Document:

EXHIBIT  10.1

                                 PROMISSORY NOTE

FACE  AMOUNT                                     $284,000
PRICE                                            $260,000
INTEREST  RATE                                   0%  per  month
NOTE  NUMBER                                     December-2004-101
ISSUANCE  DATE                                   December  10,  2004
MATURITY  DATE                                   April  10,  2004

     FOR  VALUE  RECEIVED,  Payment  Data  Systems,  Inc.,  a Nevada corporation
(the "Company"), (OTC BB: PYDS) hereby promises to pay DUTCHESS PRIVATE EQUITIES
FUND,  II,  L.P. (the "Holder") within the Maturity Date, or earlier, the Amount
of  Two  Hundred  and  Eighty-Four  Thousand  Dollars  ($284,000)  U.S., in such
amounts,  at such times and on such terms and conditions as are specified herein
(this  "Note").

     Any capitalized term not defined in this Note are defined in the Investment
Agreement  for the Equity Line of Credit between Dutchess Private Equities Fund,
LP  (the  "Investor")  and  the  Company  (the  "Investment  Agreement").

Article  1          Method  of  Payment

     Payments  made  by  the  Company  in  satisfaction  of  this  Note  (each a
"Payment,"  and  collectively,  the "Payments") shall be made from each Put from
the  Equity  Line  of  Credit  with  the  Investor  given  by the Company to the
Investor.   The  Company  shall make payments to the Holder in the amount of the
lesser of 1) $71,000 or 2) fifty percent (50%) of each Put to  the Investor from
the  Company (the "Payment Amount") until the Face Amount is paid in full, minus
any fees due.   First payment will be due at the successful Closing of the first
Put  ("Payment  Date"  or  "Payment  Dates") after the thirty (30) days from the
Issuance  Date  of  this  Note  and  all subsequent payments will be made at the
Closing  of  every  Put  to  the Investor thereafter until  this Note is paid in
full.   Notwithstanding  any provision to the contrary in this Note, the Company
may pay in full to the Holder the Face Amount, or any balance remaining thereof,
in  readily  available  funds at any time and from time to time without penalty.

     Payments  pursuant  to this Note shall be made directly from the Closing of
each  Put  ("Put  Closing")  and  shall  be  wired directly to the Holder on the
Closing  Date.  The Holder shall retain the sole right and from time to time may
elect  to  lower  the  amount  of  a  payment  ("Lowered  Payment Amount") if so
requested  by  the  Company.  In the event of a Lowered Payment Amount, the next
payment  under  this  Note will be increased by the greater of 1) the percentage
difference  between the next Payment and the Lowered Payment Amount (Example: If
the  Company places a Put for $100,000 ($50,000 of which would go toward payment
of the Face Amount of this Note) and the Company requests a Lowered Payment such
that  $30,000  will go toward payment of the Face Amount of this Note (thus, the
Company owes Holder $20,000, which is 40% of the total amount owed to the Holder
under  such  Put),  and  the next Put is for $500,000 ($250,000 of which will go
toward  payment  of the Face Amount of this Note), then the total amount owed to
the  Holder under this Put will be $250,000 multiplied by 1.40) or 2) the actual
dollar  amount  difference  between  the  next  payment  and the Lowered Payment
Amount.

Article  2             Collateral

     The  Company  does  hereby agree to issue 25 Put Notices ("Collateral")  to
the  Investor  for  the full amount applicable under the terms of the Investment
Agreement  and shall do so at the maximum frequency allowed under the Investment
Agreement,  until  such  time  as  the  Note  is paid in full. The Company shall
deliver  25  Put Notices upon execution of this Note (hereto attached as Exhibit
A).  Upon  the  completion of the Company's obligation to the Holder of the Face
Amount  of  this  Note,  the  Company  will  not  be under further obligation to
complete  any more Puts.  All remaining Put sheets shall be marked "VOID" by the
Investor  and  sent  back  to  the  Company  at  the  Company's  request.

Article  3      Unpaid  Amounts

     In  the  event  that  on  the  Maturity  Date the Company has any remaining
amounts unpaid on this Note (the "Residual Amount"), the Holder can exercise its
right to increase the Residual Amount by 2.5% per month paid as liquated damages
("Liquidated  Damages").  The  Liquated Damages will be compounded daily. If the
aforementioned  occurs,  the  Company  will  be  in  Default and the remedies as
described  in  Article  4  may  be  taken at the Holder's discretion.  It is the
intention and acknowledgement of both parties that the Liquidated Damages not be
deemed  as  interest.

Article  4      Defaults  and  Remedies

    Section  4.1 Events of Default. An "Event of Default" or "Default" occurs if
(a) the Company does not make the payment of the Face Amount of this Note within
two  (2)  business days of the applicable Closing of a Put or the Maturity Date,
as  applicable,  upon  redemption  or otherwise, (b) the Company, pursuant to or
within the meaning of any Bankruptcy Law (as hereinafter defined): (i) commences
a  voluntary  case; (ii) consents to the entry of an order for relief against it
in  an  involuntary  case;  (iii) consents to the appointment of a Custodian (as
hereinafter defined) of it or for all or substantially all of its property; (iv)
makes  a  general assignment for the benefit of its creditors; or (v) a court of
competent  jurisdiction enters an order or decree under any Bankruptcy Law that:
(A)  is  for  relief  against the Company in an involuntary case; (B) appoints a
Custodian of the Company or for all or substantially all of its property; or (C)
orders  the liquidation of the Company, and the order or decree remains unstayed
and  in  effect for sixty (60) calendar days; (c) the Company's $0.001 par value
common  stock  (the  "Common  Stock") is suspended or is no longer listed on any
recognized  exchange,  including  an electronic over-the-counter bulletin board,
for  in  excess  of  five  (5) consecutive trading days; or (d) the registration
statement  for the underlying shares in the Investment Agreement does not remain
effective for any reason. As used in this Section 4.1, the term "Bankruptcy Law"
means Title 11 of the United States Code or any similar federal or state law for
the  relief  of  debtors.  The  term  "Custodian"  means  any receiver, trustee,
assignee,  liquidator  or  similar  official  under  any  Bankruptcy  Law.

     In  the  event of a Default hereunder, the Holder shall have the right, but
not  the  obligation,  to  1)  switch  the  Residual  Amount  to  a  three-year
("Convertible Maturity Date"), 10% interest bearing convertible debenture at the
terms  described  in  Section 4.2 (the "Convertible Debenture"). At such time of
Default,  the  Convertible  Debenture  shall  be considered closed ("Convertible
Closing  Date").  If  the  Holder  chooses  to  convert the Residual Amount to a
Convertible  Debenture,  the  Company shall have twenty (20) business days after
notice  of  the  same  (the  "Notice  of  Convertible  Debenture")  to  file  a
registration  statement  covering  an  amount  of  shares  equal  to 300% of the
Residual  Amount.  Such registration statement shall be declared effective under
the Securities Act of 1933, as amended (the "Securities Act"), by the Securities
and  Exchange  Commission (the "Commission") within 40 business days of the date
the  Company  files such Registration Statement.   In the event the Company does
not  file  such  registration statement within twenty (20)  business days of the
Holder's  request,  or  such  registration  statement  is  not  declared  by the
Commission  to  be  effective  under  the  Securities Act within the time period
described  above , the Residual Amount shall increase by $1,000 per day.  In the
event  the  Company  is  given  the  option for accelerated effectiveness of the
registration  statement,  it  agrees  that  it  shall  cause  such  registration
statement  to  be  declared effective as soon as reasonably practicable.  In the
event  that the Company is given the option for accelerated effectiveness of the
registration  statement, but chooses not to cause such registration statement to
be  declared  effective  on  such  accelerated  basis, the Residual Amount shall
increase  by  $1,000  per  day  commencing on the earliest date as of which such
registration  statement  would  have been declared to be effective if subject to
accelerated  effectiveness;  or  2)  the  Holder may increase the Payment Amount
described  under Article 1 to fulfill the repayment of the Residual Amount.  The
Company  shall provide full cooperation to the Holder in directing funds owed to
the Holder on any Put to the Investor.    The Company agrees to diligently carry
out  the  terms  outlined  in  the Investment Agreement for delivery of any such
shares.  In the event the Company is not diligently fulfilling its obligation to
direct  funds  owed  to  the  Holder  from  Puts  to the Investor, as reasonably
determined  by  the  Holder,  the  Holder  may, after giving the Company two (2)
business days' advance notice to cure the same, , elect to increase the Residual
Amount  of  the  Note  by  2.5%  each  day,  compounded  daily.

     Section  4.2  Conversion  Privilege

       (a)     The  Holder  shall  have  the  right  to convert the Convertible
Debenture  into  shares  of  Common  Stock at any time following the Convertible
Closing  Date  and  which  is  before  the  close of business on the Convertible
Maturity Date. The number of shares of Common Stock issuable upon the conversion
of  the  Convertible  Debenture shall be determined pursuant to Section 4.3, but
the  number  of shares issuable shall be rounded up or down, as the case may be,
to  the  nearest  whole  share.

       (b)     The  Convertible Debenture may be converted, whether in whole or
in  part,  at  any  time  and  from  time  to  time.

       (c)     In  the  event  all  or  any portion of the Convertible Debenture
remains  outstanding  on  the Convertible Maturity Date (the "Debenture Residual
Amount"),  the  unconverted  portion  of  such  Convertible  Debenture  will
automatically  be  converted  into  shares  of  Common Stock on such date in the
manner  set  forth  in  Section  4.3.

     Section  4.3  Conversion  Procedure.

     The Residual Amount may be converted, in whole or in part any time and from
time  to time, following the Convertible Closing Date.  Such conversion shall be
effectuated  by  surrendering  to  the Company, or its attorney, the Convertible
Debenture  to  be  converted together with a facsimile or original of the signed
notice  of  conversion  (the  "Notice  of  Conversion").   The date on which the
Notice  of Conversion is effective ("Conversion Date") shall be deemed to be the
date on which the Holder has delivered to the Company a facsimile or original of
the  signed  Notice  of  Conversion,  as  long  as  the  original  Convertible
Debenture(s)  to  be  converted  are  received  by  the  Company within five (5)
business  days thereafter.  At such time that the original Convertible Debenture
has  been  received by the Company, the Holder can elect to whether a reissuance
of the Convertible Debenture is warranted, or whether the Company can retain the
Convertible  Debenture  as  to  a  continual  conversion  by  the  Holder.
Notwithstanding  the  above,  any Notice of Conversion received by 4:00 P.M. EST
shall  be deemed to have been received the following business day (receipt being
via  a  confirmation  of  the  time  such facsimile to the Company is received).

       (a)   Common Stock to  be Issued.  Upon the conversion of any Convertible
Debentures  and  upon  receipt  by the Company or its attorney of a facsimile or
original of the Holder's signed Notice of Conversion, the Company shall instruct
its  transfer  agent  to issue stock certificates without restrictive legends or
stop  transfer  instructions,  if  at  that time the aforementioned registration
statement  described  in Section 4.1 has been declared effective (or with proper
restrictive  legends  if the registration statement has not as yet been declared
effective), in such denominations to be specified at conversion representing the
number  of  shares of Common Stock issuable upon such conversion, as applicable.
In  the event that the Debenture is aged one year and deemed sellable under Rule
144, the Company shall, upon a Notice of Conversion, instruct the transfer agent
to issue free trading certificates without restrictive legends, subject to other
applicable  securities  laws.  The  Company  is responsible to provide all costs
associated  with  the  issuance  of the shares, including but not limited to the
opinion  letter,  FedEx  of the certificates and any other costs that arise. The
Company  shall  act  as  registrar  and  shall  maintain  an  appropriate ledger
containing the necessary information with respect to each Convertible Debenture.
The  Company  warrants that no instructions, other than these instructions, have
been  given  or  will  be  given to the transfer agent and that the Common Stock
shall  otherwise  be freely resold, except as may be set forth herein or subject
to  applicable  law.

       (b)     Conversion  Rate.  Holder  is  entitled  to convert the Debenture
Residual  Amount  ,  plus  accrued  interest,  anytime following the Convertible
Maturity Date, at the lesser of (i) 75% of the average of the lowest closing bid
price  during  the  fifteen  (15)  trading immediately preceding the Convertible
Maturity Date or (ii) 100% of the average of the lowest bid price for the twenty
(20)  trading  days  immediately preceding the Convertible Maturity Date ("Fixed
Conversion  Price").  No  fractional  shares  or scrip representing fractions of
shares  will be issued on conversion, but the number of shares issuable shall be
rounded  up  or  down,  as  the  case  may  be,  to  the  nearest  whole  share.

       (c)    Nothing  contained  in  the  Convertible  Debenture shall be
deemed  to  establish or require the payment of interest to the Holder at a rate
in  excess of the maximum rate permitted by governing law. In the event that the
rate  of  interest  required  to  be  paid exceeds the maximum rate permitted by
governing  law,  the  rate  of  interest required to be paid thereunder shall be
automatically  reduced to the maximum rate permitted under the governing law and
such  excess  shall  be returned with reasonable promptness by the Holder to the
Company.

       (d)     It  shall  be  the Company's responsibility to take all necessary
actions and to bear all such costs to issue the Common Stock as provided herein,
including  the  responsibility and cost for delivery of an opinion letter to the
transfer  agent,  if  so  required.  Holder shall be treated as a shareholder of
record  on  the  date  Common Stock is issued to the Holder. If the Holder shall
designate  another  person  as  the  entity  in  the  name  of  which  the stock
certificates  issuable  upon  conversion  of the Convertible Debenture are to be
issued  prior  to the issuance of such certificates, the Holder shall provide to
the  Company evidence that either no tax shall be due and payable as a result of
such  transfer  or  that  the applicable tax has been paid by the Holder or such
person. Upon surrender of any Convertible Debentures that are to be converted in
part, the Company shall issue to the Holder a new Convertible Debenture equal to
the  unconverted  amount,  if  so  requested  in  writing  by  the  Holder.

       (e)    Within  five  (5) business days after receipt of the documentation
referred  to  above in Section 4.2, the Company shall deliver a certificate, for
the  number of shares of Common Stock issuable upon the conversion. In the event
the  Company  does not make delivery of the Common Stock as instructed by Holder
within  five (5) business days after the Conversion Date, then in such event the
Company  shall pay to the Holder one percent (1%) in cash of the dollar value of
the Debenture Residual Amount remaining after said conversion, compounded daily,
per  each  day  after the fifth (5th) business day following the Conversion Date
that  the  Common  Stock  is  not  delivered  to  the  Purchaser.

           The Company acknowledges that its failure to deliver the Common Stock
within five (5) business days after the Conversion Date will cause the Holder to
suffer  damages  in an amount that will be difficult to ascertain.  Accordingly,
the  parties  agree  that it is appropriate to include in this  Note a provision
for  liquidated  damages  The  parties acknowledge and agree that the liquidated
damages  provision  set forth in this section represents the parties' good faith
effort  to quantify such damages and, as such, agree that the form and amount of
such  liquidated  damages are reasonable and will not constitute a penalty.  The
payment of liquidated damages shall not relieve the Company from its obligations
to deliver the Common Stock pursuant to the terms of this Convertible Debenture.

       (f)     The  Company  shall  at  all  times  reserve (or make alternative
written  arrangements  for  reservation  or  contribution  of  shares)  and have
available  all  Common  Stock  necessary  to  meet conversion of the Convertible
Debentures  by  the  Holder  of the entire amount of Convertible Debentures then
outstanding.  If,  at any time the Holder submits a Notice of Conversion and the
Company  does not have sufficient authorized but unissued shares of Common Stock
(or  alternative shares of Common Stock as may be contributed by stockholders of
the  Company)  available  to  effect,  in  full, a conversion of the Convertible
Debentures  (a  "Conversion Default," the date of such default being referred to
herein  as the "Conversion Default Date"), the Company shall issue to the Holder
all  of  the  shares  of  Common  Stock  which  are available, and the Notice of
Conversion  as  to  any Convertible Debentures requested to be converted but not
converted  (the  "Unconverted  Convertible  Debentures"), may be deemed null and
void  upon  written  notice sent by the Holder to the Company. The Company shall
provide  notice  of  such Conversion Default ("Notice of Conversion Default") to
the  Holder,  by  facsimile within three (3) business days of such default (with
the  original  delivered  by  overnight mail or two day courier), and the Holder
shall  give  notice to the Company by facsimile within five (5) business days of
receipt  of  the  original  Notice  of  Conversion  Default  (with  the original
delivered  by  overnight  mail  or  two  day  courier) of its election to either
nullify  or  confirm  the  Notice  of  Conversion.

     The  Company  agrees  to  pay  the Holder payments for a Conversion Default
("Conversion  Default  Payments")  in  the  amount  of (N/365) multiplied by .24
multiplied  by the initial issuance price of the outstanding or tendered but not
converted Convertible Debentures held by the Holder where N = the number of days
from the Conversion Default Date to the date (the "Authorization Date") that the
Company  authorizes  a  sufficient  number  of  shares of Common Stock to effect
conversion  of  all  remaining  Convertible  Debentures.  The Company shall send
notice  ("Authorization  Notice") to the Holder that additional shares of Common
Stock  have  been authorized, the Authorization Date, and the amount of Holder's
accrued  Conversion  Default  Payments.  The accrued Conversion Default shall be
paid  in  cash  or shall be convertible into Common Stock at the conversion rate
set  forth  in the first sentence of this paragraph, upon written notice sent by
the Holder to the Company, which Conversion Default shall be payable as follows:
(i)  in  the event the Holder elects to take such payment in cash, cash payments
shall  be  made  to the Holder  by the fifth (5th) day of the following calendar
month,  or  (ii)  in  the event Holder elects to take such payment in stock, the
Holder may convert such payment amount into Common Stock at  the conversion rate
set  forth  in  the first sentence of this paragraph at any time after the fifth
(5th)  day  of the calendar month following the month in which the Authorization
Notice  was  received,  until  the  expiration  of  the mandatory three (3) year
conversion  period.

     The  Company  acknowledges that its failure to maintain a sufficient number
of authorized but unissued shares of Common Stock to effect in full a conversion
of  the  Convertible  Debentures  will  cause the Holder to suffer damages in an
amount that will be difficult to ascertain.  Accordingly, the parties agree that
it  is  appropriate  to  include  in  this  Agreement a provision for liquidated
damages.  The  parties  acknowledge  and  agree  that  the  liquidated  damages
provision set forth in this section represents the parties' good faith effort to
quantify  such  damages  and,  as  such,  agree that the form and amount of such
liquidated  damages  are  reasonable  and  will  not  constitute a penalty.  The
payment of liquidated damages shall not relieve the Company from its obligations
to deliver the Common Stock pursuant to the terms of this Convertible Debenture.

       (g)    If,  by  the fifth (5th) business day after the Conversion Date of
any portion of the Convertible Debentures to be converted (the "Delivery Date"),
the  transfer  agent  fails  for  any  reason  to  deliver the Common Stock upon
conversion  by the Holder and after such Delivery Date, the Holder purchases, in
an  open  market transaction or otherwise, shares of Common Stock (the "Covering
Shares")  solely  in  order to make delivery in satisfaction of a sale of Common
Stock  by the Holder (the "Sold Shares"), which delivery such Holder anticipated
to  make  using  the  Common  Stock  issuable  upon conversion (a "Buy-In"), the
Company  shall pay to the Holder, in addition to any other amounts due to Holder
pursuant  to  this  Convertible  Debenture,  and not in lieu thereof, the Buy-In
Adjustment  Amount  (as  defined  below).  The "Buy In Adjustment Amount" is the
amount  equal  to  the  excess, if any, of (x) the Holder's total purchase price
(including  brokerage  commissions, if any) for the Covering Shares over (y) the
net  proceeds  (after brokerage commissions, if any) received by the Holder from
the  sale of the Sold Shares. The Company shall pay the Buy-In Adjustment Amount
to  the  Holder  in immediately available funds within five (5) business days of
written  demand  by  the Holder. By way of illustration and not in limitation of
the  foregoing,  if  the  Holder purchases shares of Common Stock having a total
purchase  price  (including  brokerage commissions) of $11,000 to cover a Buy-In
with  respect to shares of Common Stock it sold for net proceeds of $10,000, the
Buy-In Adjustment Amount which the Company will be required to pay to the Holder
will  be  $1,000.

       (h)     The  Company  shall  defend, protect, indemnify and hold harmless
the Holder and all of its shareholders, officers, directors, employees, counsel,
and  direct  or  indirect  investors and any of the foregoing person's agents or
other  representatives  (including,  without  limitation,  those  retained  in
connection  with the transactions contemplated by this Agreement) (collectively,
the  "Section  4.3(h) Indemnitees") from and against any and all actions, causes
of  action,  suits,  claims,  losses,  costs,  penalties,  fees, liabilities and
damages,  and expenses in connection therewith (irrespective of whether any such
Section  4.3(h)  Indemnitee  is  a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the  "Section  4.3(h) Indemnified Liabilities"), incurred by any Section 4.3(h)
Indemnitee  as  a  result  of,  or  arising  out  of,  or  relating  to  (i) any
misrepresentation  or  breach  of  any  representation  or  warranty made by the
Company  in  the  Transaction  Documents or any other certificate, instrument or
document  contemplated  hereby  or  thereby,  (ii)  any  breach of any covenant,
agreement,  or  obligation of the Company contained in the Transaction Documents
or  any  other  certificate,  instrument,  or  document  contemplated  hereby or
thereby,  (iii) any cause of action, suit, or claim brought or made against such
Section  4.3(h) Indemnitee by a third party and arising out of or resulting from
the  execution,  delivery,  performance,  or  enforcement  of  the  Transaction
Documents  or any other certificate, instrument, or document contemplated hereby
or thereby, (iv) any transaction financed or to be financed in whole or in part,
directly  or  indirectly,  with the proceeds of the issuance of the Common Stock
underlying  the  Convertible  Debenture ("Securities"), or (v) the status of the
Holder or holder of the Securities as an investor in the Company, except insofar
as  any  such  misrepresentation, breach or any untrue statement, alleged untrue
statement,  omission,  or  alleged  omission  is  made  in  reliance upon and in
conformity  with  written  information furnished to the Company by the Holder or
the  Investor which is specifically intended by the Holder or the Investor to be
relied  upon  by  the  Company, including for use in the preparation of any such
registration  statement,  preliminary  prospectus, or prospectus, or is based on
illegal trading of the Common Stock by the Holder or the Investor. To the extent
that  the  foregoing  undertaking  by  the  Company may be unenforceable for any
reason,  the  Company  shall  make  the  maximum contribution to the payment and
satisfaction  of  each  of the Indemnified Liabilities that is permissible under
applicable  law.  The indemnity provisions contained herein shall be in addition
to  any  cause  of  action  or  similar  rights  the  Holder  may  have, and any
liabilities  the  Holder  may  be  subject  to.

Article  5  Additional  Financing

          The  Company  will  not enter into any additional financing agreements
without  prior  expressed  written  consent  from the Holder, which shall not be
unreasonably  withheld.

Article  6     Notice.

     Any  notices,  consents,  waivers  or  other  communications  required  or
permitted  to  be given under the terms of this Note must be in writing and will
be  deemed  to  have been delivered (i) upon receipt, when delivered personally;
(ii)  upon  receipt,  when  sent  by  facsimile  (provided  a  confirmation  of
transmission is mechanically or electronically generated and kept on file by the
sending  party); or (iii) one (1) day after deposit with a nationally recognized
overnight  delivery  service,  in  each  case properly addressed to the party to
receive  the  same.  The addresses and facsimile numbers for such communications
shall  be:

If  to  the  Company:

     Payment  Data  Systems,  Inc,  Inc.  Attn:  Michael  Long
     12500  San  Pedro,  Suite  120
     San  Antonio,  TX  78216
     Tel:  210.249.4100
     Fax:  210.249.4130

If  to  the  Holder:

     Dutchess  Private  Equities  Fund,  II,  LP
     Douglas  Leighton
     312  Stuart  Street,  Third  Floor
     Boston,  MA  02116
     (617)  960-3570

     Each  party  shall provide five (5) business days prior notice to the other
party  of  any  change  in  address,  phone  number  or  facsimile  number.

Article  7     Time

     Where  this  Note  authorizes  or  requires  the  payment  of  money or the
performance of a condition or obligation on a Saturday or Sunday or a holiday in
which  the United States Stock Markets ("US Markets") are closed ("Holiday"), or
authorizes or requires the payment of money or the performance of a condition or
obligation  within,  before  or  after  a period of time computed from a certain
date,  and such period of time ends on a Saturday or a Sunday or a Holiday, such
payment  may be made or condition or obligation performed on the next succeeding
business  day,  and  if the period ends at a specified hour, such payment may be
made  or condition performed, at or before the same hour of such next succeeding
business  day,  with  the  same  force  and  effect  as  if made or performed in
accordance  with  the  terms of this Note.  A "business day" shall mean a day on
which  the  US  Markets  are  open  for  a  full  day  or  half  day of trading.

Article  8     No  Assignment

     This  Note  shall  not  be  assigned.

Article  9     Rules  of  Construction.

     In  this Note, unless the context otherwise requires, words in the singular
number  include the plural, and in the plural include the singular, and words of
the  masculine gender include the feminine and the neuter, and when the tense so
indicates,  words of the neuter gender may refer to any gender.  The numbers and
titles  of  sections  contained  in  the  Note  are  inserted for convenience of
reference  only,  and  they  neither form a part of this Note nor are they to be
used  in  the  construction or interpretation hereof.  Wherever, in this Note, a
determination of the Company is required or allowed, such determination shall be
made  by  a majority of the Board of Directors of the Company and, if it is made
in  good  faith,  it  shall  be  conclusive and binding upon the Company and the
Holder.

Article  10     Governing  Law

     The  validity,  terms,  performance  and  enforcement of this Note shall be
governed  and construed by the provisions hereof and in accordance with the laws
of  the  Commonwealth  of  Massachusetts  applicable  to  agreements  that  are
negotiated,  executed,  delivered  and  performed  solely in the Commonwealth of
Massachusetts.

Article  11     Litigation

The  parties  to  this  agreement  will  submit  all disputes arising under this
agreement  to arbitration in Boston, Massachusetts before a single arbitrator of
the  American Arbitration Association ("AAA").  The arbitrator shall be selected
by  application  of the rules of the AAA, or by mutual agreement of the parties,
except that such arbitrator shall be an attorney admitted to practice law in the
Commonwealth  of  Massachusetts.  No  party to this agreement will challenge the
jurisdiction  or  venue  provisions  as  provided  in  this  section.

Article  12      Conditions  to  Closing

     The Company shall have delivered the proper Collateral to the Holder before
Closing  of  this  Note

     Additionally,  the  Company  shall  have signed a consulting agreement with
Edgarization,  LLC  and  shall  have fully paid consideration for such contract.

Article  13     Legal

     The  Company  shall  pay  legal fees associated with the transaction in the
amount  of  $5,000  directly  from  the  Closing  of  this  Note.

Article  14        Indemnification

     In  consideration  of the Holder's execution and delivery of this Agreement
and  the  acquisition  and  funding  by  the Holder of the Note hereunder and in
addition  to  all  of  the  Company's  other  obligations  under  the  documents
contemplated  hereby,  the  Company  shall  defend,  protect, indemnify and hold
harmless the Holder and all of its shareholders, officers, directors, employees,
counsel,  and  direct  or  indirect  investors and any of the foregoing person's
agents  or  other representatives (including, without limitation, those retained
in  connection  with  the  transactions  contemplated  by  this  Agreement)
(collectively,  the  "Indemnities") from and against any and all actions, causes
of  action,  suits,  claims,  losses,  costs,  penalties,  fees, liabilities and
damages,  and expenses in connection therewith (irrespective of whether any such
Indemnitee  is  a  party  to  the  action for which indemnification hereunder is
sought),  and  including  reasonable  attorneys'  fees  and  disbursements  (the
"Indemnified  Liabilities"  ),  incurred  by  any  Indemnitee as a result of, or
arising  out  of,  or  relating  to  (i)  any misrepresentation or breach of any
representation  or  warranty  made  by  the  Company  in  the Note, or any other
certificate,  instrument  or  document  contemplated  hereby or thereby (ii) any
breach  of any covenant, agreement or obligation of the Company contained in the
Note  or  any  other certificate, instrument or document  contemplated hereby or
thereby,  except  insofar  as  any  such misrepresentation, breach or any untrue
statement,  alleged  untrue  statement,  omission or alleged omission is made in
reliance  upon  and  in  conformity  with  written  information furnished to the
Company  by,  or  on behalf of, the Holder or is based on illegal trading of the
Common  Stock by the Holder. To the extent that the foregoing undertaking by the
Company  may be unenforceable for any reason, the Company shall make the maximum
contribution  to  the  payment  and  satisfaction  of  each  of  the Indemnified
Liabilities  that  is permissible under applicable law. The indemnity provisions
contained  herein  shall be in addition to any cause of action or similar rights
the  Holder  may  have,  and  any  liabilities  the  Holder  may  be subject to.

Article  15  Investor  Shares

     The  Company  shall  issue 75,000 shares of unregistered, restricted Common
Stock  to  the Holder as an incentive for the investment ("Shares").  The Shares
shall  be  issued  and  delivered  immediately  to  the  Holder  and shall carry
piggyback  registration  rights.  In  the event the Shares are not registered in
the  next  registration  statement,  the  Company  shall pay to the Holder, as a
penalty,  75,000  additional shares of common stock for each time a registration
statement  is  filed  and  the  Shares are not included.  The Holder retains the
right  to  waive  such  penalty,  in  the  event  Holder  chooses  to  do  so.

Article  16  Use  of  Proceeds

General  corporate  working  capital  purposes. This shall not to be used to pay
down  long-term  debt  to  any  financial  institution.

     Any misrepresentations shall be considered a breach of contract and default
under  this Agreement and the Holder may seek to take actions as described under
Section  4  of  this  Agreement.

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

                         PAYMENT  DATA  SYSTEMS,  INC.

                         By:     /s/  Michael  Long
                               ------------------------------------
                         Name:        Michael  Long
                         Title:       Chief  Executive  Officer

                         DUTCHESS  PRIVATE  EQUITIES  FUND,  II,  L.P.
                         BY  ITS  GENERAL  PARTNER  DUTCHESS
                         CAPITAL  MANAGEMENT,  LLC

                         By:  /s/    Douglas  H.  Leighton
                            ---------------------------------------
                         Name:       Douglas  H.  Leighton
                         Title:      A  Managing  MemberUnassociated Document

Exhibit 4.1

 

 

AMENDED AND RESTATED

INFORM WORLDWIDE HOLDINGS, INC.

2004 EMPLOYEE STOCK INCENTIVE PLAN

1.    General Provisions.

1.1    Purpose. This Amended and Restated 2004 Inform Worldwide Holdings, Inc. Employee Stock Incentive Plan (the "Plan") is intended to allow designated officers and employees (including so-called "leased employees") (all of whom are sometimes collectively referred to herein as the "Employees," or individually as the "Employee") of Inform Worldwide Holdings, Inc., a Colorado corporation (the "Company") and its Subsidiaries (as that term is defined below) which they may have from time to time (the Company and such Subsidiaries are referred to herein as the "Company") to receive certain options (the "Stock Options") to purchase common stock of the Company, no par value (the "Common Stock"), and to receive grants of the Common Stock subject to certain restrictions (the "Awards"). As used in this Plan, the term "Subsidiary" shall mean each corporation which is a "subsidiary corporation" of the Company within the meaning of Section 424(f) of the Internal Revenue Code of 1986, as amended (the "Code"). The purpose of this Plan is to provide the Employees with equity-based compensation incentives who make significant and extraordinary contributions to the long-term growth and performance of the Company, and to attract and retain the Employees.

1.2    Administration.

  1.2.1    The Plan shall be administered by the Compensation Committee (the "Committee") of, or appointed by, the Board of Directors of the Company (the "Board"). The Committee shall select one of its members as Chairman and shall act by vote of a majority of a quorum, or by unanimous written consent. A majority of its members shall constitute a quorum. The Committee shall be governed by the provisions of the Company’s Bylaws and of Colorado law applicable to the Board, except as otherwise provided herein or determined by the Board.

  1.2.2    The Committee shall have full and complete authority, in its discretion, but subject to the express provisions of this Plan, (a) to approve the Employees nominated by the management of the Company to be granted Awards or Stock Options; (b) to determine the number of Awards or Stock Options to be granted to an Employee; (c) to determine the time or times at which Awards or Stock Options shall be granted; to establish the terms and conditions upon which Awards or Stock Options may be exercised; (d) to remove or adjust any restrictions and conditions upon Awards or Stock Options; (e) to specify, at the time of grant, provisions relating to exercisability of Stock Options and to accelerate or otherwise modify the exercisability of any Stock Options; and (f) to adopt such rules and regulations and to make all other determinations deemed necessary or desirable for the administration of this Plan. All interpretations and constructions of this Plan by the Committee, and all of its actions hereunder, shall be binding and conclusive on all persons for all purposes. 

  1.2.3    The Company hereby agrees to indemnify and hold harmless each Committee member and each Employee, and the estate and heirs of such Committee member or Employee, against all claims, liabilities, expenses, penalties, damages or other pecuniary losses, including legal fees, which such Committee member or Employee, his estate or heirs may suffer as a result of his responsibilities, obligations or duties in connection with this Plan, to the extent that insurance, if any, does not cover the payment of such items. No member of the Committee or the Board shall be liable for any action or determination made in good faith with respect to this Plan or any Award or Stock Option granted pursuant to this Plan.

1.3    Eligibility and Participation. The Employees eligible under this Plan shall be approved by the Committee from those Employees who, in the opinion of the management of the Company, are in positions which enable them to make significant contributions to the long-term performance and growth of the Company. In selecting the Employees to whom Award or Stock Options may be granted, consideration shall be given to factors such as employment position, duties and responsibilities, ability, productivity, length of service, morale, interest in the Company and recommendations of supervisors. 

1.4    Shares Available. The maximum number of shares of the Common Stock that may be initially issued pursuant to this Plan is Fifty Three Million (53,000,000), subject to adjustment pursuant to the provisions of Section 4.1. Concurrently with the Board’s adoption of this Plan, the Board has adopted the Amended and Restated Inform Worldwide Holdings, Inc. 2004 Non-Employee Directors and Consultants Retainer Stock Plan ("Non-Employee Plan"). The maximum number of shares of the Common Stock that may be initially issued pursuant to the Non-Employee Plan is Thirty Million (30,000,000). The aggregate number of shares of Common Stock that may be issued pursuant to the Plan and Non-Employee Plan is Eighty Three Million (83,000,000). In the event that the maximum number of available Shares under the Plan have been issued, the Shares available under Non-Employee Plan shall be available for issuance under this Plan.

If shares of the Common Stock awarded or issued under this Plan are reacquired by the Company due to a forfeiture or for any other reason, such shares shall be cancelled and thereafter shall again be available for purposes of this Plan. If a Stock Option expires, terminates or is cancelled for any reason without having been exercised in full, the shares of the Common Stock not purchased thereunder shall again be available for purposes of this Plan. Shares of the Common Stock issueable under this Plan and the Non-Employee Plan be taken from treasury shares of the Company or purchased on the open market. 

	 
	 	1 	 
	 

	 

2.    Provisions Relating to Stock Options.

2.1    Grants of Stock Options. The Committee may grant Stock Options in such amounts, at such times, and to the Employees nominated by the management of the Company as the Committee, in its discretion, may determine. Stock Options granted under this Plan may constitute "incentive stock options" within the meaning of Section 422 of the Code, if so designated by the Committee on the date of grant and if the requirements of Section 422 of the Code have been met. The Committee may also grant Stock Options which do not constitute incentive stock options, and any such Stock Options shall be designated non-statutory stock options by the Committee on the date of grant. The aggregate Fair Market Value (determined as of the time an incentive stock option is granted) of the Common Stock with respect to which incentive stock options are exercisable for the first time by any Employee during any one calendar year (under all plans of the Company and any parent or subsidiary of the Company) may not exceed the maximum amount permitted under Section 422 of the Code (currently, $100,000.00). Non-statutory stock options shall not be subject to the limitations relating to incentive stock options contained in the preceding sentence. Each Stock Option shall be evidenced by a written agreement (the "Option Agreement") in a form approved by the Committee, which shall be executed on behalf of the Company and by the Employee to whom the Stock Option is granted, and which shall be subject to the terms and conditions of this Plan. In the discretion of the Committee, Stock Options may include provisions (which need not be uniform), authorized by the Committee, in its discretion, that accelerate an Employee’s rights to exercise Stock Options following a "Change in Control," upon termination of the Employee’s employment by the Company without "Cause" or by the Employee for "Good Reason," as such terms are defined in Section 3.1 hereof. The holder of a Stock Option shall not be entitled to the privileges of stock ownership as to any shares of the Common Stock not actually issued to such holder. 

2.2    Purchase Price. The purchase price (the "Exercise Price") of shares of the Common Stock subject to each Stock Option (the "Option Shares") shall be determined by the Committee at the time of grant but, in the case of an incentive stock option, shall not be less than 100 percent of the Fair Market Value on the date of the grant of the option, and in the case of any other stock option, shall not be less than 85 percent of the Fair Market Value on the date of the grant of the option. For an Employee holding or who is deemed to be holding (by reason of the attribution rules applicable under Section 424(d) of the Code) greater than 10% of the total voting power of all stock of the Company, the Exercise Price of an incentive stock option shall be at least 110% of the Fair Market Value of the Common Stock on the date of the grant of the option. As used herein, "Fair Market Value" means the mean between the highest and lowest reported sales prices of the Common Stock on the New York Stock Exchange Composite Tape or, if not listed on such exchange, on any other national securities exchange on which the Common Stock is listed or on The Nasdaq Stock Market, or, if not so listed on any other national securities exchange or The Nasdaq Stock Market, then the average of the bid price of the Common Stock during the last five trading days on the OTC Bulletin Board immediately preceding the last trading day prior to the date with respect to which the Fair Market Value is to be determined. If the Common Stock is not then publicly traded, then the Fair Market Value of the Common Stock shall be the book value of the Company per share as determined on the last day of March, June, September, or December in any year closest to the date when the determination is to be made. For the purpose of determining book value hereunder, book value shall be determined by adding as of the applicable date called for herein the capital, surplus, and undivided profits of the Company, and after having deducted any reserves theretofore established; the sum of these items shall be divided by the number of shares of the Common Stock outstanding as of said date, and the quotient thus obtained shall represent the book value of each share of the Common Stock of the Company.

2.3    Option Period. The Stock Option period (the "Term") shall commence on the date of grant of the Stock Option and shall be 10 years or such shorter period as is determined by the Committee. Each Stock Option shall provide that it is exercisable over its term in such periodic installments as the Committee in its sole discretion may determine. Such provisions need not be uniform. Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") exempts persons normally subject to the reporting requirements of Section 16(a) of the Exchange Act (the "Section 16 Reporting Persons") pursuant to a qualified employee stock option plan from the normal requirement of not selling until at least six months and one day from the date the Stock Option is granted.

            2.4    Exercise of Options.

   2.4.1    Each Stock Option may be exercised in whole or in part (but not as to fractional shares) by delivering it for surrender or endorsement to the Company, attention of the Corporate Secretary, at the principal office of the Company, together with payment of the Exercise Price and an executed Notice and Agreement of Exercise in the form prescribed by Section 2.4.2. Payment may be made (a) in cash, (b) by cashier’s or certified check, (c) by surrender of previously owned shares of the Common Stock valued pursuant to Section 2.2 (if the Committee authorizes payment in stock in its discretion), (d) by withholding from the Option Shares which would otherwise be issuable upon the exercise of the Stock Option that number of Option Shares equal to the exercise price of the Stock Option, if such withholding is authorized by the Committee in its discretion, (e) in the discretion of the Committee, by the delivery to the Company of the optionee’s promissory note secured by the Option Shares, bearing interest at a rate sufficient to prevent the imputation of interest under Sections 483 or 1274 of the Code, and having such other terms and conditions as may be satisfactory to the Committee., or (f) if the Employee and the Company so agree, deliver to the Optionee’s NASD licensed broker-dealer and to the Company an irrevocable notice of exercise of the option, together with irrevocable instructions from the Optionee to the Company to deliver the Option Shares to the broker-dealer. Upon receipt of such notice, the Company shall immediately deliver to the Employee’s broker-dealer the share certificate(s) representing the Option Shares so purchased, and upon receipt of such certificate(s), the broker shall sell the Option Shares and remit the purchase price for all Option Shares then being purchased, and any withholding taxes to the Corporation. 

Subject to the provisions of this Section 2.4 and Section 2.5, the Employee shall have the right to exercise the Employee’s Stock Options at the rate of at least twenty percent (20%) per year over five (5) years from the date the stock option is granted.

	 
	 	 2	 
	 

	 

   2.4.2    Exercise of each Stock Option is conditioned upon the agreement of the Employee to the terms and conditions of this Plan and of such Stock Option as evidenced by the Employee’s execution and delivery of a Notice and Agreement of Exercise in a form to be determined by the Committee in its discretion. Such Notice and Agreement of Exercise shall set forth the agreement of the Employee that (a) no Option Shares will be sold or otherwise distributed in violation of the Securities Act of 1933, as amended (the "Securities Act") or any other applicable federal or state securities laws, (b) each Option Share certificate may be imprinted with legends reflecting any applicable federal and state securities law restrictions and conditions, (c) the Company may comply with said securities law restrictions and issue "stop transfer" instructions to its Transfer Agent and Registrar without liability, (d) if the Employee is a Section 16 Reporting Person, the Employee will furnish to the Company a copy of each Form 4 or Form 5 filed by said Employee and will timely file all reports required under federal securities laws, and (e) the Employee will report all sales of Option Shares to the Company in writing on a form prescribed by the Company.

  2.4.3    No Stock Option shall be exercisable unless and until any applicable registration or qualification requirements of federal and state securities laws, and all other legal requirements, have been fully complied with. At no time shall the total number of securities issuable upon the exercise of all outstanding options under this Plan, and the total number of securities provided for under any bonus or similar plan or agreement of the Company exceed a number of securities which is equal to 30 percent (30%) of the then outstanding securities of the Company, unless a percentage higher than 30 percent (30%) is approved by at least a two-thirds of the outstanding securities entitled to vote. The Company will use reasonable efforts to maintain the effectiveness of a registration statement under the Securities Act (a "Registration Statement") for the issuance of Stock Options and shares acquired thereunder, but there may be times when no such Registration Statement will be currently effective. The exercise of Stock Options may be temporarily suspended without liability to the Company during times when no such Registration Statement is currently effective, or during times when, in the reasonable opinion of the Committee, such suspension is necessary to preclude violation of any requirements of applicable law or regulatory bodies having jurisdiction over the Company. If any Stock Option would expire for any reason except the end of its term during such a suspension, then if exercise of such Stock Option is duly tendered before its expiration, such Stock Option shall be exercisable and exercised (unless the attempted exercise is withdrawn) as of the first day after the end of such suspension. The Company shall have no obligation to file any Registration Statement covering resales of Option Shares.

           2.5    Continuous Employment. Except as provided in Section 2.7 below, an Employee may not exercise a Stock Option unless from the date of grant to the date of exercise the Employee remains continuously in the employ of the Company (which shall be deemed to included Employees who are "leased" by the Company from a third party). For purposes of this Section 2.5, the period of continuous employment of an Employee with the Company shall be deemed to include (without extending the term of the Stock Option) any period during which the Employee is on leave of absence with the consent of the Company, provided that such leave of absence shall not exceed three months and that the Employee returns to the employ of the Company at the expiration of such leave of absence. If the Employee fails to return to the employ of the Company at the expiration of such leave of absence, the Employee’s employment with the Company shall be deemed terminated as of the date such leave of absence commenced. The continuous employment of an Employee with the Company shall also be deemed to include any period during which the Employee is a member of the Armed Forces of the United States, provided that the Employee returns to the employ of the Company within 90 days (or such longer period as may be prescribed by law) from the date the Employee first becomes entitled to a discharge from military service. If an Employee does not return to the employ of the Company within 90 days (or such longer period as may be prescribed by law) from the date the Employee first becomes entitled to a discharge from military service, the Employee’s employment with the Company shall be deemed to have terminated as of the date the Employee’s military service ended.

2.6    Restrictions on Transfer. Each Stock Option granted under this Plan shall be transferable only by will or the laws of descent and distribution. No interest of any Employee under this Plan shall be subject to attachment, execution, garnishment, sequestration, the laws of bankruptcy or any other legal or equitable process. Each Stock Option granted under this Plan shall be exercisable during an Employee’s lifetime only by the Employee or by the Employee’s legal representative.

2.7    Termination of Employment.

   2.7.1Upon an Employee’s Retirement, Disability (both terms being defined below) or death, (a) all Stock Options to the extent then presently exercisable shall remain in full force and effect and may be exercised pursuant to the provisions thereof, including expiration at the end of the fixed term thereof, and (b) unless otherwise provided by the Committee, all Stock Options to the extent not then presently exercisable by the Employee shall terminate as of the date of such termination of employment and shall not be exercisable thereafter. Unless employment is terminated for cause, as defined by applicable law, the right to exercise in the event of termination of employment, to the extent that the optionee is entitled to exercise on the date the employment, terminates at least six months from the date of termination if termination was caused by death or disability.

   2.7.2Upon the termination of the employment of an Employee with the Company for any reason other than the reasons set forth in Section 2.7.1 hereof, (a) all Stock Options to the extent then presently exercisable by the Employee shall remain exercisable only for a period of 90 days after the date of such termination of employment (except that the 90 day period shall be extended to 12 months if the Employee shall die during such 90 day period), and may be exercised pursuant to the provisions thereof, including expiration at the end of the fixed term thereof, and (b) unless otherwise provided by the Committee, all Stock Options to the extent not then presently exercisable by the Employee shall terminate as of the date of such termination of employment and shall not be exercisable thereafter.

   2.7.3For purposes of this Plan:

   (a)    "Retirement" shall mean an Employee’s retirement from the employ of the Company on or after the date on which the Employee attains the age of 65 years; and

   (b)    "Disability" shall mean total and permanent incapacity of an Employee, due to physical impairment or legally established mental incompetence, to perform the usual duties of the Employee’s employment with the Company, which disability shall be determined (i) on medical evidence by a licensed physician designated by the Committee, or (ii) on evidence that the Employee has become entitled to receive primary benefits as a disabled employee under the Social Security Act in effect on the date of such disability.

	 
	 	 3	 
	 

	 

    3.    Provisions Relating To Awards. 

3.1    Grant of Awards. Subject to the provisions of this Plan, the Committee shall have full and complete authority, in its discretion, but subject to the express provisions of this Plan, to (1) grant Awards pursuant to this Plan, (2) determine the number of shares of the Common Stock subject to each Award (the "Award Shares"), (3) determine the terms and conditions (which need not be identical) of each Award, including the consideration (if any) to be paid by the Employee for such the Common Stock, which may, in the Committee’s discretion, consist of the delivery of the Employee’s promissory note meeting the requirements of Section 2.4.1, (4) establish and modify performance criteria for Awards, and (5) make all of the determinations necessary or advisable with respect to Awards under this Plan. Each Award under this Plan shall consist of a grant of shares of the Common Stock subject to a restriction period (after which the restrictions shall lapse), which shall be a period commencing on the date the Award is granted and ending on such date as the Committee shall determine (the "Restriction Period"). The Committee may provide for the lapse of restrictions in installments, for acceleration of the lapse of restrictions upon the satisfaction of such performance or other criteria or upon the occurrence of such events as the Committee shall determine, and for the early expiration of the Restriction Period upon an Employee’s death, Disability or Retirement as defined in Section 2.7.3, or, following a Change of Control, upon termination of an Employee’s employment by the Company without "Cause" or by the Employee for "Good Reason," as those terms are defined herein. For purposes of this Plan:

           "Change of Control" shall be deemed to occur (a) on the date the Company first has actual knowledge that any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) has become the beneficial owner (as defined in Rule 13(d)-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 40 percent or more of the combined voting power of the Company’s then outstanding securities, or (b) on the date the stockholders of the Company approve (i) a merger of the Company with or into any other corporation in which the Company is not the surviving corporation or in which the Company survives as a subsidiary of another corporation, (ii) a consolidation of the Company with any other corporation, or (iii) the sale or disposition of all or substantially all of the Company’s assets or a plan of complete liquidation.

"Cause," when used with reference to termination of the employment of an Employee by the Company for "Cause," shall mean: 

                (a)    The Employee’s continuing willful and material breach of his duties to the Company after he receives a demand from the Chief Executive of the Company specifying the manner in which he has willfully and materially breached such duties, other than any such failure resulting from Disability of the Employee or his resignation for "Good Reason," as defined herein; or

    (b)    The conviction of the Employee of a felony; or

    (c)    The Employee’s commission of fraud in the course of his employment with the Company, such as embezzlement or other material and intentional violation of law against the Company; or

    (d)    The Employee’s gross misconduct causing material harm to the Company.

"Good Reason" shall mean any one or more of the following, occurring following or in connection with a Change of Control and within 90 days prior to the Employee’s resignation, unless the Employee shall have consented thereto in writing:

    (a)    The assignment to the Employee of duties inconsistent with his executive status prior to the Change of Control or a substantive change in the officer or officers to whom he reports from the officer or officers to whom he reported immediately prior to the Change of Control; or

    (b)    The elimination or reassignment of a majority of the duties and responsibilities that were assigned to the Employee immediately prior to the Change of Control; or

    (c)    A reduction by the Company in the Employee’s annual base salary as in effect immediately prior to the Change of Control; or

    (d)    The Company requiring the Employee to be based anywhere outside a 35-mile radius from his place of employment immediately prior to the Change of Control, except for required travel on the Company’s business to an extent substantially consistent with the Employee’s business travel obligations immediately prior to the Change of Control; or

    (e)    The failure of the Company to grant the Employee a performance bonus reasonably equivalent to the same percentage of salary the Employee normally received prior to the Change of Control, given comparable performance by the Company and the Employee; or

    (f)    The failure of the Company to obtain a satisfactory Assumption Agreement (as defined in Section 4.13 of this Plan) from a successor, or the failure of such successor to perform such Assumption Agreement.

3.2    Incentive Agreements. Each Award granted under this Plan shall be evidenced by a written agreement (an "Incentive Agreement") in a form approved by the Committee and executed by the Company and the Employee to whom the Award is granted. Each Incentive Agreement shall be subject to the terms and conditions of this Plan and other such terms and conditions as the Committee may specify. 

3.3    Amendment, Modification and Waiver of Restrictions. The Committee may modify or amend any Award under this Plan or waive any restrictions or conditions applicable to the Award; provided, however, that the Committee may not undertake any such modifications, amendments or waivers if the effect thereof materially increases the benefits to any Employee, or adversely affects the rights of any Employee without his consent.

	 
	 	4 	 
	 

	 

3.4    Terms and Conditions of Awards. Upon receipt of an Award of shares of the Common Stock under this Plan, even during the Restriction Period, an Employee shall be the holder of record of the shares and shall have all the rights of a stockholder with respect to such shares, subject to the terms and conditions of this Plan and the Award.

  3.4.1    Except as otherwise provided in this Section 3.4, no shares of the Common Stock received pursuant to this Plan shall be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of during the Restriction Period applicable to such shares. Any purported disposition of such the Common Stock in violation of this Section 3.4 shall be null and void.

  3.4.2    If an Employee’s employment with the Company terminates prior to the expiration of the Restriction Period for an Award, subject to any provisions of the Award with respect to the Employee’s death, Disability or Retirement, or Change of Control, all shares of the Common Stock subject to the Award shall be immediately forfeited by the Employee and reacquired by the Company, and the Employee shall have no further rights with respect to the Award. In the discretion of the Committee, an Incentive Agreement may provide that, upon the forfeiture by an Employee of Award Shares, the Company shall repay to the Employee the consideration (if any) which the Employee paid for the Award Shares on the grant of the Award. In the discretion of the Committee, an Incentive Agreement may also provide that such repayment shall include an interest factor on such consideration from the date of the grant of the Award to the date of such repayment.

  3.4.3    The Committee may require under such terms and conditions as it deems appropriate or desirable that (a) the certificates for the Common Stock delivered under this Plan are to be held in custody by the Company or a person or institution designated by the Company until the Restriction Period expires, (b) such certificates shall bear a legend referring to the restrictions on the Common Stock pursuant to this Plan, and (c) the Employee shall have delivered to the Company a stock power endorsed in blank relating to the Common Stock.

4.    Miscellaneous Provisions. 

4.1    Adjustments Upon Change in Capitalization.

4.1.1The number and class of shares subject to each outstanding Stock Option, the Exercise Price thereof (but not the total price), the maximum number of Stock Options that may be granted under this Plan, the minimum number of shares as to which a Stock Option may be exercised at any one time, and the number and class of shares subject to each outstanding Award, shall be proportionately adjusted in the event of any increase in the number of the issued shares of the Common Stock which results from a split-up of shares, payment of a stock dividend or dividends exceeding a total of five percent for which the record dates occur in any one fiscal year, a recapitalization (other than the conversion of convertible securities according to their terms), so that (a) upon exercise of the Stock Option, the Employee shall receive the number and class of shares the Employee would have received had the Employee been the holder of the number of shares of the Common Stock for which the Stock Option is being exercised upon the date of such change or increase in the number of issued shares of the Company, and (b) upon the lapse of restrictions of the Award Shares, the Employee shall receive the number and class of shares the Employee would have received if the restrictions on the Award Shares had lapsed on the date of such change or increase in the number of issued shares of the Company. Pursuant to Title 17, Chapter II, Part 230.416(a), notwithstanding anything contained in the Plan to cover the contrary, including any adjustments discussed in this Section 4.1.1, the number of Shares available under the Plan shall be anti-dilutive in the event of a reverse stock split by the Company, i.e. a reverse stock split by the Company shall not affect or result in any reduction in the number of Shares available under the Plan at the effective time of such reverse stock split(s).

 

 4.1.2Upon a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation or in which the Company survives as a wholly-owned subsidiary of another corporation, or upon a sale of all or substantially all of the property of the Company to another corporation, or any dividend or distribution to stockholders of more than 10 percent of the Company’s assets, adequate adjustment or other provisions shall be made by the Company or other party to such transaction so that there shall remain and/or be substituted for the Option Shares and Award Shares provided for herein, the shares, securities or assets which would have been issuable or payable in respect of or in exchange for such Option Shares and Award Shares then remaining, as if the Employee had been the owner of such shares as of the applicable date. Any securities so substituted shall be subject to similar successive adjustments.

4.2    Withholding Taxes. The Company shall have the right at the time of exercise of any Stock Option, the grant of an Award, or the lapse of restrictions on Award Shares, to make adequate provision for any federal, state, local or foreign taxes which it believes are or may be required by law to be withheld with respect to such exercise (the "Tax Liability"), to ensure the payment of any such Tax Liability. The Company may provide for the payment of any Tax Liability by any of the following means or a combination of such means, as determined by the Committee in its sole and absolute discretion in the particular case (1) by requiring the Employee to tender a cash payment to the Company, (2) by withholding from the Employee’s salary, (3) by withholding from the Option Shares which would otherwise be issuable upon exercise of the Stock Option, or from the Award Shares on their grant or date of lapse of restrictions, that number of Option Shares or Award Shares having an aggregate Fair Market Value (determined in the manner prescribed by Section 2.2) as of the date the withholding tax obligation arises in an amount which is equal to the Employee’s Tax Liability or (4) by any other method deemed appropriate by the Committee. Satisfaction of the Tax Liability of a Section 16 Reporting Person may be made by the method of payment specified in clause (3) above only if the following two conditions are satisfied:

   (a)    The withholding of Option Shares or Award Shares and the exercise of the related Stock Option occur at least six months and one day following the date of grant of such Stock Option or Award; and

   (b)    The withholding of Option Shares or Award Shares is made either (i) pursuant to an irrevocable election (the "Withholding Election") made by the Employee at least six months in advance of the withholding of Options Shares or Award Shares, or (ii) on a day within a 10-day "window period" beginning on the third business day following the date of release of the Company’s quarterly or annual summary statement of sales and earnings.

Anything herein to the contrary notwithstanding, a Withholding Election may be disapproved by the Committee at any time.

	 
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4.3     Relationship to Other Employee Benefit Plans. Stock Options and Awards granted hereunder shall not be deemed to be salary or other compensation to any Employee for purposes of any pension, thrift, profit-sharing, stock purchase or any other employee benefit plan now maintained or hereafter adopted by the Company.

4.4     Amendment and Termination. The Board of Directors may at any time suspend, amend or terminate this Plan. No amendment, except as provided in Section 3.3, or modification of this Plan may be adopted, except subject to stockholder approval, which would (1) materially increase the benefits accruing to the Employees under this Plan, (2) materially increase the number of securities which may be issued under this Plan (except for adjustments pursuant to Section 4.1 hereof), or (3) materially modify the requirements as to eligibility for participation in this Plan.

4.5     Successors in Interest. The provisions of this Plan and the actions of the Committee shall be binding upon all heirs, successors and assigns of the Company and of the Employees.

4.6     Other Documents.All documents prepared, executed or delivered in connection with this Plan (including, without limitation, Option Agreements and Incentive Agreements) shall be, in substance and form, as established and modified by the Committee; provided, however, that all such documents shall be subject in every respect to the provisions of this Plan, and in the event of any conflict between the terms of any such document and this Plan, the provisions of this Plan shall prevail.

4.7     Fairness of the Repurchase Price.In the event the Company repurchases securities upon termination of employment pursuant to this Plan, either: (a) the price will not be less than the fair market value of the securities to be repurchased on the date of termination of employment, and the right to repurchase will be exercised for cash or cancellation of purchase money indebtedness for the securities within ninety (90) days of termination of the employment (or in the case of securities issued upon exercise of option after the date of termination, within ninety (90) days after the date of the exercise), and the right terminates when the Company’s securities become publicly traded, or (b) Company will repurchase securities at the original purchase price, provided that the right to repurchase at the original purchase price lapses at the rate of at least 20 percent (20%) of the securities per year over five years from the date the option is granted (without respect to the date the option was exercised or became exercisable) and the right to repurchase must be exercised for cash or cancellation of purchase money indebtedness for the securities within ninety (90) days of termination of employment (or in the case of securities issued upon exercise of options after the date of termination, within ninety (90) days after the date of exercise).

4.8     No Obligation to Continue Employment. This Plan and the grants which might be made hereunder shall not impose any obligation on the Company to continue to employ any Employee. Moreover, no provision of this Plan or any document executed or delivered pursuant to this Plan shall be deemed modified in any way by any employment contract between an Employee (or other employee) and the Company.

4.9     Misconduct of an Employee. Notwithstanding any other provision of this Plan, if an Employee commits fraud or dishonesty toward the Company or wrongfully uses or discloses any trade secret, confidential data or other information proprietary to the Company, or intentionally takes any other action materially inimical to the best interests of the Company, as determined by the Committee, in its sole and absolute discretion, the Employee shall forfeit all rights and benefits under this Plan. 

4.10    Term of Plan. This Plan was adopted by the Board effective December 13, 2004. No Stock Options or Awards may be granted under this Plan after December 13, 2004. 

4.11    Governing Law. This Plan shall be construed in accordance with, and governed by, the laws of the State of Colorado.

4.12    Approval.This Plan must be approved by a majority of the outstanding securities entitled to vote within twelve (12) months before or after this Plan is adopted or the date the agreement in entered into. Any securities purchased before security holder approval is obtained must be rescinded if security holder approval is not obtained within twelve (12) months before or after this Plan is adopted or the date the agreement is entered into. Such securities shall not be counted in determining whether such approval is obtained.

4.13    Assumption Agreements. The Company will require each successor, (direct or indirect, whether by purchase, merger, consolidation or otherwise), to all or substantially all of the business or assets of the Company, prior to the consummation of each such transaction, to assume and agree to perform the terms and provisions remaining to be performed by the Company under each Incentive Agreement and Stock Option and to preserve the benefits to the Employees thereunder. Such assumption and agreement shall be set forth in a written agreement in form and substance satisfactory to the Committee (an "Assumption Agreement"), and shall include such adjustments, if any, in the application of the provisions of the Incentive Agreements and Stock Options and such additional provisions, if any, as the Committee shall require and approve, in order to preserve such benefits to the Employees. Without limiting the generality of the foregoing, the Committee may require an Assumption Agreement to include satisfactory undertakings by a successor:

    (a)     To provide liquidity to the Employees at the end of the Restriction Period applicable to the Common Stock awarded to them under this Plan, or on the exercise of Stock Options;

    (b)     If the succession occurs before the expiration of any period specified in the Incentive Agreements for satisfaction of performance criteria applicable to the Common Stock awarded thereunder, to refrain from interfering with the Company’s ability to satisfy such performance criteria or to agree to modify such performance criteria and/or waive any criteria that cannot be satisfied as a result of the succession;

 

	 
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     (c)    To require any future successor to enter into an Assumption Agreement; and

     (d)    To take or refrain from taking such other actions as the Committee may require and approve, in its discretion.

The Committee referred to in this Section 4.13 is the Committee appointed by a Board of Directors in office prior to the succession then under consideration.

4.14    Compliance with Rule 16b-3.     Transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3. To the extent that any provision of this Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.

4.15    Information to Stockholders.      The Company shall furnish to each of its stockholders financial statements of the Company at least annually.

IN WITNESS WHEREOF, this Plan has been executed effective as of December 13, 2004.

	 	 	 
	 	INFORM  WORLDWIDE HOLDINGS, INC.
	 
 	 
 	 
 
	Date: December 13, 2004	By:  	/s/ Randy W. Betts
	 	

Randy W. Betts
	 	Title: Chief Operating Officer, Chief Financial Officer, and Secretary

	 
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