Document:

ex10_6.htm

    THE
SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY OTHER
APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES
LAWS.  THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY NOT BE SOLD,
PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES
ACT.

     

    CONVERSION
AND REGISTRATION RIGHTS AGREEMENT

    

    For good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged and agreed, The Kleemann Family 2004 Revocable Trust (the
“Holder”), shall have the right, from time to time, to convert all or part of
the then unpaid principal and accrued interest balance due under that certain
Convertible Promissory Note and Security Agreement (the “Note”) into fully paid
and non-assessable shares of the Common Stock (the “Common Stock”) of Secured
Diversified Investment, Ltd., a Nevada corporation (the “Company”) at an
Conversion Price of $0.20 US per share (the “Conversion Price”), subject to
further adjustment as set forth herein, at any time prior to full repayment of
the Note by the Company (the “Termination Date”).

     

    1. Separate Assignment
Prohibited.  Prior to the Termination Date and subject to
compliance with applicable laws, this Agreement and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
Holder hereof in person or by duly authorized attorney, upon surrender of this
Agreement and the Note together with the Assignment Form annexed hereto properly
endorsed.  This Agreement may not be assigned or transferred
separately from a corresponding interest in the Note.

     

    2. Authorization of
Shares.  The Company covenants that all shares of Common Stock
which may be issued upon the exercise of rights represented by this Agreement
will, upon exercise of the rights represented by this Agreement, be duly
authorized, validly issued, fully paid and non-assessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such
issue).

     

    3. Exercise of Conversion
Rights.

     

    (a)           Exercise
of the conversion rights set forth in this Agreement (“Conversion Rights”) may
be made at any time or times and before the close of business on the Termination
Date by the surrender of this Agreement, the Note and the Notice of Exercise
Form annexed hereto duly executed, at the office of the Company (or such other
office or agency of the Company as it may designate by notice in writing to the
registered Holder hereof at the address of such holder appearing on the books of
the Company), and thereupon the Holder shall be entitled to receive a
certificate for the number of shares of Common Stock so converted.

     

    
      
         

      

      
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    (b)           Certificates
for shares converted hereunder shall be delivered to the Holder hereof within
five (5) trading days after the date on which the Conversion Rights shall have
been exercised as aforesaid. The Conversion Rights shall be deemed to have been
exercised and such certificate or certificates shall be deemed to have been
issued, and Holder or any other person so designated to be named therein shall
be deemed to have become a Holder of record of such shares for all purposes, as
of the date the  Conversion Rights have been exercised.

     

    4. Charges, Taxes and
Expenses.  Issuance of certificates for shares of Common Stock
upon the exercise of the Conversion Rights shall be made without charge to the
Holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, and such certificates shall be
issued in the name of the Holder or in such name or names as may be directed by
the Holder.

     

    5. Closing of
Books.  The Company will not close its shareholder books or
records in any manner which prevents the timely exercise of the Conversion
Rights.

     

    6. Transfer, Division and
Combination.

     

    (a) Subject
to compliance with any applicable securities laws, transfer of the Note and this
Agreement and all rights hereunder, in whole or in part, shall be registered on
the books of the Company to be maintained for such purpose, upon surrender of
the Note and this Agreement at the principal office of the Company, together
with a written assignment of the Note and this Agreement substantially in the
form attached hereto duly executed by Holder or its agent or
attorney.  Upon such surrender, the Company shall execute and deliver
a new Note and Agreement or Notes and Agreements in the name of the assignee or
assignees and in the denomination or denominations specified in such instrument
of assignment, and shall issue to the assignor a new Note and Agreement
evidencing the portion of the Note and this Agreement not so
assigned.

     

    (b)           The
Note and this Agreement may be divided upon presentation hereof at the aforesaid
office of the Company, together with a written notice specifying the names and
denominations in which new Notes are to be issued, signed by Holder or its agent
or attorney.  Subject to compliance with Section 6(a), as to any
transfer which may be involved in such division or combination, the Company
shall execute and deliver a new Note and Agreement or Notes and Agreements in
exchange for the Note to be divided in accordance with such notice.

    

    (c)           The
Company shall prepare, issue and deliver at its own expense (other than transfer
taxes) the new Note or Notes and Agreement or Agreements under this Section
6.

    

    (d)           The
Company agrees to maintain, at its aforesaid office, books for the registration
and the registration of transfer of the Notes and Agreements.

    

    7. No Rights as Shareholder
until Exercise.  Neither the Note nor this Agreement entitle
the Holder hereof to any voting rights or other rights as a shareholder of the
Company prior to the exercise of the Conversion Rights set forth
herein.  Upon the surrender of the Note and the exercise of Conversion
Rights hereunder, the Common Stock so acquired shall be and be deemed to be
issued to such Holder as the record owner of such shares as of the close of
business on the date of such surrender.

     

    
      
         

      

      
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    8. Loss, Theft, Destruction or
Mutilation of Note.  The Company covenants that upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of Note, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it (which shall not include the
posting of any bond), and upon surrender and cancellation of such Note, if
mutilated, the Company will make and deliver a new Note of like tenor and dated
as of such cancellation.

     

    9. Saturdays, Sundays,
Holidays, etc.  If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall be a
Saturday, Sunday or a legal holiday, then such action may be taken or such right
may be exercised on the next succeeding day not a Saturday, Sunday or legal
holiday.

     

    10. Adjustments of Conversion
Price and Number of Conversion Shares.

     

    (a) Stock Splits, etc.
The number and kind of securities purchasable upon the exercise of the
Conversion Rights shall be subject to adjustment from time to time upon the
happening of any of the following.  In case the Company shall: (i) pay
a dividend in shares of Common Stock or make a distribution in shares of Common
Stock to Holders of its outstanding Common Stock, (ii) subdivide its outstanding
shares of Common Stock into a greater number of shares of Common Stock, (iii)
combine its outstanding shares of Common Stock into a smaller number of shares
of Common Stock, or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, then the number of shares of Common Stock
purchasable upon exercise of the Conversion Rights (the “Conversion Shares”)
immediately prior thereto shall be adjusted so that the Holder shall be entitled
to receive the kind and number of Conversion Shares or other securities of the
Company which he would have owned or have been entitled to receive had the
Conversion Rights been exercised in advance thereof.  Upon each such
adjustment of the kind and number of Conversion Shares or other securities of
the Company which are purchasable hereunder, the Holder shall thereafter be
entitled to purchase the number of Conversion Shares or other securities
resulting from such adjustment at an Conversion Price per Conversion Share or
other security obtained by multiplying the Conversion Price in effect
immediately prior to such adjustment by the number of Conversion Shares
purchasable pursuant hereto immediately prior to such adjustment and dividing by
the number of Conversoin Shares or other securities of the Company resulting
from such adjustment.  An adjustment made pursuant to this paragraph
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.

     

    (b) Reorganization,
Reclassification, Merger, Consolidation or Disposition of
Assets.  In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation (“Other
Property”), are to be received by or distributed to the Holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of the Conversion Rights, the number of shares of common stock of the
successor or acquiring corporation or of the Company, if it is the surviving
corporation, and Other Property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
by a Holder of the number of shares of Common Stock for which the Conversion
Rights is exercisable immediately prior to such event.  In case of any
such reorganization, reclassification, merger, consolidation or disposition of
assets, the successor or acquiring corporation (if other than the Company) shall
expressly assume the due and punctual observance and performance of each and
every covenant and condition of this Agreement to be performed and observed by
the Company and all the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined in good faith by
resolution of the Board of Directors of the Company) in order to provide for
adjustments of shares of Common Stock for which the Note is convertible which
shall be as nearly equivalent as practicable to the adjustments provided for in
this Section 10.  For purposes of this Section 10, “common stock of
the successor or acquiring corporation” shall include stock of such corporation
of any class which is not preferred as to dividends or assets over any other
class of stock of such corporation and which is not subject to redemption and
shall also include any evidences of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock.  The foregoing provisions of this Section 10 shall
similarly apply to successive reorganizations, reclassifications, mergers,
consolidations or disposition of assets.

     

    
      
         

      

      
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    11. Notice of
Adjustment.  Whenever the number of Conversion Shares or number
or kind of securities or other property purchasable upon the exercise of the
Conversion Rights or the Conversion Price is adjusted, as herein provided, the
Company shall promptly mail by registered or certified mail, return receipt
requested, to the Holder notice of such adjustment or adjustments setting forth
the number of Conversion Shares (and other securities or property) purchasable
upon the exercise of the Conversion Rights and the Conversion Price of such
Conversion Shares (and other securities or property) after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made.  Such
notice, in the absence of manifest error, shall be conclusive evidence of the
correctness of such adjustment.

     

    12. Notice of Corporate
Action.  If at any time:

     

    (a)           the
Company shall take a record of the Holders of its Common Stock for the purpose
of entitling them to receive a dividend or other distribution, or any right to
subscribe for or purchase any evidences of its indebtedness, any shares of stock
of any class or any other securities or property, or to receive any other right,
or

    

    (b)           there
shall be any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger of the Company with, or any sale, transfer or other disposition of all or
substantially all the property, assets or business of the Company to, another
corporation, or

     

    
      
         

      

      
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    (c)           there
shall be a voluntary or involuntary dissolution, liquidation or winding up of
the Company;

    

    then, in
any one or more of such cases, the Company shall give to Holder (i) at least 3
days’ prior written notice of the date on which a record date shall be selected
for such dividend, distribution or right or for determining rights to vote in
respect of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, liquidation or winding up, and (ii) in the case of
any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, at least 3 days’
prior written notice of the date when the same shall take place.  Such
notice in accordance with the foregoing clause also shall specify (a) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the Holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (b) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the Holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such disposition, dissolution, liquidation or winding
up.  Each such written notice shall be sufficiently given if addressed
to Holder at the last address of Holder appearing on the books of the Company
and delivered in accordance with Section 18(e).

     

    13. Authorized
Shares.  The Company covenants that during the period the Note
is outstanding, it will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of the Conversion Shares
upon the exercise of the Conversion Rights.  The Company further
covenants that its issuance of the Note shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Conversion Shares upon the
exercise of the Conversion Rights.  The Company will take all such
reasonable action as may be necessary to assure that such Conversion Shares may
be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of the Principal Market upon which the Common
Stock may be listed.

     

    14. No
Impairment.  The Company shall not by any action, including,
without limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Agreement, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment.  Without limiting the generality
of the foregoing, the Company will (a) not increase the par value of any shares
of Common Stock receivable upon the exercise of the Conversion Rights above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and non-assessable
shares of Common Stock upon the exercise of the Conversion Rights, and (c) use
its best efforts to obtain all such authorizations, exemptions or consents from
any public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Agreement. Before
taking any action which would cause an adjustment reducing the current
Conversion Price below the then par value, if any, of the shares of Common Stock
issuable upon exercise of the Conversion Rights, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and non-assessable shares of such Common Stock at
such adjusted Conversion Price.

     

    
      
         

      

      
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    15. Written
Acknowledgment.  Upon the request of Holder, the Company will
at any time during the period Note is outstanding acknowledge in writing, in
form reasonably satisfactory to Holder, the continuing validity of the Note,
this Agreement and the obligations of the Company hereunder.

     

    16. Prior Regulatory
Approval.  Before taking any action which would result in an
adjustment in the number of shares of Common Stock for which the Note is
convertible or in the Conversion Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction
thereof.

     

    17. Registration
Rights.

     

    (a) Definitions.  As
used in this Agreement, the following terms shall have the following
meanings.

     

    (1) The term
“Holder” shall mean any person owning or having the right to acquire Registrable
Securities or any permitted transferee of a Holder.

     

    (2) The terms
“register,” “registered” and “registration” refer to a registration effected by
preparing and filing a registration statement or similar document in compliance
with the Securities Act, and the declaration or order of effectiveness of such
registration statement or document.

     

    (3) The term
“Registrable Securities” shall mean the Conversion Shares; provided, however,
that securities shall only be treated as Registrable Securities if and only for
so long as they (A) have not been disposed of pursuant to a registration
statement declared effective by the SEC; (B) have not been sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act so that all transfer restrictions and restrictive legends with
respect thereto are removed upon the consummation of such sale; (C) are held by
a Holder or a permitted transferee of a Holder; and (D) may not be disposed of
under Rule 144 under the Securities Act without restriction.

     

    (b) Piggyback
Registration.

     

    (1) The
Company agrees that if, at any time, and from time to time, after the closing,
the Board of Directors of the Company (the “Board”) shall authorize the filing
of a registration statement under the Securities Act (other than a registration
statement on Form S-8, Form S-4 or any other form that does not include
substantially the same information as would be required in a form for the
general registration of securities) in connection with the proposed offer of any
of its securities by it or any of its stockholders, the Company shall: (A)
promptly notify each Holder that such registration statement will be filed and
that the Registrable Securities then held by such Holder will be included in
such registration statement at such Holder’s request; (B) cause such
registration statement to cover all of such Registrable Securities issued to
such Holder for which such Holder requests inclusion; (C) use best efforts to
cause such registration statement to become effective as soon as practicable;
and (D) take all other reasonable action necessary under any federal or state
law or regulation of any governmental authority to permit all such Registrable
Securities that have been issued to such Holder to be sold or otherwise disposed
of, and will maintain such compliance with each such federal and state law and
regulation of any governmental authority for the period necessary for such
Holder to promptly effect the proposed sale or other disposition.

     

    
      
         

      

      
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    (2) Notwithstanding
any other provision of this Section 17, the Company may at any time, abandon or
delay any registration commenced by the Company.  In the event of such
an abandonment by the Company, the Company shall not be required to continue
registration of shares requested by the Holder for inclusion, the Holder shall
retain the right to request inclusion of shares as set forth above and the
withdrawn registration shall not be deemed to be a registration request for the
purposes of subsection 17(c)(3) below.

     

    (3) Each
Holder shall have the right to request inclusion of any of its Registrable
Securities in a registration statement as described in this subsection 18(c), up
to three times.

     

    (c) Registration
Procedures.  Whenever required under this Section 17 to include
Registrable Securities in a Company registration statement, the Company shall,
as expeditiously as reasonably possible:

     

    (1) Use best
efforts to (i) cause such registration statement to become effective, and (ii)
cause such registration statement to remain effective until the earliest to
occur of (A) such date as the sellers of Registrable Securities (the “Selling
Holders”) have completed the distribution described in the registration
statement and (B) such time that all of such Registrable Securities are no
longer, by reason of Rule 144 under the Securities Act, required to be
registered for the sale thereof by such Holders.  The Company will
also use its best efforts to, during the period that such registration statement
is required to be maintained hereunder, file such post-effective amendments and
supplements thereto as may be required by the Securities Act and the rules and
regulations thereunder or otherwise to ensure that the registration statement
does not contain any untrue statement of material fact or omit to state a fact
required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they are made, not
misleading; provided, however, that if applicable rules under the Securities Act
governing the obligation to file a post-effective amendment permits, in lieu of
filing a post-effective amendment that (i) includes any prospectus required by
Section 10(a)(3) of the Securities Act or (ii) reflects facts or events
representing a material or fundamental change in the information set forth in
the registration statement, the Company may incorporate by reference information
required to be included in (i) and (ii) above to the extent such information is
contained in periodic reports filed pursuant to Section 13 or 15(d) of the
Exchange Act in the registration statement.

     

    (2) Prepare
and file with the SEC such amendments and supplements to such registration
statement, and the prospectus used in connection with such registration
statement, as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement.

     

    
      
         

      

      
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    (3) Make
available for inspection upon reasonable notice during the Company’s regular
business hours by each Selling Holder, any underwriter participating in any
distribution pursuant to such registration statement, and any attorney,
accountant or other agent retained by such Selling Holder or underwriter, all
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company’s officers, directors and employees to supply all
information reasonably requested by any such Selling Holder, underwriter,
attorney, accountant or agent in connection with such registration
statement.

     

    (4) Furnish
to the Selling Holders such numbers of copies of a final prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as they may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.

     

    (5) Use best
efforts to register and qualify the securities covered by such registration
statement under such other federal or state securities laws of such
jurisdictions as shall be reasonably requested by the Selling Holders; provided,
however, that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act.

     

    (6) In the
event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriter of such offering.  Each Selling Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.

     

    (7) Notify
each Holder of Registrable Securities covered by such registration statement, at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act, (i) when the registration statement or any post-effective
amendment and supplement thereto has become effective; (ii) of the issuance by
the SEC of any stop order or the initiation of proceedings for that purpose (in
which event the Company shall make every effort to obtain the withdrawal of any
order suspending effectiveness of the registration statement at the earliest
possible time or prevent the entry thereof); (iii) of the receipt by the Company
of any notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation of any
proceeding for such purpose; and (iv) of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing.

     

    (8) Cause all
such Registrable Securities registered hereunder to be listed on each securities
exchange or quotation service on which similar securities issued by the Company
are then listed or quoted or, if no such similar securities are listed or quoted
on a securities exchange or quotation service, apply for qualification and use
best efforts to qualify such Registrable Securities for inclusion on the New
York Stock Exchange, American Stock Exchange or listing on a quotation system of
the Financial Industry Regulatory Authority or the National Association of
Securities Dealers, Inc.

     

    
      
         

      

      
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    (9) Cooperate
with the Selling Holders and the managing underwriters, if any, to facilitate
the timely preparation and delivery of certificates representing the Registrable
Securities to be sold, which certificates will not bear any restrictive legends;
and enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriters, if any, shall request at
least five business days prior to any sale of the Registrable Securities to the
underwriters.

     

    (10) In
connection with an underwritten offering, cause the officers of the Company to
provide reasonable assistance in the preparation of, any “road show”
presentation to potential investors as the managing underwriter may
determine.

     

    (11) Comply
with all applicable rules and regulations of the SEC and make generally
available to its security holders earning statements satisfying the provisions
of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar
rule promulgated under the Securities Act) no later than 50 calendar days after
the end of any 3-month period (or 105 calendar days after the end of any
12-month period if such period is a fiscal year) (i) commencing at the end of
any fiscal quarter in which Registrable Securities are sold to underwriters in a
firm commitment or best efforts underwritten offering, and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company, after the effective date of a registration
statement, which statements shall cover said period.

     

    (12) If the
offering is underwritten and at the request of any Selling Holder, use its best
efforts to furnish on the date that Registrable Securities are delivered to the
underwriters for sale pursuant to such registration: (i) opinions dated such
date of counsel representing the Company for the purposes of such registration,
addressed to the underwriters and the transfer agent for the Registrable
Securities so delivered, respectively, to the effect that such registration
statement has become effective under the Securities Act and such Registrable
Securities are freely tradable, and covering such other matters as are
customarily covered in opinions of issuer’s counsel delivered to underwriters
and transfer agents in underwritten public offerings and (ii) a letter dated
such date from the independent public accountants who have certified the
financial statements of the Company included in the registration statement or
the prospectus, covering such matters as are customarily covered in accountants’
letters delivered to underwriters in underwritten public offerings.

     

    (d) Furnish
Information.  It shall be a condition precedent to the
obligation of the Company to take any action pursuant to this Section 17 with
respect to the Registrable Securities of any Selling Holder that such Holder
shall furnish to the Company such information regarding the Holder, the
Registrable Securities held by the Holder, and the intended method of
disposition of such securities as shall be reasonably required by the Company to
effect the registration of such Holder’s Registrable Securities.

     

    
      
         

      

      
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    (e) Registration
Expenses.  The Company shall bear and pay all registration
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to registrations pursuant to Section 17
for each Holder, but excluding underwriting discounts and commissions relating
to Registrable Securities and excluding any professional fees or costs of
accounting, financial or legal advisors to any of the Holders.

     

    (f) Underwriting
Requirements.  In connection with any offering involving an
underwriting of shares of the Company’s capital stock, the Company shall not be
required under Section 17 to include any of the Holders’ Registrable Securities
in such underwriting unless they accept the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it (or by other
persons entitled to select the underwriters), and then only in such quantity as
the underwriters determine in their sole discretion will not jeopardize the
success of the offering by the Company.  If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders).  For purposes of the preceding
parenthetical concerning apportionment, for any selling stockholder who is a
holder of Registrable Securities and is a partnership or corporation, the
partners, retired partners and stockholders of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single “selling
stockholder,” and any pro-rata reduction with respect to such “selling
stockholder” shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
“selling stockholder,” as defined in this sentence.

     

    (g) Delay of
Registration.  No Holder shall have any right to obtain or seek
an injunction restraining or otherwise delaying any such registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 17.

     

    (h) Indemnification.  In
the event that any Registrable Securities are included in a registration
statement under this Section 17:

     

    (1) To the
extent permitted by law, the Company will indemnify and hold harmless each
Selling Holder, any underwriter (as defined in the Securities Act) for such
Selling Holder and each person, if any, who controls such Selling Holder or
underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Securities Act, or the Exchange Act, insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a “Violation”):  (i) any untrue statement of
a material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) the omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation by the Company of the Securities Act, the
Exchange Act, or any rule or regulation promulgated under the Securities Act, or
the Exchange Act, and the Company will pay to each such Selling Holder,
underwriter or controlling person, as incurred, any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 17(i)(1) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in connection
with such registration by any such Selling Holder, underwriter or controlling
person.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    (2) To the
extent permitted by law, each Selling Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter, any other Selling Holder selling securities in such registration
statement and any controlling person of any such underwriter or other Selling
Holder, against any losses, claims, damages, or liabilities (joint or several)
to which any of the foregoing persons may become subject, under the Securities
Act, or the Exchange Act, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Selling Holder expressly for use in connection with such
registration; and each such Selling Holder will pay, as incurred, any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 17(i)(2), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 17(i)(2) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Selling Holder, which
consent shall not be unreasonably withheld or delayed; provided, further, that, in no
event shall any indemnity under this subsection 17(i)(2) exceed the greater of
the cash value of the (i) gross proceeds from the Offering received by such
Selling Holder or (ii) such Selling Holder’s investment pursuant to this
Agreement as set forth on the signature page attached hereto.

     

    (3) Promptly
after receipt by an indemnified party under this subsection 17(i) of notice of
the commencement of any action (including any governmental action), such
indemnified party shall, if a claim in respect thereof is to be made against any
indemnifying party under this subsection 17(i), deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly notified,
to assume the defense thereof with counsel selected by the indemnifying party
and approved by the indemnified party (whose approval shall not be unreasonably
withheld or delayed); provided, however, that an indemnified party (together
with all other indemnified parties which may be represented without conflict by
one counsel) shall have the right to retain one separate counsel, with the fees
and expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding.  The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action, if
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
subsection 17(i), but the omission to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to any indemnified
party otherwise than under this subsection 17(i).

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    (4) If the
indemnification provided for in this subsection 17(i) is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect to
any loss, liability, claim, damage, or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim, damage, or
expense as well as any other relevant equitable considerations.  The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the alleged omission to state a material
fact relates to information supplied by the indemnifying party or by the
indemnified party and the parties’ relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or
omission.

     

    (5) Notwithstanding
the foregoing, to the extent that the provisions on indemnification and
contribution contained in an underwriting agreement entered into in connection
with an underwritten public offering are in conflict with the foregoing
provisions, the provisions in such underwriting agreement shall
control.

     

    (6) The
obligations of the Company and Selling Holders under this subsection 17(i) shall
survive the completion or termination of the Offering.

     

    (i) Reports Under Securities
Exchange Act of 1934.  With a view to making available to the
Holders the benefits of Rule 144 and any other rule or regulation of the SEC
that may at any time permit a Holder to sell securities of the Company to the
public without registration or pursuant to a registration on Form S-3 (or other
applicable form), the Company agrees to:

     

    (1) file with
the SEC all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and

     

    (2) furnish
to any Holder, so long as the Holder owns any Registrable Securities, forthwith
upon request (i) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (ii)
such other information as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    (j) Permitted
Transferees.  The rights to cause the Company to register
Registrable Securities granted to the Holders by the Company under this Section
17 may be assigned in full by a Holder in connection with a transfer by such
Holder of its Registrable Securities if: (a) such Holder gives prior
written notice to the Company; (b) such transferee agrees to comply with the
terms and provisions of this Agreement; (c) such transfer is otherwise in
compliance with this Agreement; and (d) such transfer is otherwise effected
in accordance with applicable securities laws.  Except as specifically
permitted by this subsection 17(k), the rights of a Holder with respect to
Registrable Securities as set out herein shall not be transferable to any other
Person, and any attempted transfer shall cause all rights of such Holder therein
to be forfeited.

     

    (k) Termination of Registration
Rights.  The right of any Holder to request inclusion in any
registration pursuant to Section 17 shall terminate if all shares of Registrable
Securities held by such Holder may immediately be sold under Rule
144.

     

    18. Miscellaneous.

     

    (a) Choice of Laws, Jurisdiction
and Venue. This Agreement shall constitute a contract under the laws of
Nevada and its interpretation and construction shall be determined pursuant to
the laws of Nevada without regard to its conflict of law, principles or
rules.  In the event that a judicial proceeding is necessary, the sole
and exclusive forum for resolving disputes arising out of or relating to this
Agreement is the courts sited in Clark County, Nevada, or the federal courts for
such state and county, and all related appellate courts, the parties hereby
irrevocably consent to the jurisdiction of such courts and agree to said
venue.

     

    (b) Restrictions.  The
Holder hereof acknowledges that the Conversion Shares acquired upon the exercise
of the Conversion Rights, if not registered, will have restrictions upon resale
imposed by state and federal securities laws.

     

    (c) Non-waiver and
Expenses.  No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder’s rights, powers or remedies,
notwithstanding all rights hereunder terminate on the Termination
Date.  If the Company fails to comply with any provision of this
Agreement, the Company shall pay to Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to, reasonable
attorneys’ fees, including those of appellate proceedings, incurred by Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.

     

    (d) Notices. All notices
required to be given under this Agreement shall be given as follows or at such
other address as a party may designate by written notice to the other
party:

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    
      
        	
                 

              	
                To
      the Company:

              

      

       

      
        
          
            	
                    Secured
      Diversified Investment, Ltd.

                    Galaxy
      Gaming, Inc.

                  
	
                    Attn:  Robert
      Saucier, President

                  
	
                    6980
      O’Bannon Drive

                  
	
                    Las
      Vegas, NV 89117

                  
	
                    (702)
      938-1735 (fax)

                  

          

        

      

      

      
        	
                 
      

              	
                To
      Holder:

              

      

       

    

    
      
        
          	
                  The
      Kleemann Family 2004 Revocable Trust

                
	
                  Stephen
      Kleemann, Trustee

                
	
                  Barbara
      Kleemann, Trustee

                
	
                  526
      Via Sinuosa

                
	
                  Santa
      Barbara, CA 93110

                
	
                  805-967-2408
      (fax)

                

        

      

    

    

    

    Notices
may be transmitted by facsimile, certified mail, private delivery, or any other
commercially reasonable means, and shall be deemed given upon receipt by the
Party to whom they are addressed.

    

    (e) Remedies.  Holder,
in addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement.  The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of the provisions of this Agreement and hereby agrees to waive the defense in
any action for specific performance that a remedy at law would be
adequate.

     

    (f) Successors and
Assigns.  Subject to applicable securities laws, this Agreement
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and
permitted assigns of Holder.  The provisions of this Agreement are
intended to be for the benefit of all Holders from time to time of this
Agreement and shall be enforceable by any such Holder or Holder of Conversion
Shares.

     

    (g) Amendment.  This
Agreement may be modified or amended or the provisions hereof waived with the
written consent of the Company and the Holder.

     

    (h) Neutral
Construction.  The Company acknowledges that it has consulted
with or have had the opportunity to consult with its legal counsel prior to
executing this Agreement.  This Agreement has been freely negotiated
by the Company and Holder and any rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement.

     

    (i) Severability.  Wherever
possible, each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Agreement.

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

    (j) Headings.  The
headings used in this Agreement are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Agreement.

     

    IN
WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
officer thereunto duly authorized.

     

    Dated
this April 21, 2009

    

    

    

    

    
      	
              Secured
      Diversified Investment, Ltd.

               

            
	
              By:

            	 
      
	 
      	
              Authorized
      Representative

            

    

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

    NOTICE OF EXERCISE

    

     

    To:Secured
Diversified Investment, Ltd.

     

    

    (1) The
undersigned hereby elects to purchase _________ shares of Common Stock (the
“Common Stock”), of Secured Diversified Investment, Ltd. pursuant to the terms
of the attached Note and the Agreement, and tenders herewith as payment of the
Conversion Price in full, that portion of the accrued and unpaid interest due
under the Note in the amount of $________ together with unpaid principal balance
of the Note in the amount of $________, for a total tender of
$____________.

     

    (2) Please
issue a certificate or certificates representing said shares of Common Stock in
the name of the undersigned or in such other name as is specified
below:

     

    

    _______________________________

    (Name)

    

    _______________________________

    (Address)

    _______________________________

    

    _______________________________

    Social Security or Tax Identification
Number

    

    

    

    

    

    Dated:
______________________

    

    

    ______________________________

    Signature

    

    ______________________________

    Print Name

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    

    
      ASSIGNMENT
FORM

      

      (To
assign the foregoing Note and Agreement, execute

      this form
and supply required information.

      Do not
use this form to exercise the Conversion Rights.)

      

      

      

      FOR VALUE
RECEIVED, the foregoing Note and Agreement and all rights evidenced thereby are
hereby assigned to

       

      

      _______________________________________________
whose address is

      

      _______________________________________________________________.

      

      

      

      _______________________________________________________________

      

      Dated:  ______________,
_______

      

      

      Holder's
Signature:   _____________________________

      

      Holder's
Address:    _____________________________

       

                                  _____________________________

      

      

      

      Signature
Guaranteed:  ___________________________________________

      

      

      

      

      NOTE:  The
signature to this Assignment Form must correspond with the name as it appears on
the face of the Note and the Agreement, without alteration or enlargement or any
change whatsoever.  Officers of corporations and those acting in a
fiduciary or other representative capacity should file proper evidence of
authority to assign.ex10_7.htm

    CONVERTIBLE PROMISSORY
NOTE

    AND SECURITY
AGREEMENT

    

    

    
      	
              US
      $25,000

            	
              Las Vegas

              Nevada

            
	 
      	
              April
      15, 2009

            

      

    

    

    For good
and valuable consideration, Secured Diversified Investment,
Ltd., a Nevada Corporation, and Galaxy Gaming, Inc., a Nevada
corporation, (collectively, “Maker”), hereby
jointly and severally makes and delivers this Promissory Note and Security
Agreement (this “Note”) in favor of
Glen S. Davis, or his
assigns (“Holder”), and hereby
agree as follows:

    

    1.           Principal
Obligation and Interest.  For value
received, Maker promises
to pay to Holder at 11828 SW
Riverwood Road, Portland, OR 97219, or at such other place as Holder may
designate in writing, in currently available funds of the United States, the
principal sum of Twenty Five
Thousand United States Dollars.  Maker’s obligation under this
Note shall accrue interest at the rate of Twelve Percent (12.0%) per
annum from the date hereof until paid in full.  Interest shall
be computed on the basis of a 365-day year or 366-day year, as applicable, and
actual days lapsed.

    

    2.           Payment
Terms.

    

    a. Interest
shall accrue and shall be paid at maturity.  All principal and accrued
interest shall be due and payable by the Maker to the Holder One Hundred and Eighty (180)
Days from the date of issuance of this Note, unless extended at the
option of Holder for an additional term of one hundred and eighty (180) days
upon written notice to Maker delivered not less than ten (10) days prior to the
expiration of the initial term.

    

    b. Maker
shall not have the right to prepay all or any part of the principal under this
Note prior to the expiration of the initial term of 180 days.  If this
Note is extended by Holder in accordance with subsection (c), above, thereafter
Maker shall have the right to prepay all or any part of the principal under this
Note without penalty upon not less than ten (10) days prior written notice to
Holder.

    

    c. Holder
may, upon not less than five (5) days written notice to Maker, convert all or
part of the then unpaid principal and accrued interest balance due of this Note
into common stock of Secured Diversified Investment, Ltd. as per the terms of
that certain Conversion and Registration Rights Agreement of even date and
executed contemporaneously herewith (the “Agreement”).

    

    3.           Grant of
Security Interest.  As collateral
security for the prompt, complete, and timely satisfaction of all present and
future indebtedness, liabilities, duties, and obligations of Maker to Holder
evidenced by or arising under this Note, and including, without limitation, all
principal and interest payable under this Note and all attorneys’ fees, costs
and expenses incurred by Maker in the collection or enforcement of the same
(collectively, the “Obligations”), Maker
hereby pledges, assigns and grants to Holder a continuing security interest and
lien in all of Maker’s right, title and interest in and to the property, whether
now owned or hereafter acquired by Maker and whether now existing or hereafter
coming into existence or acquired, including the proceeds of any disposition
thereof, described on Exhibit “A” attached hereto and incorporated herein by
this reference (collectively, the “Collateral”).  As
applicable, the terms of this Note with respect to Maker’s granting of a
security interest in the Collateral to Holder shall be deemed to be a security
agreement under applicable provisions of the Uniform Commercial Code (“UCC”), with Maker as
the debtor and Holder as the secured party.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    

    4.           Perfection.  Upon the
execution and delivery of this Note, Maker authorizes Holder to file such
financing statements and other documents in such offices as shall be necessary
or as Holder may reasonably deem necessary to perfect and establish the relative
priority of the liens granted by this Note, including any amendments,
modifications, extensions or renewals thereof. Maker agrees, upon Holder’s
request, to take all such actions as shall be necessary or as Holder may
reasonably request to perfect and establish the relative priority of the liens
granted by this Note, including any amendments, modifications, extensions or
renewals thereof. Maker shall cooperate fully with Holder in establishing and
maintaining Holder’s perfection of Holder’s security interest in the Collateral,
including notifying and keeping Holder apprised of the current location of all
of the Collateral, providing Holder with current information including any
identifying serial numbers with respect to that portion of the Collateral
consisting of the tables and related software, electronic equipment and
intellectual property that comprise Maker’s primary product (each a “Gaming Unit” and,
collectively, the “Gaming
Units”).

    

    5.           Representations
and Warranties of Maker.  Maker hereby
represents and warrants the following to Holder:

    

    a. Maker and
those executing this Note on its behalf have the full right, power, and
authority to execute, deliver and perform the Obligations under this Note, which
are not prohibited or restricted under the articles of incorporation or bylaws
of Maker.  This Note has been duly executed and delivered by an
authorized officer of Maker and constitutes a valid and legally binding
obligation of Maker enforceable in accordance with its terms.

    

    b. The
execution of this Note and Maker’s compliance with the terms, conditions and
provisions hereof does not conflict with or violate any provision of any
agreement, contract, lease, deed of trust, indenture, or instrument to which
Maker is a party or by which Maker is bound, or constitute a default thereunder
or result in the imposition of any lien, charge, encumbrance, claim or security
interest of any nature whatsoever upon any of the Collateral.

    

    c. The
security interest granted hereby in and to the Collateral constitutes a present,
valid, binding and enforceable security interest as collateral security for the
Obligations.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    

    d. The
approximate cost per Gaming Unit is $1,200 USD.

    

    6.
           Covenants
of Maker.  For so long as any Obligations remain
outstanding:

    

    a. Maker
shall use the proceeds of this Note solely for the purpose of the manufacture,
delivery and installation of Gaming Units;

    

    b. Maker
shall not sell, assign or transfer any of the Collateral, or any part thereof or
interest therein;

    

    c. Maker
shall pay or cause to be paid promptly when due all taxes and assessments on the
Collateral; and

    

    d. Maker
shall keep Holder apprised, in writing, as to the current location of all of the
Collateral, providing Holder with current information including any identifying
serial numbers with respect to that portion of the Collateral consisting of the
Gaming Units so that Holder may perfect and maintain the relative priority of
its security interest therein.

    

    7.           Use of
Collateral.  For so long as no
event of default shall have occurred and be continuing under this Note, Maker
shall be entitled to use and possess the Collateral and to exercise its rights,
title and interest in all contracts, agreements, and licenses subject to the
rights, remedies, powers and privileges of Holder under this Note and to such
use, possession or exercise not otherwise constituting an event of
default.  Notwithstanding anything herein to the contrary, Maker shall
remain liable to perform its duties and obligations under the contracts and
agreements included in the Collateral in accordance with their respective terms
to the same extent as if this Note had not been executed and delivered; the
exercise by Holder of any right, remedy, power or privilege in respect of this
Note shall not release the Maker from any of its duties and obligations under
such contracts and agreements; and Holder shall have no duty, obligation or
liability under such contracts and agreements included in the Collateral by
reason of this Note, nor shall Holder be obligated to perform any of the duties
or obligations of Maker under any such contract or agreement or to take any
action to collect or enforce any claim (for payment) under any such contract or
agreement.

    

    8.           Defaults.  The following
events shall be defaults under this Note:

    

    a.           Maker’s
failure to remit any payment under this Note on before the date due, if such
failure is not cured in full within five (5) days of written notice of
default;

    

    b.           Maker’s
failure to perform or breach of any non-monetary obligation or covenant set
forth in this Note or in the Agreement if such failure is not cured in full
within ten (10) days following delivery of written notice thereof from Holder to
Maker;

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    

    c.           If
Maker is dissolved, whether pursuant to any applicable articles of incorporation
or bylaws, and/or any applicable laws, or otherwise;

    

    d.           Default
in the Maker’s obligation for borrowed money, other than this loan, which shall
continue for a period of twenty (20) days;

    

    e.           The
commencement of any action or proceeding which affects the Collateral or title
thereto or the interest of Holder therein, including, but not limited to eminent
domain, insolvency, code enforcement or arrangements or proceedings involving a
bankrupt or decedent;

    

    f.           The
entry of a decree or order by a court having jurisdiction in the premises
adjudging the Maker bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition of or in
respect of the Maker under the federal Bankruptcy code or any other applicable
federal or state law, or appointing a receiver, liquidator, assignee or trustee
of the Maker, or any substantial part if its property, or ordering the winding
up or liquidation of its affairs, and the continuance of any such decree or
order unstayed and in effect for a period of twenty (20) days; or

    

    g.           Maker’s
institution of proceedings to be adjudicated a bankrupt or insolvent, or the
consent by it to the institution of bankruptcy or insolvency proceedings against
it, or its filing of a petition or answer or consent seeking reorganization or
relief under the federal Bankruptcy Code or any other applicable federal or
state law, or its consent to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee or trustee of the company, or of
any substantial part of its property, or its making of an assignment for the
benefit of creditors or the admission by it in writing of its inability to pay
its debts generally as they become due, or the taking of corporate action by the
Maker in furtherance of any such action.

    

    h.           The
failure by Secured Diversified Investment, Ltd. to timely file with the United
States Securities and Exchange Commission (“SEC”) all reports and other
documents required of the Maker under the Securities Act of 1933 (“Securities
Act”) and the Securities Exchange Act of 1934 (“Exchange Act”).

    

    i.           Any
act or series of acts by Maker which has the effect of Secured Diversified
Investment, Ltd. no longer being registered as a publicly reporting company
pursuant to the Exchange Act or no longer having Secured Diversified Investment,
Ltd.’s common stock trade on the OTCBB, once that common stock begins to trade
following clearance from FINRA of the trading of such stock following the
bankruptcy of Secured Diversified Investment, Ltd. concluded in or about
February 2009.

    

    9.           Rights
and Remedies of Holder.  Upon the occurrence of an event of
default by Maker under this Note or at any time before default when the Holder
reasonably feels insecure, then, in addition to all other rights and remedies at
law or in equity, Holder may exercise any one or more of the following rights
and remedies:

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    

    a.           Accelerate
the time for payment of all amounts payable under this Note by written notice
thereof to Maker, whereupon all such amounts shall be immediately due and
payable.

    

    b.           Pursue
and enforce all of the rights and remedies provided to a secured party with
respect to the Collateral under the Uniform Commercial Code.

    

    c.           Make
such appearance, disburse such sums, and take such action as Holder deems
necessary, in its sole discretion, to protect Holder’s interest, including but
not limited to (i) disbursement of attorneys’ fees, (ii) entry upon the Maker’s
property to make repairs to the Collateral, and (iii) procurement of
satisfactory insurance.  Any amounts disbursed by Holder pursuant to
this Section, with interest thereon, shall become additional indebtedness of the
Maker secured by this Note and shall be immediately due and payable and shall
bear interest from the date of disbursement at the default rate stated in this
Note.  Nothing contained in this Section shall require Holder to incur
any expense or take any action.

    

    d.           Require
Maker to assemble the Collateral and make it available to the Maker at the place
to be designated by the Holder which is reasonably convenient to both parties.
The Holder may sell all or any part of the Collateral as a whole or in part
either by public auction, private sale, or other method of
disposition.  The Holder may bid at any public sale on all or any
portion of the Collateral.  Unless the Collateral threatens to decline
speedily in value, Holder shall give Maker reasonable notice of the time and
place of any public sale or of the time after which any private sale or other
disposition of the Collateral is to be made, and notice given at least 10 days
before the time of the sale or other disposition shall be conclusively presumed
to be reasonable.

    

    e.           Pursue
any other rights or remedies available to Holder at law or in
equity.

    

    10.           Interest
To Accrue Upon Default. Upon the occurrence of an
event of default by Maker under this Note, the balance then owing under the
terms of this Note shall accrue interest at the rate of Eighteen Percent percent (18.0%) per
annum from the date of default until Holder is satisfied in
full.

    

    11.           Full
Recourse.  The liability of Maker for the Obligations shall not
be limited to the Collateral, and Maker shall have full liability therefor
beyond the Collateral.

    

    12.           Representation
of Counsel.  Maker
acknowledges that they have consulted with or have had the opportunity to
consult with their legal counsel prior to executing this Note.  This
Note has been freely negotiated by Maker and Holder and any rule of construction
to the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Note.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    

    13.           Choice of
Laws; Actions.  This Note shall
be constructed and construed in accordance with the internal substantive laws of
the State of Nevada, without regard to the choice of law principles of said
State.  Maker acknowledges that this Note has been negotiated in Clark
County, Nevada.  Accordingly, the exclusive venue of any action, suit,
counterclaim or cross claim arising under, out of, or in connection with this
Note shall be the state or federal courts in Clark County,
Nevada.  Maker hereby consents to the personal jurisdiction of any
court of competent subject matter jurisdiction sitting in Clark County,
Nevada.

    

    14.           Usury
Savings Clause.  Maker expressly agrees and acknowledges that
Maker and Holder intend and agree that this Note shall not be subject to the
usury laws of any state other than the State of
Nevada.  Notwithstanding anything contained in this Note to the
contrary, if collection from Maker of interest at the rate set forth herein
would be contrary to applicable laws, then the applicable interest rate upon
default shall be the highest interest rate that may be collected from Maker
under applicable laws at such time.

    

    15.           Costs of
Collection.  Should the
indebtedness represented by this Note, or any part hereof, be collected at law,
in equity, or in any bankruptcy, receivership or other court proceeding, or this
Note be placed in the hands of any attorney for collection after default, Maker
agrees to pay, in addition to the principal and interest due hereon, all
reasonable attorneys’ fees, plus all other costs and expenses of collection and
enforcement, including any fees incurred in connection with such proceedings or
collection of the Note and/or enforcement of Holder’s rights with respect to the
administration, supervision, preservation or protection of, or realization upon,
any Collateral securing payment hereof.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    

    16.           Miscellaneous.

    

    a.           This
Note shall be binding upon Maker and shall inure to the benefit of Holder and
its successors, assigns, heirs, and legal representatives.

    

    b.           Any
failure or delay by Holder to insist upon the strict performance of any term,
condition, covenant or agreement of this Note, or to exercise any right, power
or remedy hereunder shall not constitute a waiver of any such term, condition,
covenant, agreement, right, power or remedy.

    

    c.           Any
provision of this Note that is unenforceable shall be severed from this Note to
the extent reasonably possible without invalidating or affecting the intent,
validity or enforceability of any other provision of this Note.

    

    d.           This
Note may not be modified or amended in any respect except in a writing executed
by the party to be charged.

    

    e.           Time
is of the essence.

    

    17.           Notices.   All notices
required to be given under this Note shall be given as follows or at such other
address as a party may designate by written notice to the other
parties:

    

    
      
        	
                 

              	
                To
      Maker:

              

      

       

      
        
          
            	
                    Secured
      Diversified Investment, Ltd.

                    Galaxy
      Gaming, Inc.

                  
	
                    Attn:  Robert
      Saucier, President

                  
	
                    6980
      O’Bannon Drive

                  
	
                    Las
      Vegas, NV 89117

                  
	
                    (702)
      938-1735
(fax)

                  

          

        

      

    
      	
               
      

            	
              To
      Holder:

            

    

    

    
      
        
          	
                  Glen
      S. Davis

                
	
                  11828
      SW Riverwood Road

                
	
                  Portland,
      OR 97219

                
	
                  503.243.6041
      (voice)

                
	
                  503.709.9260
      (cell)

                
	
                  glen@paulsoninvestment.com

                

        

         

        
          
             

          

          
            7

            
              

            

          

          
             

          

        

      

    

    

    Notices
may be transmitted by facsimile, certified mail, private delivery, or any other
commercially reasonable means, and shall be deemed given upon receipt by the
Party to whom they are addressed.

    

    18.           Waiver of
Certain Formalities. All parties to this Note
hereby waive presentment, dishonor, notice of dishonor and
protest.  All parties hereto consent to, and Holder is hereby
expressly authorized to make, without notice, any and all renewals, extensions,
modifications or waivers of the time for or the terms of payment of any sum or
sums due hereunder, or under any documents or instruments relating to or
securing this Note, or of the performance of any covenants, conditions or
agreements hereof or thereof or the taking or release of collateral securing
this Note.  Any such action taken by Holder shall not discharge the
liability of any party to this Note.

    

    IN WITNESS WHEREOF, this Note
has been executed effective the date and place first written above.

    

    
      	
              Secured
      Diversified Investment, Ltd. “Maker”:

               

               

              By:
      ________________________________

               

              Its:
      ________________________________

               

              Print Name:

               

              Date:______________________________

            	
              Galaxy
      Gaming, Inc. “Maker”:

               

               

              By:
      ________________________________

               

              Its:
      ________________________________

               

              Print Name:

               

              Date:______________________________

            
	
               

               

              __________________________
      “Holder”:

               

               

              By:
      ________________________________

               

              Its:
      ________________________________

               

              Print Name:

               

              Date:______________________________

            	 
      

    

    

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    

    Exhibit
“A”

    

    Collateral

    

    Each and
all of the following in which Secured Diversified Investment,
Ltd., a Nevada Corporation, and/or Galaxy Gaming, Inc., a Nevada
corporation, has any right, title, or interest, regardless of the manner in
which such items are formally held or titled; all as defined in the Nevada
Uniform Commercial Code - Secured Transactions (Nevada Revised Statutes (“NRS”)
§§ 104.9101 et. seq.) as of the date of the Note, and as the same may be amended
hereafter:

    

    (1)
Equipment, as defined in NRS 104.9102(1)(gg), specifically consisting of the
electronic components, signage, software, and intellectual property that
comprise the Gaming Units.

    

    (2)  Accounts,
as defined in NRS 104.9102(1)(a)

    

    (3)  Cash
proceeds, as defined in NRS 104.9102(1)(I)

    

    (4)
Inventory, as defined in NRS 104.9102(1)(vv)

    

    (5)
Noncash proceeds, as defined in NRS 104.9102(1)(fff)

    

    (6)
Proceeds, as defined in NRS 104.9102(1)(lll)

    

    (7)
Software, as defined in NRS 104.9102(1)(www)

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