Document:

exv10w9

 

Exhibit
10.9

SECURED REVOLVING NOTE

          FOR VALUE RECEIVED, each of SILICON MOUNTAIN MEMORY, INCORPORATED, a Colorado corporation (the
“Parent”), and the other companies listed on Exhibit A attached hereto (such other
companies together with the Parent, each a “Company” and collectively, the “Companies”), jointly
and severally, promises to pay to LAURUS MASTER FUND, LTD., c/o M&C Corporate Services Limited,
P.O. Box 309 GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands, Fax:
345-949-8080 (the “Holder”) or its registered assigns or successors in interest, the sum of Three
Million Five Hundred Thousand Dollars ($3,500,000) or, if less, the aggregate principal amount of
all outstanding Revolving Loans (as defined in the Security Agreement referred to below), together
with any accrued and unpaid interest hereon and other fees and expenses related hereto, on
September 25, 2009 (the “Maturity Date”) if not sooner indefeasibly paid in full.

          Capitalized terms used herein without definition shall have the meanings ascribed to such
terms in the Security Agreement among the Companies and the Holder dated as of the date hereof (as
amended, modified and/or supplemented from time to time, the “Security Agreement”).

          The following terms shall apply to this Secured Revolving Note (this “Note”):

ARTICLE I

CONTRACT RATE

          1.1 Contract Rate. Subject to Sections 2.2 and 3.10, interest payable on the
outstanding principal amount of this Note (the “Principal Amount”) shall accrue at a rate per annum
equal to the “prime rate” published in The Wall Street Journal from time to time (the
“Prime Rate”), plus two percent (2%) (the “Contract Rate”). The Contract Rate shall be increased
or decreased as the case may be for each increase or decrease in the Prime Rate in an amount equal
to such increase or decrease in the Prime Rate; each change to be effective as of the day of the
change in the Prime Rate. The Contract Rate shall not at any time be less than eight percent (8%).
Interest shall be (i) calculated on the basis of a 360 day year, and (ii) payable monthly, in
arrears, commencing on October 2, 2006 on the first business day of each consecutive calendar month
thereafter through and including the Maturity Date, and on the Maturity Date, whether by
acceleration or otherwise.

          1.2 Contract Rate Payments. The Contract Rate shall be calculated on the last
business day of each calendar month hereafter (other than for increases or decreases in the Prime
Rate which shall be calculated and become effective in accordance with the terms of Section 1.1)
until the Maturity Date and shall be subject to adjustment as set forth herein.

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ARTICLE II

EVENTS OF DEFAULT AND DEFAULT RELATED PROVISIONS

          2.1 Events of Default. The occurrence of an Event of Default under the
Security Agreement shall constitute an event of default (“Event of Default”) hereunder.

          2.2 Default Interest. Following (i) the occurrence and during the continuance
of an Event of Default and (ii) written notice by the Holder to the Companies, the Companies shall
be jointly and severally obligated to pay additional interest on the outstanding principal balance
of this Note in an amount equal to one percent (1%) per month, and all outstanding Obligations,
including unpaid interest, shall continue to accrue interest at such additional interest rate from
the date of such Event of Default until the date such Event of Default is cured or waived.

          2.3 Default Payment. Following the occurrence and during the continuance of an Event
of Default, the Holder, at its option, may elect (after providing written notice to the Companies),
in addition to all rights and remedies of the Holder under the Security Agreement and the other
Ancillary Agreements and all obligations and liabilities of each Company under the Security
Agreement and the other Ancillary Agreements, to require the Companies, jointly and severally, to
make a Default Payment (“Default Payment”). The Default Payment shall be one hundred ten percent
(110%) of the outstanding principal amount of the Note, plus accrued but unpaid interest, all other
fees then remaining unpaid, and all other amounts payable hereunder, under the Security Agreement
or any other Ancillary Agreement. The Default Payment shall be applied first to any fees due and
payable to the Holder pursuant to the Note, the Security Agreement and/or the Ancillary Agreements,
then to accrued and unpaid interest due on the Notes and then to the outstanding principal balance
of the Note. The Default Payment shall be due and payable immediately on the date that the Holder
has demanded payment of the Default Payment pursuant to this Section 2.3.

ARTICLE III

MISCELLANEOUS

          3.1 Issuance of New Note. Upon any partial redemption of this Note, a new
Note containing the same date and provisions of this Note shall, at the request of the Holder, be
issued by the Companies to the Holder for the principal balance of this Note and interest which
shall not have been paid. Subject to the provisions of Article II of this Note, the Companies
shall not pay any costs, fees or any other consideration to the Holder for the production and
issuance of a new Note.

          3.2 Cumulative Remedies. The remedies under this Note shall be cumulative.

          3.3 Failure or Indulgence Not Waiver. No failure or delay on the part of the
Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or privilege preclude

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other or further exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

          3.4 Notices. Any notice herein required or permitted to be given shall be in
writing and shall be deemed effective given (a) upon personal delivery to the party notified, (b)
when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if
not, then on the next business day, (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written verification of receipt.
All communications shall be sent to the respective Company at the address provided for such Company
in the Security Agreement executed in connection herewith, and to the Holder at the address
provided in the Security Agreement for the Holder, with a copy to Laurus Capital Management, LLC,
Attn: Portfolio Services, 825 Third Avenue, 17th Floor, New York, New York 10022,
facsimile number (212) 541-4410, or at such other address as the respective Company or the Holder
may designate by ten days advance written notice to the other parties hereto.

          3.5 Amendment Provision. The term “Note” and all references thereto, as used
throughout this instrument, shall mean this instrument as originally executed, or if later amended
or supplemented, then as so amended or supplemented, and any successor instrument as such successor
instrument may be amended or supplemented.

          3.6 Assignability. This Note shall be binding upon each Company and its
successors and assigns, and shall inure to the benefit of the Holder and its successors and
assigns, and may be assigned by the Holder in accordance with the requirements of the Security
Agreement. No Company may assign any of its obligations under this Note without the prior written
consent of the Holder, except as permitted by the Security Agreement, any such purported assignment
without such consent being null and void.

          3.7 Cost of Collection. In case of an occurrence of an Event of Default under
this Note, the Companies shall, jointly and severally, pay the Holder the Holder’s reasonable costs
of collection, including reasonable attorneys’ fees.

          3.8 Governing Law, Jurisdiction and Waiver of Jury Trial.

               (a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAW OF
THE STATE OF NEW YORK, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW.

               (b) EACH COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE
COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN ANY COMPANY, ON THE

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ONE HAND, AND THE HOLDER, ON THE OTHER HAND, PERTAINING TO THIS NOTE, THE SECURITY AGREEMENT
OR ANY OF THE OTHER ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE,
THE SECURITY AGREEMENT OR ANY OF THE OTHER ANCILLARY AGREEMENTS; PROVIDED, THAT,
EACH COMPANY ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED,
THAT, NOTHING IN THIS NOTE SHALL BE DEEMED OR OPERATE TO PRECLUDE THE HOLDER FROM BRINGING
SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE
ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER IN FAVOR OF THE HOLDER. EACH COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH COMPANY HEREBY WAIVES ANY
OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM
NON CONVENIENS. EACH COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT
AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE COMPANY AT THE
ADDRESS SET FORTH IN THE SECURITY AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON
THE EARLIER OF THE COMPANY’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID

               (c) EACH COMPANY DESIRES THAT ITS DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE
LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, EACH COMPANY HERETO WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN
THE HOLDER, AND/OR ANY COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS NOTE, THE SECURITY AGREEMENT, ANY
OTHER ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.

          3.9 Severability. In the event that any provision of this Note is invalid or
unenforceable under any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other provision of this Note.

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          3.10 Maximum Payments. Nothing contained herein shall be deemed to establish
or require the payment of a rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest required to be paid or other charges
hereunder exceed the maximum rate permitted by such law, any payments in excess of such maximum
rate shall be credited against amounts owed by the Companies to the Holder and thus refunded to the
Companies.

          3.11 Security Interest. The Holder has been granted a security interest (i)
in certain assets of the Companies as more fully described in the Security Agreement and (ii)
pursuant to the Stock Pledge Agreement dated as of the date hereof. The obligations of the
Companies under this Note are guaranteed by Rudolph (Tré) A. Cates III., the chief executive
officer of the Parent, pursuant to the Guaranty dated as of the date hereof.

          3.12 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the rule of
construction that ambiguities are to be resolved against the drafting party shall not be applied in
the interpretation of this Note to favor any party against the other.

          3.13 Registered Obligation. This Note is intended to be a registered
obligation within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i) and the Companies
(or their agents) shall register this Note (and thereafter shall maintain such registration) as to
both principal and any stated interest. Notwithstanding any document, instrument or agreement
relating to this Note to the contrary, transfer of this Note (or the right to any payments of
principal or stated interest thereunder) may only be effected by (i) surrender of this Note and
either the reissuance by the Companies of this Note to the new holder or the issuance by the
Companies of a new instrument to the new holder, or (ii) transfer through a book entry system
maintained by the Companies (or their agents), within the meaning of Treasury Regulation Section
1.871-14(c)(1)(i)(B).

[Balance of page intentionally left blank; signature page follows]

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          IN WITNESS WHEREOF, each Company has caused this Secured Revolving Note to be signed in its
name effective as of this 25 day of September 2006.

	 	 	 	 	 
	 	SILICON MOUNTAIN MEMORY, INCORPORATED

 	 
	 	By:  	/s/ Rudolph (Tré) A. Cates III	 
	 	 	Rudolph (Tré) A. Cates III 	 
	 	 	President and Chief Executive Officer 	 
	 

	 	 	 	 	 
	WITNESS:

 	 	 
	/s/
Roger Haston	 	 
	 	 	 

	 	 	 	 	 
	 	VCI SYSTEMS, INC.

 	 
	 	By:  	/s/ Rudolph (Tré) A. Cates III	 
	 	 	Rudolph (Tré) A. Cates III 	 
	 	 	President and Chief Executive Officer 	 
	 

	 	 	 	 	 
	WITNESS:

 	 	 
	/s/ Roger Haston	 	 
	 	 	 

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EXHIBIT A

OTHER COMPANIES

VCI
SYSTEMS, INC., A COLORADO CORPORATION

Secured Revolving Noteexv10w10

 

Exhibit 10.10

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO SILICON MOUNTAIN HOLDINGS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.

Right to Purchase up to 1,990,000 Shares of Common Stock of

Silicon Mountain Holdings, Inc.

(subject to adjustment as provided herein)

COMMON STOCK PURCHASE WARRANT

			
	 	 	 
	No. 1
	 	Issue Date: August 30, 2007

     SILICON MOUNTAIN HOLDINGS, INC., a corporation organized under the laws of the State of
Colorado (the “Company”), hereby certifies that, for value received, LAURUS MASTER FUND, LTD., or
assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the
Company (as defined herein) from and after the Issue Date of this Warrant and at any time, up to
1,990,000 fully paid and nonassessable shares of Common Stock (as hereinafter defined), $0.001 par
value per share, at the applicable Exercise Price per share (as defined below). The number and
character of such shares of Common Stock and the applicable Exercise Price per share are subject to
adjustment as provided herein.

     As used herein the following terms, unless the context otherwise requires, have the following
respective meanings:

     (a) The term “Company” shall include Silicon Mountain Holdings, Inc. and any person or
entity which shall succeed, or assume the obligations of, Silicon Mountain Holdings, Inc.
hereunder.

     (b) The term “Common Stock” includes (i) the Company’s Common Stock, par value $0.001
per share; and (ii) any other securities into which or for which any of the securities
described in the preceding clause (i) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.

     (c) The term “Other Securities” refers to any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which the holder of
the Warrant at any time shall be entitled to receive, or shall have received, on the
exercise of the Warrant, in lieu of or in addition to Common Stock, or

Warrant

 

 

which at any time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise.

     (d) The “Exercise Price” applicable under this Warrant shall be $.01 per share.

     1. Exercise of Warrant.

          1.1 (a) Number of Shares Issuable upon Exercise. From and after the date hereof, the
Holder shall be entitled to receive, upon exercise of this Warrant in whole or in part, by delivery
of an original or fax copy of an exercise notice in the form attached hereto as Exhibit A (the
“Exercise Notice”), shares of Common Stock of the Company, subject to adjustment pursuant to
Section 4.

          1.2 Fair Market Value. For purposes hereof, the “Fair Market Value” of a share of
Common Stock as of a particular date (the “Determination Date”) shall mean:

     (a) If the Company’s Common Stock is traded on the American Stock Exchange or another
national exchange or is quoted on the National or Capital Market of The Nasdaq Stock Market,
Inc. (“Nasdaq”), then the closing or last sale price, respectively, reported for the last
business day immediately preceding the Determination Date.

     (b) If the Company’s Common Stock is not traded on the American Stock Exchange or
another national exchange or on the Nasdaq but is traded on the NASD Over The Counter
Bulletin Board, then the mean of the average of the closing bid and asked prices reported
for the last business day immediately preceding the Determination Date.

     (c) Except as provided in clause (d) below, if the Company’s Common Stock is not
publicly traded, then as the Holder and the Company agree or in the absence of agreement by
arbitration in accordance with the rules then in effect of the American Arbitration
Association, before a single arbitrator to be chosen from a panel of persons qualified by
education and training to pass on the matter to be decided.

     (d) If the Determination Date is the date of a liquidation, dissolution or winding up,
or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company’s
charter, then all amounts to be payable per share to holders of the Common Stock pursuant to
the charter in the event of such liquidation, dissolution or winding up, plus all other
amounts to be payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock
then issuable upon exercise of the Warrant are outstanding at the Determination Date.

          1.3 Company Acknowledgment. The Company will, at the time of the exercise of this
Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to
afford to such holder any rights to which such holder shall continue to be entitled after such
exercise in accordance with the provisions of this Warrant. If the holder

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shall fail to make any such request, such failure shall not affect the continuing obligation
of the Company to afford to such holder any such rights.

          1.4 Trustee for Warrant Holders. In the event that a bank or trust company shall have
been appointed as trustee for the holders of this Warrant pursuant to Subsection 3.2, such bank or
trust company shall have all the powers and duties of a warrant agent (as hereinafter described)
and shall accept, in its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may
be, on exercise of this Warrant pursuant to this Section 1.

     2. Procedure for Exercise.

          2.1 Delivery of Stock Certificates, Etc., on Exercise. The Company agrees that the
shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the
Holder as the record owner of such shares as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for such shares in accordance herewith. As
soon as practicable after the exercise of this Warrant in full or in part, and in any event within
three (3) business days thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, or as
such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance
with applicable securities laws, a certificate or certificates for the number of duly and validly
issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such
Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such
holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market
Value of one full share, together with any other stock or other securities and property (including
cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1
or otherwise.

     2.2 Exercise.

     (a) Payment may be made either (i) in cash of immediately available funds or by
certified or official bank check payable to the order of the Company equal to the applicable
aggregate Exercise Price, (ii) by delivery of this Warrant, or shares of Common Stock and/or
Common Stock receivable upon exercise of this Warrant in accordance with the formula set
forth in subsection (b) below, or (iii) by a combination of any of the foregoing methods,
for the number of Common Shares specified in such Exercise Notice (as such exercise number
shall be adjusted to reflect any adjustment in the total number of shares of Common Stock
issuable to the Holder per the terms of this Warrant) and the Holder shall thereupon be
entitled to receive the number of duly authorized, validly issued, fully-paid and
non-assessable shares of Common Stock (or Other Securities) determined as provided herein.

     (b) Notwithstanding any provisions herein to the contrary, if the Fair Market Value of
one share of Common Stock is greater than the Exercise Price (at the date of calculation as
set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or the portion
thereof being exercised) by surrender of this Warrant at the principal office of the

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Company together with the properly endorsed Exercise Notice in which event the Company
shall issue to the Holder a number of shares of Common Stock computed using the following
formula:

	 	 	 	 	 
	X=
	 	Y(A-B)
	 	 
	 

	 	 	 	 
	 

	 	   A	 	 
	 
	 	 	 	 
	Where X =	 	the number of shares of Common Stock to be issued to the Holder
	 
	 	 	 	 
	Y =	 	the number of shares of Common Stock purchasable under this Warrant or, if
only a portion of this Warrant is being exercised, the portion of this Warrant being
exercised (at the date of such calculation)
	 
	 	 	 	 
	A =	 	the Fair Market Value of one share of the Company’s Common Stock (at the date
of such calculation)
	 
	 	 	 	 
	B =	 	the Exercise Price per share (as adjusted to the date of such calculation)

     3. Effect of Reorganization, Etc.; Adjustment of Exercise Price.

          3.1 Reorganization, Consolidation, Merger, Etc. (a) In case at any time or from time
to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any
other person, or (c) transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the Company, then, in each
such case, as a condition to the consummation of such a transaction, proper and adequate provision
shall be made by the Company whereby the Holder, on the exercise hereof as provided in Section 1 at
any time after the consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other
Securities) issuable on such exercise prior to such consummation or such effective date, the stock
and other securities and property (including cash) to which such Holder would have been entitled
upon such consummation or in connection with such dissolution, as the case may be, if such Holder
had so exercised this Warrant, immediately prior thereto, all subject to further adjustment
thereafter as provided in Section 4.

          (b) Notwithstanding the foregoing, (i) so long as no Event of Default (as defined in the
Security Agreement referred to below) has occurred and is continuing, at any time during the period
beginning on August 28, 2007 and ending on August 27, 2008, it shall not sell any Common Stock
acquired upon exercise of this Warrant (such Common Stock, “Exercised Common Stock”) and
(i) so long as no Event of Default has occurred and is continuing, at any time on or after August
27, 2008, the Holder shall not, during any calendar month, be permitted to sell Exercised Common
Stock in excess of twenty five percent (25%) of the monthly dollar trading volume of the Common
Stock for the prior calendar month; provided that, the foregoing restrictions (a)
shall not be applicable and shall have no further force or effect in the event the Company shall
effect consolidate with or merge into any other entity or transfer all or substantially all of its
properties or assets and (b) shall not apply to transfers or assignments in a private transaction
including, without limitation, as a bona fide gift or gifts, provided that the transferee or
assignee thereof agrees to be bound in writing by the restrictions set forth herein.

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          3.2 Dissolution. In the event of any dissolution of the Company following the
transfer of all or substantially all of its properties or assets, the Company, concurrently with
any distributions made to holders of its Common Stock, shall at its expense deliver or cause to be
delivered to the Holder the stock and other securities and property (including cash, where
applicable) receivable by the Holder pursuant to Section 3.1, or, if the Holder shall so instruct
the Company, to a bank or trust company specified by the Holder and having its principal office in
New York, NY as trustee for the Holder.

          3.3 Continuation of Terms. Upon any reorganization, consolidation, merger or transfer
(and any dissolution following any transfer) referred to in this Section 3, this Warrant shall
continue in full force and effect and the terms hereof shall be applicable to the shares of stock
and other securities and property receivable on the exercise of this Warrant after the consummation
of such reorganization, consolidation or merger or the effective date of dissolution following any
such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other
securities, including, in the case of any such transfer, the person acquiring all or substantially
all of the properties or assets of the Company, whether or not such person shall have expressly
assumed the terms of this Warrant as provided in Section 4. In the event this Warrant does not
continue in full force and effect after the consummation of the transactions described in this
Section 3, then the Company’s securities and property (including cash, where applicable) receivable
by the Holder will be delivered to the Holder or the Trustee as contemplated by Section 3.2.

     4. Extraordinary Events Regarding Common Stock. In the event that the Company shall
(a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding
Common Stock or any preferred stock issued by the Company, (b) subdivide its outstanding shares of
Common Stock, (c) combine its outstanding shares of the Common Stock into a smaller number of
shares of the Common Stock, then, in each such event, the Exercise Price shall, simultaneously with
the happening of such event, be adjusted by multiplying the then Exercise Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding immediately prior to
such event and the denominator of which shall be the number of shares of Common Stock outstanding
immediately after such event, and the product so obtained shall thereafter be the Exercise Price
then in effect. The Exercise Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4. The number of
shares of Common Stock that the holder shall thereafter, on the exercise hereof as provided in
Section 1, be entitled to receive shall be adjusted to a number determined by multiplying the
number of shares of Common Stock that would otherwise (but for the provisions of this Section 4) be
issuable on such exercise by a fraction of which (a) the numerator is the Exercise Price that would
otherwise (but for the provisions of this Section 4) be in effect, and (b) the denominator is the
Exercise Price in effect on the date of such exercise (taking into account the provisions of this
Section 4). Notwithstanding the foregoing, in no event shall the Exercise Price be less than the
par value of the Common Stock.

     5. Certificate as to Adjustments. In each case of any adjustment or readjustment in
the shares of Common Stock (or Other Securities) issuable on the exercise of this Warrant, the
Company at its expense will promptly cause its Chief Financial Officer or other appropriate
designee to compute such adjustment or readjustment in accordance with the terms of this

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Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based, including a statement of (a)
the consideration received or receivable by the Company for any additional shares of Common Stock
(or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of
shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the
Exercise Price and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or
readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such
certificate to the holder and any warrant agent of the Company (appointed pursuant to Section 11
hereof).

     6. Reservation of Stock, Etc., Issuable on Exercise of Warrant. The Company will at
all times reserve and keep available, solely for issuance and delivery on the exercise of this
Warrant, shares of Common Stock (or Other Securities) from time to time issuable on the exercise of
this Warrant.

     7. Assignment; Exchange of Warrant. Subject to compliance with applicable securities
laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder
hereof (a “Transferor”) in whole or in part, provided that, so long as no Event of Default, a
Transferor shall not transfer this Warrant (or any of the rights evidenced hereby) to a competitor
of the Company or any Eligible Subsidiary (as defined in the Security Agreement) or to a fund or
other entity, which has an investment or other economic interest, in its investment portfolio or
otherwise, in a competitor of the Company or any Eligible Subsidiary in its investment portfolio or
holds an interest in the same. On the surrender for exchange of this Warrant, with the
Transferor’s endorsement in the form of Exhibit B attached hereto (the “Transferor Endorsement
Form”) and together with evidence reasonably satisfactory to the Company demonstrating compliance
with applicable securities laws, which shall include, without limitation, a legal opinion from the
Transferor’s counsel (at the Company’s expense) that such transfer is exempt from the registration
requirements of applicable securities laws, the Company at its expense (but with payment by the
Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the
Transferor thereof a new Warrant of like tenor, in the name of the Transferor and/or the
transferee(s) specified in such Transferor Endorsement Form (each a “Transferee”), calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock called for on the
face or faces of the Warrant so surrendered by the Transferor.

     8. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such
loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation,
on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver,
in lieu thereof, a new Warrant of like tenor.

     9. Registration Rights. The Holder has been granted certain registration rights by
the Company. These registration rights are set forth in a Registration Rights Agreement entered
into by the Company and Holder dated as of the date hereof, as the same may be amended, modified
and/or supplemented from time to time.

Warrant

6

 

     10. Maximum Exercise. Notwithstanding anything herein to the contrary, in no event
shall the Holder be entitled to exercise any portion of this Warrant in excess of that portion of
this Warrant upon exercise of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and its Affiliates (other than shares of Common Stock which may be
deemed beneficially owned through the ownership of the unexercised portion of the Warrant or the
unexercised or unconverted portion of any other security of the Holder subject to a limitation on
conversion analogous to the limitations contained herein) and (2) the number of shares of Common
Stock issuable upon the exercise of the portion of this Warrant with respect to which the
determination of this proviso is being made, would result in beneficial ownership by the Holder and
its Affiliates of any amount greater than 9.99% of the then outstanding shares of Common Stock
(whether or not, at the time of such exercise, the Holder and its Affiliates beneficially own more
than 9.99% of the then outstanding shares of Common Stock). As used herein, the term “Affiliate”
means any person or entity that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a person or entity, as such terms are
used in and construed under Rule 144 under the Securities Act. For purposes of the proviso to the
second preceding sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except
as otherwise provided in clause (1) of such proviso. The limitations set forth herein (x) may be
waived by the Holder upon provision of no less than sixty-one (61) days prior notice to the Company
and (y) shall automatically become null and void following notice to the Company upon the
occurrence and during the continuance of an Event of Default (as defined in the Security and
Purchase Agreement dated as of the date hereof among the Holder, the Company and various
subsidiaries of the Company (as amended, modified, restated and/or supplemented from time to time,
the “Security Agreement”)).

     11. Warrant Agent. The Company may, by written notice to the each Holder of the
Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the
exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and
replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.

     12. Transfer on the Company’s Books. Until this Warrant is transferred on the books
of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for
all purposes, notwithstanding any notice to the contrary.

     13. Notices, Etc. All notices and other communications from the Company to the Holder
shall be mailed by first class registered or certified mail, postage prepaid, at such address as
may have been furnished to the Company in writing by such Holder or, until any such Holder
furnishes to the Company an address, then to, and at the address of, the last Holder who has so
furnished an address to the Company.

     14. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. THIS WARRANT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF

Warrant

7

 

LAWS. ANY ACTION BROUGHT CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS WARRANT SHALL BE
BROUGHT ONLY IN STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK;
PROVIDED, HOWEVER, THAT THE HOLDER MAY CHOOSE TO WAIVE THIS PROVISION AND BRING AN ACTION OUTSIDE
THE STATE OF NEW YORK. The individuals executing this Warrant on behalf of the Company agree to
submit to the jurisdiction of such courts and waive trial by jury. The prevailing party shall be
entitled to recover from the other party its reasonable attorneys’ fees and costs. In the event
that any provision of this Warrant is invalid or unenforceable under any applicable statute or rule
of law, then such provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not affect the validity or
enforceability of any other provision of this Warrant. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The
invalidity or unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision hereof. The Company acknowledges that legal counsel
participated in the preparation of this Warrant and, therefore, stipulates that the rule of
construction that ambiguities are to be resolved against the drafting party shall not be applied in
the interpretation of this Warrant to favor any party against the other party.

     15. Exchange. The Company represents that this Warrant has been issued in
exchange for that certain Common Stock Purchase Warrant (the “Original Warrant”), dated September
25, 2006, issued by Silicon Mountain Memory, Incorporated to the Holder, and that the Holder is
entitled to tack the holding period of the Original Warrant in accordance with Rule 144(d)(3)(i)
and/or Rule 144(d)(3(ii) of the Securities Act of 1933, as amended. As a result, the Holder’s
holding period for this Warrant will be deemed to have commenced on the date that the Holder
acquired the Original Warrant.

[Signature Page Follows]

Warrant

8

 

     IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above.

	 	 	 	 	 	 	 
	 	 	 	 	SILICON MOUNTAIN HOLDINGS, INC.
	 
	 	 	 	 	 	 
	WITNESS:
	 	 	 	 	 	 
	 

	 	 
	 	By:
	 	/s/ Rudolph (Tré) A. Cates III
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Rudolph (Tré) A. Cates III
	 

	 	 	 	 	 	 
	/s/ Juan Perez

	 	 	 	 	 	President and Chief Executive Officer
	 

	 	 	 	 	 	 

Warrant

9

 

EXHIBIT A

FORM OF SUBSCRIPTION

(To Be Signed Only On Exercise Of Warrant)

	 	 	 	 	 
	TO:	 	Silicon Mountain Holdings, Inc.
	 
	 	 	 	 
	 	 	4755 Walnut Street
	 	 	Boulder, Colorado 80301
	 
	 	 	 	 
	 

	 	Attention:
	 	Chief Financial Officer

     The undersigned, pursuant to the provisions set forth in the attached Warrant (No.___),
hereby irrevocably elects to purchase (check applicable box):

	 	 	 
	______

	 	______ shares of the common stock covered by such warrant; or
	 
	 	 
	______

	 	the maximum number of shares of common stock covered by such
warrant pursuant to the cashless exercise procedure set forth in
Section 2.

     The undersigned herewith makes payment of the full Exercise Price for such shares at the price
per share provided for in such Warrant, which is $___. Such payment takes the form of
(check applicable box or boxes):

	 	 	 
	______

	 	$______ in lawful money of the United States; and/or
	 
	 	 
	______

	 	the cancellation of such portion of the attached Warrant as is
exercisable for a total of ______ shares of Common Stock (using
a Fair Market Value of $______ per share for purposes of this
calculation); and/or
	 
	 	 
	______

	 	the cancellation of such number of shares of Common Stock as is
necessary, in accordance with the formula set forth in Section
2.2, to exercise this Warrant with respect to the maximum number
of shares of Common Stock purchasable pursuant to the cashless
exercise procedure set forth in Section 2.

     The undersigned requests that the certificates for such shares be issued in the name of, and
delivered to
____________ whose address is ________________________.

     The undersigned represents and warrants that all offers and sales by the undersigned of the
securities issuable upon exercise of the within Warrant shall be made pursuant to registration of
the Common Stock under the Securities Act of 1933, as amended (the “Securities Act”) or pursuant to
an exemption from registration under the Securities Act.

	 	 	 	 	 	 	 	 	 
	Dated:

	 	 
	 	 
	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	(Signature must conform to name of holder as
	 	 	 	 	 	 	specified on the face of the Warrant)
	 

	 	 	 	 	 	Address:
	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 

Warrant

10

 

EXHIBIT B

FORM OF TRANSFEROR ENDORSEMENT

(To Be Signed Only On Transfer Of Warrant)

     For value received, the undersigned hereby sells, assigns, and transfers unto the person(s)
named below under the heading “Transferees” the right represented by the within Warrant to purchase
the percentage and number of shares of Common Stock of Silicon Mountain Holdings, Inc. into which
the within Warrant relates specified under the headings “Percentage Transferred” and “Number
Transferred,” respectively, opposite the name(s) of such person(s) and appoints each such person
Attorney to transfer its respective right on the books of Silicon Mountain Memory, Incorporated
with full power of substitution in the premises.

	 	 	 	 	 	 	 
	 	 	 	 	Percentage	 	Number
	Transferees	 	Address	 	Transferred	 	Transferred
	 

	 	 
	 	 
	 	 
	 

	 	 
	 	 
	 	 
	 

	 	 
	 	 
	 	 
	 

	 	 
	 	 
	 	 
	 

	 	 
	 	 
	 	 

	 	 	 	 	 	 	 	 	 
	Dated:

	 	 
	 	 
	 	 
	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	(Signature must conform to name of holder as
	 	 	 	 	 	 	specified on the face of the Warrant)
	 

	 	 	 	 	 	Address:
	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	SIGNED IN THE PRESENCE OF:
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	(Name)

	 
	 	 	 	 	 	 	 	 
	ACCEPTED AND AGREED:	 	 	 	 
	[TRANSFEREE]	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 
	(Name)
	 	 	 	 

Warrant

11

 

IRREVOCABLE PROXY

     For good and valuable consideration, receipt of which is hereby acknowledged, Laurus Master
Fund, Ltd. (“Laurus”), hereby appoints Silicon Mountain Holdings, Inc. (the “Proxy Holder” or the
“Company”), with a mailing address at 4755 Walnut Street, Boulder, Colorado 80301, with full power
of substitution, as proxy, to vote all shares of Common Stock of the Company, now or in the future
owned by Laurus to the extent such shares are issued to Laurus upon its exercise of the Common
Stock Purchase Warrant (the “Warrant”), issued by the Company to Laurus as of the date hereof (the
“Shares”).

     This proxy is irrevocable and coupled with an interest. Upon the sale or other transfer of
the Shares, in whole or in part, or the assignment of the Warrant, this proxy shall automatically
terminate (x) with respect to such sold or transferred Shares at the time of such sale and/or
transfer, or (y) with respect to all Shares in the case of an assignment of the Warrant, at the
time of such assignment, in each case, without any further action required by any person.

     Laurus shall use its best efforts to forward to Proxy Holder within two (2) business days
following Laurus’ receipt thereof, at the address for Proxy Holder set forth above, copies of all
materials received by Laurus relating, in each case, to the solicitation of the vote of
shareholders of the Company.

     This proxy shall remain in effect with respect to the Shares of the Company during the period
commencing on the date hereof and continuing until the payment in full of all obligations and
liabilities owing by the Company to Laurus (as the same may be amended, restated, extended or
modified from time to time).

     IN WITNESS WHEREOF, the undersigned has executed this irrevocable proxy as of the 30th day of
August 2007.

	 	 	 	 	 
	 	LAURUS MASTER FUND, LTD.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

Warrant

12

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