Exhibit 10.26
(SILICON MOUNTAIN HOLDINGS LOGO) [c77290p7729001.gif]
www ssmdirect.com
October 14, 2008
Silicon Mountain Holdings, Inc.
4755 Walnut Street
Boulder, Colorado 80301
Attention: Rudolph (Tré) A. Cates III
Re:      Second Amended and Restated Overadvance Side Letter
Reference is hereby made to that certain Security and Purchase Agreement dated
as of September 25, 2006 by and among SILICON MOUNTAIN HOLDINGS, INC., a
Colorado corporation (“Parent”), SILICON MOUNTAIN MEMORY, INCORPORATED, a
Colorado corporation (“SMM”), VCI SYSTEMS, INC., a Colorado corporation (“VCI”,
and together with Parent and SMM, the “Companies” and, each a “Company”) and
Laurus Master Fund, Ltd. (“Laurus”) (as amended, modified and/or supplemented
from time to time, the “Security Agreement”). This Second Amended and Restated
Overadvance Side Letter amends and restates in its entirety (and is given in
substitution for and not in satisfaction of) that certain Amended and Restated
Overadvance Side Letter dated as of April 15, 2008 by and among each Company and
Laurus, Valens U.S. SPV I, LLC (“Valens US”), Valens Offshore SPV I, LTD
(“Valens Offshore”), PSource Structured Debt Limited (“PSource”) and LV
Administrative Services, Inc. as agent (“Agent” and together with Laurus, Valens
US, Valens Offshore and PSource, the “Creditors” and each a “Creditor”) (the
“Amended and Restated Overadvance Side Letter”). Reference is also hereby made
to that certain Secured Revolving Note, dated as of September 25, 2006 issued by
SMM and VCI in favor of Laurus, and subsequently assigned in full to Valens US
(as amended, modified and/or supplemented from time to time, the “Revolving
Note”). Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Security Agreement. Subject to satisfaction of the
Overadvance Conditions (as defined below), the Agent on behalf of the Creditors
are hereby notifying the Companies of its decision to exercise the discretion
granted to it pursuant to Section 2(a)(ii) of the Security Agreement to make
Loans to the Companies during the Period (as defined below) in excess of the
Formula Amount on the date hereof (the “Overadvance”). Subject to satisfaction
of the Overadvance Conditions, the aggregate principal amount of the Overadvance
as of the date hereof shall be up to $1,842,850 (the “Initial Overadvance
Amount”). The outstanding Overadvance shall at no time exceed the lesser of
(x) the Applicable Overadvance Amount (as defined below) and (y) the remainder
of the Capital Availability Amount less the Formula Amount as of the date of
determination (the lesser of clauses (x) and (y) above, the “Maximum Overadvance
Amount”). The “Applicable Overadvance Amount” shall mean on any date of
determination such amount set forth on Annex A hereto opposite the period during
which such determination is made.

 

 

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In connection with making the Overadvance, from the date of March 14, 2008
through and including September 25, 2009 (the “Period”), the Creditors hereby
waive compliance with Section 3 of the Security Agreement, but solely as such
provision relates to the immediate repayment requirement for Overadvances. The
Creditors further agree that solely for such Period (but not thereafter),
(i) the incurrence and existence of the Overadvance shall not trigger an Event
of Default under Section 19(a) of the Security Agreement and (ii) during the
Period, the rate of interest applicable to such Overadvances shall be as set
forthin Section 1.1 of the Revolving Note (collectively, the “Overadvance
Rate”). Interest shall be (i) calculated on the basis of a 360 day year and
shall accrue beginning on the date hereof, and (ii) payable monthly, in arrears,
commencing on November 1, 2008 and on the first business day of each consecutive
calendar month thereafter through and including the expiration of the Period,
whether by acceleration or otherwise. All other terms and provisions of the
Security Agreement and the Ancillary Agreements shall remain in full force and
effect. For the avoidance of doubt, all proceeds applied by any Company in
repayment of its obligations to the Creditors hereunder and under the Security
Agreement and the Ancillary Agreements shall be first applied as a repayment of
the Overadvance unless otherwise agreed by the Creditors. Once repaid, the
Overadvance may be reborrowed during the Period provided that the maximum amount
of the Overadvance outstanding shall not at any time exceed the Maximum
Overadvance Amount.
Each Company hereby acknowledges and agrees that Valens US’s obligation to fund
the Initial Overadvance Amount on the date hereof and each permitted reborrowing
thereof after the date hereof up to the Maximum Overadvance Amount shall, at the
time of such making of such Overadvance or reborrowing, and immediately after
giving effect thereto, be at the sole discretion of the Creditors and also
subject to the satisfaction of the following conditions (the “Overadvance
Conditions”): (i) no Event of Default shall exist and be continuing as of such
date; (ii) all representations, warranties and covenants made by each Company in
connection with the Security Agreement and the Ancillary Agreements shall be
true, correct and complete as of such date; and (iii) each Company and its
Subsidiaries shall have taken all action necessary to grant Agent “control” over
all of such Company’s and its respective Subsidiaries’ Deposit Accounts (the
“Control Accounts”), with any agreements establishing “control” to be in form
and substance satisfactory to Agent. “Control” over such Control Accounts shall
be released upon the indefeasible repayment in full and termination of the
Overadvance (together with all accrued interest and fees which remain unpaid in
respect thereof).
The Companies hereby acknowledge that all amounts outstanding under the
Overadvance (together with accrued interest and fees which remain unpaid in
respect thereof) on the date of expiration of the Period shall, jointly and
severally, be repaid in full by the Companies on such date of expiration. The
failure to make any required repayment of an Overadvance shall give rise to an
immediate Event of Default.
In consideration of the foregoing, the receipt and sufficiency of which is
hereby acknowledged, (i) the Parent shall issue a warrant in form and substance
satisfactory to the Agent (the “Parent Warrant”) as attached as Exhibit A, to
purchase up to the Specified Number (as defined therein) of shares of Common
Stock of the Parent and (ii) SMM shall issue a warrant in form and substance
satisfactory to the Agent (the “SMM Warrant”) as attached as Exhibit B, to
purchase up to 10% (on a fully diluted basis) of the outstanding shares of
common stock of SMM.

 

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The Companies understand that it has an affirmative obligation to make prompt
public disclosure of material agreements and material amendments to such
agreements. It is the Companies determination that this letter is material. The
Companies agrees to file an 8-K within 4 business days following the date of
execution of this letter and in the form otherwise prescribed by the SEC.
This letter may not be amended or waived except by an instrument in writing
signed by each of the Companies and Creditors. This letter may be executed in
any number of counterparts, each of which shall be an original and all of which,
when taken together, shall constitute one agreement. Delivery of an executed
signature page of this letter by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof or thereof, as the case may
be. THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK. This letter sets forth the entire agreement between
the parties hereto as to the matters set forth herein and supersede all prior
communications, written or oral, with respect to the matters herein.
This Amended and Restated Overadvance Side Letter shall for all purposes be
deemed to be an Ancillary Agreement.
If the foregoing meets with the Companies’ approval please signify the
Companies’ acceptance of the terms hereof by signing below.
[Signature page follows.]

 

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              VALENS U.S. SPV I, LLC
By: Valens Capital Management, LLC,
its investment manager
 
       
 
  By:   /s/ Scott Bluestein
 
       
 
  Name:   Scott Bluestein
 
  Title:    
 
  Date:    
 
            LV ADMINISTRATIVE SERVICES, INC.
as Agent
 
       
 
  By:   /s/ Scott Bluestein
 
       
 
  Name:   Scott Bluestein
 
  Title:    
 
  Date:    

 

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AGREED AND ACCEPTED AS OF THE DATE OF THIS LETTER AGREEMENT:

          SILICON MOUNTAIN HOLDINGS, INC.    
 
       
By:
  /s/ Rudolph (Tré) A. Cates III    
 
       
Name:
  Rudolph (Tré) A. Cates III    
Title:
  President and Chief Executive Officer    
Date:
  10/17/08    
 
        SILICON MOUNTAIN MEMORY, INCORPORATED    
 
       
By:
  /s/ Rudolph (Tré) A. Cates III    
 
       
Name:
  Rudolph (Tré) A. Cates III    
Title:
  President and Chief Executive Officer    
Date:
  10/17/08    
 
        VCI SYSTEMS, INC.    
 
       
By:
  /s/ Rudolph (Tré) A. Cates III    
 
       
Name:
  Rudolph (Tré) A. Cates III    
Title:
  President and Chief Executive Officer    
Date:
  10/17/08    

 

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          ACKNOWLEDGED BY:    
 
        VALENS OFFSHORE SPV I, LTD.    
 
        By: Valens Capital Management, LLC
its investment manager    
 
       
By:
  /s/ Scott Bluestein    
 
       
Name:
  Scott Bluestein    
Title:
       
Date:
       
 
        PSOURCE STRUCTURED DEBT
LIMITED    
 
       
By:
  /s/ John Gilfillan    
 
       
Name:
  John Gilfillan    
Title:
  Director of PSOURCE CAPITAL LIMITED, signing as investment consultant to
PSOURCE STRUCTURED DEBT LTD    
Date:
  16th October 2008    

 

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ANNEX A
APPLICABLE OVERADVANCE AMOUNT

          Period   Applicable Overadvance Amount  
 
       
October 15, 2008 through February 28, 2009
  $ 1,842,850  
 
       
March 1, 2009 through March 31, 2009
  $ 1,817,850  
 
       
April 1, 2009 through April 30, 2009
  $ 1,792,850  
 
       
May 1, 2009 through May 31, 2009
  $ 1,767,850  
 
       
June 1, 2009 through June 30, 2009
  $ 1,742,850  
 
       
July 1, 2009 through July 31, 2009
  $ 1,717,850  
 
       
August 1, 2009 through August 31, 2009
  $ 1,692,850  
 
       
September 1, 2009 through September 24, 2009
  $ 1,667,850  
 
       
September 25, 2009 (Maturity)
  $ 0  

 

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