Document:

exv10w37

 

EXHIBIT 10.37

AMENDMENT NO. 4

TO THE

TANDY BRANDS ACCESSORIES, INC.

BENEFIT RESTORATION PLAN

     This Amendment No. 4 to the Tandy Brands Accessories, Inc. Benefit Restoration Plan
(“Amendment”) is made this 1st day of July, 2001 by Tandy Brands Accessories, Inc. a corporation
duly organized and existing under the laws of the State of Delaware (“Company”).

     WHEREAS, the Company has previously amended the Tandy Brands Accessories, Inc. Employees
Investment Plan (“Employees Investment Plan”) to enable participants therein to make salary
deferral contributions thereunder pursuant to section 401(k) of the Internal Revenue Code of 1986,
amended (the “Code”), and now desires to amend the Tandy Brands Accessories, Inc. Benefit
Restoration Plan (“Plan”) (i) to align applicable provisions of the Plan with such amendment to the
Employees Investment Plan, and (ii) to provide a special “one-time” election for participants in
the Plan to execute new participation agreements in conjunction with this amendment to the Plan;
and

     WHEREAS, pursuant to Article XII of the Plan, the Plan may be amended by the Company;

     NOW, THEREFORE, effective July 1, 2001 (except as otherwise provided herein), the Plan is
hereby amended as follows:

     1. Article II is hereby amended and restated in its entirety to read as follows:

“Article II

ELIGIBILITY

     Participation in the Plan shall be made available to a select group of individuals
providing services to the Company in key positions of management and responsibility who are
eligible to make contributions to the Employees Investment Plan, the amount of which is
reduced by reason of the application of the limitations set forth in Sections 401(a)(17) or
402(g)(1) of the Code. Such individuals may elect to participate hereunder by executing a
participation agreement in such form and at such time as the Committee

 

 

shall require, provided that each participation agreement shall be executed no later
than the last day of June immediately preceding the Plan Year for which an individual elects
to make contributions to the Plan in accordance with the provisions of Section 3.1 hereof.
Notwithstanding the foregoing, in the first year in which an individual becomes eligible to
participate in the Plan, he may elect to participate in the Plan by executing a
participation agreement, in such form as the Committee shall require, within thirty (30)
days of the date on which he is notified by the Chief Executive Officer of his eligibility
to participate in the Plan. In such event, his election to participate in the Plan shall
become effective as of the first full payroll period beginning in the calendar quarter
immediately following the Committee’s receipt of his participation agreement. The
determination as to the eligibility of any individual to participate in the Plan shall be in
the sole and absolute discretion of the Chief Executive Officer of the Company, whose
decision in that regard shall be conclusive and binding for all purposes hereunder.

Notwithstanding any provision herein to the contrary, each Participant may make a “one-time”
election to elect to change his deferral election under the Plan pursuant to the addition of
salary reduction contributions under the Employees Investment Plan by executing a
participation agreement, in such form as the Committee shall require, within thirty (30)
days of the date on which he is notified of his ability to make such a “one-time” election.
In such event, his election to participate in the Plan shall become effective as of the
first full payroll period following the Committee’s receipt of his participation agreement.”

2. Article III is hereby amended and restated as follows:

“Article III

CONTRIBUTIONS

     3.1 For any Plan Year, a Participant who elects to contribute to the Employees
Investment Plan the lesser of: (i) the maximum elective deferral permitted under Section
402(g)(1) of the Code with respect to the taxable year in which such Plan Year begins, or
(ii) the maximum salary reduction contributions permitted under the terms of the Employees
Investment Plan with respect to such Plan Year, may irrevocably elect to defer a portion of
the Annual Compensation otherwise payable to him with respect to such Plan Year, in the
amount set forth below. The amount which a Participant may elect to defer under this Plan
for any Plan Year shall be a percentage of his Annual Compensation for such Plan Year which
is no less than one percent (1%), and no greater than ten percent (10%), both of said
amounts to be reduced by the total contributions made to the Employees Investment Plan by
the Participant during such Plan Year. Any amounts withheld, pursuant to this Section 3.1,
from the Annual Compensation otherwise payable to a Participant shall be credited to his
Account as of the date on which such amounts would otherwise have been paid. For purposes
of this Section 3.1, “Annual Compensation” shall mean the total amounts paid by the Company
to the Participant as remuneration for personal services rendered during each Plan Year, as
reported on the Participant’s federal income tax withholding statement or statements (Form
W-2 or its subsequent equivalent), together with any amounts not includable in the gross
income of

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the Participant pursuant to Sections 125 or 402(e)(3) of the Code, but Annual
Compensation shall not include (i) any Company contributions made under the Tandy Brands
Accessories Stock Purchase Program which are used to purchase stock for a participating
Employee and are included in such Form W-2 as referred to above and (ii) any amounts
realized from the exercise of a non-qualified stock option or from a disqualifying
disposition of a stock option qualified under Section 423 of the Code, if any.

At the time a Participant makes a deferral election pursuant to this Section 3.1, the
Participant shall elect the manner and date upon which his benefit under the Plan (an
“Initial Election”) shall be distributed (the “Original Distribution Date”). A Participant
shall have the option to change his or her Initial Election to postpone, accelerate, or
modify the manner of payment of his benefit from that initially elected to be effective as
of the Original Distribution Date; provided that such election (the “Subsequent Election”)
is made at least one year prior to the Original Distribution Date. The distribution
elections described in this paragraph must be made on a form supplied by the Committee for
that purpose, and will only be valid if the form is filed with the Committee at least two
(2) years prior to the date on which the distribution pursuant to the Subsequent Election is
to be effective. In the event the Participant files more than one distribution election,
the last valid distribution election shall control.

3.2 Within thirty (30) days following the last day of each calendar quarter, the
Company shall make matching contributions to the Plan on behalf of each Participant who has
deferred amounts under the Plan during such calendar quarter in accordance with the
provisions of Section 3.1 above, other than Participants who terminated service with the
Company during such calendar quarter. The matching contribution shall equal one hundred
fifty percent (150%) of the amount deferred by the Participant under the terms of the Plan
during such calendar year. Matching contributions shall be invested solely in Company stock
as provided in Section 5.2 of the Plan.”

3. Article VII is hereby amended and restated as follows:

“Article VII

PAYMENT OF BENEFITS

     7.1 The payment of a Participant’s benefit shall be made either in a lump sum in cash,
or in cash payments in monthly installments over a period certain not exceeding ten (10)
years, such method of payment to be elected by the Participant in the manner determined by
the Committee. Payment shall commence at the time specified by the Participant, which date
shall be no earlier than the last day of the five-year period commencing on the date of the
Participant’s election; provided, however, that distribution shall be made in any event upon
termination of employment if such date is earlier than the date elected by the Participant.

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     7.2 Payment of a Participant’s death benefit shall be made to his Beneficiary either in
a lump sum in cash, or in cash payments in monthly installments over a period certain not
exceeding ten (10) years, such method of payment to be elected by the Participant in the
manner determined by the Committee. Payment of a Participant’s death benefit shall commence
as soon as practicable following the Committee’s receipt of proper notice of such
Participant’s death.

     7.3 Notwithstanding the provisions of Section 7.1 or Section 7.2, the benefits payable
hereunder may be paid before they would otherwise be due if, based on a change in the
federal or applicable state tax or revenue laws, a published ruling or similar announcement
issued by the Internal Revenue Service, a regulation issued by the Secretary of the
Treasury, a decision by a court of competent jurisdiction involving a Participant or a
Beneficiary, or a closing agreement made under Section 7121 of the Code that is approved by
the Internal Revenue Service and involves a Participant, the Committee determines that a
Participant has or will recognize income for federal or state income tax purposes with
respect to amounts that are or will be payable under the Plan before they otherwise would be
paid. The amount of any payments pursuant to this Section 7.3 shall not exceed the lesser
of (i) the amount in the Participant’s Account or (ii) the amount of taxable income with
respect to which the tax liability is assessed or determined.

     7.4 The payment of benefits under the Plan shall begin as specified, in accordance with
the provisions of Section 7.1 or Section 7.2 hereof; provided that, in case of
administrative necessity, the starting date of payment of benefits may be delayed up to
thirty (30) days as long as such delay does not result in the Participant or Beneficiary
receiving the distribution in a different taxable year than he would if no such delay had
occurred.”

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IN WITNESS WHEREOF, this Amendment is adopted this 1st day of July    , 2001.

	 	 	 	 	 	 	 
	ATTEST:	 	 	 	TANDY BRANDS ACCESSORIES, INC.
	 
	 	 	 	 	 	 
	/s/ Mark J. Flaherty

	 	 	 	By:
	 	/s/ J.S.B. Jenkins
	 

	 	 	 	 	 	 
	Assistant Secretary

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

5exv10w1

 

Exhibit 10.1

SECURED PROMISSORY NOTE

	 	 	 	 	 
	U.S. $2,454,625.00

	 	Dallas, Texas
	 	July 14, 2006

     FOR VALUE RECEIVED, CENTURION ACQUISITIONS, L.P., a Texas limited partnership (“Borrower”)
hereby makes and issues this Secured Promissory Note (this “Note”), and promises to pay to the
order of UNITED DEVELOPMENT FUNDING III, L.P., a Delaware limited partnership (together with its
successors and assigns, “Lender”) the principal sum of U.S. Two Million Four Hundred Fifty-Four
Thousand Six Hundred Twenty-Five and NO/100 ($2,454,625.00) or, if greater or less, the aggregate
amount of all funds advanced to Borrower under this Note, together with accrued, unpaid interest
thereon, and all other amounts due to Lender hereunder. Pars Investments, Inc., a Texas
corporation (the “General Partner”) is executing this Note on behalf of Borrower in its capacity as
the general partner of Borrower, as well as on its own behalf for certain limited purposes
described on the signature page to this Note. Lender, Borrower and the General Partner hereby
agree to the terms and conditions of this Note, as further set forth below.

     1. Certain Definitions. Certain capitalized terms which are defined in the text of
this Note shall have the respective meanings given to such terms herein. The following capitalized
terms shall have the following meanings:

     (a) “Accrued Interest Payments” shall mean payments equal to the amount of accrued
interest on the outstanding principal balance of this Note, calculated at the applicable
rate of interest provided herein.

     (b) “Base Rate” shall mean the lesser of (i) fifteen percent (15%) accrued and
compounded monthly, or (ii) the Highest Lawful Rate.

     (c) “Commitment” shall mean the aggregate amount of U.S. One Million Nine Hundred Fifty
Thousand and NO/100 Dollars ($1,950,000.00).

     (d) “Commitment Advance” shall mean full or partial advance of the Commitment to
Borrower pursuant to the terms hereof.

     (e) “Commitment Fee” shall mean a fee paid by Borrower to Lender or its assigns, in
consideration of services rendered in originating the loan made pursuant to this Note, in
the amount set forth in Section 2(c) of this Note.

     (f) “Default Rate” shall mean the lesser of (i) eighteen percent (18%), accrued and
compounded monthly, or (ii) the Highest Lawful Rate.

     (g) “Effective Date” shall mean July 14, 2006.

     (h) “Event of Default” shall have the meaning given to such term in Section 10
of this Note.

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     (i) “Highest Lawful Rate” shall mean the maximum lawful rate of interest which may be
contracted for, charged, taken, received or reserved by Lender in accordance with the
applicable laws of the State of Texas (or applicable United States federal law, to the
extent that it permits Lender to contract or charge, take, receive or reserve a greater
amount of interest than under Texas law), taking into account all fees and expenses
contracted for, charged, received, taken or reserved by Lender in connection with the
transaction relating to this Note and the indebtedness evidenced hereby or by the other Loan
Documents which are treated as interest under applicable law.

     (j) “Interest Reserve” shall mean an aggregate of up to $425,000.00 to be advanced by
Lender hereunder and to be applied against Accrued Interest Payments, subject to the
provisions of Section 4(b) of this Note.

     (j) “Interest Reserve Advance” means an advance under this Note in the amount of an
Accrued Interest Payment pursuant to Section 4(b) of this Note.

     (l) “Lien” shall mean any lien, security interest, charge, tax lien, pledge,
encumbrance, conditional sales or other title retention arrangement or any other interest in
property designed to secure the repayment of indebtedness or the satisfaction of any other
obligation, whether arising by agreement or under any statute or law, or otherwise.

     (m) “Loan Documents” shall mean this Note, the Pledge Agreement, the error and
omissions letter and all other documents, certificates, instruments, and agreements
executed, entered into or delivered by Borrower, the General Partner, or any of their
respective affiliates in connection with the loan made pursuant to this Note, as each such
document may be amended from time to time.

     (n) “Loan Administration Fee” shall mean a fee charged by Lender in consideration of
administrative costs and expenses incurred by Lender in connection with each Commitment
Advance hereunder.

     (o) “Loan Expenses” shall mean all fees and expenses incurred by Lender in connection
with the loan made pursuant to this Note and the preparation of the Note and the other Loan
Documents, including, without limitation, attorneys fees, accountants fees, closing costs,
due diligence costs and expenses, recording fees, courier and delivery fees, document
preparation fees, wire transfer and bank fees, title company fees, and all other fees and
costs incurred by Lender.

     (p) “Maturity Date” means January 31, 2008.

     (q) “Partnership Agreement” means the Agreement of Limited Partnership of Shale-114,
L.P., as it may be amended from time to time.

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     (r) “Pledge Agreement” shall mean that certain Pledge Agreement executed by the
Pledgors in favor of Lender dated as of the date of this Note, pursuant to which (i)
Borrower and the General Partner pledge and grants a security interest to Lender in their
respective partnership interests in Shale-114, and (ii) Mehrdad Moayedi pledges and grants a
security interest to lender in all of the capital stock of the General Partner, as security
for the prompt payment and performance of Borrower’s obligations to Lender under this Note,
as such agreement may be amended from time to time.

     (s) “Pledgors” mean, collectively, Mehrdad Moayedi, Borrower, and the General Partner.

     (t) “Property” shall mean all real property now owned or hereinafter acquired by
Borrower.

     (u) “Senior Lender” shall mean, collectively, (i) that certain $5,400,000.00 loan from
First United Bank & Trust to Shale-114 pursuant to a promissory note executed by Shale-114
in favor of First United Bank & Trust on or about March 24, 2006, and (ii) any other loan
from a bank, financial institution or other lender having a senior position ahead of Lender
with respect to the payment of Borrower indebtedness and/or the priority of security
interests and/or Liens on the Property and any other collateral granted or pledged as
security for the loan made pursuant to this Note; provided, that Lender has agreed in
writing to be subordinate thereto.

     (v) “Senior Indebtedness” shall mean the amount of indebtedness owed to the Senior
Lender that Lender has agreed in writing will have priority over the indebtedness evidenced
by this Note.

     (w) “Shale-114” shall mean Shale-114, L.P., a Texas limited partnership, in which the
General Partner owns a 0.1% general partner interest, and in which Borrower owns a 99.9%
limited partnership interest.

     2. Loan Expenses; Fees.

     (a) Loan Expenses. Borrower shall pay Lender, the full amount of all Loan
Expenses incurred by Lender upon Lender’s demand therefor.

     (b) Loan Administration Fee. In consideration of administrative costs and
expenses incurred by Lender in connection with Commitment Advances, Borrower agrees to pay
Lender a Loan Administration Fee at the time of each Commitment Advance equal to one-quarter
percent (0.25%) of such Commitment Advance. The Loan Administration Fee with respect to
each Commitment Advance made hereunder is fully earned by Lender at the time such Commitment
Advance is funded and, if not otherwise paid, shall be funded by Lender at the time of the
Commitment Advance and upon disbursement shall automatically constitute principal
outstanding hereunder and cause a corresponding increase in the aggregate amount of
Borrower’s obligations hereunder

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     (even if such disbursement causes the aggregate amount outstanding hereunder to exceed the
face amount of this Note).

     (c) Commitment Fee. In consideration of assistance in the origination of the
loan made pursuant to this Note, Borrower agrees to pay Lender a Commitment Fee equal to
three percent (3.0%) of the sum of (i) Commitment, and (ii) the Interest Reserve (which
Commitment Fee is equal to $71,250.00), which shall be due at the closing hereof. Pursuant
to Borrower’s request, the Commitment Fee shall be funded by Lender under this Note and upon
disbursement shall automatically constitute principal outstanding hereunder and cause a
corresponding increase in the aggregate outstanding amount of Borrower’s obligations
hereunder.

     (d) Usury Savings Clause Applies. Borrower, the General Partner and Lender
agree that Lender has provided, and shall provide, separate and distinct consideration for
the fees and expenses described in Sections 2(a), (b) and (c) above and/or
that such fees and expenses represent bona fide fees and expenses incurred by Lender.
Borrower, the General Partner and Lender further agree that such fees and expenses are not,
are not intended to be, and shall not be characterized as, interest or as compensation for
the use, forbearance or detention of money. Despite the foregoing and notwithstanding
anything else in this Note and the other Loan Documents to the contrary, if any fees or
expenses charged or chargeable to Borrower hereunder are determined to constitutes interest
and such fees or expenses, when added to the interest charged hereunder, would cause the
aggregate interest charged hereunder to exceed the Highest Lawful Rate, then Section 11
of this Note shall automatically apply to reduce the interest charged hereunder so as
not to exceed the Highest Lawful Rate.

     (e) Assignment. The Loan Administration Fee and all Loan Expenses are
assignable by the payee to any affiliate or third party.

     3. Commitment Advances; Borrowing Procedures; etc.

     (a) Commitment Advances. Subject to the terms and conditions of this Note,
Lender agrees to make Commitment Advances to Borrower from time to time prior to the
Maturity Date in an aggregate amount not to exceed the Commitment. It is anticipated that
$1,300,000.00 of the Commitment shall be advanced at closing of this Note and the remaining
$650,000.00 of the Commitment shall be advanced approximately ninety (90) days thereafter.
Lender shall have no obligation to make any Commitment Advance hereunder to the extent such
Commitment Advance would cause the aggregate principal amount of all outstanding Commitment
Advances to exceed the Commitment. This Note is not a revolver and thus, the portion of the
Commitment borrowed may not be repaid to Lender and subsequently reborrowed under this Note.

     (b) Procedure for Borrowing. Each Commitment Advance shall be made by
Borrower’s delivery of a written request to Lender. Such notice must be received by Lender
no less than five (5) business days prior to the date that is the requested funding

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date, and shall specify (i) the amount of the Commitment Advance so requested, and (ii) the
requested funding date.

     (c) Making of Commitment Advances. Subject to the terms and conditions of this
Note, after receipt of a request for an Commitment Advance pursuant to Section 2(b),
Lender shall make the amount of the requested Commitment Advance available to Borrower on
the applicable funding date; provided, however, that Lender shall have no obligation to make
any Commitment Advance unless each of the conditions precedent in Section 7 have
been satisfied.

     (d) Discretionary Advances. Lender hereby is authorized by Borrower to make
advances hereunder that Lender, in its sole discretion, deems necessary or desirable to pay
any Loan Expense or other amount chargeable to Borrower or the General Partner pursuant to
the terms of this Note or any other Loan Document (such advances made for the foregoing
purposes are referred to herein as the “Discretionary Advances”). Each Discretionary
Advance shall, upon disbursement, automatically constitute principal outstanding hereunder
and cause a corresponding increase in the aggregate amount of Borrower’s obligations
hereunder (even if such Discretionary Advance causes the aggregate amount outstanding
hereunder to exceed the face amount of this Note). The making by Lender of any
Discretionary Advance shall not cure any Event of Default hereunder, unless Lender provides
Borrower with a written waiver of such Event of Default.

     4. Interest; Payments.

     (a) Interest Rate. The outstanding principal amount of this Note shall bear
interest on each day outstanding at the Base Rate in effect on such day, accrued and
compounded monthly, unless the Default Rate shall apply. Upon the occurrence and during the
continuation of an Event of Default, the outstanding principal amount of this Note shall,
automatically and without the necessity of notice, bear interest from the date of such Event
of Default at the Default Rate, accrued and compounded monthly, until all such delinquent
amounts are paid or such breach or Event of Default is otherwise cured to the satisfaction
of Lender or waived by Lender in writing.

     (b) Interest Payments; Interest Reserve Advances. Accrued Interest Payments
shall be due and payable on the first day of each month while this Note is outstanding.
Notwithstanding the foregoing sentence and subject to the other provisions hereof, on each
date that an Accrued Interest Payment becomes due and payable hereunder, Lender shall make
an Interest Reserve Advance hereunder in the amount of such Accrued Interest Payment, which
shall be applied to the Accrued Interest Payment then due and payable, until the Interest
Reserve has been fully exhausted. Subject to the other provisions of this Note, each time
Lender funds an Interest Reserve Advance hereunder, (i) Borrower’s requirement to make the
Accrued Interest Payment for such month shall be satisfied, (ii) the amount of remaining
Interest Reserve shall be reduced by the amount of such Interest Reserve Advance, and (ii)
such Interest Reserve Advance funded by Lender hereunder shall automatically become
principal outstanding under this Note upon

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such funding. The Interest Reserve Advances may be funded by Lender even if such funding
causes the outstanding principal balance of this Note to exceed its face amount.
Notwithstanding anything else to the contrary contained herein, (i) if at any time an Event
of Default has occurred and is continuing under this Note, Lender shall not be obligated to
make any further Interest Reserve Advances, and thereafter, shall do so only in its sole
discretion, unless and until the Event of Default is cured to Lender’s satisfaction as
evidenced in writing, and (ii) in no event shall Lender be obligated to make any Interest
Reserve Advance that would cause the aggregate amount of Interest Reserve Advances made
hereunder to exceed the remaining Interest Reserve.

     (c) Payments. Subject to the other provisions of this Note:

     (i) Accrued Interest Payments shall be due and payable as provided in
Section 4(b) of this Note;

     (ii) concurrently with the sale and closing of any Property, Borrower shall pay
Lender the amount of full amount of such proceeds received by or due to Borrower
from such sale, after payment to the Senior Lender of any amount due to the Senior
Lender upon such sale under the terms of the loan documents evidencing the Senior
Indebtedness; and

     (ii) the outstanding principal balance of this Note, together with all accrued,
unpaid interest thereon, unpaid Loan Expenses and other unpaid amounts due
hereunder, shall be due and payable on the Maturity Date.

     5. Terms and Conditions of Payment.

     (a) Application of Payments. Subject to the application of Interest Reserve
Advances to Accrued Interest Payments as provided in Section 4(b) of the Note, all
payments on this Note shall be applied first, to unpaid Loan Expenses due hereunder, next,
to unpaid accrued interest, and last, to principal outstanding under this Note.
Notwithstanding the foregoing sentence, if any Event of Default occurs and is existing under
this Note or any other Loan Document, Lender shall have the right to apply payments toward
amounts due under this Note as Lender determines in its sole discretion.

     (b) General. All amounts are payable to Lender in lawful money of the United
States of America at the address for Lender provided in this Note, or at such other address
as from time to time may be designated by Lender. Borrower will make each payment which it
owes under this Note and the other Loan Documents to Lender in full and in lawful money of
the United States, without set-off, deduction or counterclaim. Under no circumstance may
Borrower offset any amount owed by Borrower to Lender under this Note with an amount owed by
Lender to Borrower under any other arrangement. All payments shall be made by cashier’s
check or wire transfer of immediately available funds. Should any such payment become due
and payable on a day other than a business day, the date for such payment shall be extended
to the next succeeding business day, and, in the case of a required payment of principal,
interest or

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Loan Expenses or other amounts then due, interest shall accrue and be payable on such amount
for the period of such extension. Each such payment must be received by Lender not later
than 3:00 p.m., Dallas, Texas time on the date such payment becomes due and payable. Any
payment received by Lender after such time will be deemed to have been made on the next
succeeding business day.

     (c) Prepayment. Borrower may prepay this Note in whole or in part at any time
and from time to time without incurring any prepayment fee or penalty; provided, that
interest shall accrue on the portion of this Note so prepaid through the date of such
prepayment.

     6. Loan Deliveries. At or prior to the closing of the loan made pursuant to this
Note, Borrower shall deliver or cause to be delivered to Lender, the following items, each of which
shall be satisfactory in form and substance to Lender:

     (a) this Note and each other Loan Document, duly executed by Borrower, the General
Partner and Mehrdad Moayedi, as applicable;

     (b) Borrower’s most recent consolidated financial statements, in the form specified in
Section 9(f) hereof, and accompanied by the certification required by Section
9(f) of this Note hereof;

     (c) a certified copy of the formation documents and all amendments thereto for each of
Borrower and the General Partner;

     (d) a certificate of existence for Borrower, and certificates of existence and good
standing for the General Partner, issued by the appropriate state authorities;

     (e) resolutions of the board of directors of the General Partner authorizing Borrower’s
and the General Partner’s execution, delivery, and performance of this Note and the other
Loan Documents, and the transactions contemplated hereby and thereby;

     (f) resolutions of the board of directors, managers, or other governing body which has
authority to act on behalf of each Pledgor that is an entity, authorizing the execution,
delivery and performance of the Pledge Agreement and the transactions contemplated thereby;

     (g) a the written consent of the partners of Shale-114 authorizing the Pledge Agreement
and the transactions contemplated thereby, including Lender’s remedies thereunder;

     (h) a certificate of Borrower’s and the General Partner’s general liability policies,
and evidence of payment of the premium through at least one year;

     (i) a certificate (the “Officer’s Certificate”) executed by the Chief Executive Officer
or President of the General Partner, acting on behalf of the General Partner and

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on behalf of Borrower, in its capacity as the general partner of Borrower certifying that
(i) no Event of Default has occurred and is continuing under the Note, (ii) all
representations and warranties made by Borrower and the General Partner, respectively, in
this Note and the other Loan Documents are true and correct in all respects, and (iii)
Borrower and the General Partner have complied with and performed, in all respects, all
covenants, conditions and agreements which are then required by this Note and the other Loan
Documents to have been complied with or performed;

     (j) the Partnership Agreement and all amendments thereto in effect as of the Effective
Date;

     (k) copies of the loan documents evidencing any Senior Indebtedness and all amendments
thereto as of the Effective Date;

     (l) an opinion of counsel for Borrower and the General Partner satisfactory in all
respects to Lender and its counsel; and

     (m) such other and further documents, agreements and certificates as are reasonably
required by Lender.

     7. Conditions Precedent to Commitment Advances. Borrower and the General Partner
agree that, notwithstanding anything to the contrary contained herein or in the other Loan
Documents, Lender’s obligation to fund each Commitment Advance shall be conditioned upon the
satisfaction of each of the following conditions, on and as of the funding date for the applicable
Commitment Advance:

     (a) Borrower and the General Partner shall have executed and delivered to Lender, an
Officer’s Certificate dated as of the funding date, and all matters certified in the
Officer’s Certificate shall be true and correct in all respects;

     (b) the requested Commitment Advance, if made, would not cause the aggregate amount of
all outstanding Commitment Advances to exceed the Commitment; and

     (c) Borrower shall have complied with each other reasonable request of Lender made in
connection with the Commitment Advance.

     8. Representations and Warranties. Each of Borrower and the General Partner jointly
and severally represents and warrants to Lender that:

     (a) Organization and Good Standing; Authorization. Each of Borrower and the
General Partner (i) is duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization, and (ii) has full power and authority to own its
properties, carry on its business and to perform the transactions contemplated by this Note
and the other Loan Documents. All necessary partnership, limited liability company,
partnership, member, partner and other actions required to be taken on behalf

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of the General Partner and Borrower to approve this Note and the other Loan Documents and
the transactions contemplated hereby and thereby, have been duly taken. Each of Borrower
and the General Partner is in compliance in all material respects with all laws applicable
to it in each jurisdiction within and without outside the United States where it owns or
leases any properties or conducts any business, except for any such non-compliance that
would not have a material adverse effect, individually or in the aggregate, on Borrower’s or
the General Partner’s financial condition or operations.

     (b) Authority; Validity. Each of Borrower and the General Partner has the
power, authority and legal right to execute, deliver and perform its obligations under this
Note and the other Loan Documents. The execution and delivery by Borrower and the General
Partner of the Note and the other Loan Documents, and the performance of their respective
obligations thereunder, will not (i) violate the certificate of formation of Borrower or the
General Partner, the partnership agreement of the Borrower, or the General Partner’s bylaws,
(ii) violate any law or result in a default under any contract, agreement, or instrument to
which Borrower or the General Partner is a party or by which Borrower or the General Partner
or any of their respective assets and 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 Borrower and the General Partner and
are enforceable against Borrower and the General Partner in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting
the enforcement of creditors’ rights generally.

     (c) Litigation. There is no pending order, notice, claim, litigation,
proceeding or investigation against or affecting Borrower or the General Partner or any of
their respective assets or properties, whether or not covered by insurance, that could
materially and adversely affect either the financial condition or business prospects or
Borrower or the General Partner, if adversely determined.

     (d) Indebtedness. Neither Borrower nor the General Partner has any material
indebtedness of any nature, to the extent disclosed in the latest financial statements
delivered to Lender or otherwise disclosed in writing to Lender and approved by Lender.

     (e) Environmental Liability. To the best of Borrower’s and the General
Partner’s knowledge, no hazardous substances or solid wastes have been disposed of or
otherwise released on or to any real property owned or operated by Borrower or the General
Partner, except as may have been otherwise disclosed to Lender in a Phase I environmental
report delivered to Lender. The terms “hazardous substance” and release” shall have the
meanings specified in the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, (“CERCLA”), and the terms “solid waste” and “disposal” (or
“disposed”) shall have the meanings specified in the Resource Conservation and Recovery Act
of 1976, as amended, (“RCRA”); provided, to the extent that the laws of the State of Texas
establish a meaning for “hazardous substance”, “release”, “solid waste”, or “disposal” or
“disposed”) that is broader than that specified in either CERCLA or RCRA, such broader
meaning shall apply.

9

 

     (f) Tax Liabilities. Each of Borrower and the General Partner has filed all
federal, state, county, local, and foreign tax returns and reports required to have been
filed by them (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,
property, employee withholding, social security, unemployment, franchise, excise, use and
sales taxes. Each of Borrower and the General Partner has paid in full all taxes that have
become due as reflected on all such returns and reports (including any interest and
penalties) and has established adequate reserves for all taxes payable but not yet due. No
governmental claim for additional taxes, interest, or penalties is pending or, to Borrower’s
and the General Partner’s knowledge, threatened against Borrower or the General Partner or
any of their respective properties or assets.

     9. Covenants. Each of Borrower and the General Partner jointly and severally
covenants and agrees with Lender that they will comply with each of the following covenants below:

     (a) Payment; Performance. Borrower shall promptly pay all amounts due and
owing to Lender under this Note. Borrower and the General Partner shall timely perform and
comply with each agreement and covenant made under this Note and the other Loan Documents.

     (b) Use of Proceeds. The proceeds of this Note shall be used solely to acquire
partnership interests in Downtown Vistas Development Company, L.P. held by The Hartnett
Group, Ltd. and Condovestors GP. In no event shall the proceeds of this Note be used,
directly or indirectly, by any person for personal, family, household or agricultural
purposes or for the purpose, whether immediate, incidental or ultimate, of purchasing,
acquiring or carrying any “margin stock” (as such term is defined in Regulation U
promulgated by the Board of Governors of the Federal Reserve System).

     (c) Other Loans. Borrower shall not enter into any promissory note, loan
documents, or other agreement for borrowed money without the prior written consent of
Lender, including, without limitation, any loan documents evidencing Senior Indebtedness.
Unless otherwise agreed by Lender in writing, the loan documents evidencing any Senior
Indebtedness shall provide that (i) the Senior Lender shall give Lender written notice of
any default or event of default occurring under the loan documents evidencing the Senior
Indebtedness, and (ii) upon any default by Borrower, Lender shall have the right, but not
the obligation, to cure Borrower’s default thereunder and to purchase the loan and the loan
documents evidencing the Senior Indebtedness from the Senior Lender.

     (d) Termination of Existence. Nether Borrower nor the General Partner shall
cause, or enter into any agreement to cause, the dissolution or termination of the existence
of Borrower or the General Partner or the merger, consolidation, or reorganization of
Borrower or the General Partner with or into any other entity, whether or not such person
would be the surviving entity.

10

 

     (e) Notice of Certain Events. Borrower and the General Partner shall promptly
notify Lender in writing of the occurrence of any event or series of events of which
Borrower or the General Partner have actual knowledge causing, or that could be expected to
cause or has caused (i) a material adverse effect on the operations or financial condition
of Borrower or the General Partner, (ii) the occurrence of any Event of Default (without
giving effect to any cure period applicable thereto), or (iii) any default by Borrower or
the General Partner or the acceleration of the maturity of any indebtedness owed by Borrower
or the General Partner under the Senior Indebtedness or any indenture, mortgage, agreement,
promissory note, contract or other instrument to which Borrower or the General Partner is a
party or by which any material asset or property of Borrower or the General Partner is
bound. In addition, each of Borrower and the General Partner agrees to notify Lender in
writing at least twenty (20) business days prior to the date that it changes its name,
address, the location of its chief executive office or principal place of business, and the
place where it keeps its books and records.

     (f) Financial Statements. Borrower and the General Partner shall deliver to
Lender, the following financial statements: (i) within sixty (60) days after the end of
each fiscal quarter, the unaudited financial statements of Borrower and the General Partner,
prepared in accordance with GAAP and combined or consolidated as appropriate, including all
notes related thereto; and (ii) within one hundred twenty (120) days after the end of each
fiscal year, the unaudited financial statements of Borrower and the General Partner,
prepared in accordance with GAAP and combined or consolidated as appropriate, including all
notes related thereto. All financial statements provided to Lender shall be certified as to
accuracy and completeness by an officer of the General Partner.

     (g) Taxes. Borrower and the General Partner shall pay all federal, state and
local taxes levied against them and their respective properties and assets as they become
due and payable and before the same become delinquent. Borrower and the General Partner
shall have the right to pay such tax under protest or to otherwise contest any such tax or
assessment, but only if (i) such contest has the effect of preventing the collection of such
taxes so contested and also of preventing the sale or forfeiture of any property subject
thereto, (ii) Borrower and the General Partner have notified Lender of their intent to
contest such taxes, and (iii) adequate reserves for the liability associated with such tax
have been established in accordance with GAAP. Borrower and the General Partner shall
furnish to Lender evidence that all such taxes are paid at least five (5) days prior to the
last date for payment of such taxes.

     (h) Certain Liens. Borrower shall not create, incur, assume, or suffer to
exist, directly or indirectly, any Lien on or with respect to any of its assets, of any
kind, whether now owned or hereafter acquired, or an income or profits therefrom, except for
(i) Liens in favor of Lender, (ii) Liens in favor of the Senior Lender that secure the
Senior Lender that secure Senior Indebtedness, (iii) Liens in favor of United Development
Funding, L.P., a Nevada limited partnership, and (iv) other Liens approved by Lender’s prior
written consent.

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     (i) Indebtedness. Borrower shall not incur any indebtedness for borrowed
money, other than Senior Indebtedness, the loan made pursuant to this Note or as otherwise
approved by Lender’s prior written consent.

     (j) Distributions. At any time when any amounts are due to Lender hereunder,
Borrower shall not declare, pay, make, or authorize any distributions, whether in cash or in
property, to its partners. Subject to Borrower’s timely fulfillment of its payment
obligations under Senior Indebtedness, all cash distributed to Borrower from Shale-114 shall
be applied to repayment of this Note, until it is repaid in full.

     (k) Shale-114 Documents. Borrower and the General Partner shall, promptly
upon receipt, furnish to Lender all documents that Borrower receives in its capacity as a
partner of Shale-114 and all documents that the General Partner receives its capacity as the
general of Shale-114, including without limitation, all of the following:

     (i) all financial statements, pro formas, projections, budgets, capital
expenditure and expense reports, and other financial information, and all
information related to the operations of Shale-114;

     (ii) minutes of the meetings of the General Partner acting in its capacity as
the general partner of Shale-114, and all written consents of the General Partner
acting in its capacity as the general partner of Shale-114;

     (iii) all loan documents evidencing indebtedness for borrowed money of
Shale-114 and the General Partner acting in its capacity as the general partner of
Shale-114, and all amendments thereto;

     (iv) the title commitment for each Property, the title exception documents and,
upon issuance, the title policy for each Property;

     (v) for each Property, all due diligence documents related to such Property,
including, without limitation, a Phase I Environmental Report, survey, plat,
appraisal, and engineering due diligence report, land use, zoning, subdivision,
grading, municipal district, environmental, and other governmental permits,
approvals, authorizations and maps necessary to develop such Property in compliance
with applicable Governmental Regulations;

     (vi) certificates of general liability and hazard insurance for Shale-114 and
builder’s liability insurance covering each Property;

     (vii) for each Property, all project updates, development reports, sales
reports, budgets, pro formas, and similar information.

     (l) Audit. Borrower and the General Partner shall permit Lender and its
employees, representatives, auditors, collateral verification agents, attorneys and

12

 

accountants (collectively, the “Lender Representatives”), at any time and from time to time,
at Borrower’s and the General Partner’s expense, to (i) audit all books and records related
to Borrower or the General Partner and their respective properties and assets, and (ii)
visit and inspect any of their respective offices and assets and properties and to inspect
and make copies of all books and records, and to write down and record any information the
Lender Representatives obtain. Each of Borrower and the General Partner agrees to cooperate
fully in connection with such audits and inspections.

     (m) Assignments. Neither Borrower nor the General Partner shall assign,
transfer or convey, any partnership interest, capital stock, or other equity interest in any
partnership, corporation, limited liability company, or other entity, the equity interests
of which are pledged under the Pledge Agreement.

     (n) Insurance. Borrower and the General Partner shall, at all times, maintain
or cause to be maintained, hazard insurance on the Properties with coverage amounts that are
normal and customary for similarly-situated entities engaged in similar businesses. Each
such hazard insurance policy shall provide that Lender be given at least thirty (30) days
written notice as a condition precedent to any cancellation thereof or material change
therein. Borrower shall obtain or cause to be obtained, an endorsement to each such policy
naming Lender as an additional insured to each such policy, and provide Lender annually with
the insurance certificate, evidencing such coverage, the endorsement of each such policy to
lender, and evidence of payment of the premium for each such policy.

     (o) Operation of Business. Each of Borrower and the General Partner shall
operate their businesses in compliance with all applicable federal, state and local laws,
rules, regulations, and ordinances. Each of Borrower and the General Partner shall
maintain their existence and good standing in each state where they operate or do any
business. Each of Borrower and the General Partner shall obtain, maintain and keep current,
all consents, licenses, permits, authorizations, permissions and certificates which may be
required or imposed by any governmental or quasi-governmental agency, authority or body
which are required by applicable federal, state or local laws, regulations and ordinances.

     (p) Alterations. Without the prior written consent of Lender, Borrower shall
not permit the following to occur: any material amendment to the loan documents evidencing
the Senior Indebtedness, any increase in the maximum amount of the Senior Indebtedness, or
any renewal or extension of the loan documents evidencing the Senior Indebtedness.

     10. Default.

     (a) For purposes of this Note, the following events shall constitute an “Event of
Default”:

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     (i) except for Accrued Interest Payments due during any period when Accrued
Interest Payments are required to be made by Lender pursuant to Section
4(b), the failure of Borrower to make any payment required by this Note in full
on or before the date such payment is due (or declared due pursuant to the terms of
this Note), whether on or prior to the Maturity Date; or

     (ii) any financial statement, representation, warranty, or certificate made or
furnished by or with respect to Borrower or the General Partner contained in this
Note or any other Loan Document or made in connection herewith or therewith, shall
be materially false, incorrect, or incomplete when made; or

     (iii) Borrower or the General Partner shall fail to perform or observe any
covenant or agreement contained in this Note or any other Loan Document that is not
separately listed in this Section 10(a) as an Event of Default, and the same
remains unremedied for ten (10) days after written notice of such failure is given
by Lender to Borrower; or

     (iv) any “event of default” or “default” occurs under any Loan Document other
than this Note and the same remains unremedied for ten (10) days after written
notice is given by Lender to Borrower; or

     (v) the entry of a decree or order for relief by a court having jurisdiction in
respect of Borrower or the General Partner in an involuntary case under the federal
bankruptcy laws, as now or hereafter constituted, or any other applicable federal or
state bankruptcy, insolvency or other similar law, which is not vacated or dismissed
within thirty (30) days, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of Borrower or the General Partner
for any substantial part of their property, or ordering the winding up or
liquidation of such person’s affairs; or

     (vi) the commencement by Borrower or the General Partner of a voluntary case
under the federal bankruptcy laws, as now constituted or hereafter amended, or any
other applicable federal or state bankruptcy, insolvency or other similar law, or
the consent by it to the appointment to or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar official)
of Borrower or the General Partner for any substantial part of its property, or the
making by Borrower or the General Partner of any assignment for the benefit of
creditors, or the admission by Borrower or the General Partner in writing of
Borrower or the General Partner’s inability to pay its debts generally as they
become due; or

     (vii) the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of all or a
substantial part of Borrower or the General Partner’s assets or of any part of any
property in a proceeding brought against or initiated by Borrower or the General
Partner; or

14

 

     (viii) if Borrower or the General Partner are liquidated or dissolved or winds
up their affairs, or the sale or liquidation of all or substantially all of the
assets of Borrower or the General Partner; or

     (ix) except as otherwise permitted herein, Borrower or the General Partner
assigns transfers, or conveys any partnership interest, capital stock, or other
equity interest in any partnership, corporation, limited liability company, or other
entity, the equity interests of which are pledged under the Pledge Agreement without
the prior written consent of Lender; or

     (x) any “default” or “event of default” not cured within the grace period, if
any, for such default or event of default, shall occur under (A) the Senior
Indebtedness or any credit agreement, loan agreement, promissory note, or other
document evidencing indebtedness for borrowed money incurred by Borrower, or (B) any
subordination agreement, security agreement, pledge agreement, guaranty, deed of
trust, or other agreement providing security or collateral for indebtedness,
executed by Borrower, or (C) any joint venture agreement, revenue or profits sharing
or participation agreement, partnership agreement, shareholders agreement,
securities purchase agreement or any other agreement governing to which Borrower is
a party, if Lender or any of its affiliates is also a party to such agreement (the
terms “default” and “event of default” having the meaning given to such terms in any
of the agreements described above).

     (b) Upon the occurrence of an Event of Default described in subsection (a)(v),
(vi) or (vii) above, all obligations under this Note and the other Loan
Documents shall thereupon be immediately due and payable, without demand, presentment,
notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of
intention to accelerate, declaration or notice of acceleration, or any other notice or
declaration of any kind, all of which are hereby expressly waived by Borrower and the
General Partner. During the continuance of any other Event of Default, then and in every
such case Lender may do any or all of the following: (i) declare the principal of this Note
together with all accrued and unpaid interest on the unpaid principal balance, and Loan
Expenses and other amounts due to Lender under this Note or the other Loan Documents, to be
due and payable immediately, and the same shall become and be due and payable, without
notices, demands for payment, presentations for payment, notices of payment default, notices
of intention to accelerate maturity, protest and notice of protest, and any other notices of
any kind, all of which are expressly waived by Borrower and the General Partner and any and
all sureties, guarantors and endorsers of this Note, (ii) require Borrower to assign to
Lender any contractual right to receipt of proceeds from any city, state, municipal utility
district, public improvement district, or other payee in connection with the Property, (iii)
exercise any its rights under any of the Loan Documents, and/or (iv) exercise all other
rights and remedies available to Lender at law and at equity, including, without limitation,
such rights existing under the Uniform Commercial Code. No delay on the part of Lender in
exercising any power under this Note shall operate as a

15

 

waiver of such power or right nor shall any single or partial exercise of any power or
right preclude further exercise of that power or right.

     (c) If this Note is placed in the hands of an attorney for collection after an Event of
Default or failure to pay under this Note, or if all or any part of the indebtedness
represented hereby is proved, established or collected in any court or in any bankruptcy,
receivership, debtor relief, probate or other court proceedings, Borrower and the General
Partner, and all endorsers, sureties and guarantors of this Note, jointly and severally,
agree to pay reasonable attorneys’ fees and collection costs to Lender in addition to the
principal and interest payable under this Note.

     11. Usury Laws.

     (a) Notwithstanding anything to the contrary contained in this Note or any other Loan
Document, (i) this Note shall never bear interest in excess of the Highest Lawful Rate, and
(ii) if at any time the rate at which interest is payable on this Note is limited by the
Highest Lawful Rate by the foregoing clause (i) or by reference to the Highest Lawful Rate
in the definitions of Base Rate and Default Rate, then this Note shall bear interest at the
Highest Lawful Rate and shall continue to bear interest at the Highest Lawful Rate until
such time as the total amount of interest accrued on this Note equals (but does not exceed)
the total amount of interest which would have accrued on this Note, had there been no
Highest Lawful Rate applicable to this Note.

     (b) It is the intention of the parties hereto that all aspects of this Note and the
other Loan Documents, and the transactions contemplated hereby and thereby, comply with all
laws, including, specifically, any applicable usury laws. In furtherance thereof, Borrower,
the General Partner and Lender stipulate and agree that none of the terms and provisions
contained in this Note or the other Loan Documents shall ever be construed to create a
contract to pay for the use, forbearance, or detention of money, or interest, in excess of
the maximum amount of interest permitted to be charged by applicable law in effect from time
to time. Neither Borrower nor the General Partner nor any present or future guarantors,
endorsers, or other persons or entities hereafter becoming liable for payment of Borrower’s
obligations hereunder and under the other Loan Documents shall ever be liable for unearned
interest thereon or shall ever be required to pay interest thereon in excess of the maximum
amount that may be lawfully charged under applicable law from time to time in effect, and
the provisions of this Section 11 shall control over all other provisions of the
Loan Documents that may be in conflict or apparent conflict herewith. Lender expressly
disavows any intention to charge or collect excessive unearned interest or finance charges
in the event the maturity of this Note is accelerated. If (i) the maturity of this Note is
accelerated for any reason, (ii) this Note is prepaid and as a result any amounts held to
constitute interest are determined to be in excess of the legal maximum, or (iii) Lender or
any other holder of the Note shall otherwise collect moneys which are determined to
constitute interest which would otherwise increase the interest hereon to an amount in
excess of that permitted to be charged by applicable law, then all sums determined to
constitute interest in excess of such legal limit shall, without penalty, be promptly
applied to reduce the then outstanding principal of this Note or, at

16

 

Lender’s or such holder’s option, promptly returned to Borrower or the other payor thereof
upon such determination. In determining whether or not the interest paid or payable, under
any specific circumstance, exceeds the maximum amount permitted under applicable law, Lender
and Borrower (and any other payors of this Note) shall to the greatest extent permitted
under applicable law, (i) characterize any non-principal payment as an expense, fee or
premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof,
and (iii) amortize, prorate, allocate, and spread the total amount of interest throughout
the entire contemplated term of this Note in accordance with the amounts outstanding from
time to time hereunder and the maximum legal rate of interest from time to time in effect
under applicable law in order to lawfully charge the maximum amount of interest permitted
under applicable law. In the event applicable law provides for an interest ceiling under
Chapter 303 of the Texas Finance Code (the “Texas Finance Code”) as amended, for that day,
the ceiling shall be the “weekly ceiling” as defined in the Texas Finance Code. As used in
this section the term “applicable law” means the laws of the State of Texas or the laws of
the United States of America, whichever laws allow the greater interest, as such laws now
exist or may be changed or amended or come into effect in the future.

     12. Indemnity; Release. Each of Borrower and the General Partner, jointly and
severally, agrees 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, accountants,
experts and advisors) of any kind or nature whatsoever, now existing (in this section, collectively
called “Liabilities and Costs”) to the extent actually imposed on, incurred by, or asserted against
Lender in its capacity as lender hereunder but not in its capacity as a partner of Borrower growing
out of, resulting from or in any other way associated with (a) this Note and the other Loan
Documents or any of the transactions and events (including the enforcement or defense thereof) at
any time associated therewith or contemplated therein, (b) any claim that the loan evidenced hereby
is contractually usurious, and (c) any use, handling, storage, transportation, or disposal of
hazardous or toxic materials on or about any Property or any part thereof or any real properties
owned, managed or operated by Borrower or the General Partner.

THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY
OR TO ANY EXTENT OWED IN WHOLE OR IN PART UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE
CAUSED IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY LENDER;

provided only that Lender shall not be entitled under this section to receive indemnification for
that portion, if any, of any Liabilities and Costs which is proximately caused by its own
individual gross negligence or willful misconduct, as determined in a final judgment. If any
person (including Borrower and the General Partner) ever alleges such gross negligence or willful
misconduct by Lender, the indemnification provided for in this section shall nonetheless be paid
upon demand, subject to later adjustment or reimbursement, until such time as a court of competent
jurisdiction enters a final judgment as to the extent and effect of the alleged gross negligence or
willful misconduct. As used in this section, the term “Lender” shall refer not only

17

 

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. Each of Borrower and the General Partner represents and
warrants to Lender that it and its principals have read and fully understands the terms and
provisions hereof, has had an opportunity to review this Note with legal counsel and has executed
this Note based on its own judgment and advice of counsel. If an ambiguity or question of intent
or interpretation arises, this Note will be construed as if drafted jointly by Borrower, the
General Partner and Lender and no presumption or burden of proof will arise favoring or disfavoring
any party because of authorship of any provision of this Note.

     14. Further Assurances. Each of Borrower and the General Partner, at Borrower’s
expense, will promptly execute and deliver to Lender on Lender’s request, all such other and
further documents, agreements and instruments, and shall deliver all such supplementary
information, in compliance with or accomplishment of the agreements of Borrower and the General
Partner under this Note and the other Loan Documents.

     15. Cumulative Remedies. Borrower hereby agree that all rights and remedies that
Lender is afforded by reason of this Note are separate and cumulative with respect to Borrower and
the General Partner and otherwise and may be pursued separately, successively, or concurrently, as
Lender deems advisable. In addition, all such rights and remedies are non-exclusive and shall in
no way limit or prejudice Lender’s ability to pursue any other legal or equitable rights or
remedies that may be available to Lender.

     16. Notice. All notices and other communications under this Note will be in writing
and will be mailed by registered or certified mail, postage prepaid, sent by facsimile, delivered
personally by hand, or delivered by nationally recognized overnight delivery service addressed to
Borrower or the General Partner at 3901 Airport Freeway, Suite 200, Bedford, Texas 76021,
Facsimile No. Facsimile No. (817) 391-2501 or, with respect to Lender, to Lender at 1702 N. Collins
Boulevard, Suite 100, Richardson, Texas 75080, Facsimile No. (469) 916-0695 or with respect to any
party, to such other address as a party may have delivered to the other parties for purposes of
notice. Each notice or other communication will be treated as effective and as having been given
and received (a) if sent by mail, at the earlier of its receipt or three (3) business days after
such notice or other communication has been deposited in a regularly maintained receptacle for
deposit of United States mail, (b) if sent by facsimile, upon confirmation of facsimile transfer,
(c) if delivered personally by hand, upon written confirmation of delivery from the person
delivering such notice or other communication, or (d) if sent by nationally recognized overnight
delivery service, upon written confirmation of delivery from such service.

     17. Enforcement and Waiver by Lender. Lender shall have the right at all times to
enforce the provisions of this Note and the other Loan Documents in strict accordance with their
respective terms, notwithstanding any conduct or custom on the part of Lender in refraining from so
doing at any time or times. The failure of Lender at any time or times to enforce its rights under
such provisions, strictly in accordance with the same, shall not be construed as having created a
custom or in any way or manner modified or waived the same. All rights and remedies

18

 

of Lender are cumulative and concurrent and the exercise of one right or remedy shall not be deemed
a waiver or release of any other right or remedy.

     18. CHOICE OF LAW; JURISDICTION; VENUE. EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF SECURITY INTERESTS OR REMEDIES IN RESPECT OF ANY PARTICULAR COLLATERAL IS GOVERNED BY
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS, THIS NOTE AND THE OTHER LOAN DOCUMENTS
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO ITS CONFLICTS OF LAWS PROVISIONS. JURISDICTION FOR ALL MATTERS ARISING OUT OF
THIS NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE EXCLUSIVELY IN THE STATE AND FEDERAL COURTS SITTING
IN DALLAS COUNTY, TEXAS, AND EACH OF BORROWER AND THE GENERAL PARTNER HEREBY IRREVOCABLY SUBMITS
ITSELF TO THE JURISDICTION OF SUCH STATE AND FEDERAL COURTS AND AGREES AND CONSENTS NOT TO ASSERT
IN ANY PROCEEDING, THAT ANY SUCH PROCESS IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE
THEREOF IS IMPROPER, AND FURTHER AGREES TO A TRANSFER OF SUCH PROCEEDING TO THE COURTS SITTING IN
DALLAS COUNTY, TEXAS.

     19. Counterparts. This Note and each other Loan Document may be executed in any
number of counterparts, each of which shall be deemed to be an original, but all of which together
shall constitute but one and the same instrument.

     20. Severability. If any provision of this Note or any other Loan Document shall be
held invalid under any applicable laws, then all other terms and provisions of this Note and the
Loan Documents shall nevertheless remain effective and shall be enforced to the fullest extent
permitted by applicable law.

     21. Amendments; Waivers. No amendment or waiver of any provision of this Note nor
consent to any departure herefrom, shall in any event be effective unless the same shall be in
writing and signed by Lender and the affected person, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which given.

     22. Binding Effect; Assignment. This Note and the other Loan Documents shall be
binding on Borrower and the General Partner and their respective administrators, other legal
representatives, successors, heirs and assigns, including, without limitation, any receiver,
trustee or debtor in possession of or for Borrower or the General Partner, and shall inure to the
benefit of Lender and its successors and assigns. Neither Borrower nor the General Partner shall
be entitled to transfer or assign this Note and the other Loan Documents in whole or in part
without the prior written consent of Lender. This Note and the other Loan Documents are freely
assignable and transferable by Lender without the consent of Borrower, the General Partner or any
of its affiliates. Should the status, composition, structure or name of Borrower change, this Note
and the other Loan Documents shall continue and also cover Borrower under the new status
composition, structure or name according to the terms of this Note and the other Loan Documents.

19

 

     23. Captions. The captions in this Note are for the convenience of reference only and
shall not limit or otherwise affect any of the terms or provisions hereof.

     24. Number of Gender of Words. Except where the context indicates otherwise, words in
the singular number will include the plural and words in the masculine gender will include the
feminine and neutral, and vice versa, when they should so apply.

     25. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. EACH OF BORROWER AND THE GENERAL
PARTNER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY (A) WAIVES, TO THE MAXIMUM
EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS NOTE OR THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY OR ASSOCIATED
HEREWITH OR THEREWITH, BEFORE OR AFTER MATURITY OF THIS NOTE; (B) WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY “SPECIAL
DAMAGES”, AS DEFINED BELOW, (C) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OF LENDER OR
COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (D) ACKNOWLEDGES
THAT LENDER HAS BEEN INDUCED TO ENTER INTO THIS NOTE AND THE OTHER LOAN DOCUMENTS AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS
CONTAINED IN THIS SECTION. AS USED IN THIS SECTION, “SPECIAL DAMAGES” INCLUDES ALL SPECIAL,
CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY
PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER
PARTY HERETO.

     26. ENTIRE AGREEMENT. THIS NOTE AND THE OTHER LOAN DOCUMENTS TOGETHER CONSTITUTE THE
ENTIRE AGREEMENT AMONG THE PARTIES CONCERNING THE SUBJECT MATTER HEREOF, AND ALL PRIOR DISCUSSIONS,
AGREEMENTS AND STATEMENTS, WHETHER ORAL OR WRITTEN, ARE MERGED INTO THIS NOTE AND THE OTHER LOAN
DOCUMENTS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES AND THIS NOTE AND THE OTHER
LOAN DOCUMENTS MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.

[The remainder of this page is left blank intentionally.]

20

 

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

	 	 	 	 	 	 	 
	BORROWER:	 	CENTURION ACQUISITIONS, L.P.

a Texas limited partnership	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	By: Pars Investments, Inc.	 	 
	 

	 	 	 	Its: General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	By: /s/ Mehrdad Moayedi                                       	 	 
	 

	 	 	 	Name: Mehrdad Moayedi

Its: President	 	 

GENERAL PARTNER:

Pars Investments, Inc., a Texas corporation acting in its own capacity, hereby (i) agrees with and
accepts all of the terms and conditions of this Note which are applicable to the General Partner
(as such term is defined in the Note), and (ii) makes the representations, warranties, covenants
and agreements in the Note which are, by their terms, applicable to General Partner.

	 	 	 	 	 
	 

	 	PARS INVESTMENTS, INC.

a Texas corporation
	 	 
	 
	 	 	 	 
	 

	 	By: /s/ Mehrdad Moayedi                                   
    	 	 
	 

	 	Name: Mehrdad Moayedi

Its: President	 	 
	 
	 	 	 	 
	LENDER:

	 	UNITED DEVELOPMENT FUNDING III, L.P.,	 	 
	 

	 	a Delaware limited partnership	 	 
	 
	 	 	 	 
	 

	 	By: UMTH Land Development, L.P.

Its: General Partner	 	 
	 
	 	 	 	 
	 

	 	By: UMT Services Inc.	 	 
	 
	 	 	 	 
	 

	 	By:  /s/ Jeff Shirley                                   
     	 	 
	 

	 	Name: Jeff Shirley	 	 
	 

	 	Its: Executive Vice President	 	 

21

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