Exhibit 10.4
SECURED PROMISSORY NOTE

          U.S. $3,617,500.00   Dallas, Texas   September 27, 2006

FOR VALUE RECEIVED, ARETE REAL ESTATE AND DEVELOPMENT COMPANY, a Texas
corporation (“Arete”), MODERN MODULAR HOME RENTAL CORP., a Texas corporation
(“MMHRC”) and CREATIVE MODULAR HOUSING, INC., a Texas corporation (“CMH”; Arete,
MMHRC and CMH are referred to herein individually, as a “Borrower” and
collectively, as the “Borrowers”), hereby jointly and severally make and issue
this Secured Promissory Note (this “Note”), and promise to pay to the order of
UNITED DEVELOPMENT FUNDING III, L.P., a Delaware limited partnership (together
with its successors and assigns, “Lender”) the principal sum of U.S. Three
Million Six Hundred Seventeen Thousand Five Hundred and NO/100 Dollars
($3,617,500.00) or, if greater or less, the aggregate amount of all funds
advanced to Borrowers under this Note, together with accrued, unpaid interest
thereon, and all other amounts due to Lender hereunder.
     1. Certain Definitions. Certain capitalized terms which are defined in the
text of this Note shall have the respective meanings given to such terms herein.
The following capitalized terms shall have the following meanings:
     (a) “Accrued Interest Payments” shall mean payments equal to the amount of
accrued interest on the outstanding principal balance of this Note, calculated
at the applicable rate of interest provided herein, and payable as provided
herein.
     (b) “Base Rate” shall mean the lesser of (i) sixteen and one-half percent
(16.5%), accrued and compounded monthly, or (ii) the Highest Lawful Rate.
     (c) “Borrower Principals” shall mean, collectively, Joe Fogarty and Nancy
Fogarty.
     (d) “Cash Flow” shall mean all proceeds, cash and cash equivalents received
by any Borrower, Pledgor or any of their respective affiliates relating to the
Pledged Securities and/or the Properties, including, without limitation, in
connection with the sale of any Property or any lot thereof, agreements and
contracts for reimbursement from sources such as cities, municipal utility
districts, water districts and assessment districts, joint venture agreements,
profit sharing agreements, and development agreements.
     (e) “Collateral” shall have the meaning given to such term in the Security
Agreement.
     (f) “Commitment” shall mean the aggregate amount of U.S. Three Million and
NO/100 Dollars ($3,000,000.00).
     (g) “Commitment Advance” shall mean full or partial advance of the
Commitment to any Borrower pursuant to the terms hereof.

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     (h) “Commitment Fee” shall mean the fee paid by Borrowers to Lender or its
assigns pursuant to that certain Commitment Letter dated September 18, 2006, in
consideration of Lender’s commitment to make the Loan, subject to the terms and
conditions hereof.
     (i) “Default Rate” shall mean the lesser of (i) eighteen percent (18%),
accrued and compounded annually, or (ii) the Highest Lawful Rate.
     (j) “Effective Date” shall mean September 27, 2006.
     (k) “Event of Default” shall have the meaning given to such term in
Section 10 of this Note.
     (l) “Guaranty” shall mean that certain Continuing Unconditional Guaranty
executed by the Borrower Principals and The Fogarty Family Trust in favor of
Lender, dated the Effective Date, as such Guaranty may be amended from time to
time.
     (m) “Highest Lawful Rate” shall mean the maximum lawful rate of interest
which may be contracted for, charged, taken, received or reserved by Lender in
accordance with the applicable laws of the State of Texas (or applicable United
States federal law, to the extent that it permits Lender to contract or charge,
take, receive or reserve a greater amount of interest than under Texas law),
taking into account all fees and expenses contracted for, charged, received,
taken or reserved by Lender in connection with the transaction relating to this
Note and the indebtedness evidenced hereby or by the other Loan Documents which
are treated as interest under applicable law.
     (n) “Interest Reserve” shall mean an aggregate of up to U.S. Four Hundred
and NO/100 Dollars ($400,000.00) to be advanced by Lender hereunder and to be
applied against Accrued Interest Payments, subject to the provisions of
Sections 4(b) and 4(c) of this Note.
     (o) “Interest Reserve Advance” means an advance under this Note in the
amount of an Accrued Interest Payment pursuant to Section 4(b) of this Note.
     (p) “Lien” shall mean any lien, security interest, charge, tax lien,
pledge, encumbrance, conditional sales or other title retention arrangement or
any other interest in property designed to secure the repayment of indebtedness
or the satisfaction of any other obligation, whether arising by agreement or
under any statute or law, or otherwise.
     (q) “Loan” shall mean the loan made to Borrowers pursuant to this Note.
     (r) “Loan Administration Fee” shall mean a fee charged by Lender in
consideration of administrative costs and expenses incurred by Lender in
connection with each Commitment Advance hereunder.

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     (s) “Loan Documents” shall mean, collectively, this Note, the Pledge
Agreement, the Security Agreement, the Guaranty, the error and omissions letter
and all other documents, certificates, instruments, and agreements executed,
entered into or delivered by Borrower, Pledgors, the Borrower Principals, or any
of their respective affiliates in connection with the Loan, as each such
document may be amended from time to time.
     (t) “Loan Expenses” shall mean all fees and expenses incurred by Lender in
connection with the loan made pursuant to this Note and the preparation of this
Note and the other Loan Documents, including, without limitation, attorneys
fees, accountants fees, closing costs, due diligence costs and expenses,
recording fees, courier and delivery fees, document preparation fees, wire
transfer and bank fees, title company fees, and all other fees and costs
incurred by Lender.
     (u) “Maturity Date” means October 31, 2009.
     (v) “Pledge Agreement” shall mean that certain Pledge Agreement executed by
the Pledgors in favor of Lender dated as of the Effective Date, pursuant to
which the Pledgors pledge their respective interests in the Pledged Securities
to Lender, as such agreement may be amended from time to time.
     (w) “Pledged Securities” shall have the meaning given to such term in the
Pledge Agreement.
     (x) “Pledgors” shall mean, collectively, the Borrower Principals, the
Borrowers, The Fogarty Family Trust, El Tesoro General Partner, Inc., a Texas
corporation, Forestwood General Partner, Inc., a Texas corporation, 26
Gleneagles GP, Inc., a Texas corporation, Dollar Cay Development, Inc., a Texas
corporation, 170 Dowdell GenPar, Inc., a Nevada corporation, Twelve Oaks General
Partner, Inc., a Texas corporation, GP Woodland Lakes Estates, Inc., a Texas
corporation, 501 Maple Ridge GP, Inc., a Texas corporation, NEHC Properties,
Inc., a Texas corporation, Thompson Road Development GP, Inc., a Texas
corporation, Burnet Bay GP, Inc., a Texas corporation, No. 75 Brunswick, Inc., a
Texas corporation, 115 Greensbrook, Inc., a Texas corporation, 110 Bay Oaks Real
Estate, Inc., a Texas corporation, Greensbrook Arete, Inc., a Texas corporation,
Affordable Cottages, Inc., a Texas corporation, Fifty One Greensbrook Manor,
Inc., a Texas corporation, 393 Smith County GP, Inc., a Texas corporation, 550
Bent Tree Estates GP, Inc., a Texas corporation, 250 Brunswick, Inc., a Texas
corporation and Dowdell Development, Inc., a Texas corporation.
     (y) “Properties” shall mean, collectively, all real properties now owned or
hereinafter acquired by those corporations, partnerships and limited liability
companies, the equity interests of which are Pledged Securities under the Pledge
Agreement.
     (z) “Security Agreement” shall mean that certain Security Agreement
executed by Borrowers in favor of Lender dated as of the Effective Date, as it
may be amended from time to time.

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     (aa) “Senior Indebtedness,” if any, shall mean the amount of indebtedness
owed to a Senior Lender that Lender has agreed in writing will have (i) priority
in payment over the indebtedness evidenced by this Note, and/or (ii) priority
over the Liens created by the Pledge Agreement and/or the Security Agreement.
     (bb) “Senior Lender” shall mean any bank, financial institution or other
lender having made a loan to any Borrower and/or any Pledgor that has a senior
position ahead of Lender with respect to the payment of Borrower indebtedness
and/or the priority of Liens on or against the Pledged Securities or the
Collateral, or any other collateral granted or pledged as security for the Loan;
provided, that Lender has agreed in writing to be subordinate thereto.
     2. Loan Expenses; Fees.
     (a) Loan Expenses. Upon Lender’s demand from time to time, Borrowers shall
pay Lender, the full amount of all Loan Expenses incurred by Lender.
     (b) Loan Administration Fee. In consideration of administrative costs and
expenses incurred by Lender in connection with Commitment Advances, Borrowers
agree to pay Lender a Loan Administration Fee at the time of each Commitment
Advance equal to one-quarter percent (0.25%) of such Commitment Advance. The
Loan Administration Fee with respect to each Commitment Advance made hereunder
is fully earned by Lender at the time such Commitment Advance is funded and, if
not otherwise paid, shall be funded by Lender at the time of the Commitment
Advance and upon disbursement shall automatically constitute principal
outstanding hereunder and cause a corresponding increase in the aggregate amount
of Borrowers’ obligations hereunder (even if such disbursement causes the
aggregate amount outstanding hereunder to exceed the face amount of this Note).
     (c) Commitment Fee. Pursuant to the terms and conditions of that certain
Commitment Letter between Borrowers and Lender dated September 18, 2006,
Borrowers agreed to pay Lender a Commitment Fee in the amount of $204,000.00 in
consideration of Lender’s commitment to make the Loan to Borrowers. Pursuant to
Borrowers’ request, the Commitment Fee shall be funded by Lender under this Note
and upon disbursement shall automatically constitute principal outstanding
hereunder and cause a corresponding increase in the aggregate outstanding amount
of Borrowers’ obligations hereunder.
     (d) Usury Savings Clause Applies. Borrowers, the Borrower Principals and
Lender agree that Lender has provided, and shall provide, separate and distinct
consideration for the fees and expenses described in Sections 2(a), (b) and (c)
above and/or that such fees and expenses represent bona fide fees and expenses
incurred by Lender. Borrowers, the Borrower Principals and Lender further agree
that such fees and expenses are not, are not intended to be, and shall not be
characterized as, interest or as compensation for the use, forbearance or
detention of money. Despite the foregoing and

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notwithstanding anything else in this Note and the other Loan Documents to the
contrary, if any fees or expenses charged or chargeable to Borrowers hereunder
are determined to constitute interest and such fees or expenses, when added to
the interest charged hereunder, would cause the aggregate interest charged
hereunder to exceed the Highest Lawful Rate, then Section 11 of this Note shall
automatically apply to reduce the interest charged hereunder so as not to exceed
the Highest Lawful Rate.
     (e) Assignment. The Loan Administration Fee and all Loan Expenses are
assignable by the payee to any affiliate or third party.
     3. Closings; Commitment Advances; Borrowing Procedures; etc.
     (a) Closings; Commitment Advances. Subject to the terms and conditions of
this Note, Lender agrees to make Commitment Advances to Borrowers from time to
time prior to the Maturity Date in an aggregate amount not to exceed the
Commitment. It is anticipated that $350,000.00 of the Commitment shall be funded
to Borrowers at the closing of the Loan, and that the remainder of the
Commitment shall be funded over the life of the Loan. This Note is not a
revolver and thus, the portion of the Commitment borrowed may not be repaid to
Lender and subsequently reborrowed under this Note.
     (b) Procedure for Borrowing. Each Commitment Advance after the initial
closing hereof shall be made by Borrowers’ delivery of a written request to
Lender. Such notice must be received by Lender no less than five (5) business
days prior to the date that is the requested funding date, and shall specify the
amount of the Commitment Advance so requested, and the requested funding date.
     (c) Making of Commitment Advances. Subject to the terms and conditions of
this Note, after receipt of a request for an Commitment Advance pursuant to
Section 2(b), Lender shall make the amount of the requested Commitment Advance
available to Borrowers on the applicable funding date; provided, however, that
Lender shall have no obligation to make any Commitment Advance unless each of
the conditions precedent in Section 7 have been satisfied.
     (d) Discretionary Advances. Lender is authorized to make advances hereunder
that Lender, in its sole discretion, deems necessary or desirable to pay any
Loan Expense or other amount chargeable to Borrowers pursuant to the terms of
this Note or any other Loan Document (such advances made for the foregoing
purposes are referred to herein as the “Discretionary Advances”). Each
Discretionary Advance shall, upon disbursement, automatically constitute
principal outstanding hereunder and cause a corresponding increase in the
aggregate amount of Borrowers’ obligations hereunder (even if such Discretionary
Advance causes the aggregate amount outstanding hereunder to exceed the face
amount of this Note). The making by Lender of any Discretionary Advance shall
not cure any Event of Default hereunder, unless Lender provides Borrowers with a
written waiver of such Event of Default.

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     (e) Face Amount of Note. The $3,617,500.00 face amount of the Note consists
of the sum of (i) the Commitment ($3,000,000.00), plus (ii) the Interest Reserve
($400,000.00), plus (iii) the Commitment Fee ($204,000.00), plus (iv) an
aggregate of $13,500.00 in anticipated Loan Expenses and Loan Administration
Fees.
     4. Interest; Payments.
     (a) Interest Rate. The outstanding principal amount of this Note shall bear
interest on each day outstanding at the Base Rate in effect on such day, unless
the Default Rate shall apply. Subject to the other provisions of this Note, upon
the occurrence and during the continuation of an Event of Default, the
outstanding principal amount of this Note shall, at Lender’s option,
automatically and without the necessity of notice, bear interest from the date
of such Event of Default at the Default Rate, until all such delinquent amounts
are paid or such breach or Event of Default is otherwise cured to the
satisfaction of Lender or waived by Lender in writing.
     (b) Interest Payments; Interest Reserve Advances. Accrued Interest Payments
shall be due and payable on the last day of each month for interest accrued
during that month. Notwithstanding the foregoing sentence and subject to the
other provisions hereof, on each date that an Accrued Interest Payment becomes
due and payable hereunder, Lender shall make an Interest Reserve Advance
hereunder in the amount of such Accrued Interest Payment, which shall be applied
to the Accrued Interest Payment then due and payable, until the Interest Reserve
has been fully exhausted. Subject to the other provisions of this Note, each
time Lender funds an Interest Reserve Advance hereunder, (i) Borrowers’
requirement to make the Accrued Interest Payment for such month shall be
satisfied, (ii) the amount of remaining Interest Reserve shall be reduced by the
amount of such Interest Reserve Advance, and (iii) such Interest Reserve Advance
funded by Lender hereunder shall automatically become principal outstanding
under this Note upon such funding. The Interest Reserve Advances may be funded
by Lender even if such funding causes the outstanding principal balance of this
Note to exceed its face amount. Notwithstanding anything else to the contrary
contained herein, (i) if at any time an Event of Default has occurred and is
continuing under this Note, Lender shall not be obligated to make any further
Interest Reserve Advances, and thereafter, shall do so only in its sole
discretion, unless and until the Event of Default is cured to Lender’s
satisfaction as agreed by Lender in writing, and (ii) in no event shall Lender
be obligated to make any Interest Reserve Advance that would cause the aggregate
amount of Interest Reserve Advances made hereunder to exceed the remaining
Interest Reserve.
     (c) Replenishment of Interest Reserve. To the extent Borrowers make any
prepayment of the Loan and such prepayment is applied to accrued interest in
accordance with Section 5(a) of this Note, the Interest Reserve shall be
replenished in an amount equal to the prepayment of accrued interest, up to
$400,000.00.
     (d) Payments. Subject to the other provisions of this Note:

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     (i) Accrued Interest Payments shall be due and payable as provided in
Section 4(b) of this Note;
     (ii) upon the receipt of any Cash Flow by any Borrower, Pledgor or any of
their respective affiliates, from any source, Borrowers shall pay or cause to be
paid to Lender, eighty percent (80%) of such Cash Flow remaining after payment
of any applicable Senior Indebtedness, excluding events resulting in Cash Flow
of $25,000.00 or less per event; and
     (iii) the outstanding principal balance of this Note, together with all
accrued, unpaid interest thereon, unpaid Loan Expenses and other unpaid amounts
due hereunder, shall be due and payable on the Maturity Date.
     5. Terms and Conditions of Payment.
     (a) Application of Payments. Subject to the application of Interest Reserve
Advances to Accrued Interest Payments as provided in Section 4(b) of this Note,
all payments on this Note shall be applied first, to unpaid Loan Expenses due
hereunder, next, to unpaid accrued interest, and last, to principal outstanding
under this Note. Notwithstanding the foregoing sentence, if any Event of Default
occurs and is existing under this Note or any other Loan Document, Lender shall
have the right to apply payments toward amounts due under this Note as Lender
determines in its sole discretion.
     (b) General. All amounts are payable to Lender in lawful money of the
United States of America at the address for Lender provided in this Note, or at
such other address as from time to time may be designated by Lender. Borrowers
shall make each payment which they owe under this Note and the other Loan
Documents to Lender in full and in lawful money of the United States, without
set-off, deduction or counterclaim. Under no circumstance may Borrowers offset
any amount owed by any Borrower to Lender under this Note with an amount owed by
Lender to Borrowers under any other arrangement. All payments shall be made by
cashier’s check or wire transfer of immediately available funds. Should any such
payment become due and payable on a day other than a business day, the date for
such payment shall be extended to the next succeeding business day, and, in the
case of a required payment of principal, interest or Loan Expenses or other
amounts then due, interest shall accrue and be payable on such amount for the
period of such extension. Each such payment must be received by Lender not later
than 3:00 p.m., Dallas, Texas time on the date such payment becomes due and
payable. Any payment received by Lender after such time will be deemed to have
been made on the next succeeding business day.
     (c) Prepayment. Borrowers may prepay this Note in whole or in part at any
time and from time to time without incurring any prepayment fee or penalty;
provided, that interest shall accrue on the portion of this Note so prepaid
through the date of such prepayment.

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     6. Loan Deliveries. At or prior to the closing of the Loan (except as set
forth below), Borrowers shall deliver or cause to be delivered to Lender, the
following items, each of which shall be satisfactory in form and substance to
Lender:
     (a) this Note and each other Loan Document, duly executed by Borrowers,
Pledgors and the Borrower Principals, as applicable;
     (b) the most recent financial statements of Borrowers, the Pledged
Securities and the Borrower Principals, in the form specified in Section 9(f),
and accompanied by the certification required by Section 9(f);
     (c) a certified copy of Borrowers’ and the Pledged Securities’ formation
documents and bylaws, and all amendments thereto;
     (d) certificates of existence and good standing for Borrowers and the
Pledged Securities, issued by the appropriate state authorities;
     (e) resolutions of the board of directors of each Borrower authorizing
Borrowers’ execution, delivery, and performance of this Note and the other Loan
Documents, and the transactions contemplated hereby and thereby, and resolutions
of the general partner or other governing body of each Pledgor and each Pledged
Security, authorizing the transactions contemplated hereby and by the Pledge
Agreement;
     (f) an opinion of counsel for Borrowers, Pledgors, the Pledged Securities
and the Borrower Principals, satisfactory in all respects to Lender and its
counsel, including, without limitation, an opinion that the Loan Documents and
the Loan made pursuant thereto are not usurious, which shall be delivered to
Lender within thirty (30) days following the initial closing of the Loan;
     (g) a certificate of Borrowers’ general liability policies, evidence of
payment of the premium through at least one year and endorsemens of such
policies to Lender;
     (h) a certificate (the “Officer’s Certificate”) executed by Joe Fogarty in
his capacity as President of each Borrower, and in his individual capacity,
certifying that (i) no Event of Default has occurred and is continuing under
this Note, (ii) all representations and warranties made by Borrowers, Pledgors
and the Borrower Principals, respectively, in this Note and the other Loan
Documents are true and correct in all respects, and (iii) Borrowers, Pledgors
and the Borrower Principals have complied with and performed, in all respects,
all covenants, conditions and agreements which are then required by this Note
and the other Loan Documents to have been complied with or performed;
     (i) copies of the loan documents in effect on the Effective Date evidencing
the Senior Indebtedness and all amendments thereto;

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     (j) all written consents that are required with respect to the Note and the
other Loan Documents and the transactions contemplated thereby, including,
without limitation, any consents that are required in respect to the pledge of
the Pledged Securities to Lender pursuant to the Pledge Agreement; and
     (k) such other and further documents, agreements and certificates as are
reasonably required by Lender.
     7. Conditions Precedent to Commitment Advances. Borrowers and the Borrower
Principals agree that, notwithstanding anything to the contrary contained herein
or in the other Loan Documents, Lender’s obligation to fund each Commitment
Advance shall be conditioned upon the satisfaction of each of the following
conditions, on and as of the funding date for the applicable Commitment Advance:
     (a) Borrowers and the Borrower Principals shall have executed and delivered
to Lender, an Officer’s Certificate dated as of the funding date, and all
matters certified in the Officer’s Certificate shall be true and correct in all
respects;
     (b) the requested Commitment Advance, if made, would not cause the
aggregate amount of all Commitment Advances made hereunder to exceed the
Commitment; and
     (c) Borrowers, Pledgors and the Borrower Principals shall have complied
with each other reasonable request of Lender made in connection with the
Commitment Advance.
     8. Representations and Warranties. Each Borrower and each Borrower
Principal jointly and severally represents and warrants to Lender that:
     (a) Organization and Good Standing; Authorization. Each Borrower (i) is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and (ii) has full power and authority to own its
properties, carry on its business and to perform the transactions contemplated
by this Note and the other Loan Documents. All necessary corporate, shareholder,
and other actions required to be taken on behalf of Borrowers to approve this
Note and the other Loan Documents and the transactions contemplated hereby and
thereby, have been duly taken. Each Borrower is in compliance in all material
respects with all laws applicable to it in each jurisdiction within and without
outside the United States where it owns or leases any properties or conducts any
business, except for any such non-compliance that would not have a material
adverse effect, individually or in the aggregate, on its financial condition or
operations.
     (b) Authority; Validity. Each Borrower has the power, authority and legal
right to execute, deliver and perform its obligations under this Note and the
other Loan Documents. The execution and delivery by Borrowers, Pledgors and the
Borrower Principals of this Note and the other Loan Documents, and the
performance of their

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respective obligations thereunder, will not (i) violate the certificate of
formation of any Borrower or Pledgor, or the respective bylaws, partnership
agreement, regulations, operating agreement or limited liability company
agreement, as applicable, of any Borrower or Pledgor, (ii) violate any law or
result in a default under any contract, agreement, or instrument to which any
Borrower, Pledgor or Borrower Principal is a party or by which any Borrower,
Pledgor or Borrower Principal or any of their respective assets or properties
are bound, or (iii) result in the creation or imposition of any Lien upon any of
their respective assets. The Loan Documents constitute the legal, valid and
binding obligations of Borrowers, Pledgors and the Borrower Principals and are
enforceable against Borrowers, Pledgors and the Borrower Principals in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of creditors’
rights generally.
     (c) Litigation. There is no pending order, notice, claim, litigation,
proceeding or investigation against or affecting Borrowers, Pledgors or the
Borrower Principals or any of their respective assets or properties, or any
Property or Pledged Security whether or not covered by insurance, that could
materially and adversely affect either the financial condition or business
prospects of any Borrower, Pledgor or Borrower Principal, if adversely
determined.
     (d) Indebtedness. No Borrower or Borrower Principal has any material
indebtedness of any nature, except to the extent disclosed in the latest
financial statements delivered to Lender or otherwise disclosed in writing to
Lender and approved by Lender’s prior written consent.
     (e) Environmental Liability. To the best of Borrowers’ and the Borrower
Principals’ knowledge, no hazardous substances or solid wastes have been
disposed of or otherwise released on any Property, except as may have been
otherwise disclosed to Lender in a Phase I environmental report delivered to
Lender. The terms “hazardous substance” and release” shall have the meanings
specified in the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, (“CERCLA”), and the terms “solid waste” and “disposal”
(or “disposed”) shall have the meanings specified in the Resource Conservation
and Recovery Act of 1976, as amended, (“RCRA”); provided, to the extent that the
laws of the State of Texas establish a meaning for “hazardous substance”,
“release”, “solid waste”, or “disposal” or “disposed”) that is broader than that
specified in either CERCLA or RCRA, such broader meaning shall apply.
     (f) Tax Liabilities. Each Borrower, Pledgor and Borrower Principal has
filed, or caused to be filed, all federal, state, county, local, and foreign tax
returns and reports required to have been filed by them or with respect to any
Property or Pledged Security (or has obtained valid extensions with respect to
such returns and reports), including but not limited to such returns and reports
with respect to income, payroll, personal property, real property, employee
withholding, social security, unemployment, franchise, excise, use and sales
taxes. Each Borrower, Pledgor and Borrower Principal has paid in full all taxes
that have become due as reflected on all such returns and reports (including any

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interest and penalties) and has established adequate reserves for all taxes
payable but not yet due. No governmental claim for additional taxes, interest,
or penalties is pending or, to Borrowers’ and the Borrower Principals’
knowledge, threatened against any Property or Pledged Security, or the
respective assets of any Borrower, Pledgor or Borrower Principal.
     (g) Commercial Loan.
     (i) Borrowers and the Borrower Principals hereby acknowledge and agree that
Lender has previously advised, and again hereby advises prior to the execution
of this Note and the other Loan Documents, that they seek the advice of an
attorney and an accountant in connection with the Loan, this Note and the other
Loan Documents.
     (ii) Borrowers and the Borrower Principals hereby jointly and severally
confirm that they have had the opportunity to seek the advice of an attorney and
an accountant of their choice in connection with the Loan, this Note and the
other Loan Documents.
     (h) Acknowledgement of Joint and Several Obligations. Each Borrower
acknowledges and agrees that such Borrower is a co-borrower of the Loan and, in
its capacity as a co-borrower, is jointly and severally responsible for the
obligations of the Borrowers hereunder, irrespective of the use of proceeds
funded under this Note.
     9. Covenants. Borrowers and the Borrower Principals jointly and severally
covenant and agree with Lender that they agree with, and agree to comply with,
each of the following covenants below:
     (a) Payment; Performance. Borrowers shall promptly pay all amounts due and
owing to Lender under this Note. Borrowers and the Borrower Principals shall
timely perform and comply with each agreement and covenant made under this Note
and the other Loan Documents, and shall cause Pledgors to timely perform and
comply with each agreement and covenant made by them under any Loan Document.
     (b) Use of Proceeds. The proceeds of this Note shall be used solely for
such business purposes as are approved in writing by Lender. In no event shall
the proceeds of this Note be used, directly or indirectly, by any person for
personal, family, household or agricultural purposes or for the purpose, whether
immediate, incidental or ultimate, of purchasing, acquiring or carrying any
“margin stock” (as such term is defined in Regulation U promulgated by the Board
of Governors of the Federal Reserve System).
     (c) Other Loans. Except for any Senior Indebtedness in existence on the
Effective Date and any other indebtedness in existence on the Effective Date
that is shown on the financial statements delivered to Lender prior to the
closing of this Note, no Borrower shall enter into any promissory note, loan
documents, or other agreement for borrowed money without the prior written
consent of Lender, including, without

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limitation, any loan documents for Senior Indebtedness. Unless otherwise agreed
by Lender in writing, all loan documents evidencing any Senior Indebtedness
entered into after the Effective Date shall provide that (i) the Senior Lender
shall give Lender written notice of any default or event of default occurring
under the loan documents evidencing the Senior Indebtedness, and (ii) upon any
default by a Borrower, Lender shall have the right, but not the obligation, to
cure such Borrower’s default thereunder and to purchase the loan and the loan
documents evidencing the Senior Indebtedness from the Senior Lender.
     (d) Termination of Existence. No Borrower or Borrower Principal shall cause
or permit, or enter into any agreement to cause or permit, the dissolution or
termination of the existence of any Borrower, any Pledged Security or any
Pledgor that is an entity, or the merger, consolidation, or reorganization of
any Borrower, any Pledged Security or any Pledgor that is an entity with or into
any other entity, whether or not such party would be the surviving entity.
     (e) Notice of Certain Events. Borrowers shall promptly notify Lender in
writing of the occurrence of any event or series of events of which Borrowers or
the Borrower Principals have actual knowledge causing, or that could be expected
to cause or has caused (i) a material adverse effect on the operations or
financial condition of any Borrower or Borrower Principal, (ii) the occurrence
of any Event of Default (without giving effect to any cure period applicable
thereto), or (iii) any default by any Borrower or Borrower Principal or the
acceleration of the maturity of any indebtedness owed by any Borrower or
Borrower Principal under any Senior Indebtedness or any indenture, mortgage,
agreement, promissory note, contract or other instrument to which any Borrower
or Borrower Principal is a party or by which any material asset or property of
any Borrower or Borrower Principal is bound. In addition, Borrowers and the
Borrower Principals agree to notify Lender in writing at least twenty
(20) business days prior to the date that any Borrower, Borrower Principal,
Pledgor or Pledged Security changes its name or address, the location of its
chief executive office or principal place of business, and the place where it
keeps its books and records.
     (f) Financial Statements. Borrowers shall deliver or cause to be delivered
to Lender, the following financial statements: (i) within sixty (60) days after
the end of each fiscal quarter, the unaudited financial statements of Borrowers,
Pledgors, the Borrower Principals, and the Pledged Securities prepared in
accordance with GAAP and combined or consolidated as appropriate, including all
notes related thereto; and (ii) within one hundred twenty (120) days after the
end of each fiscal year, the unaudited financial statements of Borrowers,
Pledgors, the Borrower Principals and the Pledged Securities, prepared in
accordance with accepted accounting principals and combined or consolidated as
appropriate, including all notes related thereto. All financial statements
provided to Lender shall be certified as to accuracy and completeness by a
Borrower Principal.
     (g) Taxes. Borrowers and the Borrower Principals shall pay, and cause all
Pledgors to pay, all federal, state and local taxes levied against them and
their respective

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properties and assets, including all Properties, as they become due and payable
and before the same become delinquent. Borrowers, Pledgors and the Borrower
Principals shall have the right to pay such tax under protest or to otherwise
contest any such tax or assessment, but only if (i) such contest has the effect
of preventing the collection of such taxes so contested and also of preventing
the sale or forfeiture of any property subject thereto, (ii) Borrowers have
notified Lender of the intent to contest such taxes, and (iii) adequate reserves
for the liability associated with such tax have been established in accordance
with GAAP. Borrowers, Pledgors and the Borrower Principals shall furnish to
Lender evidence that all such taxes are paid at least five (5) days prior to the
last date for payment of such taxes.
     (h) Certain Liens. No Borrower or Borrower Principal shall create, incur,
assume, or suffer to exist, or permit any Pledgor to create, incur, assume or
suffer to exist, directly or indirectly, any Lien on, against or with respect to
the Pledged Securities or the Collateral, whether now owned or hereafter
acquired, or any interest in income or profits therefrom, except for (i) Liens
in favor of Lender, (ii) Liens in favor of Senior Lenders that secure Senior
Indebtedness, (iii) Liens in favor of United Development Funding, L.P., a Nevada
limited partnership, and (iv) other Liens approved by Lender’s prior written
consent.
     (i) Indebtedness. No Borrower shall incur any indebtedness for borrowed
money after the Effective Date, other than Senior Indebtedness, or other
indebtedness for borrowed money approved by Lender’s prior written consent.
     (j) Distributions. At any time when any amounts are due to Lender
hereunder, without Lender’s prior written consent, (i) no Borrower shall
declare, pay, make, or authorize any dividends or distributions of any kind to
its shareholders or any other person or entity, and (ii) no Borrower or Borrower
Principal shall permit or cause any Pledged Security to declare, pay, make or
authorize any dividends or distributions of any kinds to its owners or any other
person or entity. If Lender approves any such dividend or distribution, Lender
may, in its sole discretion, require that the full amount of such dividend or
distribution (or any portion thereof) to be paid to Lender to reduce any
indebtedness outstanding under this Note.
     (k) Borrower and Pledgor Documents. In addition to the information
otherwise required to be provided to Lender pursuant to this Note, Borrowers and
the Borrower Principals shall, promptly upon request, furnish to Lender, all of
the following documents:
     (i) all financial statements, pro formas, projections, budgets, capital
expenditure and expense reports, and other material financial and operational
information related to Borrowers, Pledgors and the Pledged Securities;
     (ii) minutes of the meetings and all written consents of the board of
directors and the shareholders (or other governing authorities) of Borrowers,
Pledgors, and each Pledged Security;

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     (iii) all loan documents evidencing indebtedness for borrowed money of all
Borrowers, Pledgors and each Pledged Security, and all amendments thereto;
     (iv) the survey and/or plat for each Property, a copy of the owner’s title
commitment for each Property, the title exception documents and, upon issuance,
a copy of the owner’s title policy for each Property;
     (v) all due diligence documents related to each Property, including,
without limitation, a Phase I Environmental Report, survey, plat, appraisal, and
engineering due diligence report, land use, zoning, subdivision, grading,
municipal district, environmental, and other governmental permits, approvals,
authorizations and maps necessary to develop such Property in compliance with
applicable Governmental Regulations;
     (vi) certificates of general liability and hazard insurance for each
Borrower and endorsements of such policies to Lender (in accordance with and
meeting the requirement of Section 9(n) hereof), and copies of certificates of
builder’s liability insurance covering each Property; and
     (vii) all project updates, development reports, sales reports, budgets, pro
formas, and similar information with respect to each Property.
     (l) Audit. Each Borrower shall permit Lender and its employees,
representatives, auditors, collateral verification agents, attorneys and
accountants (collectively, the “Lender Representatives”), at any time and from
time to time, at their expense, to (i) audit all books and records related to
Borrowers, Pledgors, the Properties, the Pledged Securities and the Collateral,
and (ii) visit and inspect the offices of Borrowers, Pledgors and the Pledged
Securities, to inspect and make copies of all books and records, and to write
down and record any information the Lender Representatives obtain. Borrowers and
the Borrower Principals agree to cooperate fully with Lender and to cause
Pledgors to cooperate fully with Lender in connection with such audits and
inspections.
     (m) Assignments. No Borrower, Pledgor or Borrower Principal shall assign,
transfer or convey, any Pledged Security without the prior written consent of
Lender. Borrowers and Borrower Principals shall take all actions, and refrain
from taking all actions, required to cause Pledgors to comply with this
Section 9(m).
     (n) General Liability Insurance. Each Borrower shall, at all times,
maintain or cause to be maintained, general liability insurance on such Borrower
with coverage amounts that are normal and customary for similarly-situated
entities engaged in similar businesses. Each such policy shall provide that
Lender be given at least thirty (30) days written notice as a condition
precedent to any cancellation thereof or material change therein. Borrowers
shall obtain an endorsement to each such policy naming Lender as an

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additional insured to each such policy, and provide Lender annually with the
insurance certificate, evidencing such coverage, the endorsement of each such
policy to Lender, and evidence of payment of the premium for each such policy.
     (o) Property Insurance. Borrowers shall, at all times, maintain or cause to
be maintained, hazard insurance on each Property with coverage amounts that are
normal and customary for similarly-situated entities engaged in similar
businesses.
     (p) Operation of Business. Borrowers and the Borrower Principals shall
operate Borrowers’ and Pledgors’ respective businesses in compliance with all
applicable federal, state and local laws, rules, regulations, and ordinances.
Each Borrower and each Pledgor that is an entity shall maintain its existence
and good standing in each state where it operates or does any business, except
in any jurisdictions where the failure to maintain such existence and good
standing would not have a material adverse effect individually or in the
aggregate, on its financial condition or operations. Each Borrower and each
Pledgor shall obtain, maintain and keep current, all consents, licenses,
permits, authorizations, permissions and certificates which may be required or
imposed by any governmental or quasi-governmental agency, authority or body
which are required by applicable federal, state or local laws, regulations and
ordinances.
     (q) Alterations. Without the prior written consent of Lender, Borrowers
shall not enter into any Loan Documents evidencing Senior Indebtedness, permit
any material amendment to any loan documents evidencing Senior Indebtedness,
permit any increase in the maximum amount of any Senior Indebtedness, or enter
into any renewal or extension of the loan documents evidencing any Senior
Indebtedness.
     (r) Opinion Letter. Borrowers shall deliver the opinion letter required by
Section 6(f), which shall be satisfactory in form and substance satisfactory to
Lender and its counsel, to Lender within thirty (30) days following the initial
closing of the Loan.
     (s) Key Man Life Insurance. Within sixty (60) days after the Effective
Date, Borrower shall have caused Lender to be named as an additional insured on
the life insurance policy on the life of Joe Fogarty in the amount of
$6,000,000, which policy currently names United Development Funding, L.P., a
Nevada limited partnership, as the sole beneficiary.
     10. Default.
     (a) For purposes of this Note, the following events shall constitute an
“Event of Default”:
     (i) except for Accrued Interest Payments due during any period when Accrued
Interest Payments are required to be made by Lender pursuant to Section 4(b),
the failure of Borrowers to make any payment required by this Note in full on or
before the date such payment is due (or declared due pursuant to the terms of
this Note), whether on or prior to the Maturity Date; or

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     (ii) any financial statement, representation, warranty, or certificate made
or furnished by or with respect to Borrowers, Pledgors or the Borrower
Principals contained in this Note or any other Loan Document or made in
connection herewith or therewith, shall be materially false, incorrect, or
incomplete when made; or
     (iii) any Borrower, Pledgor or Borrower Principal shall fail to perform or
observe any covenant or agreement contained in this Note or any other Loan
Document that is not separately listed in this Section 10(a) as an Event of
Default, and the same remains unremedied for ten (10) days after written notice
of such failure is given by Lender; or
     (iv) any “event of default” or “default” occurs under any Loan Document
other than this Note and the same remains unremedied for ten (10) days after
written notice of such “event of default” or “default” is given by Lender; or
     (v) the entry of a decree or order for relief by a court having
jurisdiction in respect of any Borrower, Pledgor or Borrower Principal in an
involuntary case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency or
other similar law, which is not vacated or dismissed within thirty (30) days, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or other similar official) of any Borrower, Pledgor or the Borrower Principal
for any substantial part of their respective properties or any Property, or
ordering the winding up or liquidation of such person’s affairs; or
     (vi) the commencement by any Borrower, Pledgor or Borrower Principal of a
voluntary case under the federal bankruptcy laws, as now constituted or
hereafter amended, or any other applicable federal or state bankruptcy,
insolvency or other similar law, or the consent by it to the appointment to or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of any Borrower, Pledgor or Borrower
Principal for any substantial part of their respective properties or any
Property, or the making by any Borrower, Pledgor or Borrower Principal of any
assignment for the benefit of creditors, or the admission by any Borrower,
Pledgor or Borrower Principal in writing of its inability to pay its debts
generally as they become due; or
     (vii) the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of all or a
substantial part of the assets of any Borrower, Pledgor or Borrower Principal or
any Property in a proceeding brought against or initiated by any Borrower;
Pledgor or Borrower Principal or any Property;

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     (viii) if any Borrower or Pledgor that is an entity is liquidated or
dissolved or winds up their affairs, or the sale or liquidation of all or
substantially all of the assets of any Borrower or Pledgor that is an entity; or
     (ix) any assignment, transfer, or conveyance of any Pledged Security occurs
without the prior written consent of Lender; or
     (x) any “default” or “event of default” not cured within the grace period,
if any, for such default or event of default, shall occur under (A) the Senior
Indebtedness or any credit agreement, loan agreement, promissory note, or other
document evidencing indebtedness for borrowed money incurred by any Borrower,
Pledgor or Borrower Principal, or (B) any subordination agreement, security
agreement, pledge agreement, guaranty, deed of trust, or other agreement
providing security or collateral for indebtedness, executed by any Borrower,
Pledgor or Borrower Principal, or (C) any joint venture agreement, revenue or
profits sharing or participation agreement, partnership agreement, shareholders
agreement, securities purchase agreement or any other agreement governing to
which any Borrower, Pledgor or Borrower Principal is a party, if Lender or any
of its affiliates is also a party to such agreement (the terms “default” and
“event of default” having the meaning given to such terms in any of the
agreements described above); or
     (xi) the death or disability of Joe Fogarty; or
     (xii) in Lender’s opinion, any material adverse change occurs in the
financial condition or business of any Borrower, Pledgor or Borrower Principal;
or
     (xiii) any Loan Document ceases to become valid and binding for any reason;
or
     (xiv) any Property is sold, transferred, conveyed or assigned without
Lender’s prior written consent; or
     (xv) any Borrower, Pledgor or Borrower Principal suffers the entry against
it of a final judgment for the payment of money in excess of $50,000 which is
not covered by insurance; or
     (xvi) any Borrower, Pledgor or Borrower Principal suffers a writ or warrant
of attachment or any similar process to be issued by any tribunal against all or
any substantial part of its properties, assets or any collateral for this Note,
and such writ or warrant of attachment or any similar process is not stayed or
released within thirty (30) days after the entry or levy thereof or after any
stay is vacated or set aside; or

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     (xvii) in Lender’s opinion, the prospect for payment or the prospect for
performance with respect to this Note or any other agreement that any Borrower,
Pledgor or Borrower Principal may have with Lender is impaired and Lender so
notifies Borrowers in writing.
     (b) Upon the occurrence of an Event of Default described in subsection
(a)(v), (vi) or (vii) above, all obligations under this Note and the other Loan
Documents shall thereupon be immediately due and payable, without demand,
presentment, notice of demand or of dishonor and nonpayment, protest, notice of
protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrowers, the Borrower Principals and Pledgors.
During the continuance of any other Event of Default, then and in every such
case Lender may do any or all of the following: (i) declare the principal of
this Note together with all accrued and unpaid interest on the unpaid principal
balance, and Loan Expenses and other amounts due to Lender under this Note or
the other Loan Documents, to be due and payable immediately, and the same shall
become and be due and payable, without notices, demands for payment,
presentations for payment, notices of payment default, notices of intention to
accelerate maturity, protest and notice of protest, and any other notices of any
kind, all of which are expressly waived by Borrowers, the Borrower Principals
and Pledgors and any and all sureties, guarantors and endorsers of this Note,
(ii) exercise any its rights under any of the Loan Documents, and/or
(iii) exercise all other rights and remedies available to Lender at law and at
equity, including, without limitation, such rights existing under the Uniform
Commercial Code. No delay on the part of Lender in exercising any power under
this Note shall operate as a waiver of such power or right nor shall any single
or partial exercise of any power or right preclude further exercise of that
power or right.
     (c) If this Note is placed in the hands of an attorney for collection after
an Event of Default or failure to pay under this Note, or if all or any part of
the indebtedness represented hereby is proved, established or collected in any
court or in any bankruptcy, receivership, debtor relief, probate or other court
proceedings, Borrowers, the Borrower Principals and Pledgors, and all endorsers,
sureties and guarantors of this Note, jointly and severally, agree to pay
reasonable attorneys’ fees and collection costs to Lender in addition to the
principal and interest payable under this Note.
     11. Usury Laws.
     (a) Notwithstanding anything to the contrary contained in this Note or any
other Loan Document, (i) this Note shall never bear interest in excess of the
Highest Lawful Rate, and (ii) if at any time the rate at which interest is
payable on this Note is limited by the Highest Lawful Rate by the foregoing
clause (i) or by reference to the Highest Lawful Rate in the definitions of Base
Rate and Default Rate, then this Note shall bear interest at the Highest Lawful
Rate and shall continue to bear interest at the Highest Lawful Rate until such
time as the total amount of interest accrued on this Note equals (but does not
exceed) the total amount of interest which would have accrued on this Note, had
there been no Highest Lawful Rate applicable to this Note.

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     (b) It is the intention of the parties hereto that all aspects of this Note
and the other Loan Documents, and the transactions contemplated hereby and
thereby, comply with all laws, including, specifically, any applicable usury
laws. In furtherance thereof, Borrowers, the Borrower Principals, Pledgors and
Lender stipulate and agree that none of the terms and provisions contained in
this Note or the other Loan Documents shall ever be construed to create a
contract to pay for the use, forbearance, or detention of money, or interest, in
excess of the maximum amount of interest permitted to be charged by applicable
law in effect from time to time. No Borrower, Pledgor or Borrower Principal nor
any present or future guarantors, endorsers, or other persons or entities
hereafter becoming liable for payment of Borrowers’ obligations hereunder and
under the other Loan Documents shall ever be liable for unearned interest
thereon or shall ever be required to pay interest thereon in excess of the
maximum amount that may be lawfully charged under applicable law from time to
time in effect, and the provisions of this Section 11 shall control over all
other provisions of the Loan Documents that may be in conflict or apparent
conflict herewith. Lender expressly disavows any intention to charge or collect
excessive unearned interest or finance charges in the event the maturity of this
Note is accelerated. If (i) the maturity of this Note is accelerated for any
reason, (ii) this Note is prepaid and as a result any amounts held to constitute
interest are determined to be in excess of the legal maximum, or (iii) Lender or
any other holder of this Note shall otherwise collect moneys which are
determined to constitute interest which would otherwise increase the interest
hereon to an amount in excess of that permitted to be charged by applicable law,
then all sums determined to constitute interest in excess of such legal limit
shall, without penalty, be promptly applied to reduce the then outstanding
principal of this Note or, at Lender’s or such holder’s option, promptly
returned to Borrowers or the other payor thereof upon such determination. In
determining whether or not the interest paid or payable, under any specific
circumstance, exceeds the maximum amount permitted under applicable law, Lender
and Borrowers (and any other payors of this Note) shall to the greatest extent
permitted under applicable law, (i) characterize any non-principal payment as an
expense, fee or premium rather than as interest, (ii) exclude voluntary
prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and
spread the total amount of interest throughout the entire contemplated term of
this Note in accordance with the amounts outstanding from time to time hereunder
and the maximum legal rate of interest from time to time in effect under
applicable law in order to lawfully charge the maximum amount of interest
permitted under applicable law. In the event applicable law provides for an
interest ceiling under Chapter 303 of the Texas Finance Code (the “Texas Finance
Code”) as amended, for that day, the ceiling shall be the “weekly ceiling” as
defined in the Texas Finance Code. As used in this section the term “applicable
law” means the laws of the State of Texas or the laws of the United States of
America, whichever laws allow the greater interest, as such laws now exist or
may be changed or amended or come into effect in the future.
     12. Indemnity; Release. Borrowers, the Borrower Principals and Pledgors,
jointly and severally, agree to indemnify Lender, upon demand, from and against
any and all liabilities, obligations, claims, losses, damages, penalties, fines,
actions, judgments, suits, settlements, costs, expenses or disbursements
(including reasonable, documented fees of attorneys,

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accountants, experts and advisors) of any kind or nature whatsoever, now
existing (in this section, collectively called “Liabilities and Costs”) to the
extent actually imposed on, incurred by, or asserted against Lender in its
capacity as lender hereunder growing out of, resulting from or in any other way
associated with (a) this Note and the other Loan Documents or any of the
transactions and events (including the enforcement or defense thereof) at any
time associated therewith or contemplated therein, (b) any claim that the Loan
evidenced hereby is contractually usurious, and (c) any use, handling, storage,
transportation, or disposal of hazardous or toxic materials on or about any
Property or any part thereof or any real properties owned, managed or operated
by any Borrower, Pledgor or Borrower Principal.
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED IN WHOLE OR IN PART UNDER ANY CLAIM
OR THEORY OF STRICT LIABILITY, OR ARE CAUSED IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY LENDER;
provided only that Lender shall not be entitled under this section to receive
indemnification for that portion, if any, of any Liabilities and Costs which is
proximately caused by its own individual gross negligence or willful misconduct,
as determined in a final judgment. If any person (including Borrowers, Pledgors
and the Borrower Principals) ever alleges such gross negligence or willful
misconduct by Lender, the indemnification provided for in this section shall
nonetheless be paid upon demand, subject to later adjustment or reimbursement,
until such time as a court of competent jurisdiction enters a final judgment as
to the extent and effect of the alleged gross negligence or willful misconduct.
As used in this section, the term “Lender” shall refer not only to the person
designated as such in this Note but also to each partner, director, officer,
attorney, employee, representative and affiliate of such person.
     13. Mutual Understanding. Borrowers, Pledgors and the Borrower Principals
jointly and severally represent and warrant to Lender that they have read and
fully understands the terms and provisions hereof, have had an opportunity to
review this Note with legal counsel and have executed this Note based on its own
judgment and advice of counsel. If an ambiguity or question of intent or
interpretation arises, this Note will be construed as if drafted jointly by
Borrowers, the Borrower Principals, Pledgors and Lender and no presumption or
burden of proof will arise favoring or disfavoring any party because of
authorship of any provision of this Note.
     14. Further Assurances. Borrowers and the Borrower Principals, at their
expense, will promptly execute and deliver to Lender, and cause to be executed
and delivered to Lender by the Pledgors and the Pledged Securities, all such
other and further documents, agreements and instruments, and shall deliver all
such supplementary information, in compliance with or accomplishment of the
agreements of Borrowers, Pledgors and the Borrower Principals under this Note
and the other Loan Documents as Lender shall request.
     15. Cumulative Remedies. Borrowers, the Borrower Principals and Pledgors
hereby agree that all rights and remedies that Lender is afforded by reason of
this Note are separate and cumulative with respect to Borrowers, the Borrower
Principals and Pledgors and otherwise and may be pursued separately,
successively, or concurrently, as Lender deems advisable. In

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addition, all such rights and remedies are non-exclusive and shall in no way
limit or prejudice Lender’s ability to pursue any other legal or equitable
rights or remedies that may be available to Lender.
     16. Notice. All notices and other communications under this Note will be in
writing and will be mailed by registered or certified mail, postage prepaid,
sent by facsimile, delivered personally by hand, or delivered by nationally
recognized overnight delivery service addressed to Borrowers and the Borrower
Principals at 340 North Sam Houston Parkway East, #100, Houston, Texas 77060,
Facsimile No. (281) 260-9798, or, with respect to Lender, to Lender at 1812
Cindy Lane, Suite 200, Bedford, Texas 76021, Facsimile No. (817) 835-0383 or
with respect to any party, to such other address as a party may have delivered
to the other parties for purposes of notice. Each notice or other communication
will be treated as effective and as having been given and received (a) if sent
by mail, at the earlier of its receipt or three (3) business days after such
notice or other communication has been deposited in a regularly maintained
receptacle for deposit of United States mail, (b) if sent by facsimile, upon
written or electronic confirmation of facsimile transfer, (c) if delivered
personally by hand, upon written or electronic confirmation of delivery from the
person delivering such notice or other communication, or (d) if sent by
nationally recognized overnight delivery service, upon written or electronic
confirmation of delivery from such service.
     17. Enforcement and Waiver by Lender. Lender shall have the right at all
times to enforce the provisions of this Note and the other Loan Documents in
strict accordance with their respective terms, notwithstanding any conduct or
custom on the part of Lender in refraining from so doing at any time or times.
The failure of Lender at any time or times to enforce its rights under such
provisions, strictly in accordance with the same, shall not be construed as
having created a custom or in any way or manner modified or waived the same.
     18. CHOICE OF LAW; JURISDICTION; VENUE. EXCEPT TO THE EXTENT THAT THE
VALIDITY OR PERFECTION OF SECURITY INTERESTS OR REMEDIES IN RESPECT OF ANY
PARTICULAR COLLATERAL IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF TEXAS, THIS NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO ITS CONFLICTS OF LAWS PROVISIONS. JURISDICTION FOR ALL MATTERS
ARISING OUT OF THIS NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE EXCLUSIVELY IN
THE STATE AND FEDERAL COURTS SITTING IN DALLAS COUNTY, TEXAS, AND EACH BORROWER
AND EACH THE BORROWER PRINCIPAL HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION
OF SUCH STATE AND FEDERAL COURTS AND AGREES AND CONSENTS NOT TO ASSERT IN ANY
PROCEEDING, THAT ANY SUCH PROCESS IS BROUGHT IN AN INCONVENIENT FORUM OR THAT
THE VENUE THEREOF IS IMPROPER, AND FURTHER AGREES TO A TRANSFER OF SUCH
PROCEEDING TO THE COURTS SITTING IN DALLAS COUNTY, TEXAS.

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     19. Counterparts. This Note and each other Loan Document may be executed in
any number of counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute but one and the same instrument.
     20. Severability. If any provision of this Note or any other Loan Document
shall be held invalid under any applicable laws, then all other terms and
provisions of this Note and the Loan Documents shall nevertheless remain
effective and shall be enforced to the fullest extent permitted by applicable
law.
     21. Amendments; Waivers. No amendment or waiver of any provision of this
Note nor consent to any departure herefrom, shall in any event be effective
unless the same shall be in writing and signed by Lender and the affected
person, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
     22. Binding Effect; Assignment. This Note and the other Loan Documents
shall be binding on Borrowers, Pledgors and the Borrower Principals and their
respective successors and assigns, including, without limitation, any receiver,
trustee or debtor in possession of or for any Borrower, Pledgor or Borrower
Principal, and shall inure to the benefit of Lender and its successors and
assigns. No Borrower, Pledgor or Borrower Principal shall be entitled to
transfer or assign this Note and the other Loan Documents in whole or in part
without the prior written consent of Lender. This Note and the other Loan
Documents are freely assignable and transferable by Lender without the consent
of Borrowers, Pledgors and the Borrower Principals or any of their respective
affiliates. Should the status, composition, structure or name of any Borrower,
Pledgor or Borrower Principal change, this Note and the other Loan Documents
shall continue to be binding upon such person or entity and also cover such
person or entity under the new status composition, structure or name according
to the terms hereof and thereof.
     23. Captions. The captions in this Note are for the convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
     24. Number of Gender of Words. Except where the context indicates
otherwise, words in the singular number will include the plural and words in the
masculine gender will include the feminine and neutral, and vice versa, when
they should so apply.
     25. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. EACH BORROWER, EACH
BORROWER PRINCIPAL AND EACH PLEDGOR HEREBY KNOWINGLY, VOLUNTARILY,
INTENTIONALLY, AND IRREVOCABLY (A) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED
BY LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS NOTE OR THE LOAN DOCUMENTS OR ANY TRANSACTION
CONTEMPLATED HEREBY OR THEREBY OR ASSOCIATED HEREWITH OR THEREWITH, BEFORE OR
AFTER MATURITY OF THIS NOTE; (B) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY
LAW, ANY RIGHT SUCH PARTY MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION
ANY “SPECIAL DAMAGES”, AS DEFINED BELOW, (C)

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CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OF LENDER OR COUNSEL FOR
ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT LENDER
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS,
AND (D) ACKNOWLEDGES THAT LENDER HAS BEEN INDUCED TO ENTER INTO THIS NOTE AND
THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY
BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED IN THIS
SECTION. AS USED IN THIS SECTION, “SPECIAL DAMAGES” INCLUDES ALL SPECIAL,
CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT
DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY
PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY HERETO.
     26. ENTIRE AGREEMENT. THIS NOTE AND THE OTHER LOAN DOCUMENTS TOGETHER
CONSTITUTE THE ENTIRE AGREEMENT AMONG THE PARTIES CONCERNING THE SUBJECT MATTER
HEREOF, AND ALL PRIOR DISCUSSIONS, AGREEMENTS AND STATEMENTS, WHETHER ORAL OR
WRITTEN, ARE MERGED INTO THIS NOTE AND THE OTHER LOAN DOCUMENTS. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES AND THIS NOTE AND THE OTHER LOAN
DOCUMENTS MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
[The remainder of this page is left blank intentionally.]

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     This Note has been executed by each Borrower, each Borrower Principal and
Lender on this the ___day of September, 2006, effective for all purposes as of
the Effective Date.

              BORROWERS:   ARETE REAL ESTATE
AND DEVELOPMENT COMPANY,         a Texas corporation    
 
           
 
  By:   /s/ Joe Fogarty    
 
                Name: Joe Fogarty         Its: President    
 
                CREATIVE MODULAR HOUSING, INC.,         a Texas corporation    
 
           
 
  By:   /s/ Joe Fogarty    
 
                Name: Joe Fogarty         Its: President    
 
                MODERN MODULAR HOME RENTAL CORP.,         a Texas corporation  
 
 
           
 
  By:   /s/ Joe Fogarty    
 
                Name: Joe Fogarty         Its: President    
 
           
BORROWER PRINCIPALS:
           
 
  /s/ Joe Fogarty                   Joe Fogarty      
 
  /s/ Nancy Fogarty                   Nancy Fogarty    

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              LENDER:   UNITED DEVELOPMENT FUNDING III, L.P.,         a Delaware
limited partnership    
 
                By: UMTH Land Development, L.P.         Its: General Partner    
 
                By: UMT Services Inc.    
 
           
 
  By:   /s/ Jeff Shirley    
 
                Name: Jeff Shirley         Its: Executive Vice President    

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