Filed by Bowne Pure Compliance





Exhibit 10.26










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.


 


 









 





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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