Document:

Unassociated Document

     

    Exhibit 10.7

    GTX
CORP

     

    2008
EQUITY COMPENSATION PLAN

     

    

     

    I.  ESTABLISHMENT
OF PLAN; DEFINITIONS

     

    1.           Purpose.  The
purpose of the GTX Corp’s 2008 Equity Compensation Plan is to encourage certain,
officers, employees, directors and consultants of GTX Corp, a Nevada corporation
(the "Corporation") to acquire and hold stock in the Corporation as an added
incentive to remain with the Corporation and to increase their efforts in
promoting the interests of the Corporation and to enable the Corporation to
attract and retain capable individuals.

     

    2.           Definitions.  Unless
the context clearly indicates otherwise, the following terms shall have the
meanings set forth below:

     

    (a)           “Award”
shall mean the grant of any Stock Option, Stock Appreciation Right or Stock
Award pursuant to the Plan.

     

    (a)           "Board"
shall mean the Board of Directors of the Corporation.

     

    (b)           "Code"
shall mean the Internal Revenue Code of 1986, as it may be amended from time to
time.

     

    (c)           "Committee"
shall mean a committee made up of at least two members of the Board whose
members shall, from time to time, be appointed by the Board.  If a
Committee has not been appointed by the Board, “Committee” shall mean the
Board..

     

    (d)           "Corporation"
shall mean GTX Corp, a Nevada corporation.

     

    (e)           "Consultants"
shall mean individuals or entities who provide services to the Corporation who
are not Employees or Directors.

     

    (f)           "Directors"
shall mean those members of the Board of Directors of the Corporation who are
not Employees.

     

    (g)           "Disability"
shall mean a medically determinable physical or mental condition which causes an
Employee, Director or Consultant to be unable to engage in any substantial
gainful activity and which can be expected to result in death or to be of
long-continued and indefinite duration.

     

    (h)           "Employee"
shall mean any common law employee, including officers, of the Corporation as
determined under the Code and the Treasury Regulations thereunder.

     

    (i)           "Fair
Market Value" with regards to the grant of Stock Options shall mean (i) if the
Stock is listed on a national securities exchange, the mean between the highest
and lowest sales prices for the Stock on such date, or, if no such prices are
reported for such day, then on the next preceding day on which there were
reported prices; (ii) if the Stock is not listed on a national securities
exchange, the closing price for the shares on such date, or if no such prices
are reported for such day, then on the next preceding day on which there were
reported prices; or (iii) as determined in good faith by the
Board.  “Fair Market Value” with regards to Stock Awards shall be
determined by the Board, in good faith and in its sole discretion.

     

    

    
      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    (j)           "Grantee"
shall mean an officer, Employee, Director or Consultant granted a Stock Option
or Stock Award under this Plan.

     

    (k)           "Incentive
Stock Option" shall mean an option granted pursuant to the Incentive Stock
Option provisions as set forth in Part II of this Plan.

     

    (l)           "Non-Qualified
Stock Option" shall mean an option granted pursuant to the Non-Qualified Stock
Option provisions as set forth in Part III of this Plan.

     

    (m)                      "Plan"
shall mean the GTX Corp 2008 Equity Compensation Plan as set forth herein and as
amended from time to time.

     

    (n)           "Restricted
Stock" shall mean Stock which is issued pursuant to the Restricted Stock as set
forth in Part IV of this Plan.

     

    (o)           "Stock"
shall mean authorized but unissued shares of the Common Stock of the Corporation
or reacquired shares of the Corporation's Common Stock.

     

    (p)           "Stock
Appreciation Right" shall mean a stock appreciation right granted pursuant to
the Stock Appreciation Right provisions as set forth in Part II and III of this
Plan.

     

    (q)           "Stock
Award" shall mean an award of Restricted or Unrestricted Stock granted pursuant
to this Plan.

     

    (r)           "Stock
Option" shall mean an option granted pursuant to the Plan to purchase shares of
Stock.

     

    (s)           “Subsidiary”
shall mean any corporation (other than the Corporation) in an unbroken chain of
corporations beginning with and including the Corporation, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50 percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.

     

    (t)           "Ten
Percent Shareholder" shall mean an Employee who at the time a Stock Option is
granted owns stock possessing more than ten percent (10%) of the total combined
voting power of all stock of the Corporation or of its parent or subsidiary
corporation.

     

    (u)           "Unrestricted
Stock" shall mean Stock which is issued pursuant to the Unrestricted Stock
provisions as set forth in Part V of this Plan.

     

    3.           Shares of Stock Subject to
the Plan.  Subject to the provisions of Paragraph 2 of Part VI
of the Plan, the Stock which may be issued or transferred pursuant to Stock
Options and Stock Awards granted under the Plan and the Stock which is subject
to outstanding but unexercised Stock Options under the Plan shall not exceed
7,000,000 shares in the aggregate.  If a Stock Option shall expire and
terminate for any reason, in whole or in part, without being exercised or, if
Stock Awards are forfeited because the restrictions with respect to such Stock
Awards shall not have been met or have lapsed, the number of shares of Stock
which are no longer outstanding as Stock Awards or subject to Stock Options may
again become available for the grant of Stock Awards or Stock
Options.  There shall be no terms and conditions in a Stock Award or
Stock Option which provide that the exercise of an Incentive Stock Option
reduces the number of shares of Stock for which an outstanding Non-Qualified
Stock Option may be exercised; and there shall be no terms and conditions in a
Stock Award or Stock Option which provide that the exercise of a Non-Qualified
Stock Option reduces the number of shares of Stock for which an outstanding
Incentive Stock Option may be exercised.

     

    

    
      
        
           

        

        
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    4.           Administration of the
Plan.  The Plan shall be administered by the
Committee.  Subject to the express provisions of the Plan, the
Committee shall have authority to interpret the Plan, to prescribe, amend, and
rescind rules and regulations relating to it, to determine the terms and
provisions of Stock Option agreements, and to make all other determinations
necessary or advisable for the administration of the Plan.  Any
controversy or claim arising out of or related to this Plan shall be determined
unilaterally by and at the sole discretion of the Committee.

     

    5.           Amendment or
Termination.  The Board may, at any time, alter, amend,
suspend, discontinue, or terminate this Plan; provided, however, that such
action shall not adversely affect the right of Grantees to Stock Awards or Stock
Options previously granted and no amendment, without the approval of the
stockholders of the Corporation, shall increase the maximum number of shares
which may be awarded under the Plan in the aggregate, materially increase the
benefits accruing to Grantees under the Plan, change the class of Employees
eligible to receive options under the Plan, or materially modify the eligibility
requirements for participation in the Plan.

     

    6.           Effective Date and Duration
of the Plan.  This Plan shall become effective on March 14,
2008.  This Plan shall terminate at such time as may be determined by
the Board, and no Stock Award or Stock Option may be issued or granted under the
Plan thereafter, but such termination shall not affect any Stock Award or Stock
Option theretofore issued or granted.

     

    7.           General.

     

    (a)           Each
Stock Option, Stock Award and Stock Appreciation Right shall be evidenced by a
written instrument (which may be in the form of a unanimous written consent of
the Board) containing such terms and conditions, not inconsistent with this
Plan, as the Committee shall approve.

     

    (b)           The
granting of a Stock Option, Stock Award or Stock Appreciation Right in any year
shall not give the Grantee any right to similar grants in future years or any
right to be retained in the employ of the Corporation, and all Employees shall
remain subject to discharge to the same extent as if the Plan were not in
effect.

     

    (c)           No
officer, Employee, Director or Consultant and no beneficiary or other person
claiming under or through him, shall have any right, title or interest by reason
of any Stock Option or any Stock Award to any particular assets of the
Corporation, or any shares of Stock allocated or reserved for the purposes of
the Plan or subject to any Stock Option or any Stock Award except as set forth
herein.  The Corporation shall not be required to establish any fund
or make any other segregation of assets to assure the payment of any Stock
Option or Stock Award.

     

    (d)           No
right under the Plan shall be subject to anticipation, sale, assignment, pledge,
encumbrance, or charge except by will or the laws of descent and distribution,
and a Stock Option shall be exercisable during the Grantee's lifetime only by
the Grantee or his conservator.

     

    (e)           Notwithstanding
any other provision of this Plan or agreements made pursuant thereto, the
Corporation's obligation to issue or deliver any certificate or certificates for
shares of Stock under a Stock Option or Stock Award, and the transferability of
Stock acquired by exercise of a Stock Option or grant of a Stock Award, shall be
subject to all of the following conditions:

     

    

    
      
        
           

        

        
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    (i)           Any
registration or other qualification of such shares under any state or federal
law or regulation, or the maintaining in effect of any such registration or
other qualification which the Board shall, in its absolute discretion upon the
advice of counsel, deem necessary or advisable; and

     

    (ii)           The
obtaining of any other consent, approval, or permit from any state or federal
governmental agency which the Board shall, in its absolute discretion upon the
advice of counsel, determine to be necessary or advisable.

     

    (f)           All
payments to Grantees or to their legal representatives shall be subject to any
applicable tax, community property, or other statutes or regulations of the
United States or of any state or country having jurisdiction
thereof.  The Grantee may be required to pay to the Corporation the
amount of any withholding taxes which the Corporation is required to withhold
with respect to a Stock Option or its exercise or a Stock Award.  In
the event that such payment is not made when due, the Corporation shall have the
right to deduct, to the extent permitted by law, from any payment of any kind
otherwise due to such person all or part of the amount required to be
withheld.

     

    (g)           In
the case of a grant of a Stock Option or Stock Award to any Employee of a
subsidiary of the Corporation, the Corporation may, if the Committee so directs,
issue or transfer the shares, if any, covered by the Stock Option or Stock Award
to the subsidiary, for such lawful consideration as the Committee may specify,
upon the condition or understanding that the subsidiary will transfer the shares
to the Employee in accordance with the terms of the Stock Option or Stock Award
specified by the Committee pursuant to the provisions of the
Plan.  For purposes of this Section, a subsidiary shall mean any
subsidiary corporation of the Corporation as defined in Section 424 of the
Code.

     

    (h)           A
Grantee entitled to Stock as a result of the exercise of a Stock Option or grant
of a Stock Award shall not be deemed for any purpose to be, or have rights as, a
shareholder of the Corporation by virtue of such exercise, except to the extent
a stock certificate is issued therefor and then only from the date such
certificate is issued.  No adjustments shall be made for dividends or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued.  The Corporation shall issue any
stock certificates required to be issued in connection with the exercise of a
Stock Option with reasonable promptness after such exercise.

     

    (i)           The
grant or exercise of Stock Options granted under the Plan or the grant of a
Stock Award under the Plan shall be subject to, and shall in all respects comply
with, applicable law relating to such grant or exercise, or to the number of
shares of Stock which may be beneficially owned or held by any
Grantee.

     

    (j)           The
Corporation intends that the Plan shall comply with the requirements of Rule
16b-3 (the “Rule”) under the Securities Exchange Act of 1934, as amended, during
the term of this Plan. Should any additional provisions be necessary for the
Plan to comply with the requirements of the Rule, the Board may amend this Plan
to add to or modify the provisions of this Plan accordingly.

     

    (k)           The
Corporation intends that the Plan shall comply with the requirements of Section
409A of the Code, to the extent applicable.  Should any changes to the
Plan be necessary for the Plan to comply with the requirements of Code Section
409A the Board may amend this Plan to add to or modify the provisions of this
Plan accordingly.

     

    (l)           The
Corporation will seek stockholder approval in the manner and to the degree
required under Applicable Laws.  If the Corporation fails to obtain
stockholder approval of the Plan within twelve (12) months after the date this
Plan is adopted by the Board, pursuant to Section 422 of the Code, any Option
granted as an Incentive Option at any time under the Plan will not qualify as an
Incentive Option within the meaning of the Code and will be deemed to be a
Non-Statutory Option.

    

     

    

    
      
        
           

        

        
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    II.  INCENTIVE
STOCK OPTION PROVISIONS

     

    1.           Granting of Incentive Stock
Options.

     

    (j)           Only
Employees of the Corporation shall be eligible to receive Incentive Stock
Options under the Plan.  Officers, Directors and Consultants of the
Corporation who are not also Employees shall not be eligible to receive
Incentive Stock Options.

     

    (k)           The
purchase price of each share of Stock subject to an Incentive Stock Option shall
not be less than 100% of the Fair Market Value of a share of the Stock on the
date the Incentive Stock Option is granted; provided, however, that the purchase
price of each share of Stock subject to an Incentive Stock Option granted to a
Ten Percent Shareholder shall not be less than 110% of the Fair Market Value of
a share of the Stock on the date the Incentive Stock Option is
granted.

     

    (l)           No
Incentive Stock Option shall be exercisable more than ten years from the date
the Incentive Stock Option was granted; provided, however, that an Incentive
Stock Option granted to a Ten Percent Shareholder shall not be exercisable more
than five years from the date the Incentive Stock Option was
granted.

     

    (m)                      The
Committee shall determine and designate from time to time those Employees who
are to be granted Incentive Stock Options and specify the number of shares
subject to each Incentive Stock Option.

     

    (n)           The
Committee, in its sole discretion, shall determine whether any particular
Incentive Stock Option shall become exercisable in one or more installments,
specify the installment dates, and, within the limitations herein provided,
determine the total period during which the Incentive Stock Option is
exercisable.  Further, the Committee may make such other provisions as
may appear generally acceptable or desirable to the Committee or necessary to
qualify its grants under the provisions of Section 422 of the Code.

     

    (o)           The
Committee may grant at any time new Incentive Stock Options to an Employee who
has previously received Incentive Stock Options or other options whether such
prior Incentive Stock Options or other options are still outstanding, have
previously been exercised in whole or in part, or are canceled in connection
with the issuance of new Incentive Stock Options.  The purchase price
of the new Incentive Stock Options may be established by the Committee without
regard to the existing Incentive Stock Options or other options.

     

    (p)           Notwithstanding
any other provisions hereof, the aggregate Fair Market Value (determined at the
time the option is granted) of the Stock with respect to which Incentive Stock
Options are exercisable for the first time by the Employee during any calendar
year (under all such plans of the Grantee's employer corporation and its parent
and subsidiary corporation) shall not exceed $100,000.

     

    2.           Exercise of Incentive Stock
Options.  The option price of an Incentive Stock Option shall
be payable on exercise of the option (i) in cash or by check, bank draft or
postal or express money order, (ii) by the surrender of Stock then owned by
the Grantee, (iii) the proceeds of a loan from an independent broker-dealer
whereby the loan is secured by the option or the stock to be received upon
exercise, or (iv) any combination of the foregoing;
provided, that each such method and time for payment and each such
borrowing and terms and conditions of repayment shall then be permitted by and
be in compliance with applicable law.  Shares of Stock so surrendered
in accordance with clause (ii) or (iv) shall be valued at the Fair Market Value
thereof on the date of exercise, surrender of such Stock to be evidenced by
delivery of the certificate(s) representing such shares in such manner, and
endorsed in such form, or accompanied by stock powers endorsed in such form, as
the Committee may determine.

     

    

    
      
        
           

        

        
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    3.           Termination of
Employment.

     

    (a)           If
a Grantee's employment with the Corporation is terminated other than by
Disability or death, the terms of any then outstanding Incentive Stock Option
held by the Grantee shall extend for a period ending on the earlier of the date
on which such Stock Option would otherwise expire or three months after such
termination of employment, and such Stock Option shall be exercisable to the
extent it was exercisable as of such last date of employment.

     

    (b)           If
a Grantee's employment with the Corporation is terminated by reason of
Disability, the term of any then outstanding Incentive Stock Option held by the
Grantee shall extend for a period ending on the earlier of the date on which
such Stock Option would otherwise expire or twelve months after such termination
of employment, and such Stock Option shall be exercisable to the extent it was
exercisable as of such last date of employment.

     

    (c)           If
a Grantee's employment with the Corporation is terminated by reason of death,
the representative of his estate or beneficiaries thereof to whom the Stock
Option has been transferred shall have the right during the period ending on the
earlier of the date on which such Stock Option would otherwise expire or twelve
months after such date of death, to exercise any then outstanding Incentive
Stock Options in whole or in part.  If a Grantee dies without having
fully exercised any then outstanding Incentive Stock Options, the representative
of his estate or beneficiaries thereof to whom the Stock Option has been
transferred shall have the right to exercise such Stock Options in whole or in
part.

     

    4.           Stock Appreciation
Rights

     

    (a)           Grant.  Stock
Appreciation Rights related to all or any portion of an Incentive Stock Option
may be granted by the Committee to any Grantee in connection with the grant of
an Incentive Stock Option or unexercised portion thereof held by the Grantee at
any time and from time to time during the term thereof.  Each Stock
Appreciation Right shall be granted at least at Fair Market Value on the date of
grant and be subject to such terms and conditions not inconsistent with the
provisions of this Part II as shall be determined by the Committee and included
in the agreement relating to such Stock Appreciation Right, subject in any
event, however, to the following terms and conditions of this Section
4.  Each Stock Appreciation Right may include limitations as to the
time when such Stock Appreciation Right becomes exercisable and when it ceases
to be exercisable that are more restrictive than the limitations on the exercise
of the Incentive Stock Option to which it relates.

     

    (b)           Exercise.  No
Stock Appreciation Right shall be exercisable with respect to such related
Incentive Stock Option or portion thereof unless such Incentive Stock Option or
portion shall itself be exercisable at that time.  A Stock
Appreciation Right shall be exercised only upon surrender of the related
Incentive Stock Option or portion thereof in respect of which the Stock
Appreciation Right is then being exercised.

     

    (c)           Amount of
Payment.  On exercise of a Stock Appreciation Right, a Grantee
shall be entitled to receive an amount equal to the product of (i) the amount by
which the Fair Market Value of a share of Stock on the date of exercise of the
Stock Appreciation Right exceeds the option price per share specified in the
related Incentive Stock Option and (ii) the number of shares of Stock in respect
of which the Stock Appreciation Right shall have been exercised.

     

    

    
      
        
           

        

        
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    (d)           Form of
Payment.  Stock Appreciation Rights may be settled in Stock,
cash or a combination thereof.  The number of shares of Stock to be
distributed shall be the largest whole number obtained by dividing the amount
otherwise distributable in respect of such settlement by the Fair Market Value
of a share of Stock on the date of exercise of the Stock Appreciation
Right.  The value of fractional shares of Stock shall be paid in
cash.

     

    (e)           Effect of Exercise of Right
or Related Option.  If the related Incentive Stock Option is
exercised in whole or in part, then the Stock Appreciation Right with respect to
the Stock purchased pursuant to such exercise (but not with respect to any
unpurchased Stock) shall be terminated as of the date of exercise if such Stock
Appreciation Right is not exercised on such date.

     

    (f)           Non-transferability.  A
Stock Appreciation Right shall not be transferable or assignable by the Grantee
other than by will or the laws of descent and distribution, and shall be
exercisable during the Grantee's lifetime only by the Grantee.

     

    (g)           Termination of
Employment.  If the Grantee ceases to be an Employee of the
Corporation for any reason, each outstanding Stock Appreciation Right shall be
exercisable for such period and to such extent as the related Incentive Stock
Option or portion thereof.

     

    

     

    III.  NON-QUALIFIED
STOCK OPTION PROVISIONS

     

    1.           Granting of Stock
Options.

     

    (a)           Officers,
Employees, Directors and Consultants shall be eligible to receive Non-Qualified
Stock Options under the Plan.

     

    (b)           The
Committee shall determine and designate from time to time those officers,
Employees, Directors and Consultants who are to be granted Non-Qualified Stock
Options and the amount subject to each Non-Qualified Stock Option.

     

    (c)           The
Committee may grant at any time new Non-Qualified Stock Options to an Employee,
Director or Consultant who has previously received Non-Qualified Stock Options
or other Stock Options, whether such prior Non-Qualified Stock Options or other
Stock Options are still outstanding, have previously been exercised in whole or
in part, or are canceled in connection with the issuance of new Non-Qualified
Stock Options.

     

    (d)           The
Committee shall determine the purchase price of each share of Stock subject to a
Non-Qualified Stock Option.  Such price shall not be less than 100% of
the Fair Market Value of such Stock on the date the Non-Qualified Stock Option
is granted.

     

    (e)           The
Committee, in its sole discretion, shall determine whether any particular
Non-Qualified Stock Option shall become exercisable in one or more installments,
specify the installment dates, and, within the limitations herein provided,
determine the total period during which the Non-Qualified Stock Option is
exercisable.  Further, the Committee may make such other provisions as
may appear generally acceptable or desirable to the Committee, including the
extension of a Non-Qualified Stock Option, provided that such extension does not
extend the option beyond the period specified in paragraph (f)
below.

     

    

    
      
        
           

        

        
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    (f)           No
Non-Qualified Stock Option shall be exercisable more than ten years from the
date such option is granted.

     

    2.           Exercise of Stock
Options.   The option price of a Non-Qualified Stock
Option shall be payable on exercise of the Stock Option (i) in cash or by
check, bank draft or postal or express money order, (ii) by the surrender
of Stock then owned by the Grantee, (iii) the proceeds of a loan from an
independent broker-dealer whereby the loan is secured by the option or the stock
to be received upon exercise, or (iv) any combination of the
foregoing;
provided, that each such method and time for payment and each such
borrowing and terms and conditions of repayment shall then be permitted by and
be in compliance with applicable law.  Shares of Stock so surrendered
in accordance with clause (ii) or (iv) shall be valued at the Fair Market Value
thereof on the date of exercise, surrender of such Stock to be evidenced by
delivery of the certificate(s) representing such shares in such manner, and
endorsed in such form, or accompanied by stock powers endorsed in such form, as
the Committee may determine.

     

     3.           Termination of
Relationship.

     

    (a)           If
a Grantee's employment with the Corporation is terminated, a Director Grantee
ceases to be a Director, or a Consultant Grantee ceases to be a Consultant,
other than by reason of Disability or death, the terms of any then outstanding
Non-Qualified Stock Option held by the Grantee shall extend for a period ending
on the earlier of the date established by the Committee at the time of grant or
three months after the Grantee's last date of employment or cessation of being a
Director or Consultant, and such Stock Option shall be exercisable to the extent
it was exercisable as of the date of termination of employment or cessation of
being a Director or Consultant.

     

    (b)           If
a Grantee's employment is terminated by reason of Disability, a Director Grantee
ceases to be a Director by reason of Disability or a Consultant Grantee ceases
to be a Consultant by reason of Disability, the term of any then outstanding
Non-Qualified Stock Option held by the Grantee shall extend for a period ending
on the earlier of the date on which such Stock Option would otherwise expire or
twelve months after the Grantee's last date of employment or cessation of being
a Director or Consultant, and such Stock Option shall be exercisable to the
extent it was exercisable as of such last date of employment or cessation of
being a Director or Consultant.

     

    (c)           If
a Grantee's employment is terminated by reason of death, a Director Grantee
ceases to be a Director by reason of death or a Consultant Grantee ceases to be
a Consultant by reason of death, the representative of his estate or
beneficiaries thereof to whom the Stock Option has been transferred shall have
the right during the period ending on the earlier of the date on which such
Stock Option would otherwise expire or twelve months following his death to
exercise any then outstanding Non-Qualified Stock Options in whole or in
part.  If a Grantee dies without having fully exercised any then
outstanding Non-Qualified Stock Options, the representative of his estate or
beneficiaries thereof to whom the Stock Option has been transferred shall have
the right to exercise such Stock Options in whole or in part.

     

    4.           Stock Appreciation
Rights

     

    (a)           Grant.  Stock
Appreciation Rights related to all or any portion of a Non-Qualified Stock
Option may be granted by the Committee to any Grantee in connection with the
grant of a Non-Qualified Stock Option or unexercised portion thereof held by the
Grantee at any time and from time to time during the term
thereof.  Each Stock Appreciation Right shall be granted at least at
Fair Market Value on the date of grant and be subject to such terms and
conditions not inconsistent with the provisions of this Part III as shall be
determined by the Committee and included in the agreement relating to such Stock
Appreciation Right, subject in any event, however, to the following terms and
conditions of this Section 4.  Each Stock Appreciation Right may
include limitations as to the time when such Stock Appreciation Right becomes
exercisable and when it ceases to be exercisable that are more restrictive than
the limitations on the exercise of the Non-Qualified Stock Option to which it
relates.

     

    

    
      
        
           

        

        
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    (b)           Exercise.  No
Stock Appreciation Right shall be exercisable with respect to such related
Non-Qualified Stock Option or portion thereof unless such Non-Qualified Stock
Option or portion shall itself be exercisable at that time.  A Stock
Appreciation Right shall be exercised only upon surrender of the related
Non-Qualified Stock Option or portion thereof in respect of which the Stock
Appreciation Right is then being exercised.

     

    (c)           Amount of
Payment.  On exercise of a Stock Appreciation Right, a Grantee
shall be entitled to receive an amount equal to the product of (i) the amount by
which the Fair Market Value of a share of Stock on the date of exercise of the
Stock Appreciation Right exceeds the option price per share specified in the
related Non-Qualified Stock Option and (ii) the number of shares of Stock in
respect of which the Stock Appreciation Right shall have been
exercised.

     

    (d)           Form of
Payment.  Stock Appreciation Rights may only be settled in
Stock, cash or any combination thereof.  The number of shares of Stock
to be distributed shall be the largest whole number obtained by dividing the
amount otherwise distributable in respect of such settlement by the Fair Market
Value of a share of Stock on the date of exercise of the Stock Appreciation
Right.  The value of fractional shares of Stock shall be paid in
cash.

     

    (e)           Effect of Exercise of Right
or Related Option.  If the related Non-Qualified Stock Option
is exercised in whole or in part, then the Stock Appreciation Right with respect
to the Stock purchased pursuant to such exercise (but not with respect to any
unpurchased Stock) shall be terminated as of the date of exercise if such Stock
Appreciation Right is not exercised on such date.

     

    (f)           Non-transferability.  A
Stock Appreciation Right shall not be transferable or assignable by the Grantee
other than by will or the laws of descent and distribution, and shall be
exercisable during the Grantee's lifetime only by the Grantee.

     

    (g)           Termination of
Employment.  If the Grantee ceases to be an officer, Employee,
Director or Consultant of the Corporation for any reason, each outstanding Stock
Appreciation Right shall be exercisable for such period and to such extent as
the related Non-Qualified Stock Option or portion thereof.

     

    

     

    IV.  RESTRICTED
STOCK AWARDS

     

    1.           Grant of Restricted
Stock.

     

    (a)  Officers, Employees,
Directors and Consultants shall be eligible to receive grants of Restricted
Stock under the Plan.

     

    

    
      
        
           

        

        
          9

          
            

          

        

        
           

        

      

    

    

    (b)           The
Committee shall determine and designate from time to time those officers,
Employees, Directors and Consultants who are to be granted Restricted Stock and
the number of shares of Stock subject to such Stock Award.

     

    (c)           The
Committee, in its sole discretion, shall make such terms and conditions
applicable to the grant of Restricted Stock as may appear generally acceptable
or desirable to the Committee.

     

    2.           Termination of
Relationship.

     

    (a)           If
a Grantee's employment with the Corporation, a Director Grantee ceases to be a
Director, or a Consultant Grantee ceases to be a Consultant, prior to the lapse
of any restrictions applicable to the Restricted Stock such Stock shall be
forfeited and the Grantee shall return the certificates representing such Stock
to the Corporation.

     

    (b)           If
the restrictions applicable to a grant of Restricted Stock shall lapse, the
Grantee shall hold such Stock free and clear of all such restrictions except as
otherwise provided in the Plan.

     

    

     

    V.  UNRESTRICTED
STOCK AWARDS

     

    1.           Grant of Unrestricted
Stock.

     

    (a)           Officers,
Employees, Directors and Consultants shall be eligible to receive grants of
Unrestricted Stock under the Plan.

     

    (b)           The
Committee shall determine and designate from time to time those officers,
Employees, Directors and Consultants who are to be granted Unrestricted Stock
and number of shares of Stock subject to such Stock Award.

     

    2.           Issuance of
Stock.  The Grantee shall hold Stock issued pursuant to an
Unrestricted Stock award free and clear of all restrictions except as otherwise
provided in the Plan.

     

    

     

    VI.  ADJUSTMENTS
UPON MERGER, REORGANIZATION, DISSOLUTION OR CHANGE IN CONTROL

     

    1.           Substitution of
Options.  In the event of a corporate merger or consolidation,
or the acquisition by the Corporation of property or stock of an acquired
corporation or any reorganization or other transaction qualifying under Section
424 of the Code, the Committee may, in accordance with the provisions of that
Section, substitute Stock Options, Stock Awards and Stock Appreciation Rights
under this Plan for Stock Options, Stock Awards and Stock Appreciation Rights
under the plan of the acquired corporation provided (i) the excess of the
aggregate Fair Market Value of the shares of Stock subject to Stock Option
immediately after the substitution over the aggregate option price of such Stock
is not more than the similar excess immediately before such substitution and
(ii) the new Stock Option does not give the Grantee additional benefits,
including any extension of the exercise period.   Alternatively,
the Committee may provide, that each Stock Option, Stock Award and Stock
Appreciation Right granted under the Plan shall terminate as of a date to be
fixed by the Board; provided, that no
less than thirty days written notice of the date so fixed shall be given to each
holder, and each holder shall have the right, during the period of fifteen days
preceding such termination, to exercise the Stock Options, Stock Awards and
Stock Appreciation Rights as to all or any part of the Stock covered thereby,
including Stock as to which such would not otherwise be
exercisable.

     

    

    
      
        
           

        

        
          10

          
            

          

        

        
           

        

      

    

    

    2.           Adjustment
Provisions.

     

    (a)           In
the event that a dividend shall be declared upon the Stock payable in shares of
the Corporation's common stock, the number of shares of Stock then subject to
any Stock Option or Stock Award outstanding under the Plan and the number of
shares reserved for the grant of Stock Options or Stock Awards pursuant to the
Plan shall be adjusted by adding to each such share the number of shares which
would be distributable in respect thereof if such shares had been outstanding on
the date fixed for determining the shareholders of the Corporation entitled to
receive such share dividend.

     

    (b)           If
the shares of Stock outstanding are changed into or exchanged for a different
number or class or other securities of the Corporation or of another
corporation, whether through split-up, merger, consolidation, reorganization,
reclassification or  recapitalization then there shall be substituted
for each share of Stock subject to any such Stock Option or Stock Award and for
each share of Stock reserved for the grant of Stock Options or Stock Awards
pursuant to the Plan the number and kind of shares or other securities into
which each outstanding share of Stock shall have been so changed or for which
each share shall have been exchanged.

     

    (c)           In
the event there shall be any change, other than as specified above in this
Section 2, in the number or kind of outstanding shares of Stock or of any shares
or other securities into which such shares shall have been changed or for which
they shall have been exchanged, then if the Board shall, in its sole discretion,
determine that such change equitably requires an adjustment in the number or
kind of shares theretofore reserved for the grant of Stock Options or Stock
Awards pursuant to the Plan and of the shares then subject to Stock Options or
Stock Awards, such adjustment shall be made by the Board and shall be effective
and binding for all purposes of the Plan and of each Stock Option and Stock
Award outstanding thereunder.

     

    (d)           Each
Stock Appreciation Right outstanding at the time of any adjustment pursuant to
this Section 2 and the number of outstanding Stock Appreciation Rights, shall be
adjusted, changed or exchanged in the same manner as related Stock
Options.

     

    (e)           In
the case of any such substitution or adjustment as provided for in this Section
2, the option price set forth in each outstanding Stock Option for each share
covered thereby prior to such substitution or adjustment will be the option
price for all shares or other securities which shall have been substituted for
such share or to which such share shall have been adjusted pursuant to this
Section 2, and the price per share shall be adjusted accordingly.

     

    (f)           No
adjustment or substitution provided for in this Section 2 shall require the
Corporation to sell a fractional share, and the total substitution or adjustment
with respect to each outstanding Stock Option shall be limited
accordingly.

     

    (g)           Upon
any adjustment made pursuant to this Section 2 the Corporation will, upon
request, deliver to the Grantee a certificate setting forth the option price
thereafter in effect and the number and kind of shares or other securities
thereafter purchasable on the exercise of such Stock Option.

     

    

    
      
        
           

        

        
          11

          
            

          

        

        
           

        

      

    

    

    3.           Dissolution or
Liquidation.  In the event of a proposed dissolution or
liquidation of the Corporation, to the extent an Award has not been previously
exercised, it will terminate immediately prior to the consum­mation of such
proposed action.

     

    4.           Change in
Control.  Notwithstanding Sections 1 and 2 above, in the event
of a Change of Control (as defined below), except as otherwise determined by the
Board, the Grantee shall fully vest in and have the right to exercise the Awards
as to all of the Stock, including Stock as to which it would not otherwise be
vested or exercisable.  If an Award becomes fully vested and
exercisable as the result of a Change of Control, the Committee shall notify the
Grantee in writing or electronically prior to the Change of Control that the
Award shall be fully vested and exercisable for a period of fifteen (15) days
from the date of such notice, and the Award shall terminate upon the expiration
of such period.  For purposes of this Agreement, a “Change of Control”
means the happening of any of the following events:

     

    (a)           When
any “person,” as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (“Exchange Act”) (other than the
Corporation, a Subsidiary or a Corporation employee benefit plan, including any
trustee of such plan acting as trustee) is or becomes the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing fifty percent (50%) or more of the
combined voting power of the Corporation’s then outstanding securities entitled
to vote generally in the election of directors; or

    

    (b)           The
stockholders of the Corporation approve a merger or consolidation of the
Corporation with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Corporation outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than fifty percent (50%) of the total voting power represented by
the voting securities of the Corporation or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Corporation approve an agreement for the sale or disposition by the Corporation
of all or substantially all the Corporation’s assets; or

    

    (c)           A
change in the composition of the Board of the Corporation, as a result of which
fewer than a majority of the directors are Incumbent
Directors.  “Incumbent Directors”
shall mean directors who either (A) are directors of the Corporation as of
the date the Plan is approved by the stockholders, or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but shall not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Corporation).

    

     

    VII.           INDEMNIFICATION

     

    Each
person who is or shall have been a member of the Committee, or of the Board,
shall be indemnified and held harmless by the Corporation against and from any
loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, notion,
suit, or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action taken or failure to act under the Plan or
any Award agreement and against and from any and all amounts paid by him or her
in settlement thereof, with the Corporation’s approval, or paid by him or her in
settlement thereof, with the Corporation’s approval, or paid by him or her in
satisfaction of any judgment in any such action, suit, or proceeding against him
or her, provided he or she shall give the Corporation an opportunity, at its own
expense, to handle and defend the same before he or she undertakes to handle and
defend it on his or her own behalf.  The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Corporation’s Articles of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the
Corporation may have to indemnify them or hold them harmless.

     

    

     

    

    
      
        
           

        

        
          12

          
            

          

        

        
           

        

      

    

    

    VIII.   CONDITIONS UPON ISSUANCE OF
SHARES

     

     

    1.           Legal
Compliance.  Stock shall not be issued pursuant to the exercise
of an Award unless the exercise of such Award and the issuance and delivery of
Stock shall comply with applicable laws and shall be further subject to the
approval of counsel for the Corporation with respect to such
compliance.

     

     

    2.           Investment
Representations.  As a condition to the exercise of an Award,
the Corporation may require the Grantee exercising such Award to represent and
warrant at the time of any such exercise that the Stock is being purchased only
for investment and without any present intention to sell or distribute such
Stock if, in the opinion of counsel for the Corporation, such a representation
is required.

     

     

    3.           No Rights as
Stockholder. No
Grantee will have any of the rights of a stockholder with respect to any Stock
until the Stock is issued to the said Grantee.  After Stock is issued
to the Grantee, the Grantee will be a stockholder and will have all the rights
of a stockholder with respect to such Stock, including the right to vote and
receive all dividends or other distributions made or paid with respect to such
Stock.

     

    

     

    IX.  LEGAL
CONSTRUCTION

     

     

    1.           Gender and
Number.  Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.

     

     

    2.           Severability.  In
the event any provision of the Plan shall be held illegal or invalid for any
reason, such illegality or invalidity shall not affect the remaining parts of
the Plan, and the Plan shall be construed and enforced as if the illegal or
invalid provision had not been included.

     

     

    3.           Requirements of
Law.  The granting of Awards and the issuance of Stock under
the Plan shall be subject to all applicable laws.

     

     

    4.           Governing
Law.  The Plan and all Award agreements shall be construed in
accordance with and governed by the laws of the State of
California.

     

     

    5.           Captions.   Captions
are provided herein for convenience only, and shall not serve as a basis for
interpretation or construction of the Plan.

     

    

    [End of
Document]

    

     

     

     

    13exv10w1

 

EXHIBIT 10.1

OMNIBUS AMENDMENT

     This OMNIBUS AMENDMENT (this “Amendment”), dated as of March 14, 2008, is entered into by and
between SILICON MOUNTAIN HOLDINGS, INC., a Colorado corporation (the “Parent”), SILICON MOUNTAIN
MEMORY, INCORPORATED, a Colorado corporation (“SMH”), VCI SYSTEMS, INC. a Colorado corporation
(“VCI” and together with Parent and SMH, the “Companies” and, each a “Company”) LAURUS MASTER
FUND, LTD., a Cayman Islands company (“Laurus”), VALENS OFFSHORE SPV I, LTD., a Cayman Islands
company (“Valens Offshore”), VALENS U.S. SPV I, LLC, a Delaware limited liability company (“Valens
U.S.”) and PSOURCE STRUCTURED DEBT LIMITED, a Guernsey company (“Psource” and together with Laurus,
Valens Offshore, and Valens U.S., the “Holders” and each a “Holder”) for the purpose of amending
certain terms of (i) that certain Secured Revolving Note, dated as of September 25, 2006 issued by
the Company to Laurus in the original principal amount of Three Million Five Hundred Thousand
Dollars ($3,500,000) (as amended, restated, modified and/or supplemented from time to time, the
“Revolving Note”); (ii) that certain Amended and Restated Secured Convertible Term Note, dated as
of September 25, 2006, and amended and restated as of August 28, 2007, issued by the Company to
Laurus in the original principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000)
(as amended and restated, further amended, restated, modified and/or supplemented from time to
time, the “Convertible Term Note”), a portion of which was subsequently assigned to Valens Offshore
and Valens U.S.; (iii) the Secured Term Note, dated as of September 25, 2006 issued by the Company
to Laurus in the original principal amount of Two Million Five Hundred Thousand Dollars
($2,500,000) (as amended, restated, modified and/or supplemented from time to time, the “Term Note”
and together with the Revolving Note and Convertible Term Note, the “Notes”), a portion which was
subsequently assigned to Valens Offshore, Valens U.S. and PSource. Capitalized terms used herein
without definition shall have the meanings ascribed to such terms in each of the respective Notes
and the Security and Purchase Agreement dated September 25, 2006 by and between the Companies and
Laurus, as applicable (as amended, modified or supplemented from time to time, the “Security
Agreement” and, together with the Ancillary Agreements (including, without limitation, the Notes),
each as may be amended, modified or supplemented from time to time, the “Documents”).

     WHEREAS, the Company and Holders, as applicable have agreed to make certain changes to the
Notes as set forth herein.

     NOW, THEREFORE, in consideration of the above, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

AMENDMENTS TO THE REVOLVING NOTE

     1. Section 1.1 of the Revolving Note is hereby amended by (a) deleting the first sentence
appearing therein in its entirety and inserting the following new sentence in lieu thereof:

“(a) 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 (i) during the period commencing on the initial issuance date of this Note
through and including March 31, 2008, two percent (2%) and (ii) on and after April 1, 2008,
five percent (5%) (collectively, the “Contract Rate”).”

     ; and (b) inserting the following clauses (b) and (c) immediately following the last sentence
of said Section 1.1 of the Revolving Note:

“(b) Payment of Interest in Common Stock and/or Cash. Subject to the restrictions
set forth in clause (c) of this Section 1.1, the Companies may elect in respect of the
interest payment due on any given scheduled payment date (each such date, an “Interest
Payment Date”) to make such payment in cash or Common Stock, or a combination of both;
provided that, notwithstanding the foregoing, no more than that portion of the interest
payment due on any Interest Payment Date attributable to three percent (3%) of the then
applicable Contract Rate may be paid by way of issuance by the Parent of its Common Stock
(each, a “Permitted Common Stock Interest Amount”). The Parent shall give irrevocable
written notice to each Holder of its election in respect of the Permitted Common Stock
Interest Amount then due on a given Interest Payment Date (each, an “Interest Payment
Election Notice”), which notice shall be received by each Holder no later than three (3)
business days prior to such Interest Payment Date (the date of such notice being hereinafter
referred to as the “Interest Payment Notice Date”). If such Interest Payment Election
Notice is not delivered within the prescribed period set-forth in the preceding sentence,
then the payment of the Permitted Common Stock Interest Amount shall be made, together with
the remainder of the interest payment then due, entirely in cash on or prior to the
applicable Interest Payment Date. If the Permitted Common Stock Interest Amount (or a
portion of such Permitted Common Stock Interest Amount if not all of the Permitted Common
Stock Interest Amount) is elected by the Parent pursuant to a duly delivered Interest
Payment Election Notice (subject to the volume restrictions set forth in clause (c) of
Section 1.1 below to be paid in shares of Common Stock), the number of such shares to be
issued by the Parent to each Holder on such Interest Payment Date shall be the number
determined by dividing (x) all or the portion of the Permitted Common Stock Interest Amount
converted into shares of Common Stock, by (y) the average closing price of the Common Stock
as reported by Bloomberg, L.P. on the Principal Market for ten (10) trading days immediately
prior to the applicable Interest Payment Date. Common Stock issued in repayment of all or a
portion of a Permitted Common Stock Interest Amount shall be issued and delivered to each
Holder on or prior to the Interest Payment Date on which repayment of such Permitted Common
Stock Interest Amount is due.”

“(c) Conversion Limitation. Notwithstanding anything herein to the contrary, in no
event shall the Companies be entitled to issue Common Stock to any Holder in respect of the
Permitted Common Stock Interest Amount if such issuance 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 conversion, 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

2

 

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 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 sentence. For any reason at any time, upon written or oral
request of the Holder, the Parent shall within one (1) business day confirm orally and in
writing to the Holder the number of shares of Common Stock outstanding as of any given
date.”

     2. (a) The Company has requested and Laurus has agreed to exercise its discretion and to make
a Loan to the Company in excess of the Formula Amount in an aggregate principal amount of $300,000
(the “Overadvance”), the terms which are outlined in the Overadvance Letter dated as of the date
hereof by and among the Companies and Laurus. The Parent hereby agrees that it shall, on the date
hereof, issue a warrant (the “Additional Warrant”) to Laurus to purchase 105,000 shares of the
common stock of the Parent with an exercise price of $0.01 per share, such Additional Warrant to be
in the form and substance acceptable to Laurus in its sole discretion.

     (b) Laurus and the Parent hereto agree that the fair market value of the Additional
Warrant (as reasonably determined by the parties) received in consideration of the
Overadvance is hereby designated as interest and, accordingly, shall be treated, on a pro
rata basis, as a reduction of the remaining stated principal amount (which reduced principal
amount shall be treated as the issue price) of the Revolving Note for U.S. federal income
tax purposes under and pursuant to Treasury Regulation Sections 1.1001-3(e)(2)(iii),
1.1273-2(g)(2)(ii) and 1.1274-2(b)(1). The parties further agree to file all applicable tax
returns in accordance with such characterization and shall not take a position on any tax
return or in any judicial or administrative proceeding that is inconsistent with such
characterization. Notwithstanding the foregoing, nothing contained in this paragraph shall
or shall be deemed to modify or impair in any manner whatsoever each Company’s obligations
from time to time owing to the Holders under the Documents.

AMENDMENTS TO THE CONVERTIBLE TERM NOTE

     3. Section 1.1 of the Convertible Note is hereby amended by (a) deleting the first sentence
appearing therein in its entirety and inserting the following new sentence in lieu thereof:

“(a) Subject to Sections 4.2 and 5.10, 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 (i) during the period commencing on the initial issuance date of this Note through and
including March 31, 2008, three percent (3%) and (ii) on and after April 1, 2008, five
percent (5%) (collectively, the “Contract Rate”).”

     ; and (b) inserting the following clauses (b) immediately following the last sentence of said
Section 1.1 of the Convertible Note:

3

 

“(b) Payment of Interest in Common Stock and/or Cash. Subject to the restrictions
set forth in Sections 2.1 and 3.2 of this Note, the Companies may elect in respect of the
interest payment due on any Amortization Date (as defined below) to make such payment in
cash or Common Stock, or a combination of both; provided that, notwithstanding the
foregoing, no more than that portion of the interest payment due on any Interest Payment
Date attributable to two percent (2%) of the then applicable Contract Rate may be paid by
way of issuance by the Parent of its Common Stock (each, a “Permitted Common Stock Interest
Amount”). The Parent shall give irrevocable written notice to each Holder of its election
in respect of the Permitted Common Stock Interest Amount then due on a given Amortization
Date (each, an “Interest Payment Election Notice”), which notice shall be received by each
Holder no later than three (3) business days prior to such Amortization Date (the date of
such notice being hereinafter referred to as the “Interest Payment Notice Date”). If such
Interest Payment Election Notice is not delivered within the prescribed period set-forth in
the preceding sentence, then the payment of the Permitted Common Stock Interest Amount shall
be made, together with the remainder of the interest payment then due, entirely in cash on
or prior to the applicable Amortization Date. If the Permitted Common Stock Interest Amount
(or a portion of such Permitted Common Stock Interest Amount if not all of the Permitted
Common Stock Interest Amount) is elected by the Parent pursuant to a duly delivered Interest
Payment Election Notice (subject to the volume restrictions set forth in Section 2.1 and 3.2
below to be paid in shares of Common Stock), the number of such shares to be issued
by the Parent to each Holder on such Amortization Date shall be the number determined by
dividing (x) all or the portion of the Permitted Common Stock Interest Amount converted into
shares of Common Stock, by (y) the lesser of (i) the applicable Fixed Conversion Price and
(ii) the average closing price of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market for ten (10) trading days immediately prior to the applicable Amortization
Date. Common Stock issued in repayment of all or a portion of a Permitted Common Stock
Interest Amount shall be issued and delivered to each Holder on or prior to that
Amortization Date on which repayment of such Permitted Common Stock Interest Amount is due.”

     4. Section 3.1 of the Convertible Note is hereby amended by deleting the last sentence
appearing therein in its entirety and inserting the following new sentence in lieu thereof:

“For purposes of this Note, subject to Section 3.6 hereof, the initial “Fixed Conversion
Price” means (x) with respect to the first $200,000 of the Principal Amount converted
hereunder on or after March 14, 2007, $1.00 and (y) all other amounts converted hereunder,
subject to Section 1.1(b), $ 3.69.”

     5. (a) Each Company and each Holder of the Convertible Note hereby agree that $25,000 of the
Principal Amount portion of the Monthly Amount due on each Amortization Date occurring in the
months of August 2008, September 2008, October 2008, November 2008 and December 2008 is hereby
deferred until the Maturity Date. Notwithstanding the foregoing, from and after the date hereof,
the Monthly Amount shall otherwise be determined (and shall be due

4

 

and payable) in accordance with the applicable terms of the Convertible Note after giving
effect to the deferral set forth above.

     (b) The Holders hereby each agree to immediately upon effectiveness of this Amendment
issue to the Companies a Notice of Conversion to convert $200,000 in the aggregate for all
such Holders of the Principal Amount outstanding under the Convertible Note at the “Fixed
Conversion Price” of $1.00. Upon receipt by the Holders of the Common Stock issuable in
respect of the foregoing referenced conversion, the Principal Amount portion only of each
Monthly Amount due under the Convertibe Note on each Amortization Date occurring in April
2008, May 2008, June 2008 and July 2008 shall be deemed to be paid and satisfied.

AMENDMENTS TO THE TERM NOTE

     6. Section 1.1 of the Term Note is hereby amended by (a) deleting the first sentence
appearing therein in its entirety and inserting the following new sentence in lieu thereof:

“(a) Subject to Sections 3.2 and 4.10, 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 (i) during the period commencing on the initial issuance date of this Note through and
including March 31, 2008, three percent (3%) and (ii) on and after April 1, 2008, five
percent (5%) (collectively, the “Contract Rate”).”

     ; and (b) inserting the following clauses (b) and (c) immediately following the last sentence
of said Section 1.1 of the Term Note:

“(b) Payment of Interest in Common Stock and/or Cash. Subject to the restrictions
set forth in clause (c) of this Section 1.1, the Companies may elect in respect of the
interest payment due on any Amortization Date to make such payment in cash or Common Stock,
or a combination of both; provided that, notwithstanding the foregoing, no more than that
portion of the interest payment due on any Amortization Date attributable to two percent
(2%) of the then applicable Contract Rate may be paid by way of issuance by the Parent of
its Common Stock (each, a “Permitted Common Stock Interest Amount”). The Parent shall give
irrevocable written notice to each Holder of its election in respect of the Permitted Common
Stock Interest Amount then due on a given Amortization Date (each, an “Interest Payment
Election Notice”), which notice shall be received by each Holder no later than three (3)
business days prior to such Interest Payment Date (the date of such notice being hereinafter
referred to as the “Interest Payment Notice Date”). If such Interest Payment Election
Notice is not delivered within the prescribed period set-forth in the preceding sentence,
then the payment of the Permitted Common Stock Interest Amount shall be made, together with
the remainder of the interest payment then due, entirely in cash on or prior to the
applicable Interest Payment Date. If the Permitted Common Stock Interest Amount (or a
portion of such Permitted Common Stock Interest Amount if not all of the Permitted Common
Stock Interest Amount) is elected by the

5

 

Parent pursuant to a duly delivered Interest Payment Election Notice (subject to the volume
restrictions set forth in clause (c) of Section 1.1 below to be paid in shares of Common
Stock), the number of such shares to be issued by the Parent to each Holder on such
Amortization Date shall be the number determined by dividing (x) all or the portion of the
Permitted Common Stock Interest Amount converted into shares of Common Stock, by (y) the
average closing price of the Common Stock as reported by Bloomberg, L.P. on the Principal
Market for ten (10) trading days immediately prior to the applicable Amortization Date.
Common Stock issued in repayment of all or a portion of a Permitted Common Stock Interest
Amount shall be issued and delivered to each Holder on or prior to that Amortization Date on
which repayment of such Permitted Common Stock Interest Amount is due.”

“(c) Conversion Limitation. Notwithstanding anything herein to the contrary, in no
event shall the Companies be entitled to issue Common Stock to any Holder in respect of the
Permitted Common Stock Interest Amount if such issuance 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 conversion, 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 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 sentence. For any reason at any time, upon written or oral request of the Holder, the
Parent shall within one (1) business day confirm orally and in writing to the Holder the
number of shares of Common Stock outstanding as of any given date.”

     7. Each Company and each Holder of the Term Note hereby agree that (i) the Principal Amount
portion of the Monthly Amount due on each Amortization Date occurring in the months of April 2008,
May 2008, June 2008 and July 2008 is hereby deferred until the Maturity Date, and (ii) $25,000 of
the Principal Amount portion of the Monthly Amount due on each Amortization Date occurring in the
months of August 2008, September 2008, October 2008, November 2008 and December 2008 is hereby
deferred until the Maturity Date. Notwithstanding the foregoing, from and after the date hereof,
the Monthly Amount shall otherwise be determined (and shall be due and payable) in accordance with
the applicable terms of the Term Note after giving effect to the respective deferrals set forth
above, as applicable.

     8. (a) The Companies have requested, and the Holders of the Term Note have agreed to, the
amendments set forth in Section 5 and 6 above, and in consideration thereof, the Parent hereby
agrees that it shall, by no later than March 17, 2008, issue a warrant to each Holder (each, a
“Further Additional Warrant”) to purchase (i) in respect of Laurus, 101 shares of the Common Stock
of the Parent, (ii) in respect of Valens Offshore, 8,636 shares of the Common Stock of the Parent
with an exercise price of $0.01 per share, (iii) in respect of Valens U.S., 5,587 shares of the
Common Stock of the Parent and (iv) in respect of PSource, 55,677 shares of

6

 

the Common Stock of the Parent. Each Further Additional Warrant shall have an exercise price
of $0.01 and otherwise be in the form and substance acceptable to the respective Holder thereof in
its sole discretion.

     (b) (i) Laurus and the Parent hereto agree that the fair market value of the Further
Additional Warrant (as reasonably determined by the parties) received by Laurus in
consideration of the amendments herein made by Laurus hereunder is hereby designated as
interest and, accordingly, shall be treated, on a pro rata basis, as a reduction of the
remaining stated principal amount (which reduced principal amount shall be treated as the
issue price) of the Term Note for U.S. federal income tax purposes under and pursuant to
Treasury Regulation Sections 1.1001-3(e)(2)(iii), 1.1273-2(g)(2)(ii) and 1.1274-2(b)(1).
PSource and the Parent hereto agree that the fair market value of the Further Additional
Warrant (as reasonably determined by the parties) received by PSource in consideration of
the amendments herein made by PSource hereunder shall be treated for U.S. federal income tax
purposes as a payment of additional interest. Laurus, PSource and the Parent further agree
to file all applicable tax returns in accordance with the characterizations set forth above
and shall not take a position on any tax return or in any judicial or administrative
proceeding that is inconsistent with such characterization. Notwithstanding the foregoing,
nothing contained in this paragraph shall or shall be deemed to modify or impair in any
manner whatsoever each Company’s obligations from time to time owing to the Holders under
the Documents.

MISCELLANEOUS

	 	9.	 	Each Company hereby covenants and agrees with the Holders as follows:
	 
	 	(i)	 	The Parent shall have completed its relocation to the facility located at to
                                         (the “New Facility”) by no later than May 31, 2008;
	 
	 	(ii)	 	the Parent shall have obtained and delivered to the Holders on or prior to
March 25, 2008, a duly executed landlord wavier for the benefit of the Holders and
their administrative and collateral agent, LV Administrative Services, Inc. (the
“Agent”), in form and substance satisfactory to the Agent, with respect to the New
Facility; and
	 
	 	(iii)	 	the Parent shall have provided to the Holders by no later than the close of
business on March 14, 2008, evidence reasonably satisfactory to the Holders
demonstrating that the Parent has received no less than $300,000 of additional equity
contributions from parties and on terms reasonably acceptable to the Holders.

     10. The Companies hereby acknowledge and agree that no grace period shall be applicable for
failure to comply with any of the covenants set forth in Section 9 above, and upon any such failure
by the Companies to comply with any such covenants, an Event of Default (as defined in the Security
Agreement) shall immediately arise.

7

 

     11. The amendments set forth above shall be effective as of the date first above written (the
“Amendment Effective Date”) on the date when each Company and each Holder shall have executed and
each Company shall have delivered to the Holders its respective counterpart to this Amendment.

     12. Except as specifically set forth in this Amendment, there are no other amendments,
modifications or waivers to the Documents, and all of the other related forms, and the terms and
provisions of the Documents and other related forms shall remain in full force and effect.

     13. From and after the date first written above, all references to the Documents shall be
deemed to be references to the Documents as modified hereby.

     14. The Parent understands that it has an affirmative obligation to make prompt public
disclosure of material agreements and material amendments to such agreements. It is the Parent’s
determination that this Amendment is material. The Parent agrees to file an 8-K within 4
business days following the date hereof and in the form otherwise prescribed by the SEC.

     15. Each Company hereby represents and warrants to the Holders that other than as contemplated
by this Amendment (i) no Event of Default (as defined in the Security Agreement) exists on the date
hereof, (ii) on the date hereof, all representations, warranties and covenants made by each Company
under the Documents are true, correct and complete, and (iii) on the date hereof, each Company’s
and its respective Subsidiaries’ covenant requirements have been met under the Documents. The
Parent hereby represents and warrants that it has the requisite power and authority to (i) issue
the shares of Common Stock issuable upon conversion of the Permitted Common Stock Interest Amount
(as defined in each of the Revolving Note, Convertible Note and Term Note) and (ii) issue the
Additional Warrant and each Further Additional Warrant and the shares of Common Stock issuable upon
exercise of such warrants.

     16. This Amendment shall be binding upon the parties hereto and their respective successors
and permitted assigns and shall inure to the benefit of and be enforceable by each of the parties
hereto and their respective successors and permitted assigns. THIS AMENDMENT SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. This Amendment
may be executed in any number of counterparts, each of which shall be an original, but all of which
shall constitute one instrument.

[Signature Page Follows]

8

 

     IN WITNESS WHEREOF, each Company and each Holder has caused this Amendment to be signed in its
name effective as of this 14th day of March 2008.

	 	 	 	 	 	 	 
	 	 	SILICON MOUNTAIN HOLDINGS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Rudolph (Tré) A. Cates III	 	 
	 	 	Title: President and Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	SILICON MOUNTAIN MEMORY, INCORPORATED	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Rudolph (Tré) A. Cates III	 	 
	 	 	Title: President and Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	VCI SYSTEMS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Rudolph (Tré) A. Cates III	 	 
	 	 	Title: President and Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	LAURUS MASTER FUND, LTD.

By: Laurus Capital Management, LLC, its investment

manager	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Name:	 	 
	 	 	Title:	 	 

9

 

	 	 	 	 	 	 	 
	 	 	VALENS OFFSHORE SPV I, LTD.	 	 
	 	 	By: Valens Capital Management, LLC, its

investment manager	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Name:	 	 
	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	VALENS U.S. SPV I, LLC.	 	 
	 	 	By: Valens Capital Management, LLC, its

investment manager	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Name:	 	 
	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	PSOURCE STRUCTURED DEBT LIMITED	 	 
	 	 	By: Laurus Capital Management, LLC, its

investment manager	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Name:	 	 
	 	 	Title:	 	 

10

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