**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 thisSecured Promissory Note (this “***Note***”), and promise to pay to the order of **UNITED DEVELOPMENTFUNDING 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 andNO/100 Dollars ($3,617,500.00) or, if greater or less, the aggregate amount of all funds advancedto Borrowers under this Note, together with accrued, unpaid interest thereon, and all other amountsdue to Lender hereunder.     1. Certain Definitions. Certain capitalized terms which are defined in the text ofthis Note shall have the respective meanings given to such terms herein. The following capitalizedterms shall have the following meanings:     (a) “***Accrued Interest Payments***” shall mean payments equal to the amount of accruedinterest on the outstanding principal balance of this Note, calculated at the applicablerate 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 anyBorrower, Pledgor or any of their respective affiliates relating to the Pledged Securitiesand/or the Properties, including, without limitation, in connection with the sale of anyProperty or any lot thereof, agreements and contracts for reimbursement from sources such ascities, municipal utility districts, water districts and assessment districts, joint ventureagreements, 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/100Dollars ($3,000,000.00).     (g) “***Commitment Advance***” shall mean full or partial advance of the Commitment to anyBorrower pursuant to the terms hereof.
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     (h) “***Commitment Fee***” shall mean the fee paid by Borrowers to Lender or its assignspursuant to that certain Commitment Letter dated September 18, 2006, in consideration ofLender’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 andcompounded 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 10of this Note.     (l) “***Guaranty***” shall mean that certain Continuing Unconditional Guaranty executed bythe Borrower Principals and The Fogarty Family Trust in favor of Lender, dated the EffectiveDate, as such Guaranty may be amended from time to time.     (m) “***Highest Lawful Rate***” shall mean the maximum lawful rate of interest which may becontracted for, charged, taken, received or reserved by Lender in accordance with theapplicable laws of the State of Texas (or applicable United States federal law, to theextent that it permits Lender to contract or charge, take, receive or reserve a greateramount of interest than under Texas law), taking into account all fees and expensescontracted for, charged, received, taken or reserved by Lender in connection with thetransaction relating to this Note and the indebtedness evidenced hereby or by the other LoanDocuments which are treated as interest under applicable law.     (n) “***Interest Reserve***” shall mean an aggregate of up to U.S. Four Hundred and NO/100Dollars ($400,000.00) to be advanced by Lender hereunder and to be applied against AccruedInterest Payments, subject to the provisions of Sections 4(b) and 4(c) ofthis Note.     (o) “***Interest Reserve Advance***” means an advance under this Note in the amount of anAccrued 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 inproperty designed to secure the repayment of indebtedness or the satisfaction of any otherobligation, 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 ofadministrative costs and expenses incurred by Lender in connection with each CommitmentAdvance hereunder.
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     (s) “***Loan Documents***” shall mean, collectively, this Note, the Pledge Agreement, theSecurity 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 withthe 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 connectionwith the loan made pursuant to this Note and the preparation of this Note and the other LoanDocuments, including, without limitation, attorneys fees, accountants fees, closing costs,due diligence costs and expenses, recording fees, courier and delivery fees, documentpreparation fees, wire transfer and bank fees, title company fees, and all other fees andcosts incurred by Lender.     (u) “***Maturity Date***” means October 31, 2009.     (v) “***Pledge Agreement***” shall mean that certain Pledge Agreement executed by thePledgors in favor of Lender dated as of the Effective Date, pursuant to which the Pledgorspledge their respective interests in the Pledged Securities to Lender, as such agreement maybe amended from time to time.     (w) “***Pledged Securities***” shall have the meaning given to such term in the PledgeAgreement.     (x) “***Pledgors***” shall mean, collectively, the Borrower Principals, the Borrowers, TheFogarty Family Trust, El Tesoro General Partner, Inc., a Texas corporation, ForestwoodGeneral Partner, Inc., a Texas corporation, 26 Gleneagles GP, Inc., a Texas corporation,Dollar Cay Development, Inc., a Texas corporation, 170 Dowdell GenPar, Inc., a Nevadacorporation, Twelve Oaks General Partner, Inc., a Texas corporation, GP Woodland LakesEstates, Inc., a Texas corporation, 501 Maple Ridge GP, Inc., a Texas corporation, NEHCProperties, Inc., a Texas corporation, Thompson Road Development GP, Inc., a Texascorporation, Burnet Bay GP, Inc., a Texas corporation, No. 75 Brunswick, Inc., a Texascorporation, 115 Greensbrook, Inc., a Texas corporation, 110 Bay Oaks Real Estate, Inc., aTexas corporation, Greensbrook Arete, Inc., a Texas corporation, Affordable Cottages, Inc.,a Texas corporation, Fifty One Greensbrook Manor, Inc., a Texas corporation, 393 SmithCounty 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 hereinafteracquired by those corporations, partnerships and limited liability companies, the equityinterests of which are Pledged Securities under the Pledge Agreement.     (z) “***Security Agreement***” shall mean that certain Security Agreement executed byBorrowers in favor of Lender dated as of the Effective Date, as it may be amended from timeto time.
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     (aa) “***Senior Indebtedness***,” if any, shall mean the amount of indebtedness owed to aSenior Lender that Lender has agreed in writing will have (i) priority in payment over theindebtedness evidenced by this Note, and/or (ii) priority over the Liens created by thePledge Agreement and/or the Security Agreement.     (bb) “***Senior Lender***” shall mean any bank, financial institution or other lender havingmade a loan to any Borrower and/or any Pledgor that has a senior position ahead of Lenderwith respect to the payment of Borrower indebtedness and/or the priority of Liens on oragainst the Pledged Securities or the Collateral, or any other collateral granted or pledgedas security for the Loan; provided, that Lender has agreed in writing to be subordinatethereto.     2. Loan Expenses; Fees.     (a) Loan Expenses. Upon Lender’s demand from time to time, Borrowers shall payLender, the full amount of all Loan Expenses incurred by Lender.     (b) Loan Administration Fee. In consideration of administrative costs andexpenses incurred by Lender in connection with Commitment Advances, Borrowers agree to payLender a Loan Administration Fee at the time of each Commitment Advance equal to one-quarterpercent (0.25%) of such Commitment Advance. The Loan Administration Fee with respect toeach Commitment Advance made hereunder is fully earned by Lender at the time such CommitmentAdvance is funded and, if not otherwise paid, shall be funded by Lender at the time of theCommitment Advance and upon disbursement shall automatically constitute principaloutstanding hereunder and cause a corresponding increase in the aggregate amount ofBorrowers’ obligations hereunder (even if such disbursement causes the aggregate amountoutstanding hereunder to exceed the face amount of this Note).     (c) Commitment Fee. Pursuant to the terms and conditions of that certainCommitment Letter between Borrowers and Lender dated September 18, 2006, Borrowers agreed topay Lender a Commitment Fee in the amount of $204,000.00 in consideration of Lender’scommitment to make the Loan to Borrowers. Pursuant to Borrowers’ request, the CommitmentFee shall be funded by Lender under this Note and upon disbursement shall automaticallyconstitute principal outstanding hereunder and cause a corresponding increase in theaggregate outstanding amount of Borrowers’ obligations hereunder.     (d) Usury Savings Clause Applies. Borrowers, the Borrower Principals andLender agree that Lender has provided, and shall provide, separate and distinctconsideration 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 expensesincurred by Lender. Borrowers, the Borrower Principals and Lender further agree that suchfees 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 theforegoing and
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notwithstanding anything else in this Note and the other Loan Documents to the contrary, ifany fees or expenses charged or chargeable to Borrowers hereunder are determined toconstitute 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 interestcharged hereunder so as not to exceed the Highest Lawful Rate.     (e) Assignment. The Loan Administration Fee and all Loan Expenses areassignable 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 thisNote, Lender agrees to make Commitment Advances to Borrowers from time to time prior to theMaturity 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, andthat the remainder of the Commitment shall be funded over the life of the Loan. This Noteis not a revolver and thus, the portion of the Commitment borrowed may not be repaid toLender and subsequently reborrowed under this Note.     (b) Procedure for Borrowing. Each Commitment Advance after the initial closinghereof shall be made by Borrowers’ delivery of a written request to Lender. Such noticemust be received by Lender no less than five (5) business days prior to the date that is therequested 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 thisNote, 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 onthe applicable funding date; provided, however, that Lender shall have no obligation to makeany Commitment Advance unless each of the conditions precedent in Section 7 havebeen satisfied.     (d) Discretionary Advances. Lender is authorized to make advances hereunderthat Lender, in its sole discretion, deems necessary or desirable to pay any Loan Expense orother amount chargeable to Borrowers pursuant to the terms of this Note or any other LoanDocument (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 increasein the aggregate amount of Borrowers’ obligations hereunder (even if such DiscretionaryAdvance causes the aggregate amount outstanding hereunder to exceed the face amount of thisNote). The making by Lender of any Discretionary Advance shall not cure any Event ofDefault hereunder, unless Lender provides Borrowers with a written waiver of such Event ofDefault.
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     (e) Face Amount of Note. The $3,617,500.00 face amount of the Note consists ofthe 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) anaggregate 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 bearinterest on each day outstanding at the Base Rate in effect on such day, unless the DefaultRate shall apply. Subject to the other provisions of this Note, upon the occurrence andduring the continuation of an Event of Default, the outstanding principal amount of thisNote shall, at Lender’s option, automatically and without the necessity of notice, bearinterest from the date of such Event of Default at the Default Rate, until all suchdelinquent amounts are paid or such breach or Event of Default is otherwise cured to thesatisfaction of Lender or waived by Lender in writing.     (b) Interest Payments; Interest Reserve Advances. Accrued Interest Paymentsshall be due and payable on the last day of each month for interest accrued during thatmonth. Notwithstanding the foregoing sentence and subject to the other provisions hereof,on each date that an Accrued Interest Payment becomes due and payable hereunder, Lendershall make an Interest Reserve Advance hereunder in the amount of such Accrued InterestPayment, which shall be applied to the Accrued Interest Payment then due and payable, untilthe Interest Reserve has been fully exhausted. Subject to the other provisions of thisNote, 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) theamount of remaining Interest Reserve shall be reduced by the amount of such Interest ReserveAdvance, and (iii) such Interest Reserve Advance funded by Lender hereunder shallautomatically become principal outstanding under this Note upon such funding. The InterestReserve Advances may be funded by Lender even if such funding causes the outstandingprincipal balance of this Note to exceed its face amount. Notwithstanding anything else tothe contrary contained herein, (i) if at any time an Event of Default has occurred and iscontinuing under this Note, Lender shall not be obligated to make any further InterestReserve Advances, and thereafter, shall do so only in its sole discretion, unless and untilthe 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 wouldcause the aggregate amount of Interest Reserve Advances made hereunder to exceed theremaining Interest Reserve.     (c) Replenishment of Interest Reserve. To the extent Borrowers make anyprepayment of the Loan and such prepayment is applied to accrued interest in accordance withSection 5(a) of this Note, the Interest Reserve shall be replenished in an amountequal 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 inSection 4(b) of this Note;     (ii) upon the receipt of any Cash Flow by any Borrower, Pledgor or any of theirrespective affiliates, from any source, Borrowers shall pay or cause to be paid toLender, eighty percent (80%) of such Cash Flow remaining after payment of anyapplicable 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 allaccrued, unpaid interest thereon, unpaid Loan Expenses and other unpaid amounts duehereunder, 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 ReserveAdvances to Accrued Interest Payments as provided in Section 4(b) of this Note, allpayments 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 underthis Note or any other Loan Document, Lender shall have the right to apply payments towardamounts due under this Note as Lender determines in its sole discretion.     (b) General. All amounts are payable to Lender in lawful money of the UnitedStates of America at the address for Lender provided in this Note, or at such other addressas from time to time may be designated by Lender. Borrowers shall make each payment whichthey owe under this Note and the other Loan Documents to Lender in full and in lawful moneyof the United States, without set-off, deduction or counterclaim. Under no circumstance mayBorrowers offset any amount owed by any Borrower to Lender under this Note with an amountowed by Lender to Borrowers under any other arrangement. All payments shall be made bycashier’s check or wire transfer of immediately available funds. Should any such paymentbecome due and payable on a day other than a business day, the date for such payment shallbe extended to the next succeeding business day, and, in the case of a required payment ofprincipal, interest or Loan Expenses or other amounts then due, interest shall accrue and bepayable on such amount for the period of such extension. Each such payment must be receivedby Lender not later than 3:00 p.m., Dallas, Texas time on the date such payment becomes dueand payable. Any payment received by Lender after such time will be deemed to have beenmade on the next succeeding business day.     (c) Prepayment. Borrowers may prepay this Note in whole or in part at any timeand from time to time without incurring any prepayment fee or penalty; provided, thatinterest shall accrue on the portion of this Note so prepaid through the date of suchprepayment.
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     6. Loan Deliveries. At or prior to the closing of the Loan (except as set forthbelow), Borrowers shall deliver or cause to be delivered to Lender, the following items, each ofwhich shall be satisfactory in form and substance to Lender:     (a) this Note and each other Loan Document, duly executed by Borrowers, Pledgors andthe Borrower Principals, as applicable;     (b) the most recent financial statements of Borrowers, the Pledged Securities and theBorrower Principals, in the form specified in Section 9(f), and accompanied by thecertification required by Section 9(f);     (c) a certified copy of Borrowers’ and the Pledged Securities’ formation documents andbylaws, and all amendments thereto;     (d) certificates of existence and good standing for Borrowers and the PledgedSecurities, 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 thetransactions contemplated hereby and thereby, and resolutions of the general partner orother governing body of each Pledgor and each Pledged Security, authorizing the transactionscontemplated hereby and by the Pledge Agreement;     (f) an opinion of counsel for Borrowers, Pledgors, the Pledged Securities and theBorrower Principals, satisfactory in all respects to Lender and its counsel, including,without limitation, an opinion that the Loan Documents and the Loan made pursuant theretoare not usurious, which shall be delivered to Lender within thirty (30) days following theinitial closing of the Loan;     (g) a certificate of Borrowers’ general liability policies, evidence of payment of thepremium 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 capacityas President of each Borrower, and in his individual capacity, certifying that (i) no Eventof Default has occurred and is continuing under this Note, (ii) all representations andwarranties made by Borrowers, Pledgors and the Borrower Principals, respectively, in thisNote 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, allcovenants, conditions and agreements which are then required by this Note and the other LoanDocuments to have been complied with or performed;     (i) copies of the loan documents in effect on the Effective Date evidencing the SeniorIndebtedness and all amendments thereto;
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     (j) all written consents that are required with respect to the Note and the other LoanDocuments and the transactions contemplated thereby, including, without limitation, anyconsents that are required in respect to the pledge of the Pledged Securities to Lenderpursuant to the Pledge Agreement; and     (k) such other and further documents, agreements and certificates as are reasonablyrequired by Lender.     7. Conditions Precedent to Commitment Advances. Borrowers and the Borrower Principalsagree that, notwithstanding anything to the contrary contained herein or in the other LoanDocuments, Lender’s obligation to fund each Commitment Advance shall be conditioned upon thesatisfaction of each of the following conditions, on and as of the funding date for the applicableCommitment 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 theOfficer’s Certificate shall be true and correct in all respects;     (b) the requested Commitment Advance, if made, would not cause the aggregate amount ofall Commitment Advances made hereunder to exceed the Commitment; and     (c) Borrowers, Pledgors and the Borrower Principals shall have complied with each otherreasonable request of Lender made in connection with the Commitment Advance.     8. Representations and Warranties. Each Borrower and each Borrower Principal jointlyand severally represents and warrants to Lender that:     (a) Organization and Good Standing; Authorization. Each Borrower (i) is dulyorganized, validly existing and in good standing under the laws of its jurisdiction oforganization, and (ii) has full power and authority to own its properties, carry on itsbusiness and to perform the transactions contemplated by this Note and the other LoanDocuments. All necessary corporate, shareholder, and other actions required to be taken onbehalf of Borrowers to approve this Note and the other Loan Documents and the transactionscontemplated hereby and thereby, have been duly taken. Each Borrower is in compliance inall material respects with all laws applicable to it in each jurisdiction within and withoutoutside 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 legalright to execute, deliver and perform its obligations under this Note and the other LoanDocuments. The execution and delivery by Borrowers, Pledgors and the Borrower Principals ofthis 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 anyBorrower or Pledgor, or the respective bylaws***,***partnership agreement, regulations, operatingagreement 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 towhich 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 theBorrower Principals in accordance with their terms, except as enforceability may be limitedby bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rightsgenerally.     (c) Litigation. There is no pending order, notice, claim, litigation,proceeding or investigation against or affecting Borrowers, Pledgors or the BorrowerPrincipals or any of their respective assets or properties, or any Property or PledgedSecurity whether or not covered by insurance, that could materially and adversely affecteither the financial condition or business prospects of any Borrower, Pledgor or BorrowerPrincipal, if adversely determined.     (d) Indebtedness. No Borrower or Borrower Principal has any materialindebtedness of any nature, except to the extent disclosed in the latest financialstatements delivered to Lender or otherwise disclosed in writing to Lender and approved byLender’s prior written consent.     (e) Environmental Liability. To the best of Borrowers’ and the BorrowerPrincipals’ knowledge, no hazardous substances or solid wastes have been disposed of orotherwise released on any Property, except as may have been otherwise disclosed to Lender ina Phase I environmental report delivered to Lender. The terms “hazardous substance” andrelease” shall have the meanings specified in the Comprehensive Environmental ResponseCompensation and Liability Act of 1980, as amended, (“***CERCLA***”), and the terms “solid waste”and “disposal” (or “disposed”) shall have the meanings specified in the ResourceConservation and Recovery Act of 1976, as amended, (“***RCRA***”); provided, to the extent thatthe 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 eitherCERCLA 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 andreports required to have been filed by them or with respect to any Property or PledgedSecurity (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 haspaid 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 notyet due. No governmental claim for additional taxes, interest, or penalties is pending or,to Borrowers’ and the Borrower Principals’ knowledge, threatened against any Property orPledged 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 thatLender has previously advised, and again hereby advises prior to the execution ofthis Note and the other Loan Documents, that they seek the advice of an attorney andan accountant in connection with the Loan, this Note and the other Loan Documents.     (ii) Borrowers and the Borrower Principals hereby jointly and severally confirmthat they have had the opportunity to seek the advice of an attorney and anaccountant of their choice in connection with the Loan, this Note and the other LoanDocuments.     (h) Acknowledgement of Joint and Several Obligations. Each Borrower acknowledges andagrees that such Borrower is a co-borrower of the Loan and, in its capacity as a co-borrower, isjointly and severally responsible for the obligations of the Borrowers hereunder, irrespective ofthe use of proceeds funded under this Note.     9. Covenants. Borrowers and the Borrower Principals jointly and severally covenantand agree with Lender that they agree with, and agree to comply with, each of the followingcovenants below:     (a) Payment; Performance. Borrowers shall promptly pay all amounts due andowing to Lender under this Note. Borrowers and the Borrower Principals shall timely performand comply with each agreement and covenant made under this Note and the other LoanDocuments, and shall cause Pledgors to timely perform and comply with each agreement andcovenant made by them under any Loan Document.     (b) Use of Proceeds. The proceeds of this Note shall be used solely for suchbusiness purposes as are approved in writing by Lender. In no event shall the proceeds ofthis Note be used, directly or indirectly, by any person for personal, family, household oragricultural purposes or for the purpose, whether immediate, incidental or ultimate, ofpurchasing, acquiring or carrying any “margin stock” (as such term is defined in RegulationU promulgated by the Board of Governors of the Federal Reserve System).     (c) Other Loans. Except for any Senior Indebtedness in existence on theEffective Date and any other indebtedness in existence on the Effective Date that is shownon the financial statements delivered to Lender prior to the closing of this Note, noBorrower shall enter into any promissory note, loan documents, or other agreement forborrowed 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 Lenderin writing, all loan documents evidencing any Senior Indebtedness entered into after theEffective Date shall provide that (i) the Senior Lender shall give Lender written notice ofany default or event of default occurring under the loan documents evidencing the SeniorIndebtedness, and (ii) upon any default by a Borrower, Lender shall have the right, but notthe obligation, to cure such Borrower’s default thereunder and to purchase the loan and theloan documents evidencing the Senior Indebtedness from the Senior Lender.     (d) Termination of Existence. No Borrower or Borrower Principal shall cause orpermit, or enter into any agreement to cause or permit, the dissolution or termination ofthe existence of any Borrower, any Pledged Security or any Pledgor that is an entity, or themerger, consolidation, or reorganization of any Borrower, any Pledged Security or anyPledgor that is an entity with or into any other entity, whether or not such party would bethe surviving entity.     (e) Notice of Certain Events. Borrowers shall promptly notify Lender inwriting of the occurrence of any event or series of events of which Borrowers or theBorrower Principals have actual knowledge causing, or that could be expected to cause or hascaused (i) a material adverse effect on the operations or financial condition of anyBorrower or Borrower Principal, (ii) the occurrence of any Event of Default (without givingeffect to any cure period applicable thereto), or (iii) any default by any Borrower orBorrower Principal or the acceleration of the maturity of any indebtedness owed by anyBorrower or Borrower Principal under any Senior Indebtedness or any indenture, mortgage,agreement, promissory note, contract or other instrument to which any Borrower or BorrowerPrincipal is a party or by which any material asset or property of any Borrower or BorrowerPrincipal is bound. In addition, Borrowers and the Borrower Principals agree to notifyLender 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 ofits chief executive office or principal place of business, and the place where it keeps itsbooks and records.     (f) Financial Statements. Borrowers shall deliver or cause to be delivered toLender, the following financial statements: (i) within sixty (60) days after the end ofeach fiscal quarter, the unaudited financial statements of Borrowers, Pledgors, the BorrowerPrincipals, and the Pledged Securities prepared in accordance with GAAP and combined orconsolidated as appropriate, including all notes related thereto; and (ii) within onehundred twenty (120) days after the end of each fiscal year, the unaudited financialstatements of Borrowers, Pledgors, the Borrower Principals and the Pledged Securities,prepared in accordance with accepted accounting principals and combined or consolidated asappropriate, including all notes related thereto. All financial statements provided toLender shall be certified as to accuracy and completeness by a Borrower Principal.     (g) Taxes. Borrowers and the Borrower Principals shall pay, and cause allPledgors 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 beforethe same become delinquent. Borrowers, Pledgors and the Borrower Principals shall have theright to pay such tax under protest or to otherwise contest any such tax or assessment, butonly if (i) such contest has the effect of preventing the collection of such taxes socontested 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) adequatereserves for the liability associated with such tax have been established in accordance withGAAP. Borrowers, Pledgors and the Borrower Principals shall furnish to Lender evidence thatall such taxes are paid at least five (5) days prior to the last date for payment of suchtaxes.     (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 toexist, directly or indirectly, any Lien on, against or with respect to the PledgedSecurities or the Collateral, whether now owned or hereafter acquired, or any interest inincome or profits therefrom, except for (i) Liens in favor of Lender, (ii) Liens in favor ofSenior Lenders that secure Senior Indebtedness, (iii) Liens in favor of United DevelopmentFunding, L.P., a Nevada limited partnership, and (iv) other Liens approved by Lender’s priorwritten consent.     (i) Indebtedness. No Borrower shall incur any indebtedness for borrowed moneyafter the Effective Date, other than Senior Indebtedness, or other indebtedness for borrowedmoney 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, orauthorize any dividends or distributions of any kind to its shareholders or any other personor entity, and (ii) no Borrower or Borrower Principal shall permit or cause any PledgedSecurity to declare, pay, make or authorize any dividends or distributions of any kinds toits owners or any other person or entity. If Lender approves any such dividend ordistribution, Lender may, in its sole discretion, require that the full amount of suchdividend or distribution (or any portion thereof) to be paid to Lender to reduce anyindebtedness outstanding under this Note.     (k) Borrower and Pledgor Documents. In addition to the information otherwiserequired to be provided to Lender pursuant to this Note, Borrowers and the BorrowerPrincipals shall, promptly upon request, furnish to Lender, all of the following documents:     (i) all financial statements, pro formas, projections, budgets, capitalexpenditure and expense reports, and other material financial and operationalinformation related to Borrowers, Pledgors and the Pledged Securities;     (ii) minutes of the meetings and all written consents of the board of directorsand the shareholders (or other governing authorities) of Borrowers, Pledgors, andeach Pledged Security;
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     (iii) all loan documents evidencing indebtedness for borrowed money of allBorrowers, Pledgors and each Pledged Security, and all amendments thereto;     (iv) the survey and/or plat for each Property, a copy of the owner’s titlecommitment for each Property, the title exception documents and, upon issuance, acopy of the owner’s title policy for each Property;     (v) all due diligence documents related to each Property, including, withoutlimitation, a Phase I Environmental Report, survey, plat, appraisal, and engineeringdue diligence report, land use, zoning, subdivision, grading, municipal district,environmental, and other governmental permits, approvals, authorizations and mapsnecessary to develop such Property in compliance with applicable GovernmentalRegulations;     (vi) certificates of general liability and hazard insurance for each Borrowerand endorsements of such policies to Lender (in accordance with and meeting therequirement of Section 9(n) hereof), and copies of certificates of builder’sliability insurance covering each Property; and     (vii) all project updates, development reports, sales reports, budgets, proformas, 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 theirexpense, 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 ofBorrowers, Pledgors and the Pledged Securities, to inspect and make copies of all books andrecords, 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 causePledgors 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 allactions, required to cause Pledgors to comply with this Section 9(m).     (n) General Liability Insurance. Each Borrower shall, at all times, maintainor cause to be maintained, general liability insurance on such Borrower with coverageamounts that are normal and customary for similarly-situated entities engaged in similarbusinesses. Each such policy shall provide that Lender be given at least thirty (30) dayswritten notice as a condition precedent to any cancellation thereof or material changetherein. 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 insurancecertificate, evidencing such coverage, the endorsement of each such policy to Lender, andevidence of payment of the premium for each such policy.     (o) Property Insurance. Borrowers shall, at all times, maintain or cause to bemaintained, hazard insurance on each Property with coverage amounts that are normal andcustomary for similarly-situated entities engaged in similar businesses.     (p) Operation of Business. Borrowers and the Borrower Principals shall operateBorrowers’ and Pledgors’ respective businesses in compliance with all applicable federal,state and local laws, rules, regulations, and ordinances. Each Borrower and each Pledgorthat is an entity shall maintain its existence and good standing in each state where itoperates or does any business, except in any jurisdictions where the failure to maintainsuch existence and good standing would not have a material adverse effect individually or inthe aggregate, on its financial condition or operations. Each Borrower and each Pledgorshall obtain, maintain and keep current, all consents, licenses, permits, authorizations,permissions and certificates which may be required or imposed by any governmental orquasi-governmental agency, authority or body which are required by applicable federal, stateor local laws, regulations and ordinances.     (q) Alterations. Without the prior written consent of Lender, Borrowers shallnot enter into any Loan Documents evidencing Senior Indebtedness, permit any materialamendment to any loan documents evidencing Senior Indebtedness, permit any increase in themaximum amount of any Senior Indebtedness, or enter into any renewal or extension of theloan documents evidencing any Senior Indebtedness.     (r) Opinion Letter. Borrowers shall deliver the opinion letter required bySection 6(f), which shall be satisfactory in form and substance satisfactory toLender and its counsel, to Lender within thirty (30) days following the initial closing ofthe 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 insurancepolicy on the life of Joe Fogarty in the amount of $6,000,000, which policy currently namesUnited 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 ofDefault***”:     (i) except for Accrued Interest Payments due during any period when AccruedInterest Payments are required to be made by Lender pursuant to Section4(b), the failure of Borrowers to make any payment required by this Note in fullon or before the date such payment is due (or declared due pursuant to the terms ofthis Note), whether on or prior to the Maturity Date; or
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     (ii) any financial statement, representation, warranty, or certificate made orfurnished by or with respect to Borrowers, Pledgors or the Borrower Principalscontained in this Note or any other Loan Document or made in connection herewith ortherewith, shall be materially false, incorrect, or incomplete when made; or     (iii) any Borrower, Pledgor or Borrower Principal shall fail to perform orobserve any covenant or agreement contained in this Note or any other Loan Documentthat 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 suchfailure is given by Lender; or     (iv) any “event of default” or “default” occurs under any Loan Document otherthan this Note and the same remains unremedied for ten (10) days after writtennotice 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 inrespect of any Borrower, Pledgor or Borrower Principal in an involuntary case underthe federal bankruptcy laws, as now or hereafter constituted, or any otherapplicable federal or state bankruptcy, insolvency or other similar law, which isnot 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 theirrespective properties or any Property, or ordering the winding up or liquidation ofsuch person’s affairs; or     (vi) the commencement by any Borrower, Pledgor or Borrower Principal of avoluntary case under the federal bankruptcy laws, as now constituted or hereafteramended, or any other applicable federal or state bankruptcy, insolvency or othersimilar law, or the consent by it to the appointment to or taking possession by areceiver, liquidator, assignee, trustee, custodian, sequestrator (or other similarofficial) of any Borrower, Pledgor or Borrower Principal for any substantial part oftheir respective properties or any Property, or the making by any Borrower, Pledgoror Borrower Principal of any assignment for the benefit of creditors, or theadmission by any Borrower, Pledgor or Borrower Principal in writing of its inabilityto 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 asubstantial part of the assets of any Borrower, Pledgor or Borrower Principal or anyProperty in a proceeding brought against or initiated by any Borrower; Pledgor orBorrower Principal or any Property;
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     (viii) if any Borrower or Pledgor that is an entity is liquidated or dissolvedor winds up their affairs, or the sale or liquidation of all or substantially all ofthe assets of any Borrower or Pledgor that is an entity; or     (ix) any assignment, transfer, or conveyance of any Pledged Security occurswithout the prior written consent of Lender; or     (x) any “default” or “event of default” not cured within the grace period, ifany, for such default or event of default, shall occur under (A) the SeniorIndebtedness or any credit agreement, loan agreement, promissory note, or otherdocument evidencing indebtedness for borrowed money incurred by any Borrower,Pledgor or Borrower Principal, or (B) any subordination agreement, securityagreement, pledge agreement, guaranty, deed of trust, or other agreement providingsecurity or collateral for indebtedness, executed by any Borrower, Pledgor orBorrower Principal, or (C) any joint venture agreement, revenue or profits sharingor participation agreement, partnership agreement, shareholders agreement,securities purchase agreement or any other agreement governing to which anyBorrower, Pledgor or Borrower Principal is a party, if Lender or any of itsaffiliates is also a party to such agreement (the terms “default” and “event ofdefault” having the meaning given to such terms in any of the agreements describedabove); or     (xi) the death or disability of Joe Fogarty; or     (xii) in Lender’s opinion, any material adverse change occurs in the financialcondition 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’sprior written consent; or     (xv) any Borrower, Pledgor or Borrower Principal suffers the entry against itof a final judgment for the payment of money in excess of $50,000 which is notcovered by insurance; or     (xvi) any Borrower, Pledgor or Borrower Principal suffers a writ or warrant ofattachment or any similar process to be issued by any tribunal against all or anysubstantial part of its properties, assets or any collateral for this Note, and suchwrit or warrant of attachment or any similar process is not stayed or releasedwithin thirty (30) days after the entry or levy thereof or after any stay is vacatedor set aside; or
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     (xvii) in Lender’s opinion, the prospect for payment or the prospect forperformance with respect to this Note or any other agreement that any Borrower,Pledgor or Borrower Principal may have with Lender is impaired and Lender sonotifies 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 LoanDocuments shall thereupon be immediately due and payable, without demand, presentment,notice of demand or of dishonor and nonpayment, protest, notice of protest, notice ofintention to accelerate, declaration or notice of acceleration, or any other notice ordeclaration of any kind, all of which are hereby expressly waived by Borrowers, the BorrowerPrincipals and Pledgors. During the continuance of any other Event of Default, then and inevery such case Lender may do any or all of the following: (i) declare the principal of thisNote together with all accrued and unpaid interest on the unpaid principal balance, and LoanExpenses and other amounts due to Lender under this Note or the other Loan Documents, to bedue and payable immediately, and the same shall become and be due and payable, withoutnotices, demands for payment, presentations for payment, notices of payment default, noticesof intention to accelerate maturity, protest and notice of protest, and any other notices ofany kind, all of which are expressly waived by Borrowers, the Borrower Principals andPledgors and any and all sureties, guarantors and endorsers of this Note, (ii) exercise anyits rights under any of the Loan Documents, and/or (iii) exercise all other rights andremedies available to Lender at law and at equity, including, without limitation, suchrights existing under the Uniform Commercial Code. No delay on the part of Lender inexercising any power under this Note shall operate as a waiver of such power or right norshall any single or partial exercise of any power or right preclude further exercise of thatpower or right.     (c) If this Note is placed in the hands of an attorney for collection after an Event ofDefault or failure to pay under this Note, or if all or any part of the indebtednessrepresented hereby is proved, established or collected in any court or in any bankruptcy,receivership, debtor relief, probate or other court proceedings, Borrowers, the BorrowerPrincipals and Pledgors, and all endorsers, sureties and guarantors of this Note, jointlyand severally, agree to pay reasonable attorneys’ fees and collection costs to Lender inaddition 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 LoanDocument, (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 theHighest Lawful Rate by the foregoing clause (i) or by reference to the Highest Lawful Ratein the definitions of Base Rate and Default Rate, then this Note shall bear interest at theHighest Lawful Rate and shall continue to bear interest at the Highest Lawful Rate untilsuch 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 noHighest 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 theother Loan Documents, and the transactions contemplated hereby and thereby, comply with alllaws, including, specifically, any applicable usury laws. In furtherance thereof,Borrowers, the Borrower Principals, Pledgors and Lender stipulate and agree that none of theterms and provisions contained in this Note or the other Loan Documents shall ever beconstrued to create a contract to pay for the use, forbearance, or detention of money, orinterest, in excess of the maximum amount of interest permitted to be charged by applicablelaw in effect from time to time. No Borrower, Pledgor or Borrower Principal nor any presentor future guarantors, endorsers, or other persons or entities hereafter becoming liable forpayment of Borrowers’ obligations hereunder and under the other Loan Documents shall ever beliable for unearned interest thereon or shall ever be required to pay interest thereon inexcess of the maximum amount that may be lawfully charged under applicable law from time totime in effect, and the provisions of this Section 11 shall control over all otherprovisions 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 orfinance charges in the event the maturity of this Note is accelerated. If (i) the maturityof this Note is accelerated for any reason, (ii) this Note is prepaid and as a result anyamounts 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 aredetermined to constitute interest which would otherwise increase the interest hereon to anamount in excess of that permitted to be charged by applicable law, then all sums determinedto constitute interest in excess of such legal limit shall, without penalty, be promptlyapplied to reduce the then outstanding principal of this Note or, at Lender’s or suchholder’s option, promptly returned to Borrowers or the other payor thereof upon suchdetermination. In determining whether or not the interest paid or payable, under anyspecific circumstance, exceeds the maximum amount permitted under applicable law, Lender andBorrowers (and any other payors of this Note) shall to the greatest extent permitted underapplicable law, (i) characterize any non-principal payment as an expense, fee or premiumrather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and(iii) amortize, prorate, allocate, and spread the total amount of interest throughout theentire contemplated term of this Note in accordance with the amounts outstanding from timeto time hereunder and the maximum legal rate of interest from time to time in effect underapplicable law in order to lawfully charge the maximum amount of interest permitted underapplicable law. In the event applicable law provides for an interest ceiling under Chapter303 of the Texas Finance Code (the “***Texas Finance Code***”) as amended, for that day, theceiling shall be the “weekly ceiling” as defined in the Texas Finance Code. As used in thissection the term “applicable law” means the laws of the State of Texas or the laws of theUnited States of America, whichever laws allow the greater interest, as such laws now existor may be changed or amended or come into effect in the future.     12. Indemnity; Release. Borrowers, the Borrower Principals and Pledgors, jointly andseverally, 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, orasserted against Lender in its capacity as lender hereunder growing out of, resulting from or inany other way associated with (a) this Note and the other Loan Documents or any of the transactionsand events (including the enforcement or defense thereof) at any time associated therewith orcontemplated 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 orabout any Property or any part thereof or any real properties owned, managed or operated by anyBorrower, Pledgor or Borrower Principal.**THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAYOR TO ANY EXTENT OWED IN WHOLE OR IN PART UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARECAUSED 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 forthat portion, if any, of any Liabilities and Costs which is proximately caused by its ownindividual gross negligence or willful misconduct, as determined in a final judgment. If anyperson (including Borrowers, Pledgors and the Borrower Principals) ever alleges such grossnegligence or willful misconduct by Lender, the indemnification provided for in this section shallnonetheless be paid upon demand, subject to later adjustment or reimbursement, until such time as acourt of competent jurisdiction enters a final judgment as to the extent and effect of the allegedgross negligence or willful misconduct. As used in this section, the term “Lender” shall refer notonly 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 andseverally represent and warrant to Lender that they have read and fully understands the terms andprovisions hereof, have had an opportunity to review this Note with legal counsel and have executedthis Note based on its own judgment and advice of counsel. If an ambiguity or question of intentor interpretation arises, this Note will be construed as if drafted jointly by Borrowers, theBorrower Principals, Pledgors and Lender and no presumption or burden of proof will arise favoringor disfavoring any party because of authorship of any provision of this Note.     14. Further Assurances. Borrowers and the Borrower Principals, at their expense, willpromptly execute and deliver to Lender, and cause to be executed and delivered to Lender by thePledgors and the Pledged Securities, all such other and further documents, agreements andinstruments, and shall deliver all such supplementary information, in compliance with oraccomplishment of the agreements of Borrowers, Pledgors and the Borrower Principals under this Noteand the other Loan Documents as Lender shall request.     15. Cumulative Remedies. Borrowers, the Borrower Principals and Pledgors hereby agreethat all rights and remedies that Lender is afforded by reason of this Note are separate andcumulative with respect to Borrowers, the Borrower Principals and Pledgors and otherwise and may bepursued 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 prejudiceLender’s ability to pursue any other legal or equitable rights or remedies that may be available toLender.     16. Notice. All notices and other communications under this Note will be in writingand will be mailed by registered or certified mail, postage prepaid, sent by facsimile, deliveredpersonally by hand, or delivered by nationally recognized overnight delivery service addressed toBorrowers and the Borrower Principals at 340 North Sam Houston Parkway East, #100, Houston, Texas77060, 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 suchother address as a party may have delivered to the other parties for purposes of notice. Eachnotice 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 orother communication has been deposited in a regularly maintained receptacle for deposit of UnitedStates mail, (b) if sent by facsimile, upon written or electronic confirmation of facsimiletransfer, (c) if delivered personally by hand, upon written or electronic confirmation of deliveryfrom the person delivering such notice or other communication, or (d) if sent by nationallyrecognized overnight delivery service, upon written or electronic confirmation of delivery fromsuch service.     17. Enforcement and Waiver by Lender. Lender shall have the right at all times toenforce the provisions of this Note and the other Loan Documents in strict accordance with theirrespective terms, notwithstanding any conduct or custom on the part of Lender in refraining from sodoing at any time or times. The failure of Lender at any time or times to enforce its rights undersuch provisions, strictly in accordance with the same, shall not be construed as having created acustom or in any way or manner modified or waived the same.     18**. ****CHOICE OF LAW; JURISDICTION; VENUE****. EXCEPT TO THE EXTENT THAT THE VALIDITY ORPERFECTION OF SECURITY INTERESTS OR REMEDIES IN RESPECT OF ANY PARTICULAR COLLATERAL IS GOVERNED BYTHE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS, THIS NOTE AND THE OTHER LOAN DOCUMENTSSHALL 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 OFTHIS NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE EXCLUSIVELY IN THE STATE AND FEDERAL COURTS SITTINGIN DALLAS COUNTY, TEXAS, AND EACH BORROWER AND EACH THE BORROWER PRINCIPAL HEREBY IRREVOCABLYSUBMITS TO THE JURISDICTION OF SUCH STATE AND FEDERAL COURTS AND AGREES AND CONSENTS NOT TO ASSERTIN ANY PROCEEDING, THAT ANY SUCH PROCESS IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUETHEREOF IS IMPROPER, AND FURTHER AGREES TO A TRANSFER OF SUCH PROCEEDING TO THE COURTS SITTING INDALLAS COUNTY, TEXAS.**
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     19. Counterparts. This Note and each other Loan Document may be executed in anynumber of counterparts, each of which shall be deemed to be an original, but all of which togethershall constitute but one and the same instrument.     20. Severability. If any provision of this Note or any other Loan Document shall beheld invalid under any applicable laws, then all other terms and provisions of this Note and theLoan Documents shall nevertheless remain effective and shall be enforced to the fullest extentpermitted by applicable law.     21. Amendments; Waivers. No amendment or waiver of any provision of this Note norconsent to any departure herefrom, shall in any event be effective unless the same shall be inwriting and signed by Lender and the affected person, and then such waiver or consent shall beeffective 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 bebinding on Borrowers, Pledgors and the Borrower Principals and their respective successors andassigns, including, without limitation, any receiver, trustee or debtor in possession of or for anyBorrower, Pledgor or Borrower Principal, and shall inure to the benefit of Lender and itssuccessors and assigns. No Borrower, Pledgor or Borrower Principal shall be entitled to transferor assign this Note and the other Loan Documents in whole or in part without the prior writtenconsent of Lender. This Note and the other Loan Documents are freely assignable and transferable byLender without the consent of Borrowers, Pledgors and the Borrower Principals or any of theirrespective affiliates. Should the status, composition, structure or name of any Borrower, Pledgoror Borrower Principal change, this Note and the other Loan Documents shall continue to be bindingupon 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 andshall 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 inthe singular number will include the plural and words in the masculine gender will include thefeminine and neutral, and vice versa, when they should so apply.     **25. ****WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC****. EACH BORROWER, EACH BORROWERPRINCIPAL 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 BYJURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUTOF, UNDER OR IN CONNECTION WITH THIS NOTE OR THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATEDHEREBY 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 ORRECOVER 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 HASREPRESENTED, 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 ENTERINTO THIS NOTE AND THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBYBY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION. AS USED IN THISSECTION, “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 HASEXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY HERETO.**     **26. ****ENTIRE AGREEMENT****. THIS NOTE AND THE OTHER LOAN DOCUMENTS TOGETHER CONSTITUTE THEENTIRE 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 LOANDOCUMENTS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES AND THIS NOTE AND THE OTHERLOAN DOCUMENTS MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORALAGREEMENTS 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**