Document:

Addendum A

Exhibit 10.35

 

ADDENDUM A

Clovis Community Bank

Split Dollar Agreement and Endorsement

 

This Split Dollar Agreement and Endorsement is entered

into as of this  29th day

of           November,  2001, by and between Clovis Community Bank

(the “Bank”), a California-chartered bank located in Clovis,  California and Edwin Darden, a director of

Clovis Community Bank (the “Director”). 

This Split Dollar Agreement and Endorsement shall append the Split

Dollar Endorsement entered into on even date herewith, or as subsequently

amended, by and between the aforementioned parties.

 

To encourage the Director to remain a member of the Bank’s board of

directors, the Bank is willing to divide the death proceeds of a life insurance

policy on the Director’s life.  The Bank

will pay life insurance premiums from its general assets.

 

Article 1

General Definitions

 

Capitalized terms not otherwise defined in this Split Dollar Agreement

and Endorsement are used herein as defined in the Director Deferred Fee

Agreement dated as of  August 1,

2001.  The following terms shall have

the meanings specified:

 

 “Insurer”  means

Jefferson-Pilot Life Insurance Company. 

 

“Policy”  means insurance policy no.

JP5218231 issued by Jefferson-Pilot Life Insurance Company.

 

“Insured” means the

Director.

 

Article 2

Policy Ownership Interests

 

2.1           Bank Ownership.  The Bank is the sole owner of the Policy and

shall have the right to exercise all incidents of ownership.  The Bank shall be the beneficiary of any

death proceeds remaining after the Director’s interest has been paid under

Section 2.2 of this Split Dollar Agreement and Endorsement.

 

2.2           Executive’s Interest.  The Director shall have the right to

designate the beneficiary(ies) of death proceeds.  After death of the Insured before Normal Retirement Age as

defined in the Director Deferred Fee Agreement, the Insured’s Beneficiary(ies)

designated in accordance with the Split Dollar Policy Endorsement shall be

entitled to an amount equal to 

$120,000, or one hundred percent (100%) of the net at risk insurance

portion of the proceeds, whichever amount is less.  The net at risk insurance portion is the total proceeds less the

cash value of the Policy.   If the

Director dies after Normal Retirement Age as defined in the Director Deferred

Fee Agreement, the Insured’s beneficiaries shall be entitled to an amount

equivalent to the Deferral Account maintained by the Bank for the Director as

of the calendar year end of the year preceding the year of the Insured’s death,

or one hundred percent (100%) of the net at risk insurance portion of the

proceeds, whichever is less.  The

Director shall also have the right to elect and change settlement options

specified in the Policy that may be permitted. 

However, the Director, the Director’s transferee and the Director’s beneficiary(ies)

or estate shall have no rights or interests in the Policy for that portion of

the death proceeds designated in this Section 2.2 if Termination of Service of

the Director shall have previously occurred as a result of Termination for

Cause under the Director Deferred Fee Agreement.

 

2.3           Option to Purchase.  The Bank shall not sell, surrender, or

transfer ownership of the Policy while this Split Dollar Agreement and

Endorsement is in effect without first giving the Director or the Director’s transferee

a right of first refusal to purchase the Policy for the Policy’s interpolated

terminal reserve value.  The right of

first refusal to purchase the Policy must be exercised within 60 days after the

date the Bank gives written notice of the Bank’s intention to sell, surrender,

or transfer ownership of the Policy. 

This provision shall not impair the right of the Bank to terminate this

Split Dollar Agreement and Endorsement.

 

 

1

 

2.4           Comparable Coverage.  Upon execution of this Agreement, the Bank

shall maintain the Policy in full force and effect, and the Bank shall not

amend, terminate or otherwise abrogate the Director’s interest in the Policy

unless the Bank (a) replaces the Policy with a comparable insurance policy to

cover the benefit provided under this Split Dollar Agreement and Endorsement

and (b) executes a new Split Dollar Agreement and Endorsement and Endorsement

for the comparable insurance policy. 

The Policy or any comparable policy shall be subject to the claims of

the Bank’s creditors.

 

Article 3

Premiums

 

3.1           Premium Payment.  The Bank shall pay any premiums due on the

Policy.

 

3.2           Imputed Income.  The Bank shall impute income to the Director

in an amount equal to (a) the current term rate for the Director’s age,

multiplied by (b) the net death benefit payable to the Director’s

beneficiary(ies).  The “current term

rate” is the minimum amount required to be imputed under Revenue Rulings 64-328

and 66-110, or any subsequent applicable authority.

 

Article 4

Assignment

 

The Director may assign without consideration all interests in the

Policy and in this Split Dollar Agreement to any person, entity or trust.  If the Director transfers all of the

Director’s interest in the Policy, then all of the Director’s interest in the

Policy and in the Split Dollar Agreement and Endorsement shall be vested in the

Director’s transferee, who shall be substituted as a party hereunder, and the

Director shall have no further interest in the Policy or in this Split Dollar

Agreement and Endorsement.

 

Article 5

Insurer

 

The Insurer shall be bound only by the terms of the Policy.  Any payments the Insurer makes or actions it

takes in accordance with the Policy shall fully discharge it from all claims,

suits, and demands of all entities or persons. 

The Insurer shall not be bound by or be deemed to have notice of the

provisions of this Split Dollar Agreement and Endorsement.

 

Article 6

Claims Procedure

 

6.1           Claims Procedure.  The Bank shall notify in writing any person

or entity making a claim under this Split Dollar Agreement and Endorsement (the

“Claimant”) of his or her eligibility or ineligibility for benefits under this

Split Dollar Agreement and Endorsement. 

The Bank shall provide the written notice within 90 days after

Claimant’s written application for benefits. 

If the Bank determines that the Claimant is not eligible for benefits or

full benefits, the notice shall set forth (a) the specific reasons for the

denial, (b) a specific reference to the provisions of this Split Dollar

Agreement and Endorsement on which denial is based, (c) a description of any

additional information or material necessary for the Claimant to perfect his or

her claim, and a description of why it is needed, and (d) an explanation of

this Split Dollar Agreement and Endorsement’s claims review procedure and other

appropriate information concerning the steps to be taken if the Claimant wishes

to have the claim reviewed.  If the Bank

determines that there are special circumstances requiring additional time to

make a decision, the Bank shall notify the Claimant of the special

circumstances and the date by which a decision is expected to be made,

extending the time for up to an additional 90 days.

 

6.2           Review Procedure.  If the Bank determines that the Claimant is

not eligible for benefits or full benefits, or if the Claimant believes that he

or she is entitled to greater or different benefits, the Claimant shall have

the opportunity to have his or her claim reviewed by the Bank by filing a

petition for review with the Bank within 60 days after receipt of the written

notice issued by the Bank.  The

Claimant’s petition shall state the specific reasons the Claimant believes

entitle him or her to benefits or to greater or different benefits.  Within 60 days after the Bank’s receipt of

the petition, the Bank shall give the Claimant (and counsel, if any) an

opportunity to present his or her position to the Bank verbally or in 

 

 

2

 

writing, and the Claimant (or counsel) shall have the right to review

the pertinent documents.  The Bank shall

notify the Claimant of the Bank’s decision in writing within the 60-day period,

stating specifically the basis of its decision and identifying the specific

provisions of this Split Dollar Agreement and Endorsement on which the decision

is based.  If, because of the need for a

hearing, the 60-day period is not sufficient, the decision may be deferred for

up to another 60-day period at the election of the Bank, but notice of this

deferral must be given to the Claimant.

 

 

Article 7

Amendments and Termination

 

7.1           Amendment.  This Split Dollar Agreement and Endorsement

may be amended only by a writing signed by the Bank and the Director.

 

7.2           Termination of Agreement.  This Split Dollar Agreement and Endorsement

shall terminate upon the occurrence of any of the following events:

 

(a)           The Insured is discharged or removed from service as a

director of the Bank for cause.  The

term “for cause” shall mean any of the following: (1) gross negligence or gross

neglect of duties, (2) the commission of a felony or the commission of a

misdemeanor involving moral turpitude, (3) fraud, disloyalty, dishonesty, or

willful violation of any law or significant policy of the Bank committed in connection

with the Director’s service and, in the Bank’s sole judgment, resulting in an

adverse effect on the Bank, or

 

(b)            Surrender, lapse, or other termination of the Policy by

the Bank, or

 

(c)           Distribution of the death benefit proceeds in accordance

with Section 2.2 above, or

 

(d)           Payment

in full by the Bank to the Director of the Deferral Account maintained by the

Bank for that certain Director Deferred Fee Agreement dated August 1, 2001

 

Article 8

Miscellaneous

 

8.1           Binding Effect.  This Split Dollar Agreement and Endorsement

shall bind the Director and the Bank and their beneficiaries, survivors,

executors, administrators and transferees, and any Policy beneficiary.

 

8.2           No Guarantee of Employment.

This Split Dollar Agreement and Endorsement is not an employment policy or

contract.  It does not give the Director

the right to remain a director of the Bank, nor does it interfere with the

right of the Bank’s stockholder(s) not to re-elect the Director or the right of

the stockholder(s) or the board to remove an individual as a director of the

Bank.  This Split Dollar Agreement and

Endorsement also does not require the Director to remain a director nor

interfere with the Director’s right to terminate director service at any time.

 

8.3           Successors; Binding Agreement.  By an assumption agreement in form and

substance satisfactory to the Director, the Bank shall require any successor

(whether direct or indirect, by purchase, merger, consolidation or otherwise)

to all or substantially all of the business or assets of the Bank to expressly

assume and agree to perform this Split Dollar Agreement and Endorsement in the

same manner and to the same extent that the Bank would be required to perform

this Split Dollar Agreement and Endorsement if no succession had occurred.  The Bank’s failure to obtain such an

assumption agreement before succession becomes effective shall be considered a

breach of the Split Dollar Agreement and Endorsement and shall entitle the

Director to the Change of Control benefit payable under Section 4.4 of the

Director Deferred Fee Agreement between the Bank and the Director.

 

 

3

 

 

8.4           Applicable Law.  The Split Dollar Agreement and Endorsement

and all rights hereunder shall be governed by and construed according to the

internal substantive laws of the State of California, disregarding principles

of conflict of laws.

 

8.5           Entire Agreement.  This Split Dollar Agreement and Endorsement

and the Director Deferred Fee Agreement constitute the entire agreement between

the Bank and the Director concerning the subject matter hereof.  No rights are granted to the Director under

this Split Dollar Agreement and Endorsement other than those specifically set

forth herein.

 

8.6           Administration.  The Bank shall have all powers necessary to

administer this Split Dollar Agreement and Endorsement, including but not

limited to the power to :

 

(a)           interpret the provisions of the Split Dollar Agreement and

Endorsement,

 

(b)           establish and revise the method of accounting for the Split

Dollar Agreement and Endorsement,

 

(c)           maintain a record of benefit payments, and

 

(d)           establish rules and prescribe forms necessary or desirable

to administer the Split Dollar

Agreement.

 

8.7           Named Fiduciary.  The Bank shall be the named fiduciary and

plan administrator under this Split Dollar Agreement and Endorsement.  The Bank may delegate to others certain

aspects of management and operational responsibilities, including the

employment of advisors and the delegation of ministerial duties to qualified

individuals.

 

8.8           Severability.  If for any reason any provision of this

Split Dollar Agreement and Endorsement is held invalid, such invalidity shall

not affect any other provision of this Split Dollar Agreement and Endorsement

not held so invalid, and each such other provision shall continue in full force

and effect to the full extent consistent with the law.  If any provision of this Split Dollar

Agreement and Endorsement is held invalid in part, such invalidity shall in no

way affect the remainder of such provision not held so invalid, and the

remainder of such provision together with all other provisions of this Split

Dollar Agreement and Endorsement shall continue in full force and effect to the

full extent consistent with the law.

 

8.9           Headings.  The headings herein are included solely for

convenience of reference and shall not affect the meaning or interpretation of

any provision of this Split Dollar Agreement and Endorsement.

 

8.10         Notices.  All notices, requests, demands and other

communications hereunder shall be in writing and shall be deemed to have been

duly given if delivered by hand or mailed, certified or registered mail, return

receipt requested, with postage prepaid, to the following addresses or to such

other address as either party may designate by like notice.

 

(a)           If to the Bank, to:                                                 Board

of Directors

                                                                                                                Clovis

Community Bank

                                                                                                                600

Pollasky Avenue

 P.O. Box 748

                                                                                                                Clovis,

California  93612

 

(b)           If to the Director, to:                                            

Edwin S. Darden Jr.  

 

                                                                                                                                                                   

 

                                                                                                                                                                   

 

and

to such other or additional person or persons as either party shall have

designated to the other party in writing by like notice.

 

 

4

 

 

In Witness Whereof, the Bank and the Director

have signed this Split Dollar Agreement and Endorsement as of the date and year

first written above.

 

The Director                                                                                 CLOVIS COMMUNITY BANK

 

   /s/ Edwin S. Darden Jr.                 

                                                                                                                By:

            /s/Daniel J. Doyle           

 

                                                                                                                Its:          President

& Chief Executive Officer

 

 

 

5

Split Dollar Policy Endorsement

Clovis Community Bank

 

 

 

Policy No. JP5218231                                                                            Insured: Edwin S. Darden Jr. 

 

 

Supplementing and amending the application for insurance to

Jefferson-Pilot Life Insurance Company, (the “Insurer”) on Edwin S. Darden Jr.,

the applicant requests and directs that:

 

Beneficiaries

 

1.             Clovis Community

Bank, located in Clovis, California, shall be the beneficiary of any death

proceeds remaining after the Insured’s interest has been paid under paragraph

(2) below.

 

2.             The Insured or the

Insured’s transferee shall designate the beneficiary(ies) of death

proceeds.  After the death of the  Insured before Normal Retirement Age as

defined in the Director Deferred Fee Agreement, the Insured’s Beneficiary(ies)

shall be entitled to an amount equal to $120,000, or one hundred percent (100%)

of the net at risk insurance portion of the proceeds, whichever amount is

less.  The net at risk insurance portion

is the total proceeds less the cash value of the Policy.    If the Insured dies after Normal

Retirement Age as defined in the Director Deferred Fee Agreement, the Insured’s

beneficiaries shall be entitled to an amount equivalent to the Deferral Account

maintained by the Bank for the Insured as of the calendar year end of the year

preceding the year of the Insured’s death, or one hundred percent (100%) of the

net at risk portion of the proceeds, whichever amount is less.    However, the Insured, the Insured’s

transferee and the Insured’s beneficiary(ies) or estate shall have no rights or

interests in the Policy for that portion of the death proceeds designated in

this paragraph (2) if the Insured received payment in full of the Deferral

Account from the Bank under the Director Deferred Fee Agreement.

 

Ownership

 

3.             The Owner of the

Policy shall be Clovis Community Bank. 

The Owner shall have all ownership rights in the Policy except as may be

specifically granted to the Insured or the Insured’s transferee in paragraph

(4) of this endorsement.

 

4.             The Insured or the

Insured’s transferee shall have the right to assign his or her rights and

interests in the Policy with respect to that portion of the death proceeds

designated in paragraph (2) of this endorsement, and to exercise all settlement

options with respect to such death proceeds.

 

5.             Notwithstanding the

provisions of paragraph (4) above, the Insured, the Insured’s transferee, or

the Insured’s beneficiary(ies) or estate shall have no rights or interests in

the Policy with respect to that portion of the death proceeds designated in

paragraph (2) of this endorsement if the Insured’s service with Clovis

Community Bank terminated because of Termination for Cause under the Director

Deferred Fee Agreement.

 

Modification of Assignment

Provisions of the Policy

 

6.             Upon the death of

the Insured, the interest of any collateral assignee of the Owner of the Policy

designated in (3) above shall be limited to the portion of the proceeds

described in paragraph (1) above.

 

 

 

6

 

 

                                                                                 Owner’s

Authority

 

7.             The Insurer is

hereby authorized to recognize the Owner’s claim to rights hereunder without

investigating the reason for any action taken by the Owner, including the

Owner’s statement of the amount of premiums the Owner has paid on the

Policy.  The signature of the Owner

shall be sufficient for the exercise of any rights under this Endorsement and

the receipt of the Owner for any sums received by it shall be a full discharge

and release therefore to the Insurer. 

The Insurer may rely on a sworn statement in form satisfactory to it

furnished by the Owner, its successors or assigns, as to their interest and any

payments made pursuant to such statement shall discharge Clovis Community Bank

accordingly.

 

8.             Any transferee’s rights shall be subject to this

Endorsement.

 

9.             The Owner accepts and agrees to this split dollar

endorsement.

 

10.           The undersigned is

signing in a representative capacity and warrants that he or she has the

authority to bind the entity on whose behalf this document is being executed.

 

 

Signed

by Clovis Community Bank at Clovis, California, this  29th day of  November ,

2001.

 

Clovis

Community Bank

 

By:              /s/ Daniel J.

Doyle             

 

Its:             President &

Chief Executive Officer

 

The Insured accepts and agrees to the foregoing and, subject to the

rights of the Owner as stated above, designates                                                                                     ,

(relationship:                                        ) as primary

beneficiary(s) and                                                                                                                                                           , (relationship:                                                   ) as

secondary beneficiary of the portion of the proceeds described in (2) above.

 

Signed

at Clovis, California, this  29th  day of 

November, 2001.

 

The

Insured

 

 

    /s/Edwin S. Darden Jr.Exchangeable Demand Promissory Note

  Exhibit
  4.6

   Form of Secured
  Convertible Promissory Note between the Company as maker and private

  lenders
  to the Company

  NEITHER THIS
  EXCHANGEABLE DEMAND PROMISSORY NOTE NOR THE SECURITIES FOR WHICH IT MAY BE
  EXCHANGED HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
  (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND NEITHER THIS NOTE NOR
  SUCH SECURITIES MAY BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
  EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND LAWS UNLESS MAKER RECEIVES
  AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT THAT SUCH REGISTRATION IS
  NOT REQUIRED.

  EXCHANGEABLE
  DEMAND PROMISSORY NOTE

  	
        $ _________

      	
        Date____________

      

             
  FOR VALUE RECEIVED, the undersigned, SI Diamond Technology, Inc., a Texas
  corporation (“Maker”), promises to pay to, ___________ (“Payee”)
  Payee and any subsequent holder(s) hereof are individually and collectively
  referred to as the “Holder”), or order, the sum of
  _______________________ Dollars ($_______), or so much thereof as may from
  time to time hereafter be outstanding hereunder, whichever is less, together
  with interest thereon, all as hereinafter provided.

             
  1.         Interest
  and Principal Payments.

             
  a.        
  Payment on this Note shall be made six months after its execution (the “Demand
  Date”). In lieu of cash, holder may elect to receive shares of  the
  common stock of Maker (“Stock”) in payment of the note at a _____ discount
  off of the then current Market Price (as defined below) in accordance with
  Section 3 hereof.

             
  b.         From
  the date hereof to and including the date this Note is paid or otherwise
  discharged, the unpaid principal amount of this Note shall bear simple
  interest at a rate of fifteen percent (15%) per annum, computed on the basis
  of a year of three hundred sixty five (365) days.

             
  c.         All
  payments of principal and interest shall be made in lawful money of the United
  States of America (except as provided in Sections 1 and 3) and shall be made
  to Holder at Holder’s address set forth in Section 8 or at such other place
  as Holder may designate to Maker in writing.

  2

  

   

             
  2.         Prepayments.   
  This note may be prepaid without penalty, in whole or in part, at any time
  prior to the due date of the note, at the option of the Holder, in lawful
  money of the United States of America. Interest shall be calculated from the
  date of the note to the date of prepayment, if applicable.

             
  3.         Exchange
  of Note for Stock.  Notwithstanding the other terms and conditions of
  this Note, the Holder shall have the option of exchanging this Note for shares
  of Stock at the maturity date of the Note.  The number of shares of Stock
  into which this Note may be exchanged shall be equal to the number of shares
  of Stock computed by dividing the principal amount of this Note, plus any
  accrued but unpaid interest, by ___% of the Market Price.

             
  For purposes hereof, the term “Market Price” shall mean the average of the
  daily closing prices per share of the Stock for the five (5) consecutive
  trading days immediately preceding the due date of the note, ________,
  2002.  The closing price for each day shall be the last sale price
  regular way or, in case no such sale takes place on such day, the average of
  the closing bid and asked prices regular way, on the NASDAQ OTC Bulletin
  Board.

             
  4.         Exchange
  Procedures; Reservation of Shares.

             
  a.         Upon
  the exchange of this Note for shares of Stock, Maker shall, as soon as
  practicable, take all such steps as may be necessary to issue such Stock in
  exchange for this Note, and thereafter deliver to Holder a certificate or
  certificates for the number of shares of Stock to which Holder shall be
  entitled against receipt of this Note, duly endorsed for cancellation.

             
  b.         Maker
  covenants that it will, at the Exchange Date, make available out of its
  authorized Stock, solely for the purpose of issue upon exchange of this Note
  for Stock, such number, class and series of shares of Stock as shall then be
  issuable upon the exchange of this Note.

             
  5.         Events of Default. 
  The occurrence or existence of any one of the following events or conditions
  shall constitute an “Event of Default”:

             
  a.         Maker shall fail to pay the
  principal of, this Note when the same becomes due and payable in accordance
  with the terms hereof and after demand for payment has been made therefor and
  such amount remains unpaid for ten (10) days after such date;

             
  b.         Maker fails to observe or
  perform any covenant or agreement on the part of Maker contained in this Note
  for a period of thirty (30) days after the date on which written notice of
  such failure, requiring the same to be remedied, shall have been given to
  Maker by Holder of this Note;

             
  c.         Maker makes a general
  assignment for the benefit of its creditors or applies to any tribunal for the
  appointment of a trustee or receiver of a substantial part of the assets of
  Maker, or

  3

  

   

  commences any proceedings relating to Maker under any bankruptcy,
  reorganization, arrangement, insolvency, readjustment of debts, dissolution or
  other liquidation law of any jurisdiction; or any such application is filed,
  or any such proceedings are commenced against Maker and Maker indicates its
  consent to such proceedings, or an order or decree is entered by a court of
  competent jurisdiction appointing such trustee or receiver, or adjudicating
  Maker bankrupt or insolvent, or approving the petition in any such
  proceedings, and such order or decree remains unstayed and in effect for
  ninety (90) days.

             
  6.         Remedies.

             
  a.         If an Event of Default
  occurs and is continuing, Holder of this Note may, by notice in writing to
  Maker, declare the entire unpaid principal of the Note to be due and payable
  immediately, and upon any such declaration the principal and unpaid interest
  of the Note shall become and be immediately due and payable, and Holder of
  this Note may thereupon proceed to protect and enforce its rights either by
  suit in equity or by action of law or by other appropriate proceedings,
  whether for specific performance (to the extent permitted by law) of any
  covenant or agreement contained herein or in aid of the exercise of any power
  granted herein, or proceed to enforce the payment of this Note or to enforce
  any other legal or equitable right of such Holder.

             
  7.         Notices; Miscellaneous.

             
  a.         All notices, requests,
  consents and other communications required or permitted under this Note shall
  be in writing and shall be deemed to have been delivered three (3) days after
  the date mailed, postage prepaid, by certified mail, return receipt requested,
  or on the date personally delivered:

                         
  i.          If to Payee, to:

                                     
  ____________________

                                     
  ____________________

                                     
  ____________________

                                     
  ____________________

                         
  ii.          If to Maker, to:

                                     
  SI Diamond Technology, Inc.

                                     
  3006 Longhorn Boulevard, Suite 107

                                     
  Austin, Texas 78758

                                     
  Attention: Douglas P. Baker, Vice President

                         
  iii.         If to any other holder
  other than Payee, to such address as may have been designated by notice given
  Maker by such Holder.

  4

  

   

  Maker, Payee or any
  other Holder hereof may designate a different address by notice given in
  accordance with the foregoing.

                         
  b.         From time to time, without
  affecting the obligations of Maker or its legal representatives, successors or
  assigns to pay the outstanding principal balance of this Note and observe the
  covenants of Maker contained herein and in the documents and instruments
  related hereto, without giving notice to or obtaining the consent of Maker, or
  its legal representatives, successors or assigns, and without liability on the
  part of Holder, Holder may, at the option of Holder, extend the time for
  payment of said outstanding principal balance or any part thereof, reduce the
  payments thereon, release anyone liable on any of said outstanding principal
  balance, accept a renewal of this Note, modify the terms of payment of said
  outstanding principal balance in any manner more favorable to Maker or join in
  any extension or subordination agreement, and agree in writing with Maker to
  modify the rate of interest or period of amortization of this Note or change
  the amount of the payments hereunder.  No one or more of such actions
  shall constitute a novation or otherwise affect or impair the indebtedness
  evidenced hereby.

             
  9.         Compliance with
  Securities Laws.  The Holder of this Note, by its acceptance of this
  instrument, represents and acknowledges that this Note is acquired for the
  Holder’s own account for investment purposes and that this Note and the Note
  Shares issuable upon exercise hereof (the “Note Shares”),
  respectively, have not been registered under the Securities Act of 1933, as
  amended.  Accordingly, any transfer of this Note and such Note Shares
  shall be subject to legal restrictions.  The Holder agrees that it will
  not offer for sale or sell, assign or otherwise dispose of (except exchange of
  the Note for Note Shares) this Note or any Note Shares issued to it pursuant
  to exercise hereof, except in accordance with applicable securities
  laws.  The Note Shares shall bear a legend similar to the legend on this
  Note. Maker agrees to use its best efforts to register the Note Shares prior
  to the due date of this Note.

  [THE
  NEXT PAGE IS THE SIGNATURE PAGE]

   
  5

  

   

   

              This
  Note and the rights and obligations of the parties hereunder shall be governed
  by, and construed and interpreted in accordance with, the laws of the State of
  Texas (without regard to principles of conflicts of laws) and applicable
  Federal law.

                                                             
  SI Diamond Technology, Inc.

                                                             ________________________

                                                             
  By:      Douglas P. Baker

                                                             
  Title:   Vice President

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