Document:

Exhibit 10.6

PROMISSORY NOTE

	
  
$823,500.00
  	
  
AUGUST   16, 2006
  

          FOR VALUE RECEIVED, AVATAR SYSTEMS, INC., a Texas corporation (“Debtor”) unconditionally promises to pay to the order of TIM ALLEN and GREGG ALLEN, (individually and collectively and together with its successors and assigns, “Lender”), without setoff, at its offices at 13455 Noel Road, Suite 2000, Dallas (Dallas County), TX 75240, or at such other place as may be designated by Lender, the principal amount of EIGHT HUNDRED TWENTY-THREE THOUSAND FIVE HUNDRED AND NO/100 DOLLARS ($823,500.00), or so much thereof as may be advanced from time to time in immediately available funds, together with interest computed daily on the outstanding principal balance hereunder, at an annual interest rate (the “Rate”), and in accordance with the payment schedule, indicated below.  This PROMISSORY NOTE (this
“Note”) is executed pursuant to and evidences the Loan funded by Lender under that certain LOAN AND SECURITY AGREEMENT between Debtor and Lender of even date herewith (as the same may be amended, supplemented, renewed or extended from time to time, the “Loan Agreement”), to which reference is made for a statement of the collateral, rights and obligations of Debtor and Lender in relation thereto; but neither this reference to the Loan Agreement nor any provision thereof shall affect or impair the absolute and unconditional obligation of Debtor to pay unpaid principal of and interest on this Note when due.  Terms not otherwise defined herein shall have the same meanings as in the Loan Agreement.

          1.          Rate.  The Rate shall be the greater of (a) the PRIME RATE, plus THREE QUARTERS OF ONE PERCENT (0.75%), or NINE PERCENT (9.00%).  The term “Prime Rate” means a variable rate of interest per annum equal to the prime rate as published from time to time in the “Money Rates” table of The Wall Street Journal (Southwest Edition).  If the prime rate is no longer published in the “Money Rates” table of The Wall Street Journal (Southwest Edition), then Lender will choose and notify Debtor of a substitute index that is based upon comparable information.  Notwithstanding any provision of this Note or any other agreement or commitment between Debtor and Lender, whether written or oral, express or implied, Lender
shall never be entitled to charge, receive, or collect, nor shall amounts received hereunder be credited so that Lender shall be paid, as interest a sum greater than interest at the Maximum Rate. It is the intention of the parties that this Note, and all instruments securing the payment of this Note or executed or delivered in connection therewith, shall comply with applicable law.  If Lender ever contracts for, charges, receives or collects anything of value which is deemed to be interest under applicable law, and if the occurrence of any circumstance or contingency, whether acceleration of maturity of this Note, prepayment of this Note, delay in advancing proceeds of this Note, or any other event, should cause such interest to exceed the maximum lawful amount, any amount which exceeds interest at the Maximum Rate shall be applied to the reduction of the unpaid principal balance of this Note or any other indebtedness owed to Lender by Debtor, and if this Note and such other indebtedness are paid
in full, any remaining excess shall be paid to Debtor.  In determining whether the interest exceeds interest at the Maximum Rate, the total amount of interest shall be spread, prorated and amortized throughout the entire term of this Note until its payment in full.

PROMISSORY NOTE – PAGE 1
 TIM ALLEN AND GREGG ALLEN – AVATAR SYSTEMS, INC.

The term “Maximum Rate” as used in this Note means the maximum nonusurious rate of interest per annum permitted by whichever of applicable United States federal law or Texas law permits the higher interest rate, including to the extent permitted by applicable law, any amendments thereof hereafter or any new law hereafter coming into effect to the extent a higher Maximum Rate is permitted thereby.   If at any time the Rate shall exceed the Maximum Rate, the Rate shall be automatically limited to the Maximum Rate until the total amount of interest accrued hereunder equals the amount of interest which would have accrued if there had been no limitation to the Maximum Rate.   To the extent, if any, that Chapter 303 of the Texas Finance Code, as amended, (the “Act”) is relevant to Lender for purposes of determining the Maximum Rate, the parties elect to determine the Maximum Rate under the Act
pursuant to the “weekly ceiling” from time to time in effect, as referred to and defined in §303.001-303.016 of the Act; subject, however, to any right Lender subsequently may have under applicable law to change the method of determining the Maximum Rate.

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

          3.          Rate Change Date.    The Rate will change each time and as of the date that the Prime Rate changes.  

          4.          Payment Schedule.  All payments received hereunder shall be applied: FIRST, to the payment of any expense or charges payable under any of the Loan Documents, SECOND, to interest due and payable, and FINALLY, the balance applied to principal, or in such other order as Lender shall determine at its option following the occurrence of an Event of Default.  If any payment of principal or interest on this Note shall become due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall in such case be included in computing interest in connection with such payment.  The outstanding principal balance of this Note shall be paid as follows:

	
  
 
  	
  
          (a)          FIFTY   THREE (53) payments in an amount equal to THIRTEEN THOUSAND SEVEN HUNDRED   TWENTY-FIVE AND 00/100 DOLLARS ($13,725.00) shall be due and   payable monthly commencing on March 5, 2007 and continuing on the SAME   day of each successive month; and
  
	
 
	
 

	
  
 
  	
  
          (b)          ONE (1)   final payment of the outstanding principal balance of this Note shall be due   and payable on the TERM MATURITY DATE.
  

Interest on the outstanding principal balance of this Note shall be paid monthly, commencing on September 5, 2006 and continuing on the last day of each successive month, with a final payment of all unpaid interest the TERM MATURITY DATE.  Lender and Debtor expressly agree that Chapter 346 (“Chapter 346”) of the Texas Finance Code shall not apply to this Note and that this Note shall not be governed by or subject to the provisions of Chapter 346 in any manner whatsoever.

PROMISSORY NOTE – PAGE 2
 TIM ALLEN AND GREGG ALLEN – AVATAR SYSTEMS, INC.

          5.          Delinquency Charge.  To the extent permitted by law, a delinquency charge will be imposed in an amount not to exceed FIVE PERCENT (5.00%) of any payment that is more than TEN (10) days late.

          6.          Waivers, Consents and Covenants.  Debtor, any indorser or guarantor hereof, or any other party hereto (individually an “Obligor” and collectively “Obligors”) and each of them jointly and severally: (a) waive presentment, demand, protest, notice of demand, notice of intent to accelerate, notice of acceleration of maturity, notice of protest, notice of nonpayment, notice of dishonor, and any other notice required to be given under the law to any Obligor in connection with the delivery, acceptance, performance, default or enforcement of this Note, any indorsement or guaranty of this Note, or any other documents executed in connection with this Note or any other Loan Documents now or hereafter executed in connection with any obligation of Debtor to Lender; (b) consent to all
delays, extensions, renewals or other modifications of this Note or the Loan Documents, or waivers of any term hereof or of the Loan Documents, or release or discharge by Lender of any of Obligors, or release, substitution or exchange of any security for the payment hereof, or the failure to act on the part of Lender, or any indulgence shown by Lender (without notice to or further assent from any of Obligors),  and agree that no such action, failure to act or failure to exercise any right or remedy by Lender shall in any way affect or impair the obligations of any Obligors or be construed as a waiver by Lender of, or otherwise affect, any of Lender’s rights under this Note, under any indorsement or guaranty of this Note or under any of the Loan Documents; and (c) agree to pay, on demand, all costs and expenses of collection or defense of this Note or of any indorsement or guaranty hereof and/or the enforcement or defense of Lender’s rights with respect to, or the administration,
supervision, preservation, or protection of, or realization upon, any property securing payment hereof, including, without limitation, reasonable attorney’s fees, including fees related to any suit, mediation or arbitration proceeding, out of court payment agreement, trial, appeal, bankruptcy proceedings or other proceeding, in such amount as may be determined reasonable by any arbitrator or court, whichever is applicable.

          7.          Prepayments.  Prepayments may be made in whole or in part at any time in whole or in part without premium or penalty. 

          8.          Remedies Upon Default.  Whenever there is a Event of Default under the Loan Documents (a) the entire balance outstanding hereunder and all other obligations of any Obligor to Lender (however acquired or evidenced) shall, at the option of Lender, become immediately due and payable and/or (b) to the extent permitted by law, the Rate of interest on the unpaid principal shall be increased at Lender’s discretion up to the Maximum Rate, or if none, EIGHTEEN PERCENT (18.00%) per annum (the “Default Rate”).  The provisions herein for a Default Rate shall not be deemed to extend the time for any payment hereunder or to constitute a “grace period” giving Obligors a right to cure any default.  At Lender’s option, any accrued and unpaid interest, fees or charges may, for
purposes of computing and accruing interest on a daily basis after the due date of this Note or any installment thereof, be deemed to be a part of the principal balance, and interest shall accrue on a daily compounded basis after such date at the Default Rate provided in this Note until the entire outstanding balance of principal and interest is paid in full.

PROMISSORY NOTE – PAGE 3
 TIM ALLEN AND GREGG ALLEN – AVATAR SYSTEMS, INC.

Upon an Event of Default, Lender is hereby authorized at any time, at its option and without notice or demand, to set off and charge against any deposit accounts of any Obligor (as well as any money, instruments, securities, documents, chattel paper, credits, claims, demands, income and any other property, rights and interests of any Obligor), which at any time shall come into the possession or custody or under the control of Lender or any of its agents, affiliates or correspondents, any and all obligations due hereunder.  Additionally, Lender shall have all rights and remedies available under each of the Loan Documents, as well as all rights and remedies available at law or in equity.

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

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

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

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

PROMISSORY NOTE – PAGE 4
 TIM ALLEN AND GREGG ALLEN – AVATAR SYSTEMS, INC.

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

          14.        Commercial Purpose.   DEBTOR REPRESENTS TO LENDER THAT THE PROCEEDS OF THIS LOAN ARE TO BE USED PRIMARILY FOR BUSINESS, COMMERCIAL OR AGRICULTURAL PURPOSES.  DEBTOR ACKNOWLEDGES HAVING READ AND UNDERSTOOD, AND AGREES TO BE BOUND BY, ALL TERMS AND CONDITIONS OF THIS NOTE.

          15.        Collection.   If this Note is placed in the hands of an attorney for collection, or if it is collected through any legal proceeding at law or in equity or in bankruptcy, receivership or other court proceedings, Debtor agrees to pay all costs of collection, including, but not limited to, court costs and reasonable attorneys’ fees.

          16.        Notice of Balloon Payment.  At maturity (whether by acceleration or otherwise), Debtor must repay the entire principal balance of this Note and unpaid interest then due.  Lender is under no obligation to refinance the outstanding principal balance of this Note (if any) at that time.  Debtor will, therefore, be required to make payment out of other assets Debtor may own; or Debtor will have to find a lender willing to lend Debtor the money at prevailing market rates, which may be higher than the interest rate on the outstanding principal balance of this Note.  If Obligors have guarantied payment of this Note, Obligors may be required to perform under such guaranty.

          17.        Waiver
Of Jury Trial.  DEBTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, OR
COUNTERCLAIM THAT RELATES TO OR ARISES OUT OF THIS NOTE OR ANY OF THE LOAN
DOCUMENTS OR THE ACTS OR FAILURE TO ACT OF OR BY LENDER IN THE ENFORCEMENT OF
ANY OF THE TERMS OR PROVISIONS OF THIS NOTE OR THE OTHER LOAN
DOCUMENTS.

          EXECUTED as of the date first written above.

	
  
DEBTOR:
  	
  
ADDRESS:
  
	
 
	
 

	
  
AVATAR SYSTEMS, INC.
  	
  
2801 Network Drive, Suite 210
  
	
  
 
  	
  
Frisco, TX    75034
  

	
  
By:
  	
  
 
  	
  
 
  
	
   
  	
  

  	
   
  
	
  Name:
  	
  Robert C. Shreve, Jr.
  	
   
  
	
  Title:
  	
  President
  	
   
  

PROMISSORY NOTE – PAGE 5
 TIM ALLEN AND GREGG ALLEN – AVATAR SYSTEMS, INC.Exhibit 10.7

CONVERTIBLE PROMISSORY NOTE

	
  
$120,000.00
  	
  
 
  	
  
Dallas, Texas
  	
  
 
  	
  
August 18, 2006
  

          FOR VALUE
RECEIVED, the undersigned, Avatar Systems, Inc., a Texas corporation (the
“Maker”), hereby unconditionally promises to pay to the
order of Mr. Jean Junker, an individual resident of the State of Texas
(“Payee”) the principal sum of ONE HUNDRED TWENTY
THOUSAND AND NO/100 DOLLARS ($120,000.00), in lawful money of the United
States of America, together with interest (calculated on the basis of a 360-day
year), on the unpaid principal balance from day-to-day remaining, computed until
maturity at the rate per annum which shall from day-to-day be equal to the
lesser of (a) the Maximum Rate, or (b) the Interest Rate. 
Notwithstanding the foregoing, if at any time, the Interest Rate shall exceed
the Maximum Rate, thereby causing the interest upon this Note to be limited to
the Maximum Rate, then any subsequent reductions in the Interest Rate shall not
reduce the rate of interest charged hereunder below the Maximum Rate until the
total amount of interest accrued hereon equals the amount of interest which
would have accrued hereon if the Interest Rate had at all times been in
effect.

          Section 1.  Definitions.  When used in this Note, the following terms shall have the respective meanings specified herein or in the section referred to:

          “Stock Purchase Agreement” shall mean that certain Stock Purchase Agreement dated as of July 31, 2006, by and among Maker, Payee and the other Seller named therein.

          “Business Day” shall mean a day upon which business is transacted by national banks in Dallas, Texas.

          “Event of Default” shall have the meaning ascribed to it in Section 6 hereof.

          “First Interest Payment Date” shall mean September 30, 2006.

          “First Principal Payment Date” shall mean the last day of the sixty-third (63rd) full calendar month following the date hereof.

          “Interest Rate” shall mean four percent (4.0%).

          “Maximum Rate” shall mean, with respect to the holder hereof, the highest non-usurious rate of interest, if any, permitted by applicable law on the date of determination.  Maker agrees that during the full term hereof, the maximum lawful interest rate for this Note as determined under Texas law shall be the “weekly ceiling” from time to time in effect under Texas Finance Code §303.305, as amended; provided, however, that the “Maximum Rate” for purposes of this Note shall not be limited to the applicable rate ceiling under Texas Finance Code §303.305 if Federal laws or other state laws now or hereafter in effect and applicable to this Note (and the interest contracted for, charged and collected hereunder) shall permit a higher rate of interest.  Payee shall not be required to notify Maker of changes in the “weekly ceiling” applicable
to this Note.

          “Note” shall mean this Convertible Promissory Note, together with any and all future renewals, extensions, restatements, reaffirmations, or amendments of, or supplements to, all or any part of this Convertible Promissory Note.

          “Obligation” shall mean all indebtedness, liabilities and obligations, of every kind and character, of Maker, now or hereafter existing in favor of Payee, regardless of whether they are direct, indirect, primary, secondary, joint, several, joint and several, liquidated, unliquidated, fixed or contingent, and regardless of whether the same may, prior to their acquisition by Payee, be or have been payable to some other person or entity, including, but not limited to, all indebtedness, liabilities and obligations arising under this Note or any other Transaction Document.

          “Transaction Documents” shall have the meaning assigned to such term in the Stock Purchase Agreement.  

          Section 2.  Payment.  The principal of and accrued interest upon this Note, computed as aforesaid, shall be due and payable as follows: (i) for a period of five (5) years following the date hereof, accrued and unpaid interest on this Note shall be paid in twenty (20) quarterly installments, commencing on the First Interest Payment Date and continuing thereafter on the last day of each third calendar month thereafter, and (ii) thereafter, principal of and accrued interest upon this Note shall be paid in twelve (12) equal quarterly installments, commencing on the First Payment Date and continuing thereafter on the last day of each third calendar month thereafter, with the final installment of the unpaid principal balance and all accrued and unpaid interest upon this Note to be paid on the date that is eight (8) years following the date hereof.

          Should the principal of, or any installment of the principal of or interest upon, this Note become due and payable on any day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day, and interest shall be payable with respect to such extension.  All payments of principal of and interest on this Note shall be made by Maker to Payee in federal or other immediately available funds.  Payments made to Payee by Maker hereunder shall be applied first to accrued interest and then to principal.    

          Section 3.  Rights Under Stock Purchase Agreement.  This Note has been executed and delivered in accordance with the terms and conditions set forth in the Stock Purchase Agreement and is one of the “Notes” referred to therein.  The holder of this Note shall be entitled to the benefits provided in the Stock Purchase Agreement. 

          Section 4.  Waiver.  Maker and each surety, endorser, guarantor and other party ever liable for payment of any sums of money payable upon this Note, jointly and severally waive presentment, demand, protest, notice of protest and non-payment, notice of acceleration and intention to accelerate, and agree that their liability under this Note shall not be affected by any renewal or extension in the time of payment hereof, or in any indulgences, or by any release or change in any security for the payment of this Note, and hereby consent to any and all renewals, extensions, indulgences, releases or changes, regardless of the number of such renewals, extensions, indulgences, releases or changes.

          No waiver by Payee of any of its rights or remedies hereunder or under any other document evidencing or securing this Note or otherwise, shall be considered a waiver of any other subsequent right or remedy of Payee; no delay or omission in the exercise or enforcement by Payee of any rights or remedies shall ever be construed as a waiver of any right or remedy of Payee; and no exercise or enforcement of any such rights or remedies shall ever be held to exhaust any right or remedy of Payee.

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          Section
5.  Conversion.  The outstanding principal balance of this Note
shall be convertible, at the option of Payee in its sole and absolute
discretion, in whole or in part and at any time or from time to time, into fully
paid and nonassessable shares (the “Conversion Shares”)
of common stock of Maker, par value $0.001 per share (the “Common
Stock”), at the conversion price equal to $3.50 per share (as
adjusted from time to time pursuant to the terms of this Note, the
“Conversion Price”).  If Payee elects to exercise
such option, then the following shall occur:

                    (a)          Payee shall deliver to Maker a notice of such election (the “Conversion Notice”), indicating the amount of principal of this Note to be converted (such amount to be converted referred to herein as the “Converted Amount”).

                    (b)          Upon its receipt of the Conversion Notice, the Maker shall immediately issue and deliver to Payee or its designated affiliates a certificate or certificates for the number of shares of Common Stock, registered in Payee’s or its designated affiliates’ name(s), to which Payee shall be entitled upon such conversion, bearing such legends as may be required by applicable state and federal securities laws. 

                    (c)          If the entire outstanding principal of this Note is converted, Payee shall deliver this Note to Maker marked “Canceled,” and Maker shall immediately pay to Payee all accrued and unpaid interest then due and owing on the date of such conversion.  If this Note is converted in part, Maker shall immediately pay to Payee all accrued and unpaid interest then due and owing on the date of such conversion, and Maker and Payee shall execute a document reasonably satisfactory to each of them evidencing the reduction in the principal amount of this Note as a result of such partial conversion.

                    (d)          No fractional shares will be issued on conversion of this Note.

          In the event of a stock split or subdivision of the Common Stock into a greater number of shares, or in the event of a dividend on the Common Stock payable in shares of Common Stock, the Conversion Price shall be proportionately decreased, and in the event of a combination of shares of the Common Stock into a smaller number of shares, the Conversion Price shall be proportionately increased, such increase or decrease, as the case may be.  In the event Maker at any time shall, by reclassification or otherwise, change the Common Stock into the same or a different number of securities of any class or classes, the outstanding principal of this Note shall thereafter be deemed to be convertible into an adjusted number of such securities and kind of securities as would have been issuable if such outstanding principal of this Note were converted pursuant to the terms hereof immediately prior to such
reclassification or other change.

          Section 6.  Events of Default and Remedies.  An “Event of Default” shall exist hereunder if any one or more of the following events shall occur and be continuing:  (a) Maker shall fail to pay when due any principal of, or interest upon, this Note or the Obligation; provided, however, that such failure shall not constitute an Event of Default unless Payee has provided Maker with written notice of such failure and Maker has failed to cure such failure during the twenty (20) days following the date such written notice is delivered to Maker; provided further, however, that after Payee has provided an aggregate of five (5) such written notices to Maker due to such failure, an Event of Default shall thereafter exist hereunder at any time Maker shall fail to pay when due any principal of, or interest upon, this Note or the Obligation; (b) any of the
Transaction Documents shall cease to be legal, valid, binding agreements of Maker enforceable against Maker in accordance with the respective terms thereof; (c) Maker shall (1) apply for or consent to the appointment of a receiver, trustee, intervenor, custodian or liquidator of itself or of all or a substantial part of its assets, (2) be adjudicated a bankrupt or insolvent or file a voluntary petition for bankruptcy or admit in writing that it is unable to pay its debts as they become due, (3) make a general assignment for the benefit of creditors, (4) file a petition or answer seeking reorganization or an arrangement with creditors or to take advantage of any bankruptcy or insolvency laws, or (5) file an answer admitting the material allegations of, or consent to, or default in answering, a petition filed against it in any bankruptcy, reorganization or insolvency proceeding, or take corporate action for the purpose of effecting any of the foregoing; (d) an order,
judgment or decree shall be entered by any court of competent jurisdiction or other competent authority approving a petition seeking reorganization of Maker or appointing a receiver, trustee, intervenor or liquidator of any such person, or of all or substantially all of its or their assets, and such order, judgment or decree shall continue unstayed and in effect for a period of sixty (60) days; or (e) the dissolution or termination of Maker.  

3

          Upon the occurrence of any Event of Default hereunder, the holder hereof may, at its option, (i) declare the entire unpaid balance of principal of and accrued interest upon the Obligation to be immediately due and payable without presentment or notice of any kind which Maker waives pursuant to Section 4 herein, (ii) reduce any claim to judgment; and/or (iii) pursue and enforce any of Payee’s rights and remedies available pursuant to any applicable law, equity or agreement including, without limitation, foreclosing all liens and security interests securing payment thereof or any part thereof.  

          Section 7.  Notice.  Any notices required or permitted under this Note shall be given in accordance with, and deemed effective pursuant to, the terms of the Stock Purchase Agreement.  

          Section 8.  Voluntary Prepayment.  Maker reserves the right, subject to the terms of this Section 8, to prepay the outstanding principal balance of this Note, in whole or in part, at any time and from time to time, without premium or penalty.  Any such prepayment shall be made together with payment of interest accrued on the amount of principal being prepaid through the date of such prepayment, and shall be applied to the installments of principal due hereunder in the inverse order of maturity.  In the event Maker desires to prepay all or any of the outstanding principal balance of this Note, Maker shall provide to the Payee a notice stating the amount of the outstanding principal balance hereof to be prepaid and indicating the date such prepayment will be made, which such prepayment date shall be not less than fifteen (15) Business Days after such notice is
delivered to the Payee.  Payee shall have the option, at any time during such fifteen (15) Business Days, to convert all or any portion of the outstanding principal balance of this Note pursuant to Section 5 above.

          Section 9.  Usury Laws.  Regardless of any provisions contained in this Note, the Payee shall never be deemed to have contracted for or be entitled to receive, collect or apply as interest on the Note, any amount in excess of the highest lawful rate, and, in the event Payee ever receives, collects or applies as interest any such excess, such amount which would be excessive interest shall be applied to the reduction of the unpaid principal balance of this Note, and, if the principal balance of this Note is paid in full, any remaining excess shall forthwith be paid to Maker.  In determining whether or not the interest paid or payable under any specific contingency exceeds the highest lawful rate, Maker and Payee shall, to the maximum extent permitted under applicable law, (a) characterize any non-principal payment (other than payments which are expressly designated as interest
payments hereunder) as an expense, fee, or premium, rather than as interest, (b) exclude voluntary prepayments and the effect thereof, and (c) spread the total amount of interest throughout the entire contemplated term of this Note so that the interest rate is uniform throughout such term.

          Section 10.  Costs.  If this Note is placed in the hands of an attorney for collection, or if it is collected through any legal proceeding at law or in equity, or in bankruptcy, receivership or other court proceedings, Maker agrees to pay all costs of collection, including, but not limited to, court costs and reasonable attorneys’ fees, including all costs of appeal.

          Section 11.  Applicable Law.  This Note is executed and delivered, and is intended to be performed in the State of Texas.  Except to the extent that the laws of the United States may apply to the terms hereof, the substantive laws of the State of Texas shall govern the validity, construction, enforcement and interpretation of this Note.  In the event of a dispute involving this Note or any other instruments executed in connection herewith, the undersigned irrevocably agrees that venue for such dispute shall lie in any court of competent jurisdiction in Dallas County, Texas.

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          IN WITNESS WHEREOF, Maker has duly executed this Note as of the day and year first written above.

	
  
 
  	
  
AVATAR   SYSTEMS, INC.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
 
  
	
  
 
  	
  
 
  	
  

  
	
  
 
  	
  
 
  	
  
Charles Shreve
  
	
  
 
  	
  
 
  	
  
President and Chief Executive Officer
  

Signature Page to Convertible Promissory Note

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