebtedness secured hereby (without any prior or different resort for collection) or the right of Beneficiary under the terms of this Deed of Trust, to the payment of the Indebtedness out of the proceeds of sale of the Mortgaged Property in preference to every other person and claimant whatever (only reasonable expenses of such sale being first deducted).

6.7               Discontinuance of Proceedings

.  In case Beneficiary shall have proceeded to invoke any right, remedy, or recourse permitted under the Loan Documents and shall thereafter elect to discontinue or abandon the same for any reason, Beneficiary shall have the unqualified right so to do, and, in such event, Grantor and Beneficiary shall be restored to their former positions with respect to the Indebtedness, the Loan Documents, the Mortgaged Property, and otherwise and the rights, remedies, recourses, and power of Beneficiary shall continue as if same had never been invoked.

6.8               Application of Proceeds, Deficiency Obligation

.  The proceeds of any sale of, and the Rents and other income generated by the holding, leasing, operating, or other use of, the Mortgaged Property to the extent that funds are so available therefrom shall be applied among principal, interest, fees, expenses, late charges, collection costs, and other charges, costs and expenses, for which Beneficiary has not been paid or reimbursed under the Loan Documents at the sole discretion of Beneficiary (or the receiver, if one is appointed), with any surplus to be paid, at the option of Beneficiary to the payment of any indebtedness or obligation secured by a subordinate deed of trust or security interest on the Mortgaged Property or to Grantor.  Any other party liable on the Indebtedness shall be liable for any deficiency remaining in the Indebtedness subsequent to the sale referenced in this Section 6.8.

6.9               Purchase by Beneficiary

.  To the extent permitted by Law, Beneficiary shall have the right to become the purchaser at the sale of the Mortgaged Property under this Deed of Trust and shall have the right to be credited on the amount of its bid for the Mortgaged Property or any part thereof being sold, all of the Indebtedness due and owing as of the date of such sale.

Deed of Trust.htm                                                                         13

6.10            Disaffirmation of Contracts

.  To the extent permitted by Law, the purchaser at any Trustee's or foreclosure sale hereunder may disaffirm any easement granted or rental, lease, or other contract made in violation of any provision of this Deed of Trust or the Loan Agreement and may take immediate possession of the Mortgaged Property free from, and despite the terms of, such grant of easement or rental, lease, or other contract.  With respect to any Lease of real property submitted to and approved by Beneficiary, Beneficiary agrees that the holding of a foreclosure sale or conveyance in lieu thereof by it shall not terminate such Lease nor the rights and obligations of a lessee thereunder, so long as such lessee continues to perform all of its obligations thereunder, including, without limitation, the payment of all rental payments thereunder.

6.11            Waiver and Deficiency Suit

.  In the event an interest in any of the Mortgaged Property is foreclosed upon pursuant to a judicial or nonjudicial foreclosure sale, Grantor unconditionally and irrevocably waives any rights, defenses or remedies it may have under Sections 51.003 through 51.005 of the Texas Property Code, as amended, relating to deficiency judgments.  In the event the waiver provided above is determined to be unenforceable, it is expressly agreed by Grantor that to the extent Sections 51.003, 51.004 or 51.005 of the Texas Property Code, or any amendment thereto, requires that the "fair market value" of the Mortgaged Property shall be determined as of the foreclosure date in order to enforce a deficiency against Grantor or any other party liable for repayment of the Indebtedness, the term "fair market value" shall include those matters required by Law and, to the extent permitted by Law, shall also include the additional factors set forth below:

(a)                the Mortgaged Property is to be valued "AS IS" and "WITH ALL FAULTS" and there shall be no assumption of restoration of or refurbishment of improvements, if any, after the date of the foreclosure;

(b)                there shall be an assumption that the purchaser desires to resell the Mortgaged Property for an all cash sales price promptly (but no later than 12 months) after the foreclosure sale;

(c)                an offset to the fair market value of the Mortgaged Property, as determined hereunder, shall be made by deducting from such value the reasonable estimated closing costs relating to the sale of the Mortgaged Property, including but not limited to, brokerage commissions, title policy expenses, tax prorations, escrow fees, and other common charges which are incurred by a seller of property; and

(d)                after consideration of the factors required by Law and those required above, an additional discount factor shall be calculated based upon the estimated holding costs associated with maintaining the Mortgaged Property for the estimated time it will take to effectuate a sale of the Mortgaged Property including, without limitation, utility expenses, taxes and assessments (to the extent not accounted for in (c) above) so that the "fair market value" as so determined is discounted to be as of the date of the foreclosure sale of the Mortgaged Property.

SECTION 7.         CONDEMNATION

Deed of Trust.htm                                                                         14

.  If the Mortgaged Property, or any part thereof, shall be condemned or otherwise taken for public or quasi‑public use under the power of eminent domain, or be transferred in lieu thereof, all damages or other amounts awarded for the taking, or injury to, the Mortgaged Property shall be paid to Beneficiary, who shall have the right, in its sole discretion, to apply the amounts so received against (a) the costs and expenses of Beneficiary, including reasonable attorney's fees incurred in connection with collection of such amounts and (b) the balance against the Obligation in the order and manner in its sole discretion.  

SECTION 8.         SECURITY AGREEMENT.

8.1               Security Interest

.  This Deed of Trust shall be construed as a Deed of Trust on real property and it shall also constitute and serve as a security agreement on personal property within the meaning of, and shall constitute until the grant of this Deed of Trust shall terminate as provided in Section 2 hereof, a first and prior security interest under Chapter 9 of the Texas Business and Commerce Code (subject only to the Permitted Encumbrances) with respect to the Personalty and Fixtures.  Grantor has granted, bargained, conveyed, assigned, transferred, and set over, and by these presents does grant, bargain, convey, assign, transfer, and set over unto Beneficiary a first and prior security interest (subject only to the Permitted Encumbrances) in and to all of Grantor's right, title, and interest in, to, and under the Personalty and Fixtures to secure the full and timely payment of the Indebtedness and the full and timely performance and discharge of the Grantor's obligations under this Deed of Trust.

8.2               Financing Statements

.  Grantor hereby authorizes Beneficiary to file, and if Beneficiary or Trustee deems necessary, Grantor shall execute and deliver to Beneficiary, in form and substance reasonably satisfactory to it and its legal counsel, such financing statements and such further assurances as Beneficiary may, from time to time, consider reasonably necessary to create, perfect, and preserve the security interest herein granted, and Beneficiary may cause such statements and assurances to be recorded and filed at such times and places as may be required or appropriate by law to so create, perfect, and preserve such security interest.  Pursuant to the Texas Business and Commerce Code, this Deed of Trust shall be effective as a financing statement filed as a fixture filing from the date of its filing for record covering the Fixtures and Personalty.  The addresses of Grantor, as Debtor, and Beneficiary, as Secured Party, are set forth on the cover page of this Deed of Trust.

8.3               Uniform Commercial Code Remedies

.  The Trustee and Beneficiary shall have all the rights, remedies, and recourses with respect to the Personalty, Fixtures, Leases, and Rents afforded a secured party by the Texas Business and Commerce Code in addition to, and not in limitation of, the other rights, remedies and recourses afforded by the Loan Documents and at law.

8.4               No Obligation of the Trustee or Beneficiary

.  The assignment and security interest herein granted shall not be construed to (a) deem or constitute the Trustee or Beneficiary, as trustees in possession of the Mortgaged Property, (b) obligate the Trustee or Beneficiary to operate or attempt to operate the Mortgaged Property or (c) obligate the Trustee or Beneficiary to take any action, incur any expenses, or perform or discharge any obligation, duty, or liability whatsoever under any of the Leases or otherwise.

SECTION 9.         CONCERNING THE TRUSTEE.

9.1               No Liability

Deed of Trust.htm                                                                         15

.  The Trustee shall not be liable for any error or judgment or act done by the Trustee or be otherwise responsible or accountable under any circumstances whatsoever other than his own gross negligence, willful misconduct, violation of Law or fraud.  The Trustee shall not be personally liable for any damages resulting from entry on the Mortgaged Property by the Trustee or anyone acting by virtue of the powers granted the Trustee under this Deed of Trust, or for debts contracted or liability or damages incurred in the management or operation of the Mortgaged Property.  The Trustee shall have the right to rely on any instrument, document, or signature authorizing or supporting any action taken or proposed to be taken by him hereunder and believed by him in good faith to be genuine.  The Trustee shall be entitled to reimbursement for reasonable expenses incurred by him in the performance of the Trustee's duties under this Deed of Trust and to reasonable compensation for services rendered under this Deed of Trust.  Grantor will, from time to time, reimburse the Trustee for and save and hold the Trustee harmless from and against any and all loss, cost, liability, damage and expense whatsoever incurred by him in the performance of the Trustee's duties other than those arising from his own gross negligence, willful misconduct, violation of Law or fraud.

9.2               Retention of Monies

.  All monies received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other monies (except to the extent required by law), and the Trustee shall be under no liability for interest on any monies received hereunder.

9.3               Successor Trustee

.  The Trustee may resign by the giving of notice of such resignation in writing to Beneficiary.  If the Trustee shall die, resign, or become disqualified from acting in the execution of this Trust or shall fail or refuse to exercise the same when requested by Beneficiary so to do or if for any reason and without cause Beneficiary shall prefer to appoint a substitute trustee to act instead of the original Trustee named herein, or any prior successor or substitute trustee, Beneficiary shall have full power to appoint a substitute trustee and, if preferred, several substitute trustees in succession who shall succeed to all the estate, rights, powers and duties of the forenamed Trustee without other formality than designating the successor or substitute Trustee in writing.

9.4               Succession Instruments

.  Any new Trustee appointed pursuant to any of the provisions of this Deed of Trust shall, without any further act, deed, or conveyance, become vested with all the estates, properties, rights, powers, and trusts of its or his or her predecessor in the rights hereunder with like effect as if originally named as the Trustee herein; but, nevertheless, upon the written request of Beneficiary, or any acting successor trustee, the Trustee ceasing to act shall execute and deliver an instrument transferring to such successor trustee, upon the trust herein expressed, all the estates, properties, rights, powers, and trusts of the Trustee so ceasing to act, and shall duly assign, transfer, and deliver any of the property and monies held by the Trustee to the successor trustee so appointed.

9.5               Performance of Duties by Lenders

.  The Trustee may authorize one or more parties to act on his behalf to perform any ministerial functions required of him hereunder, including, without limitation, the transmittal, posting and filing of any notices.

SECTION 10.      MISCELLANEOUS.

Deed of Trust.htm                                                                         16

10.1            Survival of Obligations

.  All covenants, agreements, representations, and warranties made by Grantor in this Deed of Trust and the other Loan Documents, including without limitation, any certificates or other documents or instruments delivered in connection herewith, shall survive the execution and delivery of this Deed of Trust and the other Loan Documents.  The obligations and provisions of all indemnities from Grantor to Beneficiary contained herein or in any of the Loan Documents shall continue and remain in full force and effect after the Indebtedness of Grantor have been paid or discharged in full and shall survive the termination of this Deed of Trust and the repayment of the Indebtedness.

10.2            Covenants Running with the Land

.  All obligations contained in this Deed of Trust are intended by the parties to be and shall be construed as covenants running with the Land.

10.3            Recording and Filing

.  Grantor will cause the Loan Documents and all amendments and supplements thereto and substitutions therefor to be recorded, filed, re‑recorded, and refiled in such manner and in such places as the Trustee or Beneficiary shall reasonably request and will pay all such recording, filing, re‑recording and refiling, taxes, fees, and other charges.

10.4            Notices

.  Any notice, request, or other communication required or permitted to be given hereunder shall be given at the addresses and in accordance with the notice provisions set forth in Section 8 of the Loan Agreement.

10.5            No Waiver

.  Any failure by the Trustee or Beneficiary to insist, or any election by the Trustee or Beneficiary, not to insist, upon strict performance by Grantor of any of the terms, provisions, or conditions of this Deed of Trust shall not be deemed to be a waiver of the same or of any other term, provision, or condition thereof, and the Trustee or Beneficiary shall have the right at any time or times thereafter to insist upon strict performance by Grantor of any and all of such terms, provisions, and conditions.

10.6            Beneficiary's Right to Pay Indebtedness or Perform Obligations

Deed of Trust.htm                                                                         17

.  If any obligated party shall fail, refuse, or neglect to make any required payment on the Indebtedness or if Grantor fails, refuses, or neglects to perform any of its obligations under this Deed of Trust,  then in each case, at any time thereafter and without notice to or demand upon Grantor, or any other party, and without waiving or releasing any other right, remedy, or recourse Beneficiary may have because of the same, Beneficiary may (but shall not be obligated to) make such payment or perform such act for the account of and at the expense of Grantor and shall have the right to enter upon the Mortgaged Property for such purpose and to take all such action thereon with respect to the Mortgaged Property as it reasonably may deem necessary or appropriate.  Grantor shall be obligated to repay Beneficiary for all sums advanced by it pursuant to this Section 10.6 and shall indemnify and hold Beneficiary harmless from and against any and all loss, cost, expense, liability, damage, and claims and causes of action, including reasonable attorneys' fees (except such as result from the gross negligence, willful misconduct, violation of Law or fraud of Beneficiary, the Trustee or each of their respective agents, successors, assigns, subsidiaries, directors, officers, employees, representatives, parents or attorneys), incurred or accruing by any acts performed by Beneficiary pursuant to the provisions of this Section 10.6 or by reason of any other provision of the Loan Documents.  All sums paid by Beneficiary pursuant to this Section 10.6 and all other sums extended by Beneficiary to which it shall be entitled to be indemnified, together with interest thereon at the Default Rate from the date of such payment or expenditure, shall constitute additions to the Indebtedness, shall be secured by the Security Documents and shall be paid by Grantor to Beneficiary upon demand in accordance with the terms of the Loan Agreement.

10.7            Limitation on Effectiveness of Lien

.  It is the intention of Grantor and Beneficiary that the amount of the Indebtedness secured by this Deed of Trust shall be in, but not in excess of, the maximum amount permitted by fraudulent conveyance, fraudulent transfer or similar Laws applicable as to Grantor.  Accordingly, notwithstanding anything to the contrary contained in this Deed of Trust or any other agreement or instrument executed in connection with the payment of any of the Indebtedness, the amount of the Indebtedness secured by this Deed of Trust shall be limited to that amount which after giving effect thereto would not (a) render Grantor insolvent, (b) result in the fair saleable value of the assets of Grantor being less than the amount required to pay its debts and other liabilities (including contingent liabilities) as they mature, or (c) leave Grantor with unreasonably small capital to carry out its business as now conducted and as proposed to be conducted, including its capital needs, as such concepts described in (a), (b) and (c) herein are determined under applicable Law, if the obligations of Grantor hereunder would otherwise be set aside, terminated, annulled or avoided for such reason by a court of competent jurisdiction in a proceeding actually pending before such court.

10.8            Governing Law

.  This Deed of Trust must be construed, and its performance enforced, under Texas law.

10.9            Multiple Counterparts and Facsimile Signatures

.  This Deed of Trust may be executed in any number of counterparts with the same effect as if all signatories had signed the same document.  All counterparts must be construed together to constitute one and the same instrument.  This Deed of Trust may be transmitted and signed by facsimile and shall have the same effect as manually-signed originals and shall be binding on all parties.

10.10        Arbitration; Waiver of Jury Trial.

(a)                 This Section 10.10 concerns the resolution of any controversies or claims between the parties, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to (i) this Deed of Trust, or (ii) any Loan Document (collectively a "Claim").  For the purposes of this arbitration provision only, the term "parties" shall include any parent corporation, subsidiary or Affiliate of Beneficiary involved in the servicing, management or administration of any obligation described or evidenced by this Deed of Trust.

(b)                At the request of any party to this Deed of Trust, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U.S. Code) (the "Act").  The Act will apply even though this Deed of Trust provides that it is governed by the law of a specified state.

Deed of Trust.htm                                                                         18

(c)                Arbitration proceedings will be determined in accordance with the Act, the applicable rules and procedures for the arbitration of disputes of JAMS or any successor thereof ("JAMS"), and the terms of this Section 10.10.  In the event of any inconsistency, the terms of this Section 10.10 shall control.

(d)                The arbitration shall be administered by JAMS and conducted, unless otherwise required by law, in any U.S. state where real or tangible personal property collateral for this credit is located or if there is no such collateral, in the state specified in the governing law section of this Deed of Trust.  All Claims shall be determined by one arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims shall be decided by three arbitrators.  All arbitration hearings shall commence within ninety (90) days of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of the close of the hearing.  However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days.  The arbitrator(s) shall provide a concise written statement of reasons for the award.  The arbitration award may be submitted to any court having jurisdiction to be confirmed and enforced.

(e)                The arbitrator(s) will have the authority to decide whether any Claim is barred by the statute of limitations and, if so, to dismiss the arbitration on that basis. For purposes of the application of the statute of limitations, the service on JAMS under applicable JAMS rules of a notice of Claim is the equivalent of the filing of a lawsuit.  Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s).  The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this Deed of Trust.

(f)                 This Section 10.10 does not limit the right of any party to: (i) exercise self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or non-judicial foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies.

(g)                The filing of a court action is not intended to constitute a waiver of the right of any party, including the suing party, thereafter to require submittal of the Claim to arbitration.

(h)                By agreeing to binding arbitration, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of any Claim.  Furthermore, without intending in any way to limit this Deed of Trust to arbitrate, to the extent any Claim is not arbitrated, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of such Claim.  This provision is a material inducement for the parties entering into this Deed of Trust.

10.11        Entirety

.  THIS DEED OF TRUST, THE LOAN AGREEMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. 

Deed of Trust.htm                                                                         19

IN WITNESS WHEREOF, Grantor has executed this Deed of Trust as of the date first set out above.

GRANTOR:

                                                                        TOR MINERALS INTERNATIONAL, INC.,

                                                                        a Delaware corporation

                        By:                                                                                                                               Richard L. Bowers, President and

Chief Executive Officer

STATE OF TEXAS                              §

§

COUNTY OF _______________        §

This instrument was acknowledged before me on December___, 2005, by Richard L. Bowers, President and Chief Executive Officer of Tor Minerals International, Inc., a Delaware corporation, on behalf of said corporation.

                                                                               NOTARY PUBLIC IN AND FOR THE

                                                                               STATE OF TEXAS

AFTER RECORDING PLEASE RETURN TO:

Porter & Hedges, L.L.P.
1000 Main Street, 36th Floor
Houston, Texas 77002
Attn: Nick H. Sorensen

ATTACHMENTS:

Exhibit A - Property Description

Exhibit B - Permitted Encumbrances

Signature and Acknowledgment Page to Deed of Trust, Security Agreement

and UCC Financing Statement for Fixture Filing

EX-10

EXHIBIT 10.6

NOTICE OF CONFIDENTIALITY RIGHTS:  IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS:  YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER'S LICENSE NUMBER.

LEASEHOLD DEED OF TRUST, SECURITY AGREEMENT
AND UCC FINANCING STATEMENT FOR FIXTURE FILING

by

TOR MINERALS INTERNATIONAL, INC.

a Delaware corporation,
as Grantor,

to

PRLAP, INC.,

a Texas corporation,

as Trustee,

for the benefit of
BANK OF AMERICA, N.A.,

a national banking association,
as Beneficiary

This Instrument shall be effective as a

UNIFORM COMMERCIAL CODE FINANCING STATEMENT FILED AS A
FIXTURE FILING

By
Debtor:                         Tor Minerals International, Inc.

722 Burleson Street
P. O. Box 2544
Corpus Christi, Nueces County, Texas 78403

Attn:  Richard L. Bowers

To
Secured Party:              Bank of America, N.A.
                                    700 Louisiana Street, 7th Floor
                                    Houston, Texas 77002

                                    Attn:  Mark Montgomery

This Financing Statement covers goods described herein by item or type some or all of which are affixed or are to be affixed to the real property described in Exhibit A attached hereto.

Leasehold Deed of Trust

TABLE OF CONTENTS

i

Leasehold Deed of Trust                                                          ii

EXHIBITS

Exhibit A         Description of Land

Exhibit B         Permitted Encumbrances

1

leasehold DEED OF TRUST, SECURITY AGREEMENT
AND UCC FINANCING STATEMENT FOR FIXTURE FILING

STATE OF TEXAS                  §
                                                §
COUNTY OF NUECES           §

This LEASEHOLD DEED OF TRUST, SECURITY AGREEMENT AND UCC FINANCING STATEMENT FOR FIXTURE FILING (as amended, restated, or supplemented, this "Deed of Trust") is executed as of December 13, 2005, by TOR MINERALS INTERNATIONAL, INC., a Delaware corporation ("Grantor"), to PRLAP, Inc., a Texas corporation, Trustee, and its successors in the trust hereby created (such Trustee and any successors in trust, the "Trustee") for the benefit of Bank of America, N.A., a national banking association ("Beneficiary").

SECTION 1.         DEFINITIONS

.  Unless otherwise defined in this Deed of Trust, or unless the context otherwise requires, each capitalized term used in this Deed of Trust shall have the meaning given such term in the Loan Agreement, as hereinafter defined.  As used in this Deed of Trust, the following terms shall have the following meanings:

Beneficiary means Bank of America, N.A., a national banking association, and its successors and assigns.

Debtor Relief Laws means Title 11 of the United States Code and all other applicable liquidation, conservatorship, bankruptcy, fraudulent transfer, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

Default means an "Event of Default" as defined in the Loan Agreement.

Fixtures means all materials, supplies, equipment, apparatus, and other items now or hereafter attached to, installed on or in the Land or the Improvements, or which in some fashion are deemed to be fixtures to the Land or Improvements under the laws of the State of Texas, including the Texas Business and Commerce Code, other than those owned by tenants under any Lease.  The term "Fixture" shall include, without limitation, all items of Personalty to the extent that the same may be deemed fixtures under applicable law or Legal Requirements.

Governmental Authority means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of, or pertaining to, government.

Grantor means the above defined Grantor and any and all subsequent record or equitable owners of the Mortgaged Property.

Leasehold Deed of Trust                                                          1

Impositions means all real estate and personal property taxes; water, gas, sewer, electricity, and other utility rates and charges; charges for any easement, license, or agreement maintained for the benefit of the Mortgaged Property, and all other taxes, standby fees, charges, and assessments and any interest, costs, or penalties with respect thereto of any kind and or character whatsoever which at any time before or after the execution of this Deed of Trust may be assessed, levied, or imposed upon the Mortgaged Property or the ownership, use, occupancy, or enjoyment thereof.

Improvements means all buildings, structures, open parking areas, and other improvements, and any and all accessions, additions, replacements, substitutions, or alterations thereof or appurtenances thereto, now or at any time hereafter situated, placed, constructed, or renovated upon the Land or any part thereof.

Indebtedness means (a) the Obligation (as defined below), including, without limitation, amounts that would become due but for operation of any applicable provision of Title 11 of the United States Code (including 11 U.S.C. §§ 502 and 506), together with all pre- and post-maturity interest thereon, which shall include, without limitation, all post-petition interest if Grantor voluntarily or involuntarily files for bankruptcy protection, (b) all indebtedness, liabilities, and obligations of Grantor arising under this Deed of Trust, (c) interest accruing on, and reasonable attorneys' fees, court costs, and other costs of collection reasonably incurred in the collection or enforcement of, any of the indebtedness, liabilities, or obligations described in clauses (a) and (b) above, and (d) any and all renewals and extensions of, or amendments to, any of the indebtedness, liabilities, and obligations described in clauses (a) through (c) above, together with all funds hereafter advanced by Beneficiary to or for the benefit of Grantor as contemplated by any covenant or provision contained in any Loan Document including this Deed of Trust, it being contemplated that Grantor may hereafter become indebted to Beneficiary in further sum or sums.

Land means the real estate or any interest therein described in Exhibit A attached hereto and made a part hereof, together with all Improvements and Fixtures and all rights, titles, and interests appurtenant thereto.

Laws means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority (whether or not such orders, requests, licenses, authorizations, permits or agreements have the force of law).

Leases means any and all leases, subleases, licenses, concessions, or other agreements (written or oral, now or hereafter in effect) which grant a possessory interest in and to, or the right to extract from, mine, occupy, sell or use the Mortgaged Property, and all other agreements, including, but not limited to, utility contracts, maintenance agreements, and service contracts which in any way relate to the use, occupancy, operations, maintenance, enjoyment, or ownership of the Mortgaged Property, save and except any and all leases, subleases, or other agreements pursuant to which Grantor is granted a possessory interest in the Land.

Leasehold Deed of Trust                                                          2

Legal Requirements means (a) any and all present and future Laws in any way applicable to Grantor, or the Mortgaged Property, including but not limited to those respecting the ownership, use, occupancy, possession, operation, maintenance, alteration, repair, or reconstruction thereof, (b) Grantor's presently or subsequently effective organizational documents, (c) any and all Leases and other contracts (written or oral) of any nature to which Grantor may be bound, and (d) any and all restrictions, reservations, conditions, easements, or other covenants or agreements of record affecting the Mortgaged Property.

Lien means any lien (statutory or other), mortgage, security interest, financing statement, collateral assignment, pledge, assignment, charge, hypothecation, deposit arrangement or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing), or encumbrance of any kind, and any other right of or arrangement with any creditor (whether based on common law, constitutional provision, statute or contract) to have its claim satisfied out of any property or assets, or their proceeds, before the claims of the general creditors of the owner of the property or assets.

Mortgaged Lease means that (i) that certain lease agreement dated April 14, 1987, between the Port of Corpus Christi Authority of Nueces County, Texas, as lessor, and Grantor, as lessee (as amended by that certain Amendment of Leases dated July 11, 2000, that certain Second Amendment of Leases dated May 13, 2003, and that certain Third Amendment of Leases dated November 15, 2005), pursuant to which Grantor, as lessee, leases the portion of the Land more particularly described therein, and (ii) that certain lease agreement dated January 12, 1988, between the Port of Corpus Christi Authority of Nueces County, Texas, as lessor, and Grantor, as lessee (as amended by that certain Amendment of Leases dated July 11, 2000, that certain Second Amendment of Leases dated May 13, 2003, and that certain Third Amendment of Leases dated November 15, 2005), pursuant to which Grantor, as lessee, leases the portion of the Land more particularly described therein.

Mortgaged Property means the Land, Improvements, Fixtures, Personalty, Leases, and Rents, together with:

(a)                all rights, privileges, tenements, hereditaments, rights‑of‑way, easements, appendages, and appurtenances in anywise appertaining thereto, and all of Grantor's right, title and interest in and to any streets, ways, alleys, strips, or gores of land adjoining the Land or any part therein;

(b)                all betterments, accessions, additions, appurtenances, substitutions, replacements, and revisions thereof and thereto and all reversions and remainders therein; and

(c)                all other interest of every kind and character which Grantor now has or at anytime hereafter acquires in and to the above described and all property which is used or useful in connection therewith, including rights of ingress and egress, easements, licenses, and all reversionary rights or interests of Grantor with respect to such property.  To the extent permitted by applicable law and the Legal Requirements, all of the Personalty and Fixtures are to be deemed and held to be a part of and affixed to the Land.  The estate of Grantor in and to the Land and Improvements is a leasehold estate, and this conveyance includes all of the leasehold estate and interests of Grantor in and to the Land created by the Mortgaged Lease, together with any and all other, further or additional title, estates, interests, or rights which may at any time be acquired by Grantor, under the Mortgaged Lease or otherwise, in or to the Land.

As used in this Deed of Trust, the term "Mortgaged Property" is expressly defined as meaning all or any portion of the above and any interest therein.

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Loan Agreement means that certain Second Amended and Restated Loan Agreement dated December 21, 2004, between Grantor and Beneficiary, as amended, supplemented, restated or otherwise modified from time to time.

Obligation means all present and future debt, liabilities and obligations (including the obligations under any Swap Contract), whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, and all renewals, increases and extensions thereof, or any part thereof, now or in the future owed to Assignee by Assignor under any Loan Document, together with all interest accruing thereon, reasonable fees, costs and expenses payable under the Loan Documents or in connection with the enforcement of any rights under the Loan Documents, including interest and fees that accrue after the commencement by or against Assignee of any proceeding under any Debtor Relief Law naming such party as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

Permitted Encumbrances means (a) the Liens, easements, building lines, restrictions, security interests, and other matters (if any) as set out on attached Exhibit B and (b) the Liens in favor of Beneficiary.

Person means any individual, partnership, limited partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, syndicate, Governmental Authority or other entity or organization of whatever nature.

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Personalty means all of Grantor's right, title, and interest in and to all tangible and intangible personal property, whether or not Fixtures or otherwise constituting fixtures under the Texas Business and Commerce Code, including all equipment, inventory, goods, consumer goods, accounts, chattel paper, instruments, money, general intangibles, documents, minerals, crops, and timber (as those terms are defined in the Texas Business and Commerce Code) which are attached to, installed, placed or used on or in connection with, or is acquired for such attachment, installation, placement, or use, or which arises out of the improvement, financing, leasing, operation, or use of, the Land, the Improvements, Fixtures, or other goods located on the Land or Improvements, together with all additions, accessions, accessories, amendments, and modifications thereto, extensions, renewals, enlargements, and proceeds thereof, substitutions therefor, and income and profits therefrom.  The following are included, without limitation, in the definition of Personalty: furnishings, building materials, supplies, machines, engines, boilers, stokers, pumps, fans, vents, blowers, dynamos, furnaces, elevators, ducts, shafts, pipes, furniture cabinets, shades, blinds, screens; plumbing, heating, air conditioning, lighting, lifting, ventilating, refrigerating, cooking, medical, laundry and incinerating equipment; partitions, drapes, carpets, rugs and other floor coverings, and awnings; call and sprinkler systems, fire prevention and extinguishing apparatus and equipment, water tanks, compressors, vacuum cleaning systems; disposals, swimming pools, dishwashers, ranges, ovens, kitchen equipment, and cafeteria equipment; recreational equipment; loan commitments, financing arrangements, bonds, leases, licenses, permits, sales contracts, insurance policies, and the proceeds therefrom, plans and specifications, surveys, rent rolls, books and records, funds, bank deposits; all trademarks, service marks, trade names, and symbols used in connection therewith; any award, remuneration, settlement, or compensation heretofore made or hereafter to be made by any Tribunal to Grantor, including those for any vacation of or change of grade in any streets affecting the Land or the Improvements; all plans and specifications for the Improvements; all contracts and subcontracts relating to the Improvements; all deposits (including tenants' security deposits), funds, accounts, contract rights or documents; arising from or by virtue of any transactions involving an interest in the property described herein; all permits, licenses, franchises, certificates, and other rights and privileges obtained in connection with the property described herein; all proceeds arising from or by virtue of the sale, lease, or other disposal of all or any part of the Mortgaged Property (consent to same not granted or to be implied hereby); and all proceeds (including premium refunds) payable or to be payable under each policy of insurance relating to the Mortgaged Property.

Rents means all of the rents, revenues, income, proceeds, royalties, profits, and other benefits paid or payable for using, leasing, licensing, possessing, operating from or in, residing in, selling, mining, extracting, or otherwise enjoying or using the Mortgaged Property.

SECTION 2.         GRANT OF LIEN; HABENDUM CLAUSE.

2.1               Grant of Lien; Habendum Clause

.  To secure the full and timely payment of the Indebtedness and the full and timely performance and discharge of Grantor's obligations under this Deed of Trust, Grantor has GRANTED, BARGAINED, SOLD, and CONVEYED, and by these presents does GRANT, BARGAIN, SELL, and CONVEY unto the Trustee the Mortgaged Property, subject to the Permitted Encumbrances, TO HAVE AND TO HOLD the Mortgaged Property unto the Trustee, the Trustee's successors in trust, and the Trustee's assigns forever, in trust with power of sale, and Grantor does hereby bind itself, its successors, legal representatives, and assigns to warrant and forever defend the title to the Mortgaged Property unto the Trustee against every Person whomsoever lawfully claiming or to claim the same or any part thereof by, through or under Grantor, but not otherwise; provided that, if the Indebtedness has been irrevocably paid in full and the Beneficiary's commitment to lend under the Loan Agreement has finally terminated, then the Liens, security interests, estates, and rights granted in this Deed of Trust shall terminate; otherwise the same shall remain in full force and effect.

2.2               Subrogation

.  The Trustee and Beneficiary are hereby subrogated to the claims and liens of all parties whose claims or liens are fully or partially discharged or paid with the proceeds of the Indebtedness secured by this Deed of Trust, notwithstanding that such claims or liens may have been cancelled and satisfied of record.

SECTION 3.         WARRANTIES AND REPRESENTATIONS

.  Grantor acknowledges that certain representations and warranties in the Loan Agreement are applicable to it and confirms that each such representation and warranty is true and correct.  Furthermore, Grantor hereby unconditionally warrants and represents to the Beneficiaries as follows:

3.1               Lien of this Instrument

.  This Deed of Trust constitutes a valid, subsisting lien on the Land, the Improvements, and the Fixtures, and a valid, subsisting security interest in and to the Personalty.

3.2               Litigation

.  There are no actions, suits, or proceedings pending or, to the knowledge of Grantor, threatened against or affecting the Mortgaged Property or involving the validity or enforceability of this Deed of Trust or the priority of the lien and security interest hereof.

3.3               Acknowledgment by Grantor

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.  Grantor acknowledges that the execution and delivery of this Deed of Trust is a requirement to Beneficiary's extension of credit to Grantor under the Loan Agreement and is an integral part of the transactions contemplated by the Loan Documents and is a condition precedent to the effectiveness of the Loan Agreement.

3.4               Environmental

.  In addition to the representations set out above, Grantor expressly incorporates into this Deed of Trust, and restates, the representation set forth in Section 3.J of the Loan Agreement.

SECTION 4.         AFFIRMATIVE COVENANTS

.  Grantor acknowledges that certain covenants in the Loan Agreement are applicable to it and Grantor covenants and agrees to comply with each of them.  Furthermore, Grantor hereby unconditionally covenants and agrees with Beneficiary as follows, until the entire Indebtedness is paid and performed in full and the Beneficiary's commitment to lend under the Loan Agreement is finally terminated:

4.1               Payment and Performance

.  Grantor will pay the Indebtedness as and when called for in the Loan Documents and will perform all of its obligations under this Deed of Trust on or before the dates they are to be performed.

4.2               Payment of Impositions

.  Grantor will pay and discharge, or cause to be paid and discharged, the Impositions and Grantor's obligations to materialmen, mechanics, carriers, warehousemen, or other like Persons as and when required to be paid pursuant to the terms of the Loan Agreement unless contested in good faith by appropriate proceedings.

4.3               Repair

.  Grantor will keep the Mortgaged Property in good order and condition and presenting a good appearance and will make all repairs and replacements, renewals, additions, betterments, improvements and alterations thereof and thereto, interior and exterior, structural and nonstructural, ordinary and extraordinary, foreseen and unforeseen, which are necessary or reasonably appropriate to keep same in such order and condition.  Grantor will also use its best efforts to prevent any act or occurrence which might materially impair the value or usefulness of the Mortgaged Property for its intended usages as set forth in any plans and specifications for the Improvements submitted to Beneficiary or in the Loan Documents.  In instances where repairs, replacements, renewals, additions, betterments, improvements, or alterations are required in and to the Mortgaged Property on an emergency basis to prevent loss, damage, waste or destruction thereof, Grantor shall proceed to construct same, or cause same to be constructed, notwithstanding anything to the contrary contained in Section 5.2 below; provided that, in instances where such emergency measures are to be taken, Grantor will promptly notify Beneficiary in writing of the commencement of such emergency measures and, when same are completed, the completion date and the measures actually taken.

4.4               Insurance

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.  In addition to the requirements of Section 4.E of the Loan Agreement, Grantor shall obtain and maintain insurance upon and relating to the Mortgaged Property insuring against personal injury and death, loss by fire and such other hazards, casualties, and contingencies (including but not limited to fire, lightning, hail, windstorm, explosion, malicious mischief, vandalism, and rent loss or extra expense insurance covering loss of Rents) as are covered by extended coverage policies in effect where the Land is located and such other risks as may be reasonably specified by Beneficiary from time to time, all in such amounts and with such insurers of recognized responsibility as are reasonably acceptable to Beneficiary; provided that, absent written direction from Beneficiary, such insurance shall be in an amount not less than the full insurable replacement value of the Mortgaged Property.  If, and to the extent that the Mortgaged Property is located within an area that has been or is hereafter designated or identified as an area having any type of flood, mudslide, or flood-related erosion hazard by the Federal Emergency Management Agency or by such other official as shall from time to time be authorized by federal or state law to make such designation pursuant to the National Flood Insurance Act of 1968, as such act may from time to time be amended and in effect, or pursuant to any other national or state program of flood insurance, Grantor shall carry flood insurance with respect to the Mortgaged Property in an amount not less than the maximum amount available under the Flood Disaster Protection Act of 1973 and the regulations issued pursuant thereto, as amended from time to time, in form complying with the "insurance purchase" requirement of that Act.  Each insurance policy issued in connection with the Mortgaged Property shall provide, by way of endorsements, riders, or otherwise, that proceeds will be payable to Beneficiary as its interest may appear and should be cancelable only after Beneficiary is given thirty (30) days written notice of such cancellation.  All renewal and substitute policies of insurance or certified copies thereof shall be delivered at the office of Beneficiary, premiums then due and payable paid, at least fifteen (15) days before termination of policies theretofore delivered to Beneficiary.  Beneficiary shall have the right, but not the obligation, to make premium payments, at Grantor's expense, to prevent any cancellation, endorsement, alteration or reissuance, and such payments shall be accepted by the insurer to prevent same.

4.5               Restoration Following Casualty

.  If any act or occurrence of any kind or nature (including any casualty for which insurance was not obtained or obtainable) shall result in damage to or loss or destruction of the Mortgaged Property, Grantor shall give notice thereof to Beneficiary.  If any of the Mortgaged Property covered by insurance is destroyed or damaged by any casualty against which insurance shall have been required hereunder, the Beneficiary shall have the right to collect, and the Grantor hereby assigns to Beneficiary, any an all monies that may become payable under any insurance policies required hereunder by reason of damage to, or loss or destruction of the Mortgaged Property or any part thereof.  Beneficiary may apply said monies, or any part thereof, to the Obligation in the order and manner in its sole discretion. 

4.6               Defense of Title

.  If the title of the Trustee to, or the interest of Beneficiary in, the Mortgaged Property or any part thereof, shall be endangered or shall be attacked, directly or indirectly, Grantor shall, at Grantor's expense, take all necessary and proper steps for the defense of such title or interest, including the employment of counsel, the prosecution or defense of litigation, and the compromise or discharge of claims made against such title or interest in the Mortgaged Property.  In the event of Grantor's failure or inability to proceed initially as provided above, the Trustee and Beneficiary or either of them (whether or not named as parties to legal proceedings with respect thereto) are hereby authorized and empowered to take, at Grantor's expense, such additional steps as in their reasonable judgment may be necessary or proper for the defense of any such legal proceedings or the protection of the validity or priority of this Deed of Trust and the rights, titles, liens and security interests created or evidenced hereby.

4.7               Future Impositions

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.  If at any time any law shall be enacted imposing or authorizing the imposition of any tax upon this Deed of Trust or upon any rights, titles, liens, or security interests created hereby, or any part thereof, Grantor shall promptly pay all such taxes to the extent it can lawfully do so.  In the event of the enactment of such a law, if it is unlawful for Grantor to pay such taxes, payment of such tax shall be deemed an obligation which Beneficiary may pay pursuant to Section 10.6 of this Deed of Trust.

4.8               Environmental Indemnification

.  In addition to the covenants set out in Sections 4 and 5 of this Deed of Trust, Grantor expressly incorporates into this Deed of Trust, and restates, the indemnification set forth in Section 10.L of the Loan Agreement.

4.9               Information About Mortgaged Property

.  Grantor will maintain at its chief executive office, a current record of the location of all Mortgaged Property, and furnish to Beneficiary, at such intervals as Beneficiary may reasonably request, lists, descriptions, and other information as may be necessary or proper to keep Beneficiary informed with respect to the identity, location, status, condition and value of the Mortgaged Property.  Grantor will promptly notify Beneficiary of any change in any material fact or circumstance represented or warranted by Grantor with respect to any of the Mortgaged Property, or any material claim, action or proceeding affecting title to any of the Mortgaged Property.

4.10            Further Assurances

. Grantor will from time to time promptly execute and deliver to Beneficiary all such other assignments, certificates, supplemental documents, and financing statements, and do all other acts or things as Beneficiary may reasonably request in order to more fully create, evidence, perfect, continue and preserve the priority of the Lien created by this Deed of Trust.

4.11            Appraisal

.  Grantor shall be liable for the costs, fees, and expenses relating to (a) the appraisal of the Mortgaged Property to be delivered prior to the date of this Deed of Trust, (b) one additional appraisal of the Mortgaged Property if required by Beneficiary in its reasonable judgment and in accordance with its customary practices prior to full and complete payment of the Indebtedness, and (c) any appraisal of the Mortgaged Property as may be required by government regulators or auditors or the Beneficiary's internal policies.  Grantor is required to reimburse Beneficiary for the cost and expense of any appraisal obtained in connection with this Deed of Trust.  Such reimbursement shall be due within ten (10) days after Beneficiary's written request for reimbursement.

SECTION 5.         NEGATIVE COVENANTS

.  Grantor acknowledges that certain covenants in the Loan Agreement are applicable to it and covenants and agrees to comply with each of them.  Furthermore, Grantor hereby covenants and agrees that, until the entire Indebtedness is paid in full and the Beneficiary's commitment to lend under the Loan Agreement is finally terminated:

5.1               Use Violations

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.  Grantor will not use, maintain, operate, or occupy, or allow the use, maintenance, operation, or occupancy of the Mortgaged Property in any manner which, in case of any of the following would constitute a Material Adverse Event, (a) violates any Legal Requirement, (b) may be dangerous unless safeguarded as required by law, or (c) constitutes a public or private nuisance.

5.2               Alterations

.  Grantor will not commit or permit any waste of the Mortgaged Property that would constitute a Material Adverse Event on its value as security for the Indebtedness and will not (subject to the provisions of Section 4.3 herein), without the advance written notice to Beneficiary, make or permit to be made any alterations or additions to the Mortgaged Property of a material nature.

5.3               Prohibition on Transfer

.  Grantor will not sell, trade, transfer, assign, exchange, or otherwise dispose of any of the Mortgaged Property.

5.4               Replacement of Fixtures and Personalty

.  Grantor will not, without Beneficiary's prior written consent, permit any of the Fixtures or Personalty to be removed at any time from the Land or Improvements unless the removed item is removed temporarily for maintenance and repair or, if removed permanently, is replaced by an article of equal suitability and value, owned by Grantor, free and clear of any lien or security interest except such as may be first approved in writing by Beneficiary or any Permitted Encumbrance.

5.5               No Further Encumbrances

.  Grantor will not, without Beneficiary's prior written consent, create, place, suffer, or permit to be created or placed or, through any act or failure to act, acquiesce in the placing of or allow to remain, any mortgage, pledge, lien (statutory, constitutional, or contractual), security interest, encumbrance, or charge on, or conditional sale or other title retention agreement, regardless of whether same are expressly subordinate to the liens of the Loan Documents, with respect to the Mortgaged Property, other than the Permitted Encumbrances.

SECTION 6.         DEFAULT AND FORECLOSURE.

6.1               Remedies

.  If a Default occurs and is continuing, Beneficiary may, in accordance with the Loan Agreement, by and through the Trustee or otherwise, exercise any or all of the following rights, remedies and recourses to the extent permitted by applicable Law:

(a)                Declare the Indebtedness immediately due and payable in accordance with the terms of the Loan Agreement whereupon the same shall become immediately due and payable.  Except as expressly provided in the Loan Agreement, Grantor expressly waives any notice of intent to accelerate, notice of acceleration, or any other notice, presentment, protest, demand or action of any kind or nature whatsoever.

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(b)                Enter upon the Mortgaged Property and take exclusive possession thereof and of all books, records, and accounts relating thereto without notice and without being guilty of trespass.  If Grantor remains in possession of all or any part of the Mortgaged Property, and without Beneficiary's prior written consent thereto, Beneficiary may, without notice to Grantor, invoke any and all legal remedies to dispossess Grantor, including specifically one or more actions for forcible entry and detainer, trespass to try title, and writ of restitution.  Nothing contained in the foregoing sentence shall, however, be construed to impose any greater obligation or any prerequisites to acquiring possession of the Mortgaged Property after a Default than would have existed in the absence of such sentence.

(c)                Hold, lease, manage, operate, or otherwise use or permit the use of the Mortgaged Property, either itself or by other persons, firms or entities, in such manner, for such time and upon such other terms as Beneficiary may deem to be prudent and reasonable under the circumstances (making such repairs thereto and taking any and all other action with reference thereto, from time to time, as Beneficiary shall deem reasonably necessary for the purpose of maintaining the Mortgaged Property in its then current condition but not making any material capital improvements thereto) and apply all Rents and other amounts collected by the Trustee in connection therewith in accordance with the provisions of Section 6.8 of this Deed of Trust.

(d)                Request the Trustee to proceed with foreclosure.  Upon the request, the Trustee is authorized and empowered, and it shall be his special duty, to sell or offer for sale the Mortgaged Property.  The Mortgaged Property shall be sold at public auction to the highest bidder for cash or other consideration approved by Beneficiary.  The Mortgaged Property may be sold or offered for sale in such order and in such portions or parcels as Beneficiary may determine whether or not such portions or parcels are contiguous, with or without having first taken possession of same, and without the necessity of having any Personalty present at such sale. The sale shall be conducted at the county courthouse in the county where the Land is located, at the area of the county courthouse designated by the Commissioner's Court of such county as the area in which foreclosure sales are to take place, as evidenced by the designation recorded in the real property records of such county and, if no area is so designated, then in the area designated in the Trustee's, or Substitute Trustee's, Notice of Sale as being the area for such foreclosure sale.  If the Land, or any portion thereof to be sold, is located in more than one county, the sale may occur at the designated area of the county courthouse in any county in which the Land is located.  The foreclosure sale shall take place on the first Tuesday of any month between the hours of 10:00 a.m. and 4:00 p.m.  When conducting the sale, the Trustee may adjourn and reconvene as often as Trustee deems appropriate.  Notice of the sale must be given at least twenty‑one (21) days before the date of the sale.  The Notice of sale must include a statement of the earliest time at which the sale will occur and the sale must begin at that time or not later than three (3) hours after that time.  Notice of the sale must be given:

(i)                  by posting or causing to be posted at the courthouse door of each county in which the Land (or any portion to be sold) is located a written or printed notice designating the county in which the Mortgaged Property will be sold, and

(ii)                by filing in the office of the county clerk of each county in which the Land (or any portion to be sold) is located a copy of the notice, and

(iii)               by certified mail on each debtor who, according to the records of Beneficiary or other holder of the Indebtedness, is obligated to pay the Indebtedness secured by this Deed of Trust.

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Notice may be served, given, filed, posted, or mailed by the Trustee or by any person acting for the Trustee.  The affidavit of any person having knowledge of the facts to the effect that such service was completed shall be prima facie evidence of the fact of service.  Beneficiary may, at its option, accomplish all or any of the aforesaid in the manner permitted or required under (i) Section 51.002 of the Texas Property Code, as amended and restated, relating to the sale of real property under a power of sale or, (ii) with respect to the Personalty sold separately from the rest of the Mortgaged Property, Chapter 9 of the Texas Business and Commerce Code relating to the sale of collateral after default by a debtor or by any other amendment or successor to either statute.  Nothing contained in this Section 6.1(d) shall be construed to limit in any way the Trustee's rights to sell the Personalty by private sale if, and to the extent that, such private sale is permitted under the laws of the State of Texas or by public or private sale after entry of a judgment by any court of competent jurisdiction ordering same.  At any sale of the Mortgaged Property whether made under the power of sale contained in this Deed of Trust, Section 51.002 of the Texas Property Code, Chapter 9 of the Texas Business and Commerce Code, any other Legal Requirement, or by virtue of any judicial proceedings or any other legal right, remedy, or recourse,

(iv)              the Trustee need not have the Mortgaged Property physically present or have constructive possession of the Mortgaged Property; provided that, the title to and right of possession of any such Mortgaged Property shall pass to the purchaser thereof as completely as if the same had been actually present and delivered to purchaser at such sale;

(v)                each conveyance instrument executed by the Trustee shall contain a special warranty of title binding upon Grantor;

(vi)              each and every recital contained in any conveyance instrument executed by the Trustee shall constitute prima facie evidence of the truth and accuracy of the matters recited therein including, without limitation, appointment of any successor Trustee hereunder, nonpayment of the Indebtedness, notice, filing, posting, and conduct of the sale in the manner provided herein and by law;

(vii)             all prerequisites to the validity of the sale shall be rebuttably presumed to have been performed;

(viii)           the receipt from the Trustee, or such other party or officer conducting the sale, shall be sufficient to discharge the purchaser for his purchase money, and no purchaser or his assigns or personal representatives, shall thereafter be obligated to see to the application of such purchase money or be in any way answerable for any loss, misapplication, or non‑application thereof;

(ix)              Grantor shall be completely and irrevocably divested of all of its right, title, interest, claim, and demand whatsoever, either at law or in equity, in and to the property sold, and such sale shall be a perpetual bar both at law and in equity against Grantor and against all other persons claiming or to claim the property sold or any part thereof by, through or under Grantor; and

(x)                Beneficiary may be a purchaser at any such sale and may credit the bid against the Indebtedness.

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(e)                Beneficiary or the Trustee may make application to a court of competent jurisdiction, as a matter of strict right and without notice to Grantor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, for appointment of a receiver of the Mortgaged Property.  Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to sell, rent, maintain, and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply the Rents in accordance with the provisions of Section 6.8 in this Deed of Trust.

(f)                 Pursuant to Section 21.48A of the Texas Insurance Code, in the event Beneficiary is the successful bidder at a foreclosure sale of all or any part of the Mortgaged Property, it shall have the right to cancel any insurance policy covering the property foreclosed upon and collect any unearned premiums from said policy.

(g)                Exercise any and all other rights, remedies, and recourses granted under the Loan Documents or now or hereafter existing in equity, at law, by virtue of statute, or otherwise.

6.2               Divestment of Rights, Tenant at Sufferance

.  After sale of the Mortgaged Property, or any portion thereof, Grantor shall be divested of any and all interest and claim thereto, including any interest or claim to all insurance policies, bonds, loan commitments, contracts, and other intangible property covered by this Deed of Trust.  Additionally, with respect to the Land, Improvements, Fixtures, and Personalty, after a sale of all or any portion thereof, Grantor will be considered a tenant at sufferance of the purchaser of the same, and said purchaser shall be entitled to immediate possession thereof, and if Grantor shall fail to vacate the Mortgaged Property immediately, said purchaser may and shall have the right, without further notice to Grantor, to go into any justice court in any precinct or county in which the Land and Improvements are located and file an action in forcible entry and detainer or forcible detainer, which action shall lie against Grantor or its assigns or legal representatives as a tenant at sufferance.

6.3               Separate Sales

.  If a Default occurs and is continuing, the Trustee may sell all or any portion of the Mortgaged Property together or in lots or parcels and in such manner and order as the Trustee, in its sole discretion, may elect.  The sale or sales by the Trustee of less than the whole of the Mortgaged Property shall not exhaust the power of sale granted in this Deed of Trust, and the Trustee is specifically empowered to make successive sale or sales under such power until the whole of the Mortgaged Property shall be sold; and if the proceeds of such sale or sales of less than the whole of such Mortgaged Property shall be less than the aggregate of the Indebtedness and the expense of executing this trust, this Deed of Trust and the lien, security interest and assignment hereof shall remain in full force and effect as to the unsold portion of the Mortgaged Property just as though no sale or sales had been made; provided that, Grantor shall never have any right to require the sale or sales of less than the whole of the Mortgaged Property, but Beneficiary shall have the right, at its sole election, to request the Trustee to sell less than the whole of the Mortgaged Property.  As among the various counties in which items of the Mortgaged Property may be situated, sales in such counties may be conducted in any order that the Trustee may deem expedient; and any one or more of such sales may be conducted in the same month, or in successive or different months, as the Trustee may deem expedient.  If Default occurs as to nonpayment of part of the Indebtedness, Beneficiary shall have the option to proceed as if under a full foreclosure, conducting the sale as herein provided without declaring the entire Indebtedness due, and if sale is made because of default of an installment, or a part of an installment, such sale may be made subject to the unmatured part of the Indebtedness; and such sale, if so made, shall not in any manner affect the unmatured part of the Indebtedness but as to such unmatured part, this Deed of Trust shall remain in full force and effect as though no sale had been made under the provisions of this Deed of Trust.  Any number of sales may be made under this Deed of Trust without exhausting the right of sale for any unmatured part of the Indebtedness secured hereby.

6.4               Remedies Cumulative, Concurrent, and Nonexclusive

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.  The Trustee and Beneficiary shall have all rights, remedies, and recourses granted in the Loan Documents and available at law or equity (including specifically those granted by the Texas Business and Commerce Code, as amended but taking into account the provisions of the Loan Agreement) and same (a) shall be cumulative and concurrent; (b) may be pursued separately, successively, or concurrently against Grantor or others obligated under the Loan Agreement, or against the Mortgaged Property, or against any one or more of them at the sole discretion of Beneficiary; (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy, or recourse; and (d) are intended to be, and shall be, nonexclusive.

6.5               Release of and Resort to Collateral

.  Any part of the Mortgaged Property may be released by Beneficiary in accordance with the Loan Agreement without affecting, subordinating, or releasing the lien, security interest, and assignment hereof against the remainder of the Mortgaged Property.  The lien, security interest, and other rights granted hereby shall not affect or be affected by any other security taken for the Indebtedness or any part thereof.  The taking of additional security or the rearrangement, extension, or renewal of the Indebtedness, or any part thereof, shall not release or impair the lien, security interest, and other rights granted hereby or affect the liability of any endorser, guarantor, or surety or, except as may be provided in the Subordination Agreement, improve the right of any permitted junior lienholder; and this Deed of Trust, as well as any instrument given to secure any rearrangement, renewal, or extension of the Indebtedness secured hereby, or any part thereof, shall be and remain a first and prior lien, except as otherwise provided herein, on all of the Mortgaged Property not expressly released until the Indebtedness is completely paid.

6.6               Waiver of Redemption, Notice, and Marshaling of Assets

.  To the fullest extent permitted by Law, Grantor hereby irrevocably and unconditionally waives and releases (a) all benefits that might accrue to Grantor by any present or future laws exempting the Mortgaged Property from attachment, levy, or sale on execution or providing for any appraisement, valuation, stay of execution, exemption from civil process, redemption, or extension of time for payment, (b) except as may be provided for under the terms hereof or the other Loan Documents, all notices of any Default or of Beneficiary's or the Trustee's election to exercise or the actual exercise of any right, remedy, or recourse provided for under the Loan Documents, (c) any right to appraisal or marshaling of assets or a sale in inverse order of alienation, (d) the exemption of homestead, and (e) the administration of estates of decedents or other matters whatever to defeat, reduce, or affect the right of Beneficiary under the terms of this Deed of Trust to sell the Mortgaged Property for the collection of the Indebtedness secured hereby (without any prior or different resort for collection) or the right of Beneficiary under the terms of this Deed of Trust, to the payment of the Indebtedness out of the proceeds of sale of the Mortgaged Property in preference to every other person and claimant whatever (only reasonable expenses of such sale being first deducted).

6.7               Discontinuance of Proceedings

.  In case Beneficiary shall have proceeded to invoke any right, remedy, or recourse permitted under the Loan Documents and shall thereafter elect to discontinue or abandon the same for any reason, Beneficiary shall have the unqualified right so to do, and, in such event, Grantor and Beneficiary shall be restored to their former positions with respect to the Indebtedness, the Loan Documents, the Mortgaged Property, and otherwise and the rights, remedies, recourses, and power of Beneficiary shall continue as if same had never been invoked.

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6.8               Application of Proceeds, Deficiency Obligation

.  The proceeds of any sale of, and the Rents and other income generated by the holding, leasing, operating, or other use of, the Mortgaged Property to the extent that funds are so available therefrom shall be applied among principal, interest, fees, expenses, late charges, collection costs, and other charges, costs and expenses, for which Beneficiary has not been paid or reimbursed under the Loan Documents at the sole discretion of Beneficiary (or the receiver, if one is appointed), with any surplus to be paid, at the option of Beneficiary to the payment of any indebtedness or obligation secured by a subordinate deed of trust or security interest on the Mortgaged Property or to Grantor.  Any other party liable on the Indebtedness shall be liable for any deficiency remaining in the Indebtedness subsequent to the sale referenced in this Section 6.8.

6.9               Purchase by Beneficiary

.  To the extent permitted by Law, Beneficiary shall have the right to become the purchaser at the sale of the Mortgaged Property under this Deed of Trust and shall have the right to be credited on the amount of its bid for the Mortgaged Property or any part thereof being sold, all of the Indebtedness due and owing as of the date of such sale.

6.10            Disaffirmation of Contracts

.  To the extent permitted by Law, the purchaser at any Trustee's or foreclosure sale hereunder may disaffirm any easement granted or rental, lease, or other contract made in violation of any provision of this Deed of Trust or the Loan Agreement and may take immediate possession of the Mortgaged Property free from, and despite the terms of, such grant of easement or rental, lease, or other contract.  With respect to any Lease of real property submitted to and approved by Beneficiary, Beneficiary agrees that the holding of a foreclosure sale or conveyance in lieu thereof by it shall not terminate such Lease nor the rights and obligations of a lessee thereunder, so long as such lessee continues to perform all of its obligations thereunder, including, without limitation, the payment of all rental payments thereunder.

6.11            Deficiency Suit

.  In the event an interest in any of the Mortgaged Property is foreclosed upon pursuant to a judicial or nonjudicial foreclosure sale, Grantor unconditionally and irrevocably waives any rights, defenses or remedies it may have under Sections 51.003 through 51.005 of the Texas Property Code, as amended, relating to deficiency judgments.  In the event the waiver provided above is determined to be unenforceable, it is expressly agreed by Grantor that to the extent Sections 51.003, 51.004 or 51.005 of the Texas Property Code, or any amendment thereto, requires that the "fair market value" of the Mortgaged Property shall be determined as of the foreclosure date in order to enforce a deficiency against Grantor or any other party liable for repayment of the Indebtedness, the term "fair market value" shall include those matters required by Law and, to the extent permitted by Law, shall also include the additional factors set forth below:

(a)                the Mortgaged Property is to be valued "AS IS" and "WITH ALL FAULTS" and there shall be no assumption of restoration of or refurbishment of improvements, if any, after the date of the foreclosure;

(b)                there shall be an assumption that the purchaser desires to resell the Mortgaged Property for an all cash sales price promptly (but no later than 12 months) after the foreclosure sale;

Leasehold Deed of Trust                                                         14

(c)                an offset to the fair market value of the Mortgaged Property, as determined hereunder, shall be made by deducting from such value the reasonable estimated closing costs relating to the sale of the Mortgaged Property, including but not limited to, brokerage commissions, title policy expenses, tax prorations, escrow fees, and other common charges which are incurred by a seller of property; and

(d)                after consideration of the factors required by Law and those required above, an additional discount factor shall be calculated based upon the estimated holding costs associated with maintaining the Mortgaged Property for the estimated time it will take to effectuate a sale of the Mortgaged Property including, without limitation, utility expenses, taxes and assessments (to the extent not accounted for in (c) above) so that the "fair market value" as so determined is discounted to be as of the date of the foreclosure sale of the Mortgaged Property.

SECTION 7.         CONDEMNATION

.  If the Mortgaged Property, or any part thereof, shall be condemned or otherwise taken for public or quasi‑public use under the power of eminent domain, or be transferred in lieu thereof, all damages or other amounts awarded for the taking, or injury to, the Mortgaged Property shall be paid to Beneficiary, who shall have the right, in its sole discretion, to apply the amounts so received against (a) the costs and expenses of Beneficiary, including reasonable attorney's fees incurred in connection with collection of such amounts and (b) the balance against the Obligation in the order and manner in its sole discretion.   

SECTION 8.         SECURITY AGREEMENT.

8.1               Security Interest

.  This Deed of Trust shall be construed as a Deed of Trust on real property and it shall also constitute and serve as a security agreement on personal property within the meaning of, and shall constitute until the grant of this Deed of Trust shall terminate as provided in Section 2 hereof, a first and prior security interest under Chapter 9 of the Texas Business and Commerce Code (subject only to the Permitted Encumbrances) with respect to the Personalty and Fixtures.  Grantor has granted, bargained, conveyed, assigned, transferred, and set over, and by these presents does grant, bargain, convey, assign, transfer, and set over unto Beneficiary a first and prior security interest (subject only to the Permitted Encumbrances) in and to all of Grantor's right, title, and interest in, to, and under the Personalty and Fixtures to secure the full and timely payment of the Indebtedness and the full and timely performance and discharge of the Grantor's obligations under this Deed of Trust.

8.2               Financing Statements

.  Grantor hereby authorizes Beneficiary to file, and if Beneficiary or Trustee deems necessary, Grantor shall execute and deliver to Beneficiary, in form and substance reasonably satisfactory to it and its legal counsel, such financing statements and such further assurances as Beneficiary may, from time to time, consider reasonably necessary to create, perfect, and preserve the security interest herein granted, and Beneficiary may cause such statements and assurances to be recorded and filed at such times and places as may be required or appropriate by law to so create, perfect, and preserve such security interest.  Pursuant to the Texas Business and Commerce Code, this Deed of Trust shall be effective as a financing statement filed as a fixture filing from the date of its filing for record covering the Fixtures and Personalty.  The addresses of Grantor, as Debtor, and Beneficiary, as Secured Party, are set forth on the cover page of this Deed of Trust.

8.3               Uniform Commercial Code Remedies

Leasehold Deed of Trust                                                         15

.  The Trustee and Beneficiary shall have all the rights, remedies, and recourses with respect to the Personalty, Fixtures, Leases, and Rents afforded a secured party by the Texas Business and Commerce Code in addition to, and not in limitation of, the other rights, remedies and recourses afforded by the Loan Documents and at law.

8.4               No Obligation of the Trustee or Beneficiary

.  The assignment and security interest herein granted shall not be construed to (a) deem or constitute the Trustee or Beneficiary, as trustees in possession of the Mortgaged Property, (b) obligate the Trustee or Beneficiary to operate or attempt to operate the Mortgaged Property or (c) obligate the Trustee or Beneficiary to take any action, incur any expenses, or perform or discharge any obligation, duty, or liability whatsoever under any of the Leases or otherwise.

SECTION 9.         CONCERNING THE TRUSTEE.

9.1               No Liability

.  The Trustee shall not be liable for any error or judgment or act done by the Trustee or be otherwise responsible or accountable under any circumstances whatsoever other than his own gross negligence, willful misconduct, violation of Law or fraud.  The Trustee shall not be personally liable for any damages resulting from entry on the Mortgaged Property by the Trustee or anyone acting by virtue of the powers granted the Trustee under this Deed of Trust, or for debts contracted or liability or damages incurred in the management or operation of the Mortgaged Property.  The Trustee shall have the right to rely on any instrument, document, or signature authorizing or supporting any action taken or proposed to be taken by him hereunder and believed by him in good faith to be genuine.  The Trustee shall be entitled to reimbursement for reasonable expenses incurred by him in the performance of the Trustee's duties under this Deed of Trust and to reasonable compensation for services rendered under this Deed of Trust.  Grantor will, from time to time, reimburse the Trustee for and save and hold the Trustee harmless from and against any and all loss, cost, liability, damage and expense whatsoever incurred by him in the performance of the Trustee's duties other than those arising from his own gross negligence, willful misconduct, violation of Law or fraud.

9.2               Retention of Monies

.  All monies received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other monies (except to the extent required by law), and the Trustee shall be under no liability for interest on any monies received hereunder.

9.3               Successor Trustee

.  The Trustee may resign by the giving of notice of such resignation in writing to Beneficiary.  If the Trustee shall die, resign, or become disqualified from acting in the execution of this Trust or shall fail or refuse to exercise the same when requested by Beneficiary so to do or if for any reason and without cause Beneficiary shall prefer to appoint a substitute trustee to act instead of the original Trustee named herein, or any prior successor or substitute trustee, Beneficiary shall have full power to appoint a substitute trustee and, if preferred, several substitute trustees in succession who shall succeed to all the estate, rights, powers and duties of the forenamed Trustee without other formality than designating the successor or substitute Trustee in writing.

9.4               Succession Instruments

Leasehold Deed of Trust                                                         16

.  Any new Trustee appointed pursuant to any of the provisions of this Deed of Trust shall, without any further act, deed, or conveyance, become vested with all the estates, properties, rights, powers, and trusts of its or his or her predecessor in the rights hereunder with like effect as if originally named as the Trustee herein; but, nevertheless, upon the written request of Beneficiary, or any acting successor trustee, the Trustee ceasing to act shall execute and deliver an instrument transferring to such successor trustee, upon the trust herein expressed, all the estates, properties, rights, powers, and trusts of the Trustee so ceasing to act, and shall duly assign, transfer, and deliver any of the property and monies held by the Trustee to the successor trustee so appointed.

9.5               Performance of Duties by Lenders

.  The Trustee may authorize one or more parties to act on his behalf to perform any ministerial functions required of him hereunder, including, without limitation, the transmittal, posting and filing of any notices.

SECTION 10.      LEASEHOLD ESTATE.

10.1            Representations and Warranties

.  The Mortgaged Property is a leasehold estate and Grantor hereby warrants and represents as follows with respect to the Mortgaged Lease:

(a)                The Mortgaged Lease is in full force and effect, unmodified by any writing or otherwise, except as has been specifically disclosed to Beneficiary.

(b)                All rent, additional rent, and other charges reserved therein have been paid to the extent they are payable to the date hereof.

(c)                Grantor enjoys the quiet and peaceful possession of the property demised thereby.

(d)                Grantor is not in material default under any of the terms of the Mortgaged Lease, and, to the best of Grantor's knowledge, there are no circumstances which, with the passage of time or the giving of notice or both, would constitute an event of default under the Mortgaged Lease.

(e)                To the best of Grantor's knowledge all lessors and sublessors (collectively, whether one or more, and whether the same includes lessors, sublessors, or both, the "Landlord") under the Mortgaged Lease are not in default under any of the terms or provisions thereof on the part of the Landlord to be observed or performed.

10.2            Covenants

.  Grantor further covenants and agrees as follows:

(a)                Grantor will promptly and faithfully observe, perform, and comply with all the terms, covenants, and provisions of the Mortgaged Lease on Grantor's part to be observed, performed, and complied with, at the times set forth in the Mortgaged Lease if such failure would reasonably be expected to cause a Material Adverse Event.

Leasehold Deed of Trust                                                         17

(b)                Grantor will not permit, suffer, or refrain from doing anything, as a result of which, there could be a material default under or material breach of any of the terms of the Mortgaged Lease.

(c)                Grantor will not cancel, surrender, modify, amend, or in any way alter or permit the alteration of any of the terms of the Mortgaged Lease without Beneficiary's consent, which consent shall not be unreasonably withheld or delayed.

(d)                Grantor will give Beneficiary immediate notice of any default by any party to the Mortgaged Lease and will promptly deliver to Beneficiary copies of each notice of default and all other notices, communications, plans, specifications, and other similar instruments received or delivered by Grantor in connection with the Mortgaged Lease.

(e)                Grantor will furnish to Beneficiary such information and evidence as Beneficiary may reasonably require concerning Grantor's due observance, performance, and compliance with the terms, covenants, and provisions of the Mortgaged Lease.

10.3            Right of Beneficiary to Perform

.  In the event of any default by Grantor in the performance of any of its obligations under the Mortgaged Lease, including, without limitation, any default in the payment of rent and other charges and impositions made payable by the tenant thereunder, then, in each and every case, Beneficiary may, at its option and without notice, cause the default or defaults to be remedied and otherwise exercise any and all of the rights of Grantor thereunder in the name of and on behalf of Grantor. Grantor shall, on demand, reimburse Beneficiary for all advances made and expenses incurred by Beneficiary in curing any such default (including, without limitation, reasonable attorneys' fees), together with interest thereon at the maximum legal rate set forth in the Loan Agreement from the date of payment by Beneficiary, and such reimbursement shall be immediately due and payable by Grantor to Beneficiary, and until paid shall be added to and become a part of the Obligation and shall be secured by this Deed of Trust.

10.4            Term of Mortgaged Lease

.  Grantor shall give Beneficiary notice of its intention to exercise each and every option to extend the term of the Mortgaged Lease, at least twenty (20) but not more than sixty (60) days prior to the expiration of the time to exercise such option under the terms thereof. If Grantor intends to extend the term of the Mortgaged Lease, Grantor shall deliver to Beneficiary with the notice of such decision, a copy of the notice of extension delivered to the Landlord thereunder. If Grantor does not intend to extend the term of the Mortgaged Lease, Beneficiary may, at its option, exercise the option to extend in the name and on behalf of Grantor. In any event, Grantor hereby appoints Beneficiary its attorney-in-fact to execute and deliver, for and in the name of Grantor, all instruments and agreements necessary under the Mortgaged Lease or otherwise to cause any extension of the term thereof. This power, being coupled with an interest, shall be irrevocable as long as any part of the Obligation remains unpaid.  If the Mortgaged Lease is cancelled or terminated, and if Beneficiary or its nominee shall acquire an interest in any new lease of the property demised thereby, Grantor shall have no right, title, or interest in or to the new lease or the leasehold estate created by such new lease.

10.5            No Merger of Estates

Leasehold Deed of Trust                                                         18

.  It is hereby agreed that the fee title and the leasehold estate in the property demised by the Mortgaged Lease shall not merge but shall always be kept separate and distinct, notwithstanding the union of said estates in either the Landlord thereunder, Grantor, or a third party, whether by purchase or otherwise. If Grantor acquires the fee title or any other estate, title, or interest in the property demised by the Mortgaged Lease, or any part thereof, the lien of this Deed of Trust shall attach to, cover, and be a lien upon such acquired estate, title, or interest, and same shall thereupon be and become a part of the Mortgaged Property with the same force and effect as if specifically encumbered herein. Grantor agrees to execute all instruments and documents which Beneficiary may reasonably require to ratify, confirm, and further evidence Beneficiary's lien on the acquired estate, title, or interest. Furthermore, Grantor hereby appoints Beneficiary its true and lawful attorney-in-fact to execute and deliver all such instruments and documents in the name and on behalf of Grantor. This power, being coupled with an interest, shall be irrevocable as long as the Indebtedness remains unpaid.

10.6            Estoppel Certificates

.  Grantor shall use its commercially reasonable efforts to obtain and deliver to Beneficiary within twenty (20) days after written demand by Beneficiary, an estoppel certificate from the Landlord under the Mortgaged Lease setting forth (i) the name of the Landlord thereunder, (ii) that the Mortgaged Lease has not been modified or, if it has been modified, the date of each modification (together with copies of each such modification), (iii) the basic rent payable under the Mortgaged Lease, (iv) the date to which all rental charges have been paid by the tenant under the Mortgaged Lease, and (v) whether there are any alleged defaults of the tenant under the Mortgaged Lease and, if there are, setting forth the nature thereof in reasonable detail.

10.7            Anti-Assignment Provisions

.  Notwithstanding anything to the contrary herein, this Deed of Trust shall not constitute an assignment of the Mortgaged Lease within the meaning of any provision thereof prohibiting its assignment, and Beneficiary shall have no liability or obligation thereunder by reason of its acceptance of this Deed of Trust. Beneficiary shall be liable for the obligations of the tenant arising under the Mortgaged Lease for only that period of time which Beneficiary is in possession of the Mortgaged Property or has acquired, by foreclosure or otherwise, and is holding all of Grantor's right, title, and interest therein.

SECTION 11.      MISCELLANEOUS.

11.1            Survival of Obligations

.  All covenants, agreements, representations, and warranties made by Grantor in this Deed of Trust and the other Loan Documents, including without limitation, any certificates or other documents or instruments delivered in connection herewith, shall survive the execution and delivery of this Deed of Trust and the other Loan Documents.  The obligations and provisions of all indemnities from Grantor to Beneficiary contained herein or in any of the Loan Documents shall continue and remain in full force and effect after the Indebtedness of Grantor have been paid or discharged in full and shall survive the termination of this Deed of Trust and the repayment of the Indebtedness.

11.2            Covenants Running with the Land

.  All obligations contained in this Deed of Trust are intended by the parties to be and shall be construed as covenants running with the Land.

11.3            Recording and Filing

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.  Grantor will cause the Loan Documents and all amendments and supplements thereto and substitutions therefor to be recorded, filed, re‑recorded, and refiled in such manner and in such places as the Trustee or Beneficiary shall reasonably request and will pay all such recording, filing, re‑recording and refiling, taxes, fees, and other charges.

11.4            Notices

.  Any notice, request, or other communication required or permitted to be given hereunder shall be given at the addresses and in accordance with the notice provisions set forth in Section 8 of the Loan Agreement.

11.5            No Waiver

.  Any failure by the Trustee or Beneficiary to insist, or any election by the Trustee or Beneficiary, not to insist, upon strict performance by Grantor of any of the terms, provisions, or conditions of this Deed of Trust shall not be deemed to be a waiver of the same or of any other term, provision, or condition thereof, and the Trustee or Beneficiary shall have the right at any time or times thereafter to insist upon strict performance by Grantor of any and all of such terms, provisions, and conditions.

11.6            Beneficiary's Right to Pay Indebtedness or Perform Obligations

.  If any obligated party shall fail, refuse, or neglect to make any required payment on the Indebtedness or if Grantor fails, refuses, or neglects to perform any of its obligations under this Deed of Trust,  then in each case, at any time thereafter and without notice to or demand upon Grantor, or any other party, and without waiving or releasing any other right, remedy, or recourse Beneficiary may have because of the same, Beneficiary may (but shall not be obligated to) make such payment or perform such act for the account of and at the expense of Grantor and shall have the right to enter upon the Mortgaged Property for such purpose and to take all such action thereon with respect to the Mortgaged Property as it reasonably may deem necessary or appropriate.  Grantor shall be obligated to repay Beneficiary for all sums advanced by it pursuant to this Section 11.6 and shall indemnify and hold Beneficiary harmless from and against any and all loss, cost, expense, liability, damage, and claims and causes of action, including reasonable attorneys' fees (except such as result from the gross negligence, willful misconduct, violation of Law or fraud of Beneficiary, the Trustee or each of their respective agents, successors, assigns, subsidiaries, directors, officers, employees, representatives, parents or attorneys), incurred or accruing by any acts performed by Beneficiary pursuant to the provisions of this Section 11.6 or by reason of any other provision of the Loan Documents.  All sums paid by Beneficiary pursuant to this Section 11.6 and all other sums extended by Beneficiary to which it shall be entitled to be indemnified, together with interest thereon at the Default Rate from the date of such payment or expenditure, shall constitute additions to the Indebtedness, shall be secured by the Security Documents and shall be paid by Grantor to Beneficiary upon demand in accordance with the terms of the Loan Agreement.

11.7            Limitation on Effectiveness of Lien

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.  It is the intention of Grantor and Beneficiary that the amount of the Indebtedness secured by this Deed of Trust shall be in, but not in excess of, the maximum amount permitted by fraudulent conveyance, fraudulent transfer or similar Laws applicable as to Grantor.  Accordingly, notwithstanding anything to the contrary contained in this Deed of Trust or any other agreement or instrument executed in connection with the payment of any of the Indebtedness, the amount of the Indebtedness secured by this Deed of Trust shall be limited to that amount which after giving effect thereto would not (a) render Grantor insolvent, (b) result in the fair saleable value of the assets of Grantor being less than the amount required to pay its debts and other liabilities (including contingent liabilities) as they mature, or (c) leave Grantor with unreasonably small capital to carry out its business as now conducted and as proposed to be conducted, including its capital needs, as such concepts described in (a), (b) and (c) herein are determined under applicable Law, if the obligations of Grantor hereunder would otherwise be set aside, terminated, annulled or avoided for such reason by a court of competent jurisdiction in a proceeding actually pending before such court.

11.8            Governing Law

.  This Deed of Trust must be construed, and its performance enforced, under Texas law.

11.9            Multiple Counterparts and Facsimile Signatures

.  This Deed of Trust may be executed in any number of counterparts with the same effect as if all signatories had signed the same document.  All counterparts must be construed together to constitute one and the same instrument.  This Deed of Trust may be transmitted and signed by facsimile and shall have the same effect as manually-signed originals and shall be binding on all parties.

11.10        Arbitration; Waiver of Jury Trial.

(a)                 This Section 11.10 concerns the resolution of any controversies or claims between the parties, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to (i) this Deed of Trust, or (ii) any Loan Document (collectively a "Claim").  For the purposes of this arbitration provision only, the term "parties" shall include any parent corporation, subsidiary or Affiliate of Beneficiary involved in the servicing, management or administration of any obligation described or evidenced by this Deed of Trust.

(b)                At the request of any party to this Deed of Trust, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U.S. Code) (the "Act").  The Act will apply even though this Deed of Trust provides that it is governed by the law of a specified state.

(c)                Arbitration proceedings will be determined in accordance with the Act, the applicable rules and procedures for the arbitration of disputes of JAMS or any successor thereof ("JAMS"), and the terms of this Section 11.10.  In the event of any inconsistency, the terms of this Section shall control.

(d)                The arbitration shall be administered by JAMS and conducted, unless otherwise required by law, in any U.S. state where real or tangible personal property collateral for this credit is located or if there is no such collateral, in the state specified in the governing law section of this Deed of Trust.  All Claims shall be determined by one arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims shall be decided by three arbitrators.  All arbitration hearings shall commence within ninety (90) days of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of the close of the hearing.  However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days.  The arbitrator(s) shall provide a concise written statement of reasons for the award.  The arbitration award may be submitted to any court having jurisdiction to be confirmed and enforced.

Leasehold Deed of Trust                                                         21

(e)                The arbitrator(s) will have the authority to decide whether any Claim is barred by the statute of limitations and, if so, to dismiss the arbitration on that basis. For purposes of the application of the statute of limitations, the service on JAMS under applicable JAMS rules of a notice of Claim is the equivalent of the filing of a lawsuit.  Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s).  The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this Deed of Trust.

(f)                 This Section 11.10 does not limit the right of any party to: (i) exercise self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or non-judicial foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies.

(g)                The filing of a court action is not intended to constitute a waiver of the right of any party, including the suing party, thereafter to require submittal of the Claim to arbitration.

(h)                By agreeing to binding arbitration, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of any Claim.  Furthermore, without intending in any way to limit this Deed of Trust to arbitrate, to the extent any Claim is not arbitrated, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of such Claim.  This provision is a material inducement for the parties entering into this Deed of Trust.

11.11        Entirety

.  THIS LEASEHOLD DEED OF TRUST, THE LOAN AGREEMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. 

[Signature and acknowledgement appear on the next page.]

Leasehold Deed of Trust                                                         22

IN WITNESS WHEREOF, Grantor has executed this Deed of Trust as of the date first set out above.     

                                                                        GRANTOR:

                                                                        TOR MINERALS INTERNATIONAL, INC.,

                                                                        a Delaware corporation

                        By:                                                                              

                                                Richard L. Bowers, President and

Chief Executive Officer

STATE OF TEXAS                              §

§

COUNTY OF _______________        §

This instrument was acknowledged before me on December ___, 2005, by Richard L. Bowers, President and Chief Executive Officer of Tor Minerals International, Inc., a Delaware corporation, on behalf of said corporation.

                                                                               NOTARY PUBLIC IN AND FOR THE

                                                                               STATE OF TEXAS

AFTER RECORDING PLEASE RETURN TO:

Porter & Hedges, L.L.P.
1000 Main Street, 36th Floor
Houston, Texas 77002

Attn: Nick H. Sorensen

ATTACHMENTS:

Exhibit A - Property Description

Exhibit B - Permitted Encumbrances

Signature and Acknowledgment Page to Leasehold Deed of Trust, Security Agreement

and UCC Financing Statement for Fixture Filing