Exhibit 10.3

CREDIT AGREEMENT

DATED AS OF OCTOBER 18, 2006

by and among

VERTICAL COMMUNICATIONS, INC. AND

VERTICAL COMMUNICATIONS ACQUISITION CORP.

as Borrower

and

COLUMBIA PARTNERS, L.L.C. INVESTMENT MANAGEMENT

as Investment Manager

and

NEIPF, L.P.

as Lender

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Table of Contents

 

          Page

ARTICLE 1

   AMOUNTS AND TERMS OF LOANS    1 1.1      Loans    1 1.2      Warrant    2
1.3      Notes    3 1.4      Payment Premium; Default Interest on Term Note    4
1.5      Facility Fees    4 1.6      Expenses and Attorneys Fees    4 1.7     
Payments    5 1.8      Prepayments.    5 1.9      Application of Payments    6
1.10    Maximum Lawful Rate    6

ARTICLE 2

   CONDITIONS TO LOANS    7 2.1      Initial Closing    7 2.2      Subsequent
Closing    9

ARTICLE 3

   REPRESENTATIONS AND WARRANTIES    11 3.1      Disclosure    11 3.2      No
Material Adverse Effect    11 3.3      No Conflict; Compliance    11 3.4     
Organization, Powers, Capitalization, Subsidiaries and Good Standing    11 3.5  
   Financial Statements and Projections    12 3.6      Intellectual Property   
13 3.7      Investigations, Audits, Etc.    13 3.8      Employee Matters    13
3.9      Solvency    13 3.10    Litigation; Adverse Facts    13 3.11    Use of
Proceeds; Margin Regulations    13 3.12    Ownership of Property; Liens    14
3.13    Environmental Matters    14 3.14    ERISA    15 3.15    Brokers    15

 

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Table of Contents

(continued)

 

          Page 3.16    Deposit and Disbursement Accounts    16 3.17    Material
Agreements; Customers and Suppliers    16 3.18    Insurance    16 ARTICLE 4   
AFFIRMATIVE COVENANTS    16 4.1      Maintenance of Financial Records;
Inspections    16 4.2      Further Assurances    17 4.3      Insurance and
Condemnation    17 4.4      Payment of Taxes    19 4.5      Compliance With Laws
   19 4.6      Notices Concerning Environmental, Employee Benefit and Pension
Matters    20 4.7      Business Qualification    20 4.8      Anti-Money
Laundering and Terrorism Regulations    20 4.9      Maintenance of Properties   
21 4.10    Lender Meeting    21 4.11    Organizational Existence    21 4.12   
Landlords’ Agreements, Mortgagee Agreements, Bailee Letters and Real Estate
Purchases    21 4.13    New Subsidiaries    22 4.14    Board Observer Rights   
22 ARTICLE 5    NEGATIVE COVENANTS    22 5.1      Liens and Encumbrances; No
Negative Pledges    22 5.2      Indebtedness    22 5.3      Sale of Assets    22
5.4      Corporate Change    23 5.5      Guaranty Obligations    23 5.6     
Dividends and Distributions    23 5.7      Investments    23 5.8      Related
Party Transactions    24 5.9      Restricted Payments    24 5.10    Use of
Proceeds    25

 

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Table of Contents

(continued)

 

          Page 5.11    No Restrictions on Subsidiary Distributions to Borrower
   25 5.12    Conduct of Business    25 5.13    Changes Relating to Subordinated
Debt    25 5.14    Press Release; Public Offering Materials    25 5.15    Bank
Accounts    26 5.16    Activities of Inactive Subsidiaries    26 5.17    ERISA
   27 ARTICLE 6    FINANCIAL COVENANTS/REPORTING    27 6.1      Financial
Statements and Other Reports    27 6.2      Accounting Terms; Utilization of
GAAP for Purposes of Calculations Under Agreement    30 6.3      Financial
Covenants    30 ARTICLE 7    DEFAULT, RIGHTS AND REMEDIES    31 7.1      Event
of Default    31 7.2      Acceleration and other Remedies    33 7.3     
Performance by Investment Manager    34 7.4      Set Off and Sharing of Payments
   34 7.5      Application of Proceeds after Default    34 ARTICLE 8   
ASSIGNMENT    35 8.1      Assignment    35 ARTICLE 9    PROVISIONS RELATED TO
INVESTMENT MANAGER    36 9.1      Appointment    36 9.2      Reliance    36
9.3      Successor Investment Manager    36 9.4      Collateral Matters    37
9.5      Agency for Perfection    38 9.6      Notice of Default    38 9.7     
Lender Actions Against Collateral    38 9.8      Payment; Information; Actions
in Concert    38

 

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Table of Contents

(continued)

 

          Page ARTICLE 10    MISCELLANEOUS    39 10.1      Indemnities    39
10.2      Amendments and Waivers    39 10.3      Notices    40 10.4     
Obligations Absolute; Failure or Indulgence Not Waiver; Remedies Cumulative   
40 10.5      Marshaling; Payments Set Aside    41 10.6      Severability    41
10.7      Headings    41 10.8      Applicable Law    41 10.9      Successors and
Assigns    41 10.10    No Fiduciary Relationship; Limited Liability    42 10.11
   Construction    42 10.12    Confidentiality    42 10.13    CONSENT TO
JURISDICTION    42 10.14    WAIVER OF JURY TRIAL    43 10.15    Survival of
Warranties and Certain Agreements    43 10.16    Entire Agreement    44 10.17   
Counterparts; Effectiveness    44 10.18    Delivery of Termination Statements
and Mortgage Releases    44 10.19    Suretyship Waivers    44

 

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CREDIT AGREEMENT

This CREDIT AGREEMENT is dated as of October 18, 2006 and entered into by and
among (i) VERTICAL COMMUNICATIONS, INC., a Delaware corporation (“VCI”),
(ii) VERTICAL COMMUNICATIONS ACQUISITION CORP., a Delaware corporation (“VCAC”
and together with VCI, “Borrower”), (iii) solely for purposes of Sections 3.4(c)
and 5.16 herein: Vertical Communications GmbH (“Vertical Germany”), Artisoft
“FSC”, Ltd. (“Artisoft FSC”), and Triton Technologies, Inc. (“Triton”),
(iv) COLUMBIA PARTNERS, L.L.C. INVESTMENT MANAGEMENT, as “Investment Manager”,
and (v) NEIPF, L.P., as “Lender”. The “Borrower” shall mean, for all purposes
under this Agreement as the context requires: (a) each of VCI, VCAC and any
other Subsidiaries of such Persons that become parties to this Agreement after
the date hereof pursuant to Section 4.13 below, or (b) VCI, VCAC and such
additional Subsidiary parties, collectively and on a joint and several,
consolidated basis.

RECITALS:

WHEREAS, Borrower desires that Lender extend certain bridge credit and term
credit facilities to Borrower, to (i) pay off existing loans to working capital
lenders and other lenders; (ii) complete the acquisition of Vodavi Technology,
Inc. (“Vodavi”); and (iii) provide working capital financing and funds for other
general corporate purposes of Borrower;

WHEREAS, Borrower desires to secure all of its Obligations (as hereinafter
defined) under the Loan Documents (as hereinafter defined) by granting to
Investment Manager, for the benefit of Investment Manager and Lender, a security
interest in and lien upon substantially all of its personal and real property;
and

WHEREAS, all capitalized terms herein shall have the meanings ascribed thereto
in Annex A hereto which is incorporated herein by reference.

NOW, THEREFORE, in consideration of the premises and the agreements, provisions
and covenants herein contained, Borrower, Lender and Investment Manager agree as
follows:

ARTICLE 1

AMOUNTS AND TERMS OF LOANS

1.1 Loans. Subject to the terms and conditions of this Agreement and in reliance
upon the representations and warranties of Borrower contained herein:

(a) Initial Bridge Loan. Borrower shall issue and sell to Lender on the Initial
Closing Date (as defined below), and Lender shall purchase for face value on the
Initial Closing Date (the “Initial Closing”) a senior secured promissory note
containing the terms and conditions set forth herein and in the form of note
attached hereto as Exhibit 1.1(a), payable to the order of Lender in the
principal amount of Ten Million Dollars

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($10,000,000) (the “Initial Bridge Note”), subject to the satisfaction of the
conditions to closing set forth in Section 2.1 of this Agreement. The date on
which the Initial Closing shall take place is referred to herein as the “Initial
Closing Date.”

(b) Subsequent Bridge Loan and Term Loan. Within 90 days (or such longer period
as is agreed to between VCI and the Investment Manager) following the Initial
Closing Date (the “Subsequent Closing”), so long as (i) the Initial Bridge Note
is outstanding, (ii) no Default or Event of Default has occurred and is
continuing or would result from the consummation of the Subsequent Closing and
the use of proceeds therefrom, and (iii) all of the conditions set forth in
Section 2.2 have been satisfied, if Borrower so elects, Borrower shall issue and
sell to Lender, and Lender shall purchase for face value: (1) a senior secured
promissory note containing the terms and conditions set forth herein and in the
form of note attached hereto as Exhibit 1.1(a), payable to the order of Lender
in the principal amount of Five Million Dollars ($5,000,000) (or such other
amount, when combined with the principal amount of the Initial Bridge Note,
equals $15,000,000) (the “Subsequent Bridge Note” and together with the Initial
Bridge Note, the “Bridge Notes”)) and (2) a senior secured promissory note
containing the terms and conditions set forth herein and in the form of note
attached hereto as Exhibit 1.1(b), payable to the order of Lender in the
principal amount of Fifteen Million Dollars ($15,000,000) (the “Term Note” and
collectively with the Initial Bridge Note and the Subsequent Bridge Note, the
“Notes” and each such Note, a “Note”). The date on which the Subsequent Closing
takes place is hereinafter referred to as the “Subsequent Closing Date”.

1.2 Warrants. At the Initial Closing, VCI shall issue and sell to Lender, as
part of its inducement to purchase the Notes, (i) a warrant (the “Initial
Warrant”) entitling Lender to purchase 4,500,000 shares of VCI’s common stock,
par value $0,01 per share (“Common Stock”) at an exercise price equal to $0.01
per share on the basis set forth therein, which Initial Warrant shall be in the
form attached hereto as Exhibit 1.2(a), and (ii) a warrant (the “Additional
Warrant, and together with the Initial Warrant, the “Warrants”), entitling
Lender to purchase 500,000 shares of Common Stock at an exercise price equal to
$0.01 per share on the basis set forth therein, which Additional Warrant shall
be in the form attached hereto as Exhibit 1.2(b). Lender shall have registration
rights with respect to the shares of Common Stock issuable upon exercise of the
Warrants on substantial parity with those of the holders of warrants issued in
connection with VCI’s Series E Convertible Preferred Stock offering on or around
the date hereof, as further described in the Warrants. In addition, Borrower and
Lender, as a result of arm’s length bargaining, agree that:

(a) Neither Lender, Investment Manager nor any affiliated company of Lender or
Investment Manager has rendered any services to Borrower in connection with this
Agreement;

(b) The Warrants are not being issued as compensation;

 

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(c) The aggregate fair market value of the Initial Warrant, if issued apart from
the Notes, is $1,845,000, and the aggregate fair market value of the Additional
Warrant, if issued apart from the Notes is $205,000; and

(d) All tax returns and other information return of each party relative to this
Agreement and the Notes and Warrants issued pursuant hereto shall consistently
reflect the matters agreed to in (a) through (c) above.

1.3 Notes.

(a) Security. The Notes and the Obligations of Borrower shall be secured in
accordance with the terms of the Collateral Documents.

(b) Maturity. The principal amount of the Term Note issued under this Agreement,
any accrued and unpaid interest thereon, the applicable Payment Premium (as
defined below) and all other amounts then owing by Borrower to Lender or
Investment Manager hereunder in connection with the Term Note shall be due and
payable on the date that is thirty six (36) months from the Subsequent Closing
Date (the “Term Loan Maturity Date”), unless such amounts become due and payable
earlier in accordance with the terms hereof or otherwise. The principal amount
of the Bridge Notes issued under this Agreement, any accrued and unpaid interest
thereon and all other amounts then owing by Borrower to Lender or Investment
Manager hereunder in connection with the Bridge Notes shall be due and payable
on July 1, 2007 (the “Bridge Loan Maturity Date” and together with the Term Loan
Maturity Date, the “Maturity Dates”), unless such amounts become due and payable
earlier in accordance with the terms hereof or otherwise.

(c) Interest. The outstanding principal amount of each Bridge Note shall bear
interest at a rate per annum equal to fourteen percent (14%) (the “Bridge
Rate”), which accrued interest shall be payable by Borrower to Investment
Manager, for the benefit of Lender, in cash in arrears on each Quarterly
Interest Payment Date, or upon a Liquidity Event or Partial Liquidity Event, on
the date of any prepayment or at such time such amount becomes otherwise due and
payable in accordance with the terms hereof. The outstanding principal amount of
the Term Note shall bear interest at a rate per annum equal to the Applicable
Federal Rate (the “Term Rate”). A portion of the interest accruing at the Term
Rate equal to one-half of one percent (0.5%) of the outstanding principal amount
of the Term Note shall be payable in cash in arrears on each Quarterly Interest
Payment Date. The remaining accrued and unpaid interest on the Term Note shall
be payable by Borrower to Investment Manager, for the benefit of Lender, on the
Term Loan Maturity Date, upon a Liquidity Event or Partial Liquidity Event, on
the date of any prepayment or at such time such amount becomes due and payable
in accordance with the terms hereof. All computations of interest payable
hereunder (i.e., on both Bridge Notes and the Term Note) shall be on the basis
of a 360-day year consisting of twelve 30-day months and actual days elapsed in
the period of which such interest is payable.

(d) Default Interest on Bridge Notes. Upon the occurrence and during the
continuance of any Event of Default under any Bridge Note, the outstanding
principal

 

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amount on each such Bridge Note then due and payable and all other amounts
otherwise due and payable hereunder (including accrued and unpaid interest at
the Bridge Rate) shall bear additional interest on each day until paid at a rate
per annum equal to two percent (2%).

1.4 Payment Premium on Term Note; Default Interest on Term Note. Upon any
payment or prepayment of any principal amount of the Term Note by the Borrower,
whether on the Maturity Date or upon the occurrence of a Liquidity Event,
Partial Liquidity Event, voluntary prepayment or acceleration, Borrower shall
pay to Investment Manager, for the benefit of Lender, a payment premium (the
“Payment Premium”) equal to the amount required to provide the Lender with an
IRR with respect to the principal amount of the Term Note being repaid of
thirteen and one-half of one percent (13.5%); provided that during any period in
which an Event of Default under the Term Note shall have occurred and be
continuing, the IRR for such period shall be automatically adjusted to equal
fifteen and one-half of one percent (15.5%), all in accordance with the
calculation examples set forth on Exhibit 1.4. Notwithstanding anything to the
contrary contained herein, in the event of a prepayment made pursuant to
Section 1.8, the Payment Premium shall be calculated assuming the payment of all
outstanding principal and accrued and unpaid interest, whether or not such
amounts are actually paid in connection with the subject prepayment.

1.5 Facility Fees.

(a) The parties hereto acknowledge that Borrower has paid to Investment Manager,
for the benefit of Lender, an amount equal to $150,000 (the “Bridge Fee”).

(b) At the Subsequent Closing, Borrower shall pay to Investment Manager, for the
benefit of Lender, an amount equal to two percent (2%) of the principal amount
of the Term Note issued at the Subsequent Closing (the “Term Fee,” and
collectively with the Bridge Fee, the “Facility Fees”).

1.6 Expenses and Attorneys Fees. Borrower agrees to pay or reimburse Investment
Manager and Lender for: (a) all costs, expenses and other charges in respect of
any lien, tax and judgment searches performed by a service firm, to be chosen by
Investment Manager in its sole discretion, in connection with the transactions
contemplated by the Loan Documents and other collateral searches and filings;
(b) all reasonable out-of-pocket costs and expenses of Investment Manager and
Lender including the legal fees and disbursements of Cooley Godward Kronish LLP,
incurred in connection with the negotiation, preparation, execution and delivery
of this Agreement and the other Loan Documents and the other instruments and
agreements entered into pursuant hereto and thereto; provided, that any legal
fees of Investment Manager and Lender in excess of $70,000 and any out-of-pocket
expenses of Investment Manager and Lender in excess of $10,000 shall be subject
to approval by Borrower prior to reimbursement; (c) all reasonable out-of-pocket
costs and expenses of Investment Manager and Lender including the fees and
disbursements of counsel for Investment Manager and Lender, incurred in
connection with the negotiation, preparation, execution and delivery of any
modification, supplement or waiver of this Agreement and any

 

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other Loan Documents (whether or not consummated); (d) all expenses of
Investment Manager and Lender including the fees and disbursements of counsel
for Investment Manager and Lender in connection with (1) any Default or Event of
Default and any enforcement or collection proceedings resulting therefrom,
including, without limitation, all manner of participation in or other
involvement with (A) bankruptcy, insolvency, receivership, foreclosure, winding
up or liquidation proceedings, (B) judicial or regulatory proceedings and
(C) workout, restructuring or other negotiations or proceedings (whether or not
the workout, restructuring or transaction contemplated thereby is consummated)
and (2) the enforcement of this Section 1.6; and (e) all transfer, stamp,
documentary or other similar taxes, assessments or charges levied by any
governmental or revenue authority in respect of this Agreement or any of the
other Loan Documents or any other document referred to herein or therein and all
costs, expenses, taxes, assessments and other charges incurred in connection
with any filing, registration, recording or perfection of any security interest
contemplated by the Collateral Documents or any other document referred to
therein. Payments under this Section shall be made promptly and in any case no
later than ten (10) days after written demand therefor. Upon the Initial
Closing, the non-refundable advance from Borrower to Investment Manager in the
amount of $40,000 shall be credited to the reimbursement of any expenses of
Investment Manager and Lender incurred as of the Initial Closing and entitled to
reimbursement hereunder. The remaining amount, if any, of the non-refundable
advance from Borrower shall be credited to the reimbursement of any expenses of
Investment Manager and Lender incurred as of the Subsequent Closing and entitled
to reimbursement hereunder and to the Term Fee payable under Section 1.5(b)
above. Any payments under this Section 1.6 which remain outstanding more than
sixty (60) days after written demand therefor shall accrue interest at a per
annum rate equal to (x) the “prime rate” as set forth in the Wall Street Journal
on the date of determination, plus (y) two percent (2.00%).

1.7 Payments. All payments by Borrower of the Obligations shall be without
deduction, defense, setoff or counterclaim and shall be made in same day funds
and delivered to Lender, for the benefit of Investment Manager and Lender, as
applicable, by wire transfer to the account of Lender specified on the signature
page hereof or such other place as Investment Manager may from time to time
designate in writing. Borrower shall receive credit on the day of receipt for
funds received by Investment Manager by 2:00 p.m. (Eastern Time). Funds received
after 2:00 pm (Eastern Time) shall be deemed to have been paid on the next
Business Day. Whenever any payment to be made hereunder shall be stated to be
due on a day that is not a Business Day, the payment may be made on the next
succeeding Business Day and such extension of time shall be included in the
computation of the amount of interest and Fees due hereunder.

1.8 Prepayments.

(a) Voluntary Prepayments. At any time and from time to time, Borrower may
prepay the amounts due under the Notes, in whole or in part. Any prepayment
shall include all costs and fees incurred as of the date of payment, all accrued
and unpaid interest, the principal amount intended to be prepaid, and any
applicable Payment Premium. Prepayments shall be applied in accordance with
Section 1.9 or as otherwise may be agreed by Lender. If Borrower elects to
prepay all or any part of the principal due under the Notes

 

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pursuant to this Section 1.8(a), Borrower shall give notice of such prepayment
to the Investment Manager to be prepaid not less than ten (10) days or more than
sixty (60) days prior to the date fixed for prepayment, specifying the amounts
to be repaid as required by this Section 1.8(a).

(b) Mandatory Prepayment.

(i) Liquidity Event. Upon the occurrence of a Liquidity Event, Borrower shall
immediately pay to Investment Manager, for the benefit of Lender, all amounts
due under the Loans as set forth in this Agreement, including, without
limitation, all costs and fees incurred as of the date of payment, all accrued
and unpaid interest, the principal outstanding as of the date of such payment,
and the applicable Payment Premium. The payments made pursuant to this
Section 1.8(b)(i) shall be applied in accordance with Section 1.9.

(ii) Partial Liquidity Event. Upon the occurrence of a Partial Liquidity Event,
Borrower shall immediately pay to the Investment Manager, for the benefit of
Lender, in respect of the Loans an amount equal to (A) the net cash proceeds
received by Borrower in the Partial Liquidity Event minus (B) Thirty Million
Dollars ($30,000,000), but not in excess of all amounts due under the Loans as
set forth in this Agreement, including, without limitation, all costs and fees
incurred as of the date of payment, all accrued and unpaid interest, the
principal outstanding as of the date of such payment, and the applicable Payment
Premium. The payments made pursuant to this Section 1.8(b)(ii) shall be applied
in accordance with Section 1.9.

1.9 Application of Payments. With respect to any payment hereunder, including
without limitation the prepayments described in Sections 1.8(a) and 1.8(b), such
payments shall be applied first to reduce the Obligations under the Bridge Notes
and then to reduce the Obligations under the Term Note, in each case in the
following order: (a) with respect to the Bridge Notes: first, to the payment of
all fees and expenses due and payable pursuant to this Agreement as apportioned
to the principal amount of the Bridge Notes (compared to the principal amount of
all Notes); second, to accrued and unpaid interest due on the Bridge Notes;
third, to reduce the outstanding principal balance under the Bridge Notes; and
fourth, to any other Obligations of Borrower owing to Investment Manager or
Lender with respect to the Bridge Notes hereunder; and (b) with respect to the
Term Note: first, to the applicable Payment Premium; second, to the payment of
all fees and expenses due and payable pursuant to this Agreement as apportioned
to the principal amount of the Term Note (compared to the principal amount of
all Notes); third, to reduce the outstanding principal balance under the Term
Note; and fourth, to any other Obligations of Borrower owing to Investment
Manager or Lender with respect to the Term Note hereunder; provided that
notwithstanding any prior allocation of payments to the Payment Premium, upon
the final payment in full of all outstanding principal under the Term Note, the
Payment Premium shall be recalculated and any additional Payment Premium shall
be immediately due and payable.

1.10 Maximum Lawful Rate. Notwithstanding anything to the contrary contained
herein, if a court of competent jurisdiction determines in a final order that
the effective Bridge

 

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Rate payable hereunder exceeds the highest rate of interest permissible under
law (the “Maximum Lawful Rate”), then so long as the Maximum Lawful Rate would
be so exceeded, the effective Bridge Rate payable hereunder shall be equal to
the Maximum Lawful Rate; provided, however, that if at any time thereafter the
effective Bridge Rate payable hereunder is less than the Maximum Lawful Rate,
Borrower shall continue to pay interest hereunder at the Maximum Lawful Rate
until such time as the total interest received by Investment Manager, on behalf
of Lender, is equal to the total interest that would have been received had the
effective Bridge Rate payable hereunder been (but for the operation of this
paragraph) the interest rate payable since the respective date of issuance of
the subject Bridge Note as otherwise provided in this Agreement. Thereafter, the
effective Bridge Rate payable hereunder shall be paid at the rate(s) of interest
and in the manner provided hereunder, unless and until the rate of interest
again exceeds the Maximum Lawful Rate, and at that time this paragraph shall
again apply. In no event shall the total interest received by any Lender under
the Bridge Notes pursuant to the terms hereof exceed the amount that such Lender
could lawfully have received had the Bridge Rate of interest due hereunder been
calculated for the full term of the Bridge Notes at the Maximum Lawful Rate. If
the Maximum Lawful Rate is calculated pursuant to this paragraph, such interest
shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by
the number of days in the year in which such calculation is made. If,
notwithstanding the provisions of this Section 1.10, a court of competent
jurisdiction shall determine by a final, non-appealable order that Lender has
received interest on the Bridge Notes in excess of the Maximum Lawful Rate, the
Investment Manager shall, to the extent permitted by applicable law, promptly
apply such excess to the outstanding principal amount of the outstanding Bridge
Loan(s) and thereafter, Lender shall refund any excess to Borrower or as such
court of competent jurisdiction may otherwise order.

ARTICLE 2

CONDITIONS TO LOANS

The obligation of Lender to make the Loans on each Closing Date, as provided in
Section 1.1 hereof, shall be subject to the performance by Borrower of its
agreements to be performed hereunder and to the satisfaction, prior thereto or
concurrently therewith, of the following further conditions:

2.1 Initial Closing.

(a) Representations and Warranties. The representations and warranties of
Borrower contained in Article 3 hereof shall be true and correct in all material
respects as of the Initial Closing Date (as modified by the Disclosure Schedules
delivered as of the Initial Closing Date) as though such warranties and
representations were made at and as of such date, except as otherwise affected
by the transactions contemplated hereby.

(b) Compliance with Loan Documents, No Default or Event of Default. Borrower
shall have performed and complied with all agreements, covenants and conditions
contained in the Loan Documents which are required to be performed or

 

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complied with by it prior to or on the Initial Closing Date. No Default or Event
of Default shall exist prior to or after giving effect to the transactions
contemplated on the Initial Closing Date.

(c) Officer’s Certificate. Investment Manager shall have received a certificate,
dated the Initial Closing Date, signed by the President or the Chief Financial
Officer of Borrower, certifying that the conditions specified in Sections
2.1(a), (b), (d) and (i) hereof have been fulfilled.

(d) Injunction. There shall be no effective injunction, writ, preliminary
restraining order or any order of any nature issued by a court of competent
jurisdiction directing that the transactions provided for herein or any of them
not be consummated as herein provided.

(e) Counsel’s Opinion. Investment Manager shall have received from Borrower’s
counsel an opinion, dated the Initial Closing Date, substantially in the form of
Exhibit 2.1(e) hereto.

(f) Approval of Proceedings. All proceedings to be taken in connection with the
transactions contemplated by this Agreement, and all documents incident thereto,
shall be reasonably satisfactory in form and substance to Investment Manager or
Lender and their counsel; and Investment Manager shall have received copies of
all documents or other evidence which they and their counsel may reasonably
request in connection with such transactions and of all records of corporate
proceedings in connection therewith in form and substance reasonably
satisfactory to Investment Manager or Lender and their counsel.

(g) Other Fees and Expenses. Borrower shall have paid to Investment Manager all
other amounts payable hereunder, including the payment of the fees and expenses
of Cooley Godward Kronish LLP, counsel to Investment Manager.

(h) Secretary’s Certificate. Investment Manager shall have received a
certificate, dated the Initial Closing Date, signed by the Secretary or
Assistant Secretary, as the case may be, of Borrower certifying that (i) its
certificate of incorporation annexed thereto is in full force and effect without
any amendment, (ii) the by-laws annexed thereto are correct and complete as in
effect on the date thereof; and (iii) the resolutions annexed thereto approving
the transactions contemplated herein have been duly approved by the Board of
Directors of Borrower and remain in full force and effect.

(i) Registration Rights. Lender shall have received certain registration rights
in respect of the Common Stock underlying the Warrants as provided in the
Warrants.

(j) Security Interests. All action necessary or determined by Investment Manager
to be desirable to create and perfect the security interests purported to be
created by the Collateral Documents shall have been taken or completed,
including the

 

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execution and delivery of the Collateral Documents and provisions shall have
been made for the filing of the Uniform Commercial Code financing statements,
delivery of instruments or securities and delivery of “control” agreements
necessary to establish control of deposit accounts and securities accounts as
contemplated by Articles 8 and 9 of the Uniform Commercial Code.

(k) Insurance. Investment Manager shall have received evidence that the
insurance required to be maintained under this Agreement and the Collateral
Documents is in full force and effect and that Investment Manager or Lender has
been named as loss payee or additional insured, as appropriate, under the
applicable insurance policies.

(l) Payoff Letters. Investment Manager shall have received payoff letters from
Silicon Valley Bank and Comdial Corporation evidencing the release of all liens
and claims from such lenders upon the repayment of their existing loans with the
proceeds received by Borrower from the funding of the Initial Bridge Note, each
in form and substance satisfactory to the Investment Manager and its counsel.

(m) Equity Financing – Signing. VCI shall have entered into a definitive
Securities Purchase Agreement in substantially the form attached hereto as
Exhibit 2.1(m) with institutional investors for the sale of at least $15 million
of VCI’s Series E Convertible Preferred Stock.

(n) Other Documents. Borrower shall have executed and delivered to Investment
Manager, for the benefit of Lender, the Initial Bridge Note and the Warrants.

2.2 Subsequent Closing.

(a) Representations and Warranties. The representations and warranties of
Borrower contained in Article 3 hereof shall be true and correct in all material
respects on the Subsequent Closing Date (as modified by the Disclosure Schedules
delivered as of the Subsequent Closing Date) as though such warranties and
representations were made at and as of such date, except to the extent such
representations and warranties speak as of a specific date and as otherwise
affected by the transactions contemplated hereby.

(b) Compliance with Loan Documents, No Default or Event of Default. Borrower
shall have performed and complied with all agreements, covenants and conditions
contained in the Loan Documents which are required to be performed or complied
with by it prior to or on the Subsequent Closing Date, or failure to so comply
shall have previously been cured or waived. No Default or Event of Default shall
exist prior to or after giving effect to the transactions contemplated on the
Subsequent Closing Date.

(c) Officer’s Certificate. Investment Manager shall have received a certificate,
dated the Subsequent Closing Date, signed by the President or the Chief

 

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Financial Officer of Borrower, certifying that the conditions specified in
Sections 2.2(a), (b) and (d) hereof have been fulfilled.

(d) Injunction. There shall be no effective injunction, writ, preliminary
restraining order or any order of any nature issued by a court of competent
jurisdiction directing that the transactions provided for herein or any of them
not be consummated as herein provided.

(e) Approval of Proceedings. All proceedings to be taken in connection with the
transactions contemplated by this Agreement, and all documents incident thereto,
shall be reasonably satisfactory in form and substance to Investment Manager or
Lender and their counsel; and Investment Manager and Lender shall have received
copies of all documents or other evidence which they and their counsel may
reasonably request in connection with such transactions and of all records of
corporate proceedings in connection therewith in form and substance reasonably
satisfactory to Investment Manager and Lender and their counsel.

(f) Other Fees and Expenses. Borrower shall have paid to Investment Manager all
other amounts payable hereunder, including the payment of the fees and expenses
of Cooley Godward Kronish LLP, counsel to Investment Manager.

(g) Secretary’s Certificate. Investment Manager shall have received a
certificate, dated the Subsequent Closing Date, signed by the Secretary or
Assistant Secretary, as the case may be, of Borrower certifying that (i) its
certificate of incorporation annexed thereto is in full force and effect without
any amendment, (ii) the by-laws annexed thereto are correct and complete as in
effect on the date thereof; and (iii) the resolutions annexed thereto approving
the transactions contemplated herein have been duly approved by the Board of
Directors of Borrower and remain in full force and effect.

(h) Other Documents. Borrower shall have executed and delivered to Investment
Manager, for the benefit of Lender, the Subsequent Bridge Note and the Term
Note.

(i) Vodavi Technology, Inc. Closing. VCI shall have closed (on the Subsequent
Closing Date) its acquisition by merger of Vodavi Technology, Inc., a Delaware
corporation, through the merger of VCI’s wholly owned subsidiary Vertical
Acquisition Sub Inc., a Delaware corporation into Vodavi Technology, Inc.
pursuant to that certain Agreement and Plan of Merger in substantially the form
set forth on Exhibit 2.2(i) hereto, and Vodavi Technology, Inc. shall have
entered into a Joinder Agreement as set forth in Section 4.13.

(j) Equity Financing - Closing. VCI shall have received (on the Subsequent
Closing Date) net cash proceeds of at least $15 million in connection with the
sale and issuance of shares of its Series E Convertible Preferred Stock pursuant
to that certain Securities Purchase Agreement in substantially the form attached
hereto as Exhibit 2.1(m).

 

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ARTICLE 3

REPRESENTATIONS AND WARRANTIES

To induce Investment Manager and Lender to enter into the Loan Documents and to
make Loans, each of VCI and VCAC (and for purposes of Section 3.4(c) only, each
of Vertical Germany, Triton and Artisoft FSC), jointly and severally represent,
warrant and covenant to Investment Manager and Lender that the following
statements are true, correct and complete as of each Closing Date. Such
representations and warranties are subject to the qualifications and exceptions
set forth in the Disclosure Schedules delivered to Investment Manager in
connection herewith.

3.1 Disclosure. No representation or warranty of Borrower contained in this
Agreement, the Financial Statements, or any other document, certificate or
written statement furnished to Investment Manager or Lender by Borrower or its
auditor at Closing contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein not misleading in light of the circumstances in which the same were
made.

3.2 No Material Adverse Effect. Since June 30, 2006, there have been no events
or changes in facts or circumstances affecting Borrower which individually or in
the aggregate have had or would reasonably be expected to have a Material
Adverse Effect and that have not been disclosed herein or in the attached
Disclosure Schedules.

3.3 No Conflict; Compliance. The consummation of the transactions contemplated
by this Agreement and the other Loan Documents does not and will not violate or
conflict with any laws, rules, regulations or orders of any Governmental
Authority or violate, conflict with, result in a breach of, or constitute a
default (with due notice or lapse of time or both) under any Contractual
Obligation or organizational documents of Borrower except if such violations,
conflicts, breaches or defaults could not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. Borrower (i) is in
compliance with the requirements of all applicable laws, rules, regulations and
orders of any Governmental Authority and the obligations, conditions and
covenants contained in all Contractual Obligations other than those laws, rules,
regulations, orders and provisions of such Contractual Obligations the
noncompliance with which could not be reasonably expected to have, either
individually or in the aggregate, a Material Adverse Effect, and (ii) maintains
all licenses, qualifications and permits necessary for the conduct of its
business as presently conducted and expected to be conducted.

3.4 Organization, Powers, Capitalization, Subsidiaries and Good Standing.

(a) Organization and Powers. Each of VCI and VCAC is duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
organization and qualified to do business in all states where such qualification
is required except where failure to be so qualified could not reasonably be
expected to have a Material Adverse Effect. The jurisdiction of organization and
all jurisdictions in which each of VCI and VCAC is qualified to do business are
set forth on Schedule 3.4(a). Each of VCI and

 

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VCAC has all requisite organizational power and authority to own and operate its
properties, to carry on its business as now conducted and proposed to be
conducted, to enter into each of the Loan Documents to which it is a party and
to incur the Obligations, grant liens and security interests in the Collateral
and carry out the transactions contemplated by this Agreement and the other Loan
Documents.

(b) Capitalization. As of the Closing Date: (i) the authorized Stock of each of
VCI and VCAC is as set forth on Schedule 3.4(b); (ii) all issued and outstanding
Stock of VCI and VCAC is duly authorized and validly issued, fully paid,
nonassessable, free and clear of all Liens other than those in favor of
Investment Manager for the benefit of Investment Manager and Lender, and such
Stock was issued in compliance with all applicable state, federal and foreign
laws concerning the issuance of securities; (iii) the identity of the holders of
the Stock of VCI and VCAC and the percentage of their fully diluted ownership of
the Stock of each of VCI and VCAC is set forth on Schedule 3.4(b); and (iv) no
Stock of VCI or VCAC, other than as described above, is issued and outstanding.
Except as provided in Schedule 3.4(b), as of the Closing Date, there are no
preemptive or other outstanding rights, options, warrants, conversion rights or
similar agreements or understandings for the purchase or acquisition from VCI
and VCAC of any Stock of any such entity.

(c) Subsidiaries. Neither VCI nor VCAC has any Subsidiaries other than Artisoft
FSC and Triton (collectively, the “Inactive Subsidiaries”) and Vertical Germany
and Vertical Acquisition Sub Inc., which entity will merge into Vodavi
Technology, Inc. upon the closing of the merger referenced in Section 2.2(i).
Other than as set forth in Schedule 3.4(c), none of the Inactive Subsidiaries
employ any Persons, has any assets or liabilities, has any customers or
suppliers, performs any operations or is party to any contracts or commitments,
whether oral, written or contingent. There is no judgment outstanding against
any of the Subsidiaries or affecting any such entity’s property, nor is there
any Litigation pending, or to the knowledge of Borrower threatened, against any
Subsidiaries which would reasonably be expected to result in any Material
Adverse Effect. Each of the Subsidiaries is wholly owned by VCI. Vertical
Germany is the principal sales and marketing arm for Borrower for European
sales. Its assets and operations are reflected in VCI’s consolidated and
consolidating financial statements. Vertical Germany employs not more than five
persons, has no material assets or liabilities other than not more than $200,000
of inventory and accounts receivables at any date and office furniture and
equipment, has no material suppliers other than the Borrower and has no
customers or performs any operations other than with respect to sales of
inventory in the ordinary course of its business.

(d) Binding Obligation. This Agreement is, and the other Loan Documents when
executed and delivered will be, the legally valid and binding obligations of the
applicable parties thereto, each enforceable against each of such parties, as
applicable, in accordance with their respective terms except as enforceability
may be limited by applicable bankruptcy, insolvency, moratorium and laws
affecting the rights of creditors generally and by general principles of equity
whether considered at law or in equity.

3.5 Financial Statements and Projections. All Financial Statements concerning
Borrower which have been or will hereafter be furnished to Investment Manager or
Lender

 

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pursuant to this Agreement, including those listed below, have been or will be
prepared in accordance with GAAP consistently applied (except as disclosed
therein) and do or will present fairly in all material respects the financial
condition of the entities covered thereby as at the dates thereof and the
results of their operations for the periods then ended, subject to, in the case
of unaudited Financial Statements, the absence of footnotes and normal year end
adjustments. The Projections delivered on or prior to the Closing Date and the
updated Projections delivered pursuant to Section 6.1(g) were (or will be)
prepared on the basis of the assumptions stated therein and such assumptions
were (or will be) reasonable at the time prepared.

3.6 Intellectual Property. Borrower owns, is licensed to use or otherwise has
the right to use, all registered Intellectual Property used in or necessary for
the conduct of its business as currently conducted, and all such Intellectual
Property (other than off the shelf software) is identified on Schedule 3.6 and
fully protected and/or duly and properly registered, filed or issued in the
appropriate office and jurisdictions for such registrations, filings or
issuances. Except as disclosed in Schedule 3.6, the use of such Intellectual
Property by Borrower and the conduct of its business does not, and, to the
knowledge of the Borrower, have not been alleged by any Person to infringe on
the rights of any Person.

3.7 Investigations, Audits, Etc. As of the Closing Date, except as set forth on
Schedule 3.7, Borrower is not the subject of any review or audit by the IRS or
any governmental investigation concerning the violation or possible violation of
any law.

3.8 Employee Matters. Except as set forth on Schedule 3.8, there are no strikes,
slowdowns, work stoppages or controversies pending or, to the knowledge of
Borrower after due inquiry, threatened between VCI and VCAC and their respective
employees, other than employee grievances arising in the ordinary course of
business which could not reasonably be expected to have, either individually or
in the aggregate, a Material Adverse Effect and (d) hours worked by and payment
made to employees of VCI and VCAC comply with the Fair Labor Standards Act and
each other federal, state, local or foreign law applicable to such matters.
Except as set forth on Schedule 3.8, neither VCI nor VCAC is party to an
employment contract.

3.9 Solvency. Each Borrower is Solvent.

3.10 Litigation; Adverse Facts. Except as set forth on Schedule 3.10, there are
no judgments outstanding against Borrower or affecting any property of Borrower,
nor is there any Litigation pending, or to the knowledge of Borrower threatened,
against Borrower which would reasonably be expected to result in any Material
Adverse Effect.

3.11 Use of Proceeds; Margin Regulations.

(a) No part of the proceeds of any Loan will be used for “buying” or “carrying”
“margin stock” within the respective meanings of such terms under Regulation U
of the Board of Governors of the Federal Reserve System as now and from time to
time hereafter in effect or for any other purpose that violates the provisions
of the regulations of

 

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the Board of Governors of the Federal Reserve System. If requested by Investment
Manager, Borrower will furnish to Investment Manager and Lender a statement to
the foregoing effect in conformity with the requirements of FR Form G 3 or FR
Form 0 1, as applicable, referred to in Regulation U.

(b) Borrower shall utilize the proceeds of the Loans solely for uses set forth
in the first Recital set forth in this Agreement.

3.12 Ownership of Property; Liens. As of the Closing Date, the real estate
(“Real Estate”) listed in Schedule 3.12 constitutes all of the real property
owned, leased, subleased, or used by Borrower. Borrower owns good and marketable
fee simple title to all of its owned Real Estate, and valid and marketable
leasehold interests in all of its leased Real Estate, all as described on
Schedule 3.12, and copies of all such leases or an accurate summary of terms
thereof reasonably satisfactory to Investment Manager have been delivered to
Investment Manager. Schedule 3.12 further describes any Real Estate with respect
to which Borrower is a lessor, sublessor or assignor as of the Closing Date.
Borrower also has good and marketable title to, or valid leasehold interests in,
all of its personal property and assets. As of the Closing Date, none of the
properties and assets of Borrower is subject to any Liens other than Permitted
Encumbrances, and there are no facts, circumstances or conditions known to
Borrower that may result in any Liens (including Liens arising under
Environmental Laws) other than Permitted Encumbrances against the properties or
assets of Borrower. Borrower has received all deeds, assignments, waivers,
consents, nondisturbance and attornment or similar agreements, bills of sale and
other documents, and has duly effected all recordings, filings and other actions
necessary to establish, protect and perfect Borrower’s right, title and interest
in and to all such Real Estate and other properties and assets. Schedule 3.12
also describes any purchase options, rights of first refusal or other similar
contractual rights pertaining to any Real Estate. As of the Closing Date, no
portion of Borrower’s Real Estate has suffered any material damage by fire or
other casualty loss that has not heretofore been repaired and restored in all
material respects to its original condition or otherwise remedied. As of the
Closing Date, all permits required to have been issued or appropriate to enable
the Real Estate to be lawfully occupied and used for all of the purposes for
which it is currently occupied and used have been lawfully issued and are in
full force and effect.

3.13 Environmental Matters.

(a) None of the operations of Borrower is the subject of any federal, state or
local investigation to determine whether any remedial action is needed to
address the presence or disposal of any environmental pollution, hazardous
material or environmental clean-up of the Real Estate or any of Borrower’s
leased Real Estate. No enforcement proceeding, complaint, summons, citation,
notice, order, claim, litigation, investigation, letter or other communication
from a federal, state or local authority has been filed against or delivered to
any Borrower, regarding or involving any release of any environmental pollution
or hazardous material on any real property now or previously owned or operated
by Borrower.

 

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(b) Borrower has no known contingent liability with respect to any release of
any environmental pollution or hazardous material on any real property now or
previously owned or operated by Borrower.

(c) Borrower is in compliance with all environmental statutes, acts, rules,
regulations and orders applicable to the operation of Borrower’s business,
except to the extent that the failure to so comply would not be reasonably
likely to have a Material Adverse Effect.

(d) Borrower hereby acknowledges and agrees that neither Investment Manager nor
Lender (i) is now, or has ever been, in control of any of the Real Estate or
affairs of Borrower, and (ii) has the capacity through the provisions of the
Loan Documents or otherwise to influence Borrower’s conduct with respect to the
ownership, operation or management of any of their Real Estate or compliance
with Environmental Laws or Environmental Permits.

3.14 ERISA. Schedule 3.14 lists: (i) all Plans, separately identifying all
Pension Plans, ESOPs and Welfare Plans, including all Retiree Welfare Plans; and
(ii) each instance known to Borrower of a material failure to comply with ERISA
or the Code with respect to a Plan. Copies of all such listed Plans, together
with a copy of the latest form IRS/DOL 5500-series for each such Plan have been
delivered to the Investment Manager. Neither the Borrower nor any ERISA
Affiliate has at any time during the six-year period preceding the Closing Date
maintained, contributed to, or had an obligation to contribute to, any Title IV
Plan or any other Plan subject to Section 412 of the Code or Section 302 of
ERISA on behalf of participants who are or were employed by such Borrower.
Except to the extent that any noncompliance would not reasonably be expected to
have a Material Adverse Effect: (i) each Plan is in compliance with the
applicable provisions of ERISA and the IRC, including the timely filing of all
reports required under the IRC or ERISA; (ii) each Qualified Plan has been
determined by the IRS to qualify under Section 401 of the IRC, the trusts
created thereunder have been determined to be exempt from tax under the
provisions of Section 501 of the IRC, and, nothing has occurred that would
reasonably be expected to cause the loss of such qualification or tax exempt
status; (iii) no Borrower or ERISA Affiliate has engaged in a “prohibited
transaction,” as defined in Section 406 of ERISA and Section 4975 of the IRC, in
connection with any Plan;. (iv) there are no pending, or to the knowledge of
Borrower, threatened claims (other than claims for benefits in the normal
course), sanctions, actions or lawsuits, asserted or instituted against any Plan
or any Person as fiduciary or sponsor of any Plan; and (v) except in the case of
any ESOP, Stock of such Borrower and its ERISA Affiliates makes up, in the
aggregate, no more than 10% of fair market value of the assets of any Plan
measured on the basis of fair market value as of the latest valuation date of
any Plan.

3.15 Brokers. No broker or finder acting on behalf of Borrower or its Affiliates
brought about the obtaining, making or closing of the Loans, and neither
Borrower nor its Affiliates have any obligation to any Person in respect of any
finder’s or brokerage fees in connection therewith.

 

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3.16 Deposit and Disbursement Accounts. Schedule 3.16 lists all banks and other
financial institutions at which Borrower maintains deposit or other accounts as
of the Closing Date, and such Schedule correctly identifies the name, address
and telephone number of each depository, the name in which the account is held,
a description of the purpose of the account, and the complete account number
therefor.

3.17 Material Agreements; Customers and Suppliers.

(a) Schedule 3.17(a) sets forth a true and complete list of each Material
Agreement to which Borrower is a party or is otherwise bound. Each Material
Agreement is valid, binding and enforceable against VCI and/or VCAC, as the case
may be, in full force and effect and, to Borrower’s knowledge, the other parties
thereto, in accordance with its terms, except as limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) state and federal securities laws with respect to
rights to indemnification or contribution. No Borrower is in default or breach
under any of the Material Agreements, nor, to the knowledge of Borrower, is any
other party thereto in default or breach thereunder, nor are there facts or
circumstances which have occurred which, with or without the giving of notice or
the passage of time or both, would constitute a material default or breach under
any of the Material Agreements.

(b) The relationships of Borrower with its suppliers are commercial working
relationships and no material customer or material supplier has canceled or
otherwise terminated its relationship with Borrower. To Borrower’s knowledge, no
material customer or material supplier intends to cancel or materially curtail
its relationship with Borrower.

3.18 Insurance. Schedule 3.18 lists all insurance policies of any nature
maintained, as of the Closing Date, for current occurrences by Borrower, as well
as a certificate setting forth the deductibles, coverage limits and durations of
such policies.

ARTICLE 4

AFFIRMATIVE COVENANTS

Borrower covenants and agrees that from and after the date hereof until the
Termination Date:

4.1 Maintenance of Financial Records; Inspections. Borrower agrees to maintain
books and records pertaining to their financial matters in such detail, form and
scope, for so long as the Investment Manager reasonably may require. Borrower
agrees that Investment Manager, accompanied by any Lender (at such Lender’s
expense), and/or any agent designated by Investment Manager, upon notice to
Borrower (provided that such notice shall not be required after any Default or
Event of Default shall have occurred), may enter upon the applicable Borrower’s
premises at any time during normal business hours, and from time to time, in
order to (i) examine and inspect the books and records of Borrower, and make
copies thereof and take extracts therefrom, and (ii) verify, inspect and perform
physical counts

 

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and other valuations of the Collateral and any and all records pertaining
thereto. Borrower irrevocably authorizes all accountants and third parties to
disclose and deliver directly to Investment Manager and Lender, at Borrower’s
expense, all financial statements and information, books, records, work papers
and management reports generated by them or in their possession regarding
Borrower or the Collateral. All costs, fees and expenses incurred by Investment
Manager in connection with such examinations, inspections, physical counts and
other valuations shall constitute fees reimbursable by Borrower pursuant to
Section 1.6 for purposes of this Agreement.

4.2 Further Assurances. Borrower agrees to comply with the requirements of all
state and federal laws in order to grant to Investment Manager, for the benefit
of Lender, valid and perfected first priority security interests in the
Collateral pursuant to the Collateral Documents, subject only to the Permitted
Encumbrances. Investment Manager is hereby authorized by Borrower to file any
financing statements, continuations and amendments covering the Collateral
without Borrower’s signature in accordance with the provisions of the Code.
Borrower hereby consents to and ratifies the filing of any financing statements
covering the Collateral by Investment Manager on or prior to the Closing Date.
Each Borrower agrees to do whatever Investment Manager reasonably may request
from time to time, by way of (i) filing notices of liens, financing statements,
amendments, renewals and continuations thereof, (ii) cooperating with agents and
employees of Investment Manager, (iii) keeping Collateral records,
(iv) transferring proceeds of Collateral to Investment Manager’s possession in
accordance with the terms of this Agreement and the Collateral Documents and
(v) performing such further acts as Investment Manager reasonably may require in
order to effect the purposes of this Agreement and the Collateral Documents,
including the execution of control agreements with respect to deposit accounts
and investment property.

4.3 Insurance and Condemnation.

(a) Required Insurance. Borrower agrees to maintain insurance on the Real
Estate, Equipment and Inventory under such policies of insurance, with such
insurance companies, in such reasonable amounts and covering such insurable
risks, as are at all times reasonably satisfactory to Investment Manager (the
“Required Insurance”). All policies covering the Real Estate, Equipment and
Inventory are, subject to the rights of any holder of a Permitted Encumbrance
having priority over the security interests of Investment Manager, to be made
payable solely to Investment Manager, for the benefit of Lender, in case of
loss, under a standard non contributory “mortgagee”, “secured party” or
“lender’s loss payable” clause or endorsement, and are to contain such other
provisions as Investment Manager reasonably may require to fully protect
Investment Manager’s interest in the Real Estate, Inventory and Equipment and to
any payments to be made under such policies. Each loss payable endorsement in
favor of Investment Manager shall provide (x) for not less than thirty (30) days
prior written notice to Investment Manager of the exercise of any right of
cancellation and (y) that Investment Manager’s right to payment under any
property insurance policy will not be invalidated by any act or neglect of, or
any breach of warranty or condition by, any Borrower or any other party. If an
Event of Default shall have occurred and remain outstanding, Investment Manager,
subject to the rights of any holder of a Permitted Encumbrance having priority
over the security interests of Investment Manager, shall have the

 

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sole right, in the name of Investment Manager or any Borrower, to file claims
under any insurance policies, to receive, receipt and give acquittance for any
payments that may be payable thereunder, and to execute any and all
endorsements, receipts, releases, assignments, reassignments or other documents
that may be necessary to effect the collection, compromise or settlement of any
claims under any such insurance policies.

(b) Investment Manager’s Purchase of Insurance. Unless Borrower provides
Investment Manager with evidence of the Required Insurance in the manner set
forth in Section 4.3(a) above, Investment Manager may purchase insurance at
Borrower’s expense to protect Investment Manager’s interests in the Collateral.
The insurance purchased by the Investment Manager may, but need not, protect
Borrower’s interests in the Collateral, and therefore such insurance may not pay
any claim which Borrower makes or any claim which is made against Borrower in
connection with the Collateral. Borrower may later request that Investment
Manager cancel any insurance purchased by Investment Manager, but only after
providing Investment Manager with satisfactory evidence that Borrower has the
Required Insurance. If Investment Manager purchases insurance covering all or
any portion of the Collateral, Borrower shall be responsible for the costs of
such insurance, including interest (at the applicable rate set forth hereunder)
and other charges accruing on the purchase price therefor, until the effective
date of the cancellation or the expiration of the insurance. The costs of the
premiums of any insurance purchased by Investment Manager may exceed the costs
of insurance which Borrower may be able to purchase on its/their own. In the
event that Investment Manager purchases insurance, Investment Manager will
notify Borrower of such purchase within thirty (30) days after the date of such
purchase. If, within thirty (30) days after the date of receipt of such notice,
Borrower provides Investment Manager with proof that Borrower had the Required
Insurance as of the date on which Investment Manager purchased insurance and
Borrower has continued at all times thereafter to have the Required Insurance,
then Investment Manager agrees to cancel the insurance purchased by Investment
Manager.

(c) Application of Insurance and Condemnation Proceeds. So long as no Default or
Event of Default shall have occurred and remain outstanding as of the date of
Investment Manager’s receipt of any Casualty Proceeds:

(i) Except as may otherwise be provided in any intercreditor or subordination
agreement between Investment Manager and another creditor of Borrower, in the
event of any loss or damage to any item of Equipment by condemnation, fire or
other casualty, if the Casualty Proceeds relating to such condemnation, fire or
other casualty exceed $100,000, Borrower may elect (by delivering written notice
to Investment Manager within ten (10) Business Days following Investment
Manager’s receipt of such Casualty Proceeds) to replace or repair such item of
Equipment.

(ii) In the event of any loss or damage to any Real Estate leased by Borrower by
condemnation, fire or other casualty, Borrower may use the Casualty Proceeds in
the manner required or permitted by the lease agreement relating thereto. In the
event of any loss or damage to any Real Estate owned by Borrower by
condemnation, fire or other casualty, if the Casualty Proceeds relating to such
condemnation, fire or other casualty exceed $100,000, and

 

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so long as Borrower has sufficient business interruption insurance to replace
the lost profits of the facilities affected by the condemnation, fire or other
casualty, Borrower may elect to repair or replace such Real Estate, subject to
the following terms:

(1) If Borrower reasonably determines that the Real Estate may be repaired to
substantially the same condition of the Real Estate prior to the condemnation,
fire or other casualty, Borrower may elect to repair the Real Estate by
delivering written notice to Investment Manager within thirty (30) days
following Investment Manager’s receipt of such Casualty Proceeds.

(2) Borrower may elect to replace the Real Estate owned by Borrower only on
terms and conditions satisfactory to Investment Manager in its sole discretion.

If a Default or an Event of Default shall have occurred and remain outstanding
as of the date of Investment Manager’s receipt of any Casualty Proceeds, or if
the Borrower does not or cannot elect to use the Casualty Proceeds in the manner
set forth in paragraphs (i) or (ii) above, Investment Manager may, subject to
the terms of any intercreditor or subordination agreement between Investment
Manager and another creditor of Borrower, and subject to the rights of any
holder of a Permitted Encumbrance having priority over the security interests of
Investment Manager, apply the Casualty Proceeds to the payment of the
Obligations in such manner and in such order as Investment Manager may elect in
its sole discretion.

4.4 Payment of Taxes. Borrower agrees to pay when due all Taxes lawfully levied,
assessed or imposed upon Borrower or the Collateral (including all sales taxes
collected by Borrower on behalf of Borrower’s customers in connection with sales
of Inventory and all payroll taxes collected by such Borrower on behalf of such
Borrower’s employees), unless Borrower is contesting such Taxes in good faith,
by appropriate proceedings, and is maintaining adequate reserves for such Taxes
in accordance with GAAP. Notwithstanding the foregoing, if a lien securing any
Taxes is filed in any public office and such lien is not a Permitted Tax Lien,
then the applicable Borrower shall pay all taxes secured by such lien
immediately and remove such lien of record promptly. Pending the payment of such
taxes and removal of such lien, Investment Manager may, at its election and
without curing or waiving any Event of Default which may have occurred as a
result thereof, pay such taxes on behalf of such Borrower, and the amount paid
by Investment Manager shall become an Obligation which is due and payable on
demand by Investment Manager.

4.5 Compliance With Laws.

(a) Borrower agrees to comply with all federal, state and local acts, rules and
regulations, and all orders of any federal, state or local legislative,
administrative or judicial body or official, if the failure to so comply would
be reasonably likely to have a Material Adverse Effect, provided that Borrower
may contest any acts, rules, regulations, orders and directions of such bodies
or officials in any reasonable manner which Investment Manager determines, in
the exercise of its reasonable business judgment, will not materially and
adversely effect Investment Manager’s or Lender’s rights or priorities in the
Collateral.

 

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(b) Without limiting the generality of the foregoing, Borrower agrees to comply
with all environmental statutes, acts, rules, regulations or orders, as
presently existing or as adopted or amended in the future, applicable to the
ownership and/or use of its/their real property and operation of its business,
if the failure to so comply would be reasonably likely to have a Material
Adverse Effect. Borrower shall not be deemed to have breached any provision of
this Section 4.5(b) if (x) the failure to comply with the requirements of this
Section 4.5 resulted from good faith error or innocent omission, (y) Borrower
promptly commences and diligently pursues a cure of such breach and (z) such
failure is cured within thirty (30) days following Borrower’s receipt of notice
from Investment Manager of such failure, or if such breach cannot in good faith
be cured within thirty (30) days following Borrower’s receipt of such notice,
then such breach is cured within a reasonable time frame based on the extent and
nature of the breach and the necessary remediation, and in conformity with any
applicable consent order, consensual agreement and applicable law.

4.6 Notices Concerning Environmental, Employee Benefit and Pension Matters.
Borrower agrees to notify Investment Manager in writing of:

(a) any expenditure (actual or anticipated) by any Borrower in excess of
$100,000 for environmental clean up, environmental compliance or environmental
testing and the impact of said expenses on Borrower’s working capital;

(b) Borrower’s receipt of notice from any local, state or federal authority
advising such Borrower of any environmental liability (real or potential)
arising from Borrower’s operations, its premises, its waste disposal practices,
or waste disposal sites used by Borrower; and

(c) Borrower’s receipt of notice from any governmental agency or any sponsor of
any “multiemployer plan” (as that term is defined in ERISA) to which Borrower
has contributed, relating to any ERISA Event.

Borrower agrees to provide Investment Manager promptly with copies of all such
notices and other information pertaining to any matter set forth above if
Investment Manager so requests.

4.7 Business Qualification. Borrower agrees to qualify to do business, and to
remain qualified to do business and in good standing, in each jurisdiction where
the failure to so qualify, or to remain qualified or in good standing, would
have, or would be reasonably likely to have, a Material Adverse Effect.

4.8 Anti-Money Laundering and Terrorism Regulations. Borrower agrees to comply
with all applicable anti-money laundering and terrorism laws, regulations and
executive orders in effect from time to time (including, without limitation, the
USA Patriot Act (Pub. L. No. 107-56)). Borrower also agrees to ensure that no
Person who owns a controlling interest in or otherwise controls either VCI or
VCAC, as the case may be, is a Person designated under Section 1(b), (c) or
(d) of Executive Order No. 13224 (issued September 23, 2001) or any other
similar Executive Order. Borrower acknowledges that

 

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Investment Manager’s and Lender’s performance hereunder is subject to compliance
with all such laws, regulations and executive orders, and in furtherance of the
foregoing, Borrower agrees to provide to Investment Manager and Lender all
information about Borrower’s ownership, officers, directors, customers and
business structure as Investment Manager and Lender reasonably may require to
comply with, such laws, regulations and executive orders.

4.9 Maintenance of Properties. Borrower will maintain or cause to be maintained
in good repair, working order and condition all material properties used in the
business of Borrower and its Subsidiaries (as the case may be) and will make or
cause to be made all appropriate repairs, renewals and replacements thereof,
ordinary wear and tear excepted.

4.10 Lender Meeting. Borrower will participate and will cause its key management
personnel (and those of its Subsidiaries as the case may be) to participate in a
meeting with Investment Manager and Lender at least once during each year, which
meeting shall be held at such time and such place as may be reasonably requested
by Investment Manager.

4.11 Organizational Existence. Except as permitted by Section 5.4, Borrower will
and will cause its Subsidiaries to at all times preserve and keep in full force
and effect its organizational existence and all rights and franchises the
absence of which could reasonably be expected to have a Material Adverse Effect.

4.12 Landlords’ Agreements, Mortgagee Agreements, Bailee Letters and Real Estate
Purchases. Borrower shall use its best efforts to obtain a landlord’s agreement,
mortgagee agreement or bailee letter, as applicable, from each lessor of leased
property, mortgagee of owned property or bailee with respect to any warehouse,
processor or converter facility or other location where Collateral is stored or
located, which agreement or letter shall contain a waiver or subordination of
all Liens or claims that the landlord, mortgagee or bailee may assert against
the Collateral at that location, and shall otherwise be reasonably satisfactory
in form and substance to Investment Manager. After the Closing Date, no real
property or warehouse space shall be leased by Borrower or any Subsidiary of
Borrower and no Inventory shall be shipped to a processor or converter under
arrangements established after the Closing Date without the prior written
consent of Investment Manager or, unless and until a satisfactory landlord
agreement or bailee letter, as appropriate, shall first have been obtained with
respect to such location. Borrower shall and shall cause each of its
Subsidiaries (as the case may be) to timely and fully pay and perform their
obligations under all leases and other agreements with respect to each leased
location or public warehouse where any Collateral is or may be located. In the
event Borrower acquires a fee interest in real property after the Closing Date,
Borrower shall deliver to Investment Manager a fully executed mortgage or deed
of trust over such real property in form and substance satisfactory to
Investment Manager, together with such title insurance policies, surveys,
appraisals, evidence of insurance, legal opinions, environmental assessments and
other documents and certificates as shall be reasonably requested by Investment
Manager.

 

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4.13 New Subsidiaries. Borrower shall (a) cause each Person, upon its becoming a
Subsidiary of any Borrower after the date of this Agreement (provided that this
shall not be construed to constitute consent by Lender to any transaction not
expressly permitted by the terms of this Agreement), promptly to guaranty the
Obligations and to grant to Investment Manager, for the benefit of Investment
Manager and Lender, a security interest in the real, personal and mixed property
of such Person to secure the Obligations and (b) pledge, or cause to be pledged,
to Investment Manager, for the benefit of Investment Manager and Lender, all of
the Stock of such Subsidiary owned by any Borrower to secure the Obligations.
The documentation for such guaranty, security and pledge shall be substantially
similar to the Loan Documents executed concurrently herewith, including pursuant
to the form of Joinder Agreement attached as Exhibit 4.13 hereto, with such
modifications as are reasonably requested by Investment Manager.

4.14 Board Observer Rights. Borrower shall permit Lender to have one
representative present (whether in person or by telephone) in an observer
capacity at all meetings (whether in person or via teleconference) of the
respective Board of Directors of each of VCI, VCAC and all Subsidiaries of
Borrower, if any (collectively, the “Respective Boards”). Borrower shall send to
such representative all of the notices, information and other materials that are
distributed to the directors on the Respective Boards and shall provide the
Lender representative with a notice and agenda of each meeting of the Respective
Boards, all at the same time and in the same manner as such notices, agenda,
information and other materials are provided to the directors on the Respective
Boards. Lender shall provide notice to the Borrower of the identity and address
of, or any change with respect to the identity or address of, such
representative.

ARTICLE 5

NEGATIVE COVENANTS

Borrower covenants and agrees that from and after the date hereof until the
Termination Date, Borrower shall not, nor shall it permit any Subsidiary to:

5.1 Liens and Encumbrances; No Negative Pledges. Mortgage, assign, pledge,
transfer or otherwise permit any lien, charge, security interest, encumbrance or
judgment (whether as a result of a purchase money or title retention
transaction, or other security interest, or otherwise) to exist on any of the
Collateral or its other assets, whether now owned or hereafter acquired, except
for the Permitted Encumbrances. No Borrower shall, or cause or permit its
Subsidiaries to, directly or indirectly, enter into or assume any agreement
(other than the Loan Documents) prohibiting the creation or assumption of any
Lien upon its properties or assets, whether now owned or hereafter acquired.

5.2 Indebtedness. Incur or create any Indebtedness other than the Permitted
Indebtedness.

5.3 Sale of Assets. Sell, lease, assign, transfer or otherwise dispose of
(i) Collateral, except for the disposition of Inventory and Equipment in the
ordinary course of business or as otherwise specifically permitted by this
Agreement, or (ii) all or any substantial

 

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part of its assets, if any, which do not constitute Collateral. Borrower may
sell obsolete Equipment or surplus Equipment from time to time, provided that in
each such instance: (i) no Event of Default shall have occurred and remain
outstanding at the time of such sale; (ii) the aggregate book value of all
Equipment owned by the Borrower subject to sale does not exceed $100,000 in any
fiscal year, and (iii) all net proceeds of such sales are, within 90 days of
such sale, used to purchase replacement Equipment that such selling Borrower
determines in its reasonable business judgment to have a value at least equal to
the Equipment sold. Upon the sale, transfer, lease or other disposition of
Equipment, the security interest of Investment Manager and Lender in the
Equipment shall, without break in continuity and without further formality or
act, continue in, and attach to, all proceeds thereof. As to any such sale,
transfer, lease or other disposition, Investment Manager shall have all of the
rights of an unpaid seller, including stoppage in transit, replevin, rescission
and reclamation.

5.4 Corporate Change. (i) Merge or consolidate with any other entity except in
connection with a Permitted Acquisition or a Change of Control, (ii) change its
name or principal place of business, (iii) change its structure or
organizational form, or reincorporate or reorganize in a new jurisdiction,
(iv) enter into or engage in any operation or activity materially different from
that presently being conducted by such Borrower; provided that such Borrower may
(x) change its name or its principal place of business or (y) change its
structure or organizational form, or reincorporate or reorganize in a new
jurisdiction, so long as such Borrower provides Investment Manager with thirty
(30) days prior written notice thereof and such Borrower executes and delivers
to Investment Manager, prior to making such change, all documents and agreements
required by Investment Manager in order to ensure that the liens and security
interests granted to Investment Manager, for the benefit of Lender, hereunder
continue in effect without any break or lapse in perfection. In addition,
Subsidiaries of a Borrower may merge with and into a Borrower or with and into
each other so long as such action does not conflict with the covenants set forth
in Section 5.16 of this Agreement. For the purposes of this Section, any
operation or activity by a Borrower that materially involves producing,
manufacturing, designing, reselling, marketing, licensing or providing products
(including intellectual property and software) or services relating to
information technology shall be deemed not to be an operation or activity
materially different from that presently conducted by such Borrower.

5.5 Guaranty Obligations. Assume, guarantee, endorse, or otherwise become liable
upon the obligations of any Person, firm, entity or corporation, except by the
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business and other than guarantees
permitted under the definition of Permitted Indebtedness herein.

5.6 Dividends and Distributions. Pay any dividend or distribution of any kind
on, or purchase, acquire, redeem or retire, any of its equity interests (of any
class or type whatsoever), whether now or hereafter issued and outstanding,
other than Permitted Distributions.

5.7 Investments. (i) Create any new subsidiary (other than to consummate a
Permitted Acquisition), or (ii) make any advance or loan to, or any investment
in, any firm,

 

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entity, Person or corporation, or (iii) acquire all or substantially all of the
assets of, or any capital stock or any equity interests in, any firm, entity or
corporation, other than current investments of such Borrower in its existing
subsidiaries, provided, however that (x) such Borrower may make loans and
advances on an unsecured basis, in the ordinary course of its business and on
fair and reasonable terms, to any other Borrower and (y) such Borrower may make
a Permitted Acquisition.

5.8 Related Party Transactions. Enter into any transaction, including, without
limitation, any purchase, sale, lease, loan or exchange of property, with any
shareholder, officer, director, parent (direct or indirect), subsidiary (direct
or indirect) or other Person otherwise affiliated with such Borrower unless
(i) such transaction otherwise complies with the provisions of this Agreement,
(ii) such transaction is for the sale of goods or services rendered in the
ordinary course of business and pursuant to the reasonable requirements of the
Borrower or for the sale of Subordinated Debt or equity interests of the
Borrower and, in each case, and upon standard terms and conditions and fair and
reasonable terms, no less favorable to such entity than such entity could obtain
in a comparable arms length transaction with an unrelated third party, and
(iii) except (x) for the reimbursement of business expenses and the payment of
compensation (including, without limitation, fees, salaries, bonuses and other
forms of compensation pursuant to employment or other agreements) in the
ordinary course of business and (y) ordinary course of business payments and
relationships with any vendor, supplier or customer who is also a shareholder
provided any such arrangements are upon standard terms and conditions and fair
and reasonable terms, no less favorable to Borrower than it could obtain in a
comparable arms length transaction with an unrelated third party, no Event of
Default shall have occurred and remain outstanding at the time such transaction
occurs, or would occur after giving effect to such transaction.

5.9 Restricted Payments. (i) Pay, make or set apart any sum for any Restricted
Payment, except that unless otherwise prohibited in Section 5.16 below,
wholly-owned Subsidiaries of Borrower may make Restricted Payments to Borrower;
(ii) make any payment of the principal of, or interest on, any Subordinated
Debt, or purchase, acquire or redeem any of the Subordinated Debt, unless
(x) such payment, purchase, acquisition or redemption is expressly permitted by
the terms of the applicable intercreditor or subordination agreement and (y) no
Default or Event of Default shall have occurred and remain outstanding on the
date on which such payment or transaction occurs, or would occur as a result
thereof; provided, that so long as such payment, purchase, acquisition or
redemption does not cause a Default or Event of Default to occur, it may be paid
in Stock of any Borrower or from the proceeds of Subordinated Debt; or (iii) pay
any management, consulting or other similar fees to any shareholder, director,
parent (direct or indirect), subsidiary (direct or indirect) or other Person
otherwise affiliated with Borrower, or any Subsidiary of the Borrower (other
than as permitted in the definition of Restricted Payments and other than the
current, customary or prevailing fees and expenses to members of such Borrower’s
Board of Directors, and fees and salaries of any shareholder or other Person
paid to such Person in their capacity as officer or employee of such Borrower,
including, without limitation, fees, salaries, bonuses and other forms of
compensation pursuant to employment or other agreements).

 

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5.10 Use of Proceeds. Use the proceeds of any loan made under this Agreement,
directly or indirectly, (i) in violation of any applicable law or regulation,
including without limitation Regulations T, U or X of the Board of Governors of
the Federal Reserve System as from time to time in effect (and any successor
regulation or official interpretation of such Board), (ii) to purchase or carry
any “margin stock”, as defined in Regulations U and X, or any “margin security”,
“marginable OTC stock” or “foreign margin stock” within the meaning of
Regulation T, U or X, (iii) for any purpose other than to payoff loans to
working capital lenders and other lenders existing as of the Initial Closing
Date, finance the Vodavi Technology, Inc. acquisition and fund the working
capital needs of Borrower.

5.11 No Restrictions on Subsidiary Distributions to Borrower. Except as provided
in Section 5.16 and elsewhere in this Agreement, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any such Subsidiary to: (1) pay dividends or make any
other distribution on any of such Subsidiary’s Stock owned by any Borrower or
any other Subsidiary; (2) pay any Indebtedness owed to any Borrower or any other
Subsidiary; (3) make loans or advances to any Borrower or any other Subsidiary;
or (4) transfer any of its property or assets to any Borrower or any other
Subsidiary.

5.12 Conduct of Business. Engage in any business other than businesses of the
type described on Schedule 5.12.

5.13 Changes Relating to Subordinated Debt. Change or amend the terms of any of
its Subordinated Debt if the effect of such amendment is to: (a) increase the
interest rate on such Indebtedness; (b) accelerate the dates upon which payments
of principal or interest are due on such Indebtedness; (c) add or make more
likely any event of default or add or make more restrictive any covenant with
respect to such Indebtedness; (d) add or make more onerous on any Borrower the
redemption or prepayment provisions of such Indebtedness; (e) change the
subordination provisions thereof (or the subordination terms of any guaranty
thereof) in a manner adverse to any Borrower, Investment Manager or Lender;
(f) change or amend any other term if such change or amendment would materially
increase the obligations of the obligor or confer additional material rights on
the holder of such Indebtedness in a manner adverse to any Borrower or Lender;
or (g) increase the portion of interest payable in cash with respect to any
Indebtedness for which interest is payable by the issuance of payment-in-kind
notes or is permitted to accrue.

5.14 Press Release; Public Offering Materials. Issue any press releases, using
the name of Investment Manager or Lender or their respective Affiliates or
referring to this Agreement or the other Loan Documents without at least two
(2) Business Days’ prior notice to Investment Manager or Lender unless (and only
to the extent that) Borrower or such Affiliate is required to do so under law
and then, in any event, Borrower or such Affiliate will consult with Investment
Manager before issuing such press release. Borrower consents to the publication
by Investment Manager or Lender of a tombstone or similar advertising material
relating to the financing transactions contemplated by this Agreement; provided
that such tombstone or material complies with applicable law. Investment Manager
or Lender shall provide a draft of any such tombstone or similar advertising
material to Borrower for review

 

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and comment prior to the publication thereof. Investment Manager and Lender
reserve the right to provide to industry trade organizations information
necessary and customary for inclusion in league table measurements.

5.15 Bank Accounts. Establish any new bank accounts without prior written notice
to Investment Manager and unless Investment Manager and the bank at which the
account is to be opened enter into a tri-party agreement regarding such bank
account pursuant to which such bank (i) acknowledges the security interest of
Investment Manager in such bank account, (ii) subject to the terms of the
Subordination Agreement, agrees to comply with instructions originated by
Investment Manager directing disposition of the funds in the bank account
without further consent from any Borrower or Subsidiary of any Borrower
following the occurrence and during the continuance of an Event of Default, and
(iii) agrees to subordinate and limit any security interest the bank may have in
the bank account on terms satisfactory to Investment Manager. Additionally, to
the extent the level cash collateral required to secure Borrower’s SVB L/Cs
obligations is reduced, all available cash or Cash Equivalents above the new
required level maintained in the accounts over which Silicon Valley Bank has a
security interest shall be transferred out of such accounts and into any account
over which there exists an account control agreement for the benefit of the
Investment Manager. Further, to the extent Borrower is no longer required to
maintain cash collateral to secure Borrower’s SVB L/Cs obligations, Borrower
shall (y) use its best efforts to arrange for a control agreement covering the
bank account (where such cash or Cash Equivalents is held) for the benefit of
the Investment Manager upon terms set for in clause (i) though (iii) of this
paragraph or (z) transfer all such cash or Cash Equivalents to any account over
which there exists an account control agreement for the benefit of the
Investment Manager. At no time shall Borrower maintain a balance in its Bank of
America account (account number 003765414103) greater than $10,000.

5.16 Activities of Certain Subsidiaries. (a) Pay dividends or make any other
distribution or payment to any of the Inactive Subsidiaries; (b) make loans or
advances to any of the Inactive Subsidiaries; (c) transfer any of its property,
cash, assets or Stock to any of the Inactive Subsidiaries; in each case except
with the prior consent of the Investment Manager and the Lender, which consent
may be withheld in their sole discretion. In addition, the Inactive Subsidiaries
will not incur any Contractual Obligations, hire any Persons, acquire any
assets, incur any liabilities, operate any business outside the scope of their
respective businesses as such exists on the date of this Agreement, or otherwise
take any actions other than in connection with the winding down and liquidation
of their respective operations in accordance with applicable law at such time as
agreed to among Borrower, Investment Manager and Lender. Additionally, Vertical
Germany shall not, and Borrower shall not permit Vertical Germany to, (i) engage
in any business, other than sales and marketing for Borrower for European sales,
(ii) possess or own any assets, other than not more than $200,000 of inventory
and accounts receivables and office furniture and equipment, (iii) incur any
liabilities other than immaterial trade liabilities incurred in connection with
its sale and marketing business, (iii) contract with suppliers, other than the
Borrower, or (iv) incur any Contractual Obligations to any customers.

 

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5.17 ERISA. Permit any ERISA Affiliate to, cause or permit to occur an ERISA
Event to the extent such ERISA Event could reasonably be expected to have a
Material Adverse Effect.

ARTICLE 6

FINANCIAL COVENANTS/REPORTING

Borrower covenants and agrees that from and after the date hereof until the
Termination Date, Borrower and its Subsidiaries shall perform and comply with
all covenants in this Article 6.

6.1 Financial Statements and Other Reports. Borrower will maintain, and cause
each of its Subsidiaries to maintain, a system of accounting established and
administered in accordance with sound business practices to permit preparation
of Financial Statements in conformity with GAAP (it being understood that
monthly Financial Statements are not required to have footnote disclosures).
Borrower will deliver each of the Financial Statements and other reports
described below to Investment Manager.

(a) Monthly Financials and Forecasts. Only if requested by Investment Manager,
as soon as available but in any event within thirty (30) days after the end of
each month (except the last month of Borrower’s Fiscal Quarters), Borrower will
deliver (if so requested): (i) the consolidated and consolidating balance sheets
of Borrower and its Subsidiaries, as at the end of such month, and the related
consolidated statements of income, stockholders’ equity and cash flow for such
month and for the period from the beginning of the then current Fiscal Year of
Borrower to the end of such month, (ii) a report setting forth in comparative
form the corresponding figures for the corresponding periods of the previous
Fiscal Year and the corresponding figures for the current Fiscal Year delivered
pursuant to Section 6.1(g).

(b) Quarterly Financials. As soon as available and in any event within
forty-five (45) days after the end of each calendar quarter (including the last
quarter of Borrower’s Fiscal Year), Borrower will deliver (i) the consolidated
and consolidating balance sheets of Borrower and its Subsidiaries, as at the end
of such quarter, and the related consolidated statements of income,
stockholders’ equity and cash flow for such quarter and for the period from the
beginning of the then current Fiscal Year of Borrower to the end of such quarter
and (ii) a report setting forth in comparative form the corresponding figures
for the corresponding periods of the previous Fiscal Year and the corresponding
figures from the current Fiscal Year delivered pursuant to Section 6.1(g).

(c) Year-End Financials. As soon as available and in any event within ninety
(90) days after the end of each Fiscal Year of Borrower, Borrower will deliver
(1) the consolidated and consolidating balance sheets of Borrower and its
Subsidiaries, as at the end of such year, and the related consolidated
statements of income, stockholders’ equity and cash flow for such Fiscal Year,
(2) a schedule of the outstanding Indebtedness for borrowed money of Borrower
and its Subsidiaries describing in reasonable detail each such debt issue or
loan outstanding and the principal amount and amount of accrued and unpaid
interest with respect

 

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to each such debt issue or loan and (3) a report with respect to the
consolidated Financial Statements from Vitale, Caturano & Company, Ltd. or
another nationally recognized firm of Certified Public Accountants selected by
Borrower, which report shall be prepared in accordance with Statement of
Auditing Standards No. 58 (the “Statement”) “Reports on Audited Financial
Statements” and such report shall be “Unqualified” (as such term is defined in
such Statement).

(d) Accountants’ Reports. Promptly upon receipt thereof, Borrower will deliver
copies of all significant reports submitted by Borrower’s firm of certified
public accountants in connection with each annual, interim or special audit or
review of any type of the Financial Statements or related internal control
systems of Borrower and its Subsidiaries made by such accountants, including any
comment letter submitted by such accountants to management in connection with
their services.

(e) Management Report. Together with each delivery of Financial Statements of
Borrower pursuant to Sections 6.1(b) and (c), Borrower will deliver, in
electronic form and hard copy, a management report (1) describing the operations
and financial condition of Borrower and its Subsidiaries for the applicable
period then ended and the portion of the current Fiscal Year then elapsed (or
for the Fiscal Year then ended in the case of year-end financials) and
(2) discussing the reasons for any significant variations. The information above
shall be presented in reasonable detail and shall be certified by the chief
financial officer of Borrower to the effect that such information fairly
presents in all material respects the results of operations and financial
condition of Borrower and its Subsidiaries as at the dates and for the periods
indicated. The Investment Manager and Lender each agree that the delivery of a
copy of the Borrower’s applicable Form 10-K as filed with the SEC by Borrower to
the Investment Manager shall satisfy the requirements of this Section 6.1(e).

(f) Appraisals. At Borrower’s expense, Investment Manager may, from time to
time, obtain appraisal reports in form and substance and from appraisers
satisfactory to Investment Manager, stating the then current market values of
all or any portion of the Real Estate and personal property owned by Borrower.

(g) Projections. As soon as available and in any event no later than the later
of (x) thirty (30) days prior to the beginning of each of Borrower’s Fiscal
Years and (y) approval by VCI’s Board of Directors, Borrower will deliver
Projections of Borrower and its Subsidiaries for the forthcoming three
(3) fiscal years, year by year, and for the forthcoming fiscal year, month by
month; provided, however, that in no event shall such Projections be required to
extend beyond the Term Loan Maturity Date. Additionally, Borrower shall
immediately notify Investment Manager if any then-current Projections are
modified in any manner and provide a copy thereof to Investment Manager promptly
after such modifications are provided to VCI’s Board of Directors.

(h) Senior Indebtedness Reports. Upon the request of Investment Manager,
Borrower will promptly deliver to Investment Manager any reports or other
information delivered by Borrower under the Senior Indebtedness, if any.

 

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(i) Events of Default, Etc. Promptly upon any officer of Borrower obtaining
knowledge of any of the following events or conditions, Borrower shall deliver
copies of all written notices given or received by Borrower or any of its
Subsidiaries with respect to any such event or condition and a certificate of
such Borrower’s chief executive officer specifying the nature and period of
existence of such event or condition and what action such Borrower or its
Subsidiary has taken, is taking and proposes to take with respect thereto:
(1) any condition or event that constitutes, or which could reasonably be
expected to result in the occurrence of, an Event of Default or; (2) any notice
that any Person has given to any Borrower or any of their Subsidiaries or any
other action taken with respect to a claimed default or event or condition of
the type referred to in Section 7.1(b); (3) any event or condition that could
reasonably be expected to result in any Material Adverse Effect; or (4) any
default or event of default with respect to any Indebtedness of Borrower or any
of its Subsidiaries.

(j) Litigation. Promptly upon any officer of any Borrower obtaining knowledge of
(1) the institution of any action, charge, claim, demand, suit, proceeding,
petition, governmental investigation, tax audit or arbitration now pending or,
to the best knowledge of Borrower after due inquiry, threatened in writing
against any Borrower or any of its Subsidiaries or affecting any property of
Borrower or any of its Subsidiaries (“Litigation”) not previously disclosed by
Borrower to Investment Manager or (2) any material development in any action,
suit, proceeding, governmental investigation or arbitration at any time pending
against any Borrower or affecting any property of any Borrower which, in each
case, could reasonably be expected to have a Material Adverse Effect, Borrower
will promptly give notice thereof to Investment Manager and provide such other
information as may be reasonably available to them to enable Investment Manager
and its counsel to evaluate such matter.

(k) Notice of Corporate and other Changes. Borrower shall provide prompt written
notice of (1) all jurisdictions in which Borrower becomes qualified after the
Initial Closing Date to transact business, (2) any change after the Initial
Closing Date in the authorized and issued Stock of Borrower or any Subsidiary of
Borrower or any amendment to their articles or certificate of incorporation,
by-laws, partnership agreement or other organizational documents, (3) any
Subsidiary created or acquired by any Borrower or any of its Subsidiaries after
the Initial Closing Date, such notice, in each case, to identify the applicable
jurisdictions, capital structures or Subsidiaries, as applicable, and (4) any
other event that occurs after the Initial Closing Date which would cause any of
the representations and warranties in Article 3 of this Agreement or in any
other Loan Document to be untrue or misleading in any material respect. The
foregoing notice requirement shall not be construed to constitute consent by
Lender to any transaction referred to above which is not expressly permitted by
the terms of this Agreement.

(l) Other Information. With reasonable promptness, Borrower will deliver such
other information, reports and data with respect to Borrower or any Subsidiary
(including any of the Inactive Subsidiaries) as from time to time may be
reasonably requested by Investment Manager.

 

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(m) Compliance Certificate. Together with each delivery of Financial Statements
of Borrower and its Subsidiaries pursuant to Sections 6.1(a), (b) and (c),
Borrower will deliver a fully and properly completed Compliance Certificate (in
substantially the same form as Exhibit 6.1(m) signed by Borrower’s respective
chief executive officer or chief financial officer.

(n) Taxes. Borrower shall provide prompt written notice of (i) the execution or
filing with the IRS or any other Governmental Authority of any agreement or
other document extending, or having the effect of extending, the period for
assessment or collection of any Charges by Borrower or any of its Subsidiaries
and (ii) any agreement by any Borrower or any of its Subsidiaries or request
directed to any Borrower or any of its Subsidiaries to make any adjustment under
IRC Section 481(a), by reason of a change in accounting method or otherwise,
which could reasonably be expected to have a Material Adverse Effect.

6.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under
Agreement. For purposes of this Agreement, all accounting terms not otherwise
defined herein shall have the meanings assigned to such terms in conformity with
GAAP. Financial Statements and other information furnished to Investment Manager
pursuant to Section 6.1 or any other section (unless specifically indicated
otherwise) shall be prepared in accordance with GAAP as in effect at the time of
such preparation; provided that no Accounting Change shall affect financial
covenants, standards or terms in this Agreement; provided further that Borrower
shall prepare footnotes to the Financial Statements required to be delivered
hereunder that show the differences between the Financial Statements delivered
(which reflect such Accounting Changes) and the basis for calculating financial
covenant compliance (without reflecting such Accounting Changes). All such
adjustments described in clause (c) of the definition of the term Accounting
Changes resulting from expenditures made subsequent to the Initial Closing Date
(including capitalization of costs and expenses or payment of pre-Initial
Closing Date liabilities) shall be treated as expenses in the period the
expenditures are made. In the event that any Accounting Change shall occur and
such change results in a change in the method of calculation of financial
covenants, standards or terms in this Agreement, then Borrower and Investment
Manager agree to negotiate in good faith in order to amend such provisions of
this Agreement so as to equitably reflect such Accounting Changes with the
desired result that the criteria for evaluating the financial condition of
Borrower shall be the same after such Accounting Changes as if such Accounting
Changes had not been made. Until such time as such an amendment shall have been
executed and delivered by Borrower, Investment Manager and Lender, all financial
covenants, standards and terms in this Agreement shall continue to be calculated
or construed as if such Accounting Changes had not occurred.

6.3 Financial Covenants.

(a) Liquidity. For each Fiscal Quarter commencing with the Fiscal Quarter ending
December 31, 2006, Borrower shall maintain cash, Cash Equivalents or available
borrowing capacity without restriction (other than under this Agreement) of at
least Five Million Dollars ($5,000,000) in the aggregate (including Borrower and
each of

 

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its Subsidiaries on a consolidated basis as of the date of calculation), as
determined on the last day of each such Fiscal Quarter; provided that once
Borrower’s EBITDA for any trailing twelve month period is $1 or greater as
certified in writing to Investment Manager and Lender by Borrower’s chief
financial officer or chief accountant, this Liquidity covenant will be
automatically terminated and of no further force or effect.

(b) Minimum EBITDA. Beginning with the trailing twelve month period ended
September 30, 2007, and for each trailing twelve month period measured on a
calendar quarterly basis thereafter, Borrower shall not permit EBITDA to be less
than One Dollar ($1) as measured in such relevant twelve month period (including
Borrower and each of its Subsidiaries on a consolidated basis as of the date of
calculation).

(c) Minimum Revenues. Beginning with the trailing twelve month period ended
September 30, 2007, Borrower shall not permit total consolidated Revenues for
the twelve month period so ended to be less than Eighty Million Dollars
($80,000,000) (including Borrower and each of its Subsidiaries on a consolidated
basis as of the date of calculation). For every trailing twelve month period
measured on a calendar quarterly basis thereafter, Borrower shall not permit
total consolidated Revenues to be less than two percent (2%) greater than in the
same trailing twelve month period from the immediately preceding twelve month
period (including Borrower and each of its Subsidiaries on a consolidated basis
as of the date of calculation).

(d) Period Ended March 31, 2007. For the six (6) month period ended March 31,
2007, Borrower’s total consolidated Revenues shall be no less than Thirty
Million Dollars ($30,000,000) and Borrower’s consolidated EBITDA losses shall be
no greater than Two Million Dollars ($2,000,000) (including Borrower and each of
its Subsidiaries on a consolidated basis as of the date of calculation).

ARTICLE 7

DEFAULT, RIGHTS AND REMEDIES

7.1 Event of Default. “Event of Default” shall mean the occurrence or existence
of any one or more of the following:

(a) Payment. Failure to pay any installment or other payment of principal on the
Loans or any interest on the Loans, any Payment Premium, in any such case,
within three (3) Business Days when due, or failure to pay any other amount due
under this Agreement or any of the other Loan Documents within ten (10) calendar
days after written demand for payment thereof from Investment Manager or Lender;
or

(b) Default in Other Agreements. Borrower or any of its Subsidiaries fails to
pay when due or within any applicable grace period any principal or interest on
Indebtedness (other than the Loan) or breaches or defaults under the terms of
any Indebtedness (other than the Loan), or any condition or event occurs with
respect to any

 

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Indebtedness (other than the Loan), if the effect of such failure to pay,
breach, default or occurrence is to cause the holder or holders of Indebtedness
having an aggregate principal amount in excess of $250,000 to declare due prior
to their stated maturity; or

(c) Breach of Certain Provisions. Failure of any Borrower to perform or comply
with any term or condition contained in Sections 4.1, 4.3 (as it relates to
Borrower’s obligation to maintain insurance), 4.10, Article 5 or Article 6; or

(d) Breach of Warranty. Any representation, warranty, certification or other
statement made by Borrower in any Loan Document or in any statement or
certificate at any time given by such Person in writing pursuant or in
connection with any Loan Document is false in any material respect (without
duplication of materiality qualifiers contained therein) on the date made; or

(e) Other Defaults Under Loan Documents. Borrower defaults in the performance of
or compliance with any term contained in this Agreement or the other Loan
Documents (other than occurrences described in other provisions of this
Section 7.1 for which a different grace or cure period is specified, or for
which no cure period is specified and which constitute immediate Events of
Default) and such default is not remedied or waived within thirty (30) days
after the earlier of (1) receipt by Borrower of notice from Investment Manager
or Lender of such default or (2) the actual knowledge of Borrower of such
default; or

(f) Involuntary Bankruptcy; Appointment of Receiver, Etc. (1) A court enters a
decree or order for relief with respect to Borrower in an involuntary case under
the Bankruptcy Code, which decree or order is not stayed or other similar relief
is not granted under any applicable federal or state law; or (2) the continuance
of any of the following events for sixty (60) days unless dismissed, bonded or
discharged: (a) an involuntary case is commenced against any Borrower, under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect; or (b) a decree or order of a court for the appointment of a receiver,
liquidator, sequestrator, trustee, custodian or other officer having similar
powers over any Borrower, or over all or a substantial part of its property, is
entered; or (c) a receiver, trustee or other custodian is appointed without the
consent of any Borrower, for all or a substantial part of the property of such
Borrower; or

(g) Voluntary Bankruptcy; Appointment of Receiver, Etc. (1) Borrower commences a
voluntary case under the Bankruptcy Code, or consents to the entry of an order
for relief in an involuntary case or to the conversion of an involuntary case to
a voluntary case under any such law or consents to the appointment of or taking
possession by a receiver, trustee or other custodian for all or a substantial
part of its property; or (2) any Borrower makes any assignment for the benefit
of creditors; or (3) the Board of Directors of Borrower adopts any resolution or
otherwise authorizes action to approve any of the actions referred to in this
Section 7.1(g); or

(h) Judgment and Attachments. Any final, non-appealable money judgment, writ or
warrant of attachment, or similar process (other than those described

 

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elsewhere in this Section 7.1) involving (1) an amount in any individual case in
excess of $250,000 or (2) an amount in the aggregate at any time in excess of
$1,000,000 (in either case to the extent not adequately covered by insurance in
Investment Manager’s sole discretion as to which the insurance company has
acknowledged coverage) is entered or filed against any Borrower or any of its
assets and remains undischarged, unvacated or unstayed for a period of thirty
(30) days or in any event later than five (5) Business Days prior to the date of
any proposed sale thereunder; or

(i) Dissolution. Any order, judgment or decree is entered against Borrower
decreeing the dissolution or split up of Borrower and such order remains
undischarged or unstayed for a period in excess of fifteen (15) days; or

(j) Solvency. Borrower fails to pay its debts as they become due or admits in
writing its present or prospective inability to pay its debts as they become
due; or

(k) Invalidity of Loan Documents. Any of the Loan Documents for any reason,
other than a partial or full release in accordance with the terms thereof,
ceases to be in full force and effect or is declared to be null and void, or
Borrower denies that it has any further liability under any Loan Documents to
which it is party, or gives notice to such effect; or

(l) Subordinated Indebtedness. The failure of Borrower or any creditor of
Borrower or any of their Subsidiaries to comply with the terms of any
subordination or intercreditor agreement or any subordination provisions of any
note or other document running to the benefit of Investment Manager or Lender,
or if any such document becomes null and void or any party denies further
liability under any such document or provides notice to that effect.

7.2 Acceleration and other Remedies.

(a) Upon the occurrence of any Event of Default described in Sections 7.1(f) or
7.1(g), all of the Obligations shall automatically become immediately due and
payable, without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or other requirements of any kind, all of which are
hereby expressly waived by Borrower.

(b) Upon the occurrence and during the continuance of any Event of Default other
than described in Sections 7.1(f) or 7.1(g), Investment Manager may, and at the
request of Lender, Investment Manager shall by written notice to Borrower:
(i) declare all or any portion of the Obligations to be, and the same shall
forthwith become, immediately due and payable together with accrued interest
thereon and (ii) exercise any other remedies which may be available under the
Loan Documents or applicable law, including all remedies provided under the
Code.

(c) Except as otherwise provided for in this Agreement or by applicable law,
Borrower waives: (i) presentment, demand and protest and notice of presentment,

 

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dishonor, notice of intent to accelerate, notice of acceleration, protest,
default, nonpayment, maturity, release, compromise, settlement, extension or
renewal of any or all commercial paper, accounts, contract rights, documents,
instruments, chattel paper and guaranties at any time held by Investment Manager
on which Borrower may in any way be liable, and hereby ratifies and confirms
whatever Investment Manager may do in this regard, (ii) all rights to notice and
a hearing prior to Investment Manager’s taking possession or control of, or to
Investment Manager’s replevy, attachment or levy upon, the Collateral or any
bond or security that might be required by any court prior to allowing
Investment Manager to exercise any of its remedies, and (iii) the benefit of all
valuation, appraisal, marshaling and exemption laws.

7.3 Performance by Investment Manager. If Borrower shall fail to perform any
covenant, duty or agreement contained in any of the Loan Documents, Investment
Manager may perform or attempt to perform such covenant, duty or agreement on
behalf of Borrower after the expiration of any cure or grace periods set forth
herein. In such event, Borrower shall, at the request of Investment Manager,
promptly pay any amount reasonably expended by Investment Manager in such
performance or attempted performance to Investment Manager. Notwithstanding the
foregoing, it is expressly agreed that Investment Manager shall not have any
liability or responsibility for the performance of any obligation of Borrower
under this Agreement or any other Loan Document.

7.4 Set Off and Sharing of Payments. In addition to any rights now or hereafter
granted under applicable law and not by way of limitation of any such rights,
during the continuance of any Event of Default, Lender is hereby authorized by
Borrower at any time or from time to time, with reasonably prompt subsequent
notice to Borrower (any prior or contemporaneous notice being hereby expressly
waived) to set off and to appropriate and to apply any and all (A) balances held
by Lender at any of its offices for the account of Borrower or any of its
Subsidiaries (regardless of whether such balances are then due to such Borrower
or Subsidiary), and (B) other property at any time held or owing by Lender to or
for the credit or for the account of Borrower or any of its Subsidiaries,
against and on account of any of the Obligations; except that Lender shall not
exercise any such right without the prior written consent of Investment Manager.
Lender, in exercising a right to set off or otherwise receiving any payment on
account of the Obligations, shall deliver such amounts to Investment Manager and
Investment Manager shall apply such funds to the payment of the Obligations in
accordance with Section 7.5.

7.5 Application of Proceeds after Default. Notwithstanding anything to the
contrary contained in this Agreement, upon the occurrence and during the
continuance of an Event of Default, (a) Borrower irrevocably waives the right to
direct the application of any and all payments at any time or times thereafter
received by Lender or Investment Manager from or on behalf of Borrower, and
Investment Manager shall have the continuing and exclusive right to apply and to
reapply any and all payments received at any time or times after the occurrence
and during the continuance of an Default or Event of Default against the
Obligations in such manner as Investment Manager may deem advisable
notwithstanding any previous application by Investment Manager and (b) in the
absence of a specific determination by Investment Manager with respect thereto,
the proceeds of any sale of, or

 

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other realization upon, all or any part of the Collateral shall be applied in
accordance with Section 1.9 hereof. Any balance remaining shall be delivered to
Borrower or to whomever may be lawfully entitled to receive such balance or as a
court of competent jurisdiction may direct.

ARTICLE 8

ASSIGNMENT

8.1 Assignment.

(a) Subject to the terms of this Section 8.1, Lender may make an assignment, at
any time or times, of the Loan Documents, the Loans or any portion thereof or
interest therein, including Lender’s rights, title, interests, remedies, powers
or duties thereunder. Any assignment by Lender shall: (i) require the consent of
Investment Manager and the execution of an assignment agreement in form and
substance reasonably satisfactory to, and acknowledged by, Investment Manager);
and (iii) be conditioned on such assignee Lender representing to the assigning
Lender and Investment Manager that it is purchasing the Loans or portion of the
Loans to be assigned to it for its own account, for investment purposes and not
with a view to the distribution thereof. In the case of an assignment by Lender
under this Section 8.1, the assignee shall have, to the extent of such
assignment, the same rights, benefits and obligations as Lender hereunder. The
assigning Lender shall be relieved of its obligations hereunder with respect to
the assigned portion of the Loans from and after the date of such assignment.
Borrower hereby acknowledges and agrees that any assignment shall give rise to a
direct obligation of Borrower to the assignee and that the assignee shall be
considered to be a “Lender.” In the event Investment Manager or Lender assigns
or otherwise transfers all or any part of the Obligations, Investment Manager or
Lender shall so notify Borrower and Borrower shall, upon the request of
Investment Manager or Lender, execute new notes in exchange for the Note(s)
being assigned. Notwithstanding the foregoing provisions of this Section 8.1(a),
Lender may at any time pledge the Obligations held by it and Lender’s rights
under this Agreement and the other Loan Documents to a Federal Reserve Bank.

(b) Borrower shall assist Lender as required to enable the assigning Lender to
effect any such assignment, including the execution and delivery of any and all
agreements, notes and other documents and instruments as shall be requested and
the prompt preparation of informational materials for, and the participation of
management in meetings with potential assignees, all on a reasonable timetable
established by Investment Manager in its sole discretion. Borrower shall certify
the correctness, completeness and accuracy in all material respects of all
written descriptions of Borrower and its affairs contained in any selling
materials provided by Borrower or any of its Subsidiaries.

(c) Lender may furnish any information concerning Borrower in the possession of
Lender from time to time to assignees and participants (including prospective
assignees and participants); provided that Lender shall obtain from assignees or
participants confidentiality covenants substantially equivalent to those
contained in Section 10.12.

 

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ARTICLE 9

PROVISIONS RELATED TO INVESTMENT MANAGER

9.1 Appointment. Lender hereby designates and appoints Investment Manager as its
agent under this Agreement and the other Loan Documents, and Lender hereby
irrevocably authorizes Investment Manager to execute and deliver the Collateral
Documents and to take such action or to refrain from taking such action on its
behalf under the provisions of this Agreement and the other Loan Documents and
to exercise such powers as are set forth herein or therein, together with such
other powers as are reasonably incidental thereto. Investment Manager is
authorized and empowered to amend, modify, or waive any provisions of this
Agreement or the other Loan Documents on behalf of Lender subject to the
requirement that Lender’s consent be obtained in certain instances as provided
in this Article 9 and Section 10.2. The provisions of this Article 9 are solely
for the benefit of Investment Manager and Lender and neither Borrower nor any
other Person shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this Agreement,
Investment Manager shall act solely as agent of Lender and does not assume and
shall not be deemed to have assumed any obligation toward or relationship of
agency or trust with or for Borrower. Investment Manager may perform any of its
duties hereunder, or under the Loan Documents, by or through its agents or
employees.

9.2 Reliance. Investment Manager shall be entitled to rely, and shall be fully
protected in relying, upon any written or oral notices, statements,
certificates, orders or other documents or any telephone message or other
communication (including any writing, telex, fax or telegram) believed by it in
good faith to be genuine and correct and to have been signed, sent or made by
the proper Person, and with respect to all matters pertaining to this Agreement
or any of the Loan Documents and its duties hereunder or thereunder. Investment
Manager shall be entitled to rely upon the advice of legal counsel, independent
accountants, and other experts selected by Investment Manager in its sole
discretion.

9.3 Successor Investment Manager.

(a) Resignation. Investment Manager may resign from the performance of all its
agency functions and duties hereunder at any time by giving at least thirty
(30) Business Days’ prior written notice to Borrower and Lender. Such
resignation shall take effect upon the acceptance by a successor Investment
Manager of appointment pursuant to clause (b) below or as otherwise provided in
clause (b) below.

(b) Appointment of Successor. Upon any such notice of resignation pursuant to
clause (a) above, Lender shall appoint a successor Investment Manager which,
unless an Event of Default has occurred and is continuing, shall be acceptable
to Borrower (Borrower’s approval not to be unreasonably conditioned, delayed or
withheld). If a successor Investment Manager shall not have been so appointed
within the thirty (30) Business Day period referred to in clause (a) above, the
retiring Investment Manager, upon notice to Borrower, shall then appoint a
successor Investment Manager who shall serve as Investment Manager until such
time, if any, as Lender appoints a successor Investment Manager as provided
above.

 

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(c) Successor Investment Manager. Upon the acceptance of any appointment as
Investment Manager under the Loan Documents by a successor Investment Manager,
such successor Investment Manager shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring Investment
Manager, and the retiring Investment Manager shall be discharged from its duties
and obligations under the Loan Documents. After any retiring Investment
Manager’s resignation as Investment Manager, the provisions of this Article 9
shall continue to inure to its benefit as to any actions taken or omitted to be
taken by it in its capacity as Investment Manager.

9.4 Collateral Matters.

(a) Release of Collateral. Lender hereby irrevocably authorizes Investment
Manager, at its option and in its sole discretion, to release any Lien granted
to or held by Investment Manager upon any Collateral (x) upon payment and
satisfaction of all Obligations (other than contingent indemnification
obligations to the extent no claims giving rise thereto have been asserted) or
(y) constituting property being sold or disposed of if Borrower certifies to
Investment Manager that the sale or disposition is made in compliance with the
provisions of this Agreement (and Investment Manager may rely in good faith
conclusively on any such certificate, without further inquiry).

(b) Confirmation of Authority; Execution of Releases. Without in any manner
limiting Investment Manager’s authority to act without any specific or further
authorization or consent by Lender (as set forth in Section 9.4(a)), Lender
agrees to confirm in writing, upon request by Investment Manager or Borrower,
the authority to release any Collateral conferred upon Investment Manager under
clauses (x) and (y) of Section 9.4(a). Upon receipt by Investment Manager of any
required confirmation from Lender of its authority to release any particular
item or types of Collateral, and upon at least ten (10) Business Days’ prior
written request by Borrower, Investment Manager shall (and is hereby irrevocably
authorized by Lender to) execute such documents as may be necessary to evidence
the release of the Liens granted to Investment Manager upon such Collateral;
provided, however, that (x) Investment Manager shall not be required to execute
any such document on terms which, in Investment Manager’s opinion, would expose
Investment Manager to liability or create any obligation or entail any
consequence other than the release of such Liens without recourse or warranty,
and (y) such release shall not in any manner discharge, affect or impair the
Obligations or any Liens upon, all interests retained by Borrower, including the
proceeds of any sale, all of which shall continue to constitute part of the
Collateral.

(c) Absence of Duty. Investment Manager shall have no obligation whatsoever to
Lender or any other Person to assure that the property covered by the Collateral
Documents exists or is owned by Borrower or is cared for, protected or insured
or has been encumbered or that the Liens granted to Investment Manager have been
properly or sufficiently or lawfully created, perfected, protected or enforced
or are entitled to any particular priority, or to exercise at all or in any
particular manner or under any duty of care, disclosure or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or
available to Investment Manager in this Section 9.4 or in any of the Loan

 

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Documents, it being understood and agreed that in respect of the property
covered by the Collateral Documents or any act, omission or event related
thereto, Investment Manager may act in any manner it may deem appropriate, in
its sole discretion, given Investment Manager’s own interest in property covered
by the Collateral Documents and that Investment Manager shall have no duty or
liability whatsoever to Lender, provided that Investment Manager shall exercise
the same care which it would in dealing with loans for its own account.

9.5 Agency for Perfection. Investment Manager and Lender hereby appoint each
other Lender as agent for the purpose of perfecting Investment Manager’s
security interest in assets which, in accordance with the Code in any applicable
jurisdiction, can be perfected by possession or control. Should Lender obtain
possession or control of any such assets, Lender shall notify Investment Manager
thereof, and, promptly upon Investment Manager’s request therefor, shall deliver
such assets to Investment Manager or in accordance with Investment Manager’s
instructions or transfer control to Investment Manager in accordance with
Investment Manager’s instructions. Lender agrees that it will not have any right
individually to enforce or seek to enforce any Collateral Document or to realize
upon any collateral security for the Loans unless instructed to do so by
Investment Manager in writing, it being understood and agreed that such rights
and remedies may be exercised only by Investment Manager.

9.6 Notice of Default. Investment Manager shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default unless Investment
Manager shall have received written notice from Lender or Borrower referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a “notice of default”. Investment Manager will use reasonable
efforts to notify Lender of its receipt of any such notice, unless such notice
is with respect to defaults in the payment of principal, interest and Fees, in
which case Investment Manager will notify Lender of its receipt of such notice.
Investment Manager shall take such action with respect to such Default or Event
of Default as may be requested by Lender in accordance with Article 7. Unless
and until Investment Manager has received any such request, Investment Manager
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default as it shall deem
advisable or in the best interests of Lender.

9.7 Lender Actions Against Collateral. With respect to any action by Investment
Manager to enforce the rights and remedies of Investment Manager and Lender
under this Agreement and the other Loan Documents, Lender hereby consents to the
jurisdiction of the court in which such action is maintained, and agrees to
deliver its Notes to Investment Manager to the extent necessary to enforce the
rights and remedies of Investment Manager for the benefit of Lender under the
mortgages or similar Liens or encumbrances in accordance with the provisions
hereof.

9.8 Payment; Information; Actions in Concert.

(a) Return of Payments.

(i) If Investment Manager pays an amount to Lender under this Agreement in the
belief or expectation that a related payment has been or will be received by
Investment Manager from Borrower and such related payment is not received by
Investment Manager, then Investment Manager will be entitled to recover such
amount from Lender on demand without setoff, counterclaim or deduction of any
kind.

 

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(ii) If Investment Manager determines at any time that any amount received by
Investment Manager under this Agreement must be returned to Borrower or paid to
any other Person pursuant to any insolvency law or otherwise, then,
notwithstanding any other term or condition of this Agreement or any other Loan
Document, Investment Manager will not be required to distribute any portion
thereof to Lender. In addition, Lender will repay to Investment Manager on
demand any portion of such amount that Investment Manager has distributed to
Lender, together with interest at such rate, if any, as Investment Manager is
required to pay to Borrower or such other Person, without setoff, counterclaim
or deduction of any kind.

(b) Dissemination of Information. Investment Manager shall use reasonable
efforts to provide Lender with any notice of Default or Event of Default
received by Investment Manager from, or delivered by Investment Manager to,
Borrower, with notice of any Event of Default of which Investment Manager has
actually become aware and with notice of any action taken by Investment Manager
following any Event of Default; provided, that Investment Manager shall not be
liable to Lender for any failure to do so.

ARTICLE 10

MISCELLANEOUS

10.1 Indemnities. Borrower agrees (together with its Subsidiaries, on a joint
and several basis) to indemnify, pay, and hold Investment Manager, Lender and
their respective officers, directors, employees, agents, and attorneys (the
“Indemnitees”) harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs and
expenses (including all reasonable fees and expenses of counsel to such
Indemnitees) of any kind or nature whatsoever that may be imposed on, incurred
by, or asserted against the Indemnitee as a result of such Indemnitees being a
party to this Agreement or the transactions consummated pursuant to this
Agreement; provided, that Borrower shall have no obligation to an Indemnitee
hereunder with respect to liabilities to the extent resulting from the gross
negligence or willful misconduct of that Indemnitee as determined by a court of
competent jurisdiction. If and to the extent that the foregoing undertaking may
be unenforceable for any reason, Borrower agrees to make the maximum
contribution to the payment and satisfaction thereof which is permissible under
applicable law.

10.2 Amendments and Waivers. Except for actions expressly permitted to be taken
by Investment Manager, no amendment, modification, termination or waiver of any
provision of this Agreement or any other Loan Document, or any consent to any
departure by Borrower therefrom, shall in any event be effective unless the same
shall be in writing and

 

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signed by Borrower, Investment Manager and Lenders owning a majority of the then
outstanding principal amounts of the Notes.

10.3 Notices. Any notice or other communication required shall be in writing
addressed to the respective party as set forth below and may be personally
served, telecopied, sent by overnight courier service or U.S. mail and shall be
deemed to have been given: (a) if delivered in person, when delivered; (b) if
delivered by fax, on the date of transmission if transmitted on a Business Day
before 4:00 p.m. Eastern Time; (c) if delivered by overnight courier, one
(1) Business Day after delivery to the courier properly addressed; or (d) if
delivered by U.S. mail, four (4) Business Days after deposit with postage
prepaid and properly addressed.

Notices shall be addressed as follows:

 

If to Borrower:

  

Vertical Communications, Inc.

  

One Memorial Drive

  

Cambridge, MA 02142

  

ATTN: Chief Financial Officer

  

Fax: (914) 554-5012

With a copy to:

  

Andrews Kurth LLP

  

1717 Main Street, Suite 3700

  

Suite 3700

  

Dallas, TX 75201

  

ATTN: Victor B. Zanetti

  

Fax: (214) 659-4890

If to Investment Manager

or Lender:

  

Columbia Partners, L.L.C. Investment Management

  

1775 Pennsylvania Avenue, NW

  

Suite 1000

  

Washington, DC 20006

  

ATTN: Jason Crist

  

Fax: (202) 296-2535

With a copy to:

  

Cooley Godward Kronish LLP

  

The Bowen Building

  

875 15th Street NW

  

Suite 800

  

Washington, DC 20005-2221

  

ATTN: Aaron J. Velli, Esq.

  

Fax: (202) 842-7899

10.4 Obligations Absolute; Failure or Indulgence Not Waiver; Remedies
Cumulative. The payment and performance by Borrower of all of the Obligations
shall be absolute and unconditional, irrespective of any defense or rights of
set-off, recoupment or

 

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counterclaim Borrower might otherwise have against Investment Manager or Lender,
and Borrower shall pay and perform all of the Obligations, free of any
deductions and without abatement, diminution, recoupment, counterclaim or
set-off. Until payment in full of all of the Obligations, Borrower shall (a) not
suspend or discontinue any payments required pursuant to the Notes, this
Agreement or any other Loan Document; and (b) perform and observe all of the
other terms and provisions of this Agreement or any other Loan Documents. No
failure or delay on the part of Investment Manager or Lender to exercise, nor
any partial exercise of, any power, right or privilege hereunder or under any
other Loan Documents shall impair such power, right, or privilege or be
construed to be a waiver of any Default or Event of Default. All rights and
remedies existing hereunder or under any other Loan Document are cumulative to
and not exclusive of any rights or remedies otherwise available.

10.5 Marshaling; Payments Set Aside. Neither Investment Manager nor Lender shall
be under any obligation to marshal any assets in payment of any or all of the
Obligations. To the extent that Borrower makes payment(s) or Investment Manager
enforces its Liens or Investment Manager or Lender exercises its right of
set-off, and such payment(s) or the proceeds of such enforcement or set-off is
subsequently invalidated, declared to be fraudulent or preferential, set aside,
or required to be repaid by anyone, then to the extent of such recovery, the
Obligations or part thereof originally intended to be satisfied, and all Liens,
rights and remedies therefor, shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or set off had
not occurred.

10.6 Severability. The invalidity, illegality, or unenforceability in any
jurisdiction of any provision under the Loan Documents shall not affect or
impair the remaining provisions in the Loan Documents. Furthermore, in lieu of
any such provision, there shall be added automatically as part of the applicable
agreement a legal and enforceable provision as similar in terms to such
provision as may be possible.

10.7 Headings. Section and subsection headings are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purposes or be given substantive effect.

10.8 Applicable Law. THIS AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS WHICH
DOES NOT EXPRESSLY SET FORTH APPLICABLE LAW SHALL BE GOVERNED BY AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.

10.9 Successors and Assigns. This Agreement and the other Loan Documents shall
be binding on and shall inure to the benefit of Borrower, Investment Manager,
Lender and their respective successors and assigns (including, in the case of
Borrower, a debtor-in-possession on behalf of such Borrower), except as
otherwise provided herein or therein. Borrower may not assign, transfer,
hypothecate or otherwise convey its rights, benefits, obligations or duties
hereunder or under any of the other Loan Documents without the prior express
written consent of Investment Manager and Lender owning a majority in then
outstanding principal amount of the Note(s). Any such purported assignment,
transfer,

 

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hypothecation or other conveyance by Borrower without the prior express written
consent of Investment Manager and Lender shall be void. The terms and provisions
of this Agreement are for the purpose of defining the relative rights and
obligations of Borrower, Investment Manager and Lender with respect to the
transactions contemplated hereby and no Person shall be a third party
beneficiary of any of the terms and provisions of this Agreement or any of the
other Loan Documents.

10.10 No Fiduciary Relationship; Limited Liability. No provision in the Loan
Documents and no course of dealing between the parties shall be deemed to create
any fiduciary duty owing to Borrower by Investment Manager or Lender. Borrower
agrees that neither Investment Manager nor Lender shall have liability to
Borrower (whether sounding in tort, contract or otherwise) for losses suffered
by Borrower in connection with, arising out of, or in any way related to the
transactions contemplated and the relationship established by the Loan
Documents, or any act, omission or event occurring in connection therewith,
unless and to the extent that it is determined that such losses resulted from
the gross negligence or willful misconduct of the party from which recovery is
sought as determined by a final non-appealable order by a court of competent
jurisdiction. Neither Investment Manager nor Lender shall have any liability
with respect to, and Borrower hereby waives, releases and agrees not to sue for,
any special, indirect or consequential damages suffered by Borrower in
connection with, arising out of, or in any way related to the Loan Documents or
the transactions contemplated thereby.

10.11 Construction. Investment Manager, Lender and Borrower acknowledge that
each of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review the Loan Documents with its legal counsel and
that the Loan Documents shall be construed as if jointly drafted by Investment
Manager, Lender and Borrower.

10.12 Confidentiality. Investment Manager and Lender agree to exercise
reasonable efforts to keep confidential any non-public information delivered
pursuant to the Loan Documents and not to disclose such information to Persons
other than to potential assignees or participants or to Persons employed by or
engaged by Investment Manager or Lender or Lender’s assignees or participants
including attorneys, auditors, professional consultants, rating agencies;
provided that each of the foregoing has agreed to comply with confidentiality
provisions substantially similar to those contained herein. The confidentiality
provisions contained in this Section 10.12 shall not apply to disclosures
(i) required to be made by Investment Manager or Lender to any regulatory or
governmental agency or pursuant to legal process or (ii) consisting of general
portfolio information that does not identify Borrower or separately state
information regarding Borrower. The obligations of Investment Manager and Lender
under this Section 10.12 shall supersede and replace the obligations of
Investment Manager and Lender under any confidentiality agreement in respect of
this financing executed and delivered by Investment Manager or Lender prior to
the date hereof.

10.13 CONSENT TO JURISDICTION. BORROWER HEREBY CONSENTS TO THE JURISDICTION OF
ANY STATE OR FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK AND IRREVOCABLY
AGREE THAT, SUBJECT TO

 

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INVESTMENT MANAGER’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN
SUCH COURTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE
AFORESAID COURTS AND WAIVE ANY DEFENSE OF FORUM NON CONVENIENS. BORROWER HEREBY
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE
OF PROCESS MAY BE MADE UPON BORROWER BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED, ADDRESSED TO BORROWER, AT THE ADDRESS SET FORTH IN THIS
AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS
BEEN POSTED. IN ANY LITIGATION, TRIAL, ARBITRATION OR OTHER DISPUTE RESOLUTION
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, ALL
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS OF BORROWER SHALL BE DEEMED TO BE
EMPLOYEES OR MANAGING AGENTS OF BORROWER FOR PURPOSES OF ALL APPLICABLE LAW OR
COURT RULES REGARDING THE PRODUCTION OF WITNESSES BY NOTICE FOR TESTIMONY
(WHETHER IN A DEPOSITION, AT TRIAL OR OTHERWISE). BORROWER AGREES THAT
INVESTMENT MANAGER’S OR LENDER’S COUNSEL IN ANY SUCH DISPUTE RESOLUTION
PROCEEDING MAY EXAMINE ANY OF THESE INDIVIDUALS AS IF UNDER CROSS-EXAMINATION
AND THAT ANY DISCOVERY DEPOSITION OF ANY OF THEM MAY BE USED IN THAT PROCEEDING
AS IF IT WERE AN EVIDENCE DEPOSITION. BORROWER IN ANY EVENT WILL USE ALL
COMMERCIALLY REASONABLE EFFORTS TO PRODUCE IN ANY SUCH DISPUTE RESOLUTION
PROCEEDING, AT THE TIME AND IN THE MANNER REQUESTED BY INVESTMENT MANAGER OR ANY
LENDER, ALL PERSONS, DOCUMENTS (WHETHER IN TANGIBLE, ELECTRONIC OR OTHER FORM)
OR OTHER THINGS UNDER THEIR CONTROL AND RELATING TO THE DISPUTE.

10.14 WAIVER OF JURY TRIAL. BORROWER, INVESTMENT MANAGER AND LENDER HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. BORROWER,
INVESTMENT MANAGER AND LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE
WAIVER IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THAT
EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS.
BORROWER, INVESTMENT MANAGER AND LENDER WARRANT AND REPRESENT THAT EACH HAS HAD
THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.

10.15 Survival of Warranties and Certain Agreements. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement, the making of the Loans and the execution and
delivery of the Notes.

 

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Notwithstanding anything in this Agreement or implied by law to the contrary,
the agreements of Borrower set forth in Sections 1.6 and 10.1 shall survive the
repayment of the Obligations and the termination of this Agreement.

10.16 Entire Agreement. This Agreement, the Notes and the other Loan Documents
embody the entire agreement among the parties hereto and supersede all prior
commitments, agreements, representations, and understandings, whether oral or
written, relating to the subject matter hereof, and may not be contradicted or
varied by evidence of prior, contemporaneous, or subsequent oral agreements or
discussions of the parties hereto. All Exhibits, Schedules and Annexes referred
to herein are incorporated in this Agreement by reference and constitute a part
of this Agreement.

10.17 Counterparts; Effectiveness. This Agreement and any amendments, waivers,
consents or supplements may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one in the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto.

10.18 Delivery of Termination Statements and Mortgage Releases. Upon payment in
full in cash and performance of all of the Obligations (other than
indemnification Obligations), and a release of all claims against Investment
Manager and Lender, and so long as no suits, actions proceedings, or claims are
pending or threatened against any Indemnitee asserting any damages, losses or
liabilities that are indemnified liabilities hereunder, the Investment Manager
shall deliver to Borrower termination statements, mortgage releases and other
documents necessary or appropriate to evidence the termination of the Liens
securing payment of the Obligations.

10.19 Suretyship Waivers. Each Person that is defined as a Borrower in this
Agreement shall be jointly and severally liable for all obligations hereunder.
Each such Person hereby expressly waives (a) diligence, presentment, demand for
payment, protest, benefit of any statute of limitations affecting such Person’s
liability under the Loan Documents; (b) discharge due to any disability of any
Borrower; (c) any defenses of any Borrower to obligations under the Loan
Documents not arising under the express terms of the Loan Documents or from a
material breach thereof by Lender which under applicable law has the effect of
discharging any Borrower from the Obligations as to which this Agreement or any
other Loan Document is sought to be enforced; (d) the benefit of any act or
omission by Lender which directly or indirectly results in or aids the discharge
of any Borrower from any of the Obligations by operation of law or otherwise;
(e) except as expressly provided herein, all notices whatsoever, including
notice of acceptance of the incurring of the Obligations; (f) any right it may
have to require Lender to disclose to it any information that Lender may now or
hereafter acquire concerning the financial condition or any circumstances that
bears on the risk of nonpayment by any other Borrower, including the release of
such other Borrower from its Obligations hereunder; and (g) any requirement that
Lender exhaust any right, power or remedy or proceed against any other Borrower
or any other security for, or any guarantor of, or any other party liable for,
any of the Obligations, or any portion thereof. Each Borrower

 

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specifically agrees that it shall not be necessary or required, and Borrower
shall not be entitled to require, that Lender (i) file suit or proceed to assert
or obtain a claim for personal judgment against any other Borrower for all or
any part of the Obligations; (ii) make any effort at collection or enforcement
of all or any part of the Obligations from any Borrower; (iii) foreclose against
or seek to realize upon the Collateral or any other security now or hereafter
existing for all or any part of the Obligations; (iv) file suit or proceed to
obtain or assert a claim for personal judgment against any Borrower or any
guarantor or other party liable for all or any part of the Obligations; (v)
exercise or assert any other right or remedy to which Lender is or may be
entitled in connection with the Obligations or any security or guaranty relating
thereto to assert; or (vi) file any claim against assets of one Borrower before
or as a condition of enforcing the liability of any other Borrower under this
Agreement. WITHOUT LIMITING THE FOREGOING IN ANY WAY, EACH PERSON THAT IS
DEFINED AS A BORROWER IN THIS AGREEMENT HEREBY IRREVOCABLY WAIVES AND RELEASES:

(i) Any and all rights it may have at any time (whether arising directly or
indirectly, by operation of law, contract or otherwise) to require the
marshaling of any assets of any Borrower, which right of marshaling might
otherwise arise from any such payments made or obligations performed;

(ii) Any and all rights that would result in such Person being deemed a
“creditor” under the United States Code of any other Borrower or any other
Person, on account of payments made or obligations performed by such Person; and

Until such time as the Obligations have been satisfied in full, any claim, right
or remedy which it may now have or hereafter acquire against any other Borrower
that arises hereunder and/or from the performance by it hereunder including any
claim, remedy or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right or remedy of Lender
against any Borrower or any collateral security which Lender now has or may
hereafter acquire, whether or not such claim, right or remedy arises in equity,
under contract, by statute, under common law or otherwise.

 

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IN WITNESS WHEREOF, the undersigned parties to this Credit Agreement have
hereunto set their hands as of the day and year first above written.

 

VERTICAL COMMUNICATIONS, INC. By:   /s/ WILLIAM Y. TAUSCHER Name: William Y.
Tauscher Title: President VERTICAL COMMUNICATIONS ACQUISITION CORP. By:   /s/
WILLIAM Y. TAUSCHER Name: William Y. Tauscher Title: President Solely for
purposes of Sections 3.4(c) and 5.16 herein: VERTICAL COMMUNICATIONS GMBH By:  
/s/ KEN CLINEBELL Name: Ken Clinebell Title: Solely for purposes of Sections
3.4(c) and 5.16 herein: TRITON TECHNOLOGIES, INC. By:   /s/ KEN CLINEBELL Name:
Ken Clinebell Title: Solely for purposes of Sections 3.4(c) and 5.16 herein:
ARTISOFT “FSC”, LTD. By:   /s/ Ken Clinebell Name: Ken Clinebell Title:

[signatures follow on following page]

Credit Agreement Signature Page

--------------------------------------------------------------------------------

COLUMBIA PARTNERS, L.L.C. INVESTMENT MANAGEMENT,

as Investment Manager

By:   /s/ JASON A. CRIST Name: Jason A, Crist Title: Managing Director Address:
          1775 Pennsylvania Avenue, NW           Suite 1000  
        Washington, DC 20006   ATTN: Jason Crist  

Fax: (202) 296-2535

NEIPF, L.P., as Lender By: Columbia Partners, L.L.C. Investment Management, its
Authorized Signatory By:   /s/ JASON A. CRIST Name: Jason A. Crist, Managing
Director Address:           1775 Pennsylvania Avenue, NW           Suite 1000  
        Washington, DC 20006   ATTN: Jason Crist  

Fax: (202) 296-2535

ABA No.:      Account No.:   Bank:      Bank Address:     

Credit Agreement Signature Page

 

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INDEX OF APPENDICES

 

Annexes      

Annex A

   -            Definitions Exhibits      

Exhibit 1.1(a)

   -            Form of Bridge Note

Exhibit 1.1(b)

   -            Form of Term Note

Exhibit 1.2(a)

   -            Form of Initial Warrant

Exhibit 1.2(b)

   -            Form of Additional Warrant

Exhibit 1.4

   -            Payment Premium Example

Exhibit 2.1(e)

   -            Opinion of Andrews Kurth LLP

Exhibit 2.1(m)

   -            Form of Securities Purchase Agreement

Exhibit 2.2(i)

   -            Form of Agreement and Plan of Merger with Vodavi

Exhibit 4.13

   -            Form of Joinder Agreement for New Subsidiaries

Exhibit 6.1(m)

   -            Form of Financial Statement Compliance Certificate

Exhibit 6.3(e)

   -            Example of Financial Covenant Calculation Schedules      

Schedule 3.4(a)

   -            Jurisdictions of Organization and Qualifications

Schedule 3.4(b)

   -            Capitalization

Schedule 3.4(c)

   -            Activities of Inactive Subsidiaries (if any)

Schedule 3.6

   -            Intellectual Property

Schedule 3.7

   -            Investigations and Audits

Schedule 3.8

   -            Employee Matters

Schedule 3.10

   -            Litigation

Schedule 3.12

   -            Real Estate

Schedule 3.14

   -            ERISA

Schedule 3.16

   -            Deposit and Disbursement Accounts

Schedule 3.17(a)

   -            Material Agreements

Schedule 3.18

   -            Insurance

Schedule 5.2

   -            Liens

Schedule 5.12

   -            Business Description

 

-xx-

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ANNEX A

to

CREDIT AGREEMENT

DEFINITIONS

Capitalized terms used in the Loan Documents shall have (unless otherwise
provided elsewhere in the Loan Documents) the following respective meanings and
all references to Sections, Exhibits, Schedules or Annexes in the following
definitions shall refer to Sections, Exhibits, Schedules or Annexes of or to the
Agreement:

“Accounting Changes” means: (a) changes in accounting principles required by
GAAP and implemented by Borrower; and (b) changes in accounting principles
recommended by Borrower’s certified public accountants and implemented by
Borrower.

“Additional Warrant” has the meaning ascribed to it in Section 1.2

“Affiliate” means, with respect to any Person, (a) each Person that, directly or
indirectly, owns or controls, whether beneficially, or as a trustee, guardian or
other fiduciary, 5% or more of the Stock having ordinary voting power in the
election of directors of such Person, (b) each Person that controls, is
controlled by or is under common control with such Person, (c) each of such
Person’s officers, directors, joint venturers and partners and (d) in the case
of Borrower, the immediate family members, spouses and lineal descendants of
individuals who are Affiliates of Borrower. For the purposes of this definition,
“control” of a Person shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise; provided,
however, that the term “Affiliate” shall specifically exclude the Investment
Manager and Lender.

“Agreement” means this Credit Agreement (including all schedules, subschedules,
annexes and exhibits hereto), as the same may be amended, supplemented, restated
or otherwise modified from time to time.

“Applicable Federal Rate” means the “applicable federal rate” for the term of
the applicable Note issued hereunder as most recently published in the IRC.

“Bankruptcy Code” means the provisions of Title 11 of the United States Code, 11
U.S.C. §§ 101 et seq. or any other applicable bankruptcy, insolvency or similar
laws.

“Borrower” has the meaning ascribed to it in the Preamble.

“Bridge Fee” has the meaning ascribed to it in Section 1.5(a).

“Bridge Notes” has the meaning ascribed to it in Section 1.1(b).

“Business Day” means any day that is not a Saturday, a Sunday or a day on which
banks are required or permitted to be closed in the State of New York.

 

A-1

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“Capital Lease” means, with respect to any Person, any lease of any property
(whether real, personal or mixed) by such Person as lessee that, in accordance
with GAAP, would be required to be classified and accounted for as a capital
lease on a balance sheet of such Person.

“Capital Lease Obligation” means, with respect to any Capital Lease of any
Person, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease.

“Cash Equivalents” means: (i) marketable securities (A) issued or directly and
unconditionally guaranteed as to interest and principal by the United States
government or (B) issued by any agency of the United States government the
obligations of which are backed by the full faith and credit of the United
States, in each case maturing within one year after acquisition thereof;
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof, in each case maturing within one year after acquisition
thereof and having, at the time of acquisition, a rating of at least A-1 from
S&P or at least P 1 from Moody’s; (iii) commercial paper maturing no more than
one year from the date of acquisition and, at the time of acquisition, having a
rating of at least A 1 from S&P or at least P 1 from Moody’s; (iv) certificates
of deposit or bankers’ acceptances issued or accepted by Lender or by any
commercial bank organized under the laws of the United States of America or any
state thereof or the District of Columbia that is at least (A) “adequately
capitalized” (as defined in the regulations of its primary Federal banking
regulator) and (B) has Tier 1 capital (as defined in such regulations) of not
less than $250,000,000, in each case maturing within one year after issuance or
acceptance thereof; and (v) shares of any money market mutual or similar funds
that (A) has substantially all of its assets invested continuously in the types
of investments referred to in clauses (i) through (iv) above, (B) has net assets
of not less than $500,000,000 and (C) has the highest rating obtainable from
either S&P or Moody’s.

“Change of Control” means (i) a sale, lease, license or other disposition of all
or substantially all of the assets of Borrower, (ii) any consolidation or merger
of Borrower with or into any other corporation or other entity or Person, or any
other corporate reorganization, in which the holders of the capital stock of
Borrower immediately prior to such consolidation, merger or reorganization, hold
less than 50% of the voting power of the surviving entity (or, if the surviving
entity is a wholly owned subsidiary, its parent) immediately after such
consolidation, merger or reorganization; or (iii) any transaction or series of
related transactions to which Borrower is a party in which in excess of fifty
percent (50%) of Borrower’s voting power is transferred to any Person other than
M/C Venture Partners and their Affiliates; provided that a Change of Control
shall not include (x) any consolidation or merger effected exclusively to change
the domicile of Borrower, or (y) any transaction or series of transactions
principally for bona fide equity financing purposes in which cash is received by
Borrower or any successor or indebtedness of Borrower is cancelled or converted
or a combination thereof.

“Charges” means all federal, state, county, city, municipal, local, foreign or
other governmental taxes (including premiums and other amounts owed to the PBGC
at the time due and payable), levies, assessments, charges, liens, claims or
encumbrances upon or relating to (a) the Collateral, (b) the Obligations,
(c) the employees, payroll, income or gross receipts of

 

A-2

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Borrower, (d) Borrower’s ownership or use of any properties or other assets, or
(e) any other aspect of Borrower’s business.

“Closing” means each of the Initial Closing and the Subsequent Closing.

“Closing Date” means each of the Initial Closing Date and the Subsequent Closing
Date.

“Code” means the Uniform Commercial Code as the same may, from time to time, be
enacted and in effect in the State of New York; provided, that to the extent
that the Code is used to define any term herein or in any Loan Document and such
term is defined differently in different Articles or Divisions of the Code, the
definition of such term contained in Article or Division 9 shall govern;
provided further, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection or priority of, or remedies with
respect to, Investment Manager’s or Lender’s Lien on any Collateral is governed
by the Uniform Commercial Code as enacted and in effect in a jurisdiction other
than the State of New York, the term “Code” shall mean the Uniform Commercial
Code as enacted and in effect in such other jurisdiction solely for purposes of
the provisions thereof relating to such attachment, perfection, priority or
remedies and for purposes of definitions related to such provisions.

“Collateral” means the “Collateral” as defined in the Security Agreement and the
other Collateral Documents and any other property, real or personal, tangible or
intangible, now existing or hereafter acquired, that may at any time be or
become subject to a security interest or Lien in favor of, or for the benefit
of, Investment Manager or Lender, to secure the Obligations or any portion
thereof.

“Collateral Documents” means the Security Agreement, the Pledge Agreements, the
Intellectual Property Security Agreement and all similar agreements entered into
guaranteeing payment of, or granting a Lien upon property as security for
payment of, the Obligations or any portion thereof.

“Contingent Obligation” means, as applied to any Person, means any direct or
indirect liability of that Person: (i) with respect to Guaranteed Indebtedness
and with respect to any Indebtedness, lease, dividend or other obligation of
another Person if the purpose or intent of the Person incurring such liability,
or the effect thereof, is to provide assurance to the obligee of such liability
that such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; (ii) any
agreement, contract or transaction involving commodity options or future
contracts, (iii) to make take-or-pay or similar payments if required regardless
of nonperformance by any other party or parties to an agreement, or
(iv) pursuant to any agreement to purchase, repurchase or otherwise acquire any
obligation or any property constituting security therefor, to provide funds for
the payment or discharge of such obligation or to maintain the solvency,
financial condition or any balance sheet item or level of income of another. The
amount of any Contingent Obligation shall be equal to the amount of the
obligation so guaranteed or otherwise supported or, if not a fixed and
determined amount, the maximum amount so guaranteed.

 

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“Contractual Obligations” means, as applied to any Person, any indenture,
mortgage, deed of trust, contract, undertaking, agreement or other instrument to
which that Person is a party or by which it or any of its properties is bound or
to which it or any of its properties is subject.

“Copyright License” means any and all rights now owned or hereafter acquired by
Borrower under any written agreement granting any right to use any Copyright or
Copyright registration.

“Copyrights” means all of the following now owned or hereafter adopted or
acquired by Borrower: (a) all copyrights and General Intangibles of like nature
(whether registered or unregistered), all registrations and recordings thereof,
and all applications in connection therewith, including all registrations,
recordings and applications in the United States Copyright Office or in any
similar office or agency of the United States, any state or territory thereof,
or any other country or any political subdivision thereof; and (b) all reissues,
extensions or renewals thereof.

“Default” means any event that, with the passage of time or notice or both,
would, unless cured or waived, become an Event of Default.

“Disclosure Schedules” means the Schedules prepared by Borrower and denominated
as Schedules 3.4(a) through 5.12 in the index to the Agreement.

“Dollars” or “$” means lawful currency of the United States of America.

“EBITDA” means, consistent with the Borrower’s internal management reporting
system as of the date of this Agreement, for any given period for Borrower,
earnings before interest, taxes, depreciation and amortization determined on a
pro forma basis that excludes the effect of non-cash stock options compensation
expense, accrued but not paid liquidated damages referred to in clause (ii) of
the definition of “Restricted Payment,” and certain other extraordinary profit
and loss items agreed upon among Borrower, Investment Manager and Lender;
provided that if such items are not agreed upon by Investment Manager and Lender
in their sole discretion they shall not be excluded from EBITDA.

“Environmental Laws” means all applicable federal, state, local and foreign
laws, statutes, ordinances, codes, rules, standards and regulations, now or
hereafter in effect, and any applicable judicial or administrative
interpretation thereof, including any applicable judicial or administrative
order, consent decree, order or judgment, imposing liability or standards of
conduct for or relating to the regulation and protection of human health,
safety, the environment and natural resources (including ambient air, surface
water, groundwater, wetlands, land surface or subsurface strata, wildlife,
aquatic species and vegetation). Environmental Laws include the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. §§
9601 et seq.) (“CERCLA”); the Hazardous Materials Transportation Authorization
Act of 1994 (49 U.S.C. §§ 5101 et seq.); the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. §§ 136 et seq.); the Solid Waste Disposal Act (42
U.S.C. §§ 6901 et seq.); the Toxic Substance Control Act (15 U.S.C. §§ 2601 et
seq.); the Clean Air Act (42 U.S.C. §§ 7401 et seq.); the Federal Water
Pollution Control Act (33 U.S.C. §§ 1251 et seq.); the Occupational Safety and
Health Act (29 U.S.C. §§ 651 et seq.); and the Safe Drinking Water Act (42
U.S.C.

 

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§§ 300(f) et seq.), and any and all regulations promulgated thereunder, and all
analogous state, local and foreign counterparts or equivalents and any transfer
of ownership notification or approval statutes.

“Environmental Liabilities” means, with respect to any Person, all liabilities,
obligations, responsibilities, response, remedial and removal costs,
investigation and feasibility study costs, capital costs, operation and
maintenance costs, losses, damages, punitive damages, property damages, natural
resource damages, consequential damages, treble damages, costs and expenses
(including all reasonable fees, disbursements and expenses of counsel, experts
and consultants), fines, penalties, sanctions and interest incurred as a result
of or related to any claim, suit, action, investigation, proceeding or demand by
any Person, whether based in contract, tort, implied or express warranty, strict
liability, criminal or civil statute or common law, including any arising under
or related to any Environmental Laws, Environmental Permits, or in connection
with any Release or threatened Release or presence of a Hazardous Material
whether on, at, in, under, from or about or in the vicinity of any real or
personal property.

“Environmental Permits” means all permits, licenses, authorizations,
certificates, approvals or registrations required by any Governmental Authority
under any Environmental Laws.

“Equipment” means all “equipment,” as such term is defined in the Code, now
owned or hereafter acquired by Borrower, wherever located and, in any event,
including all Borrower’s machinery and equipment, including processing
equipment, conveyors, machine tools, data processing and computer equipment,
including embedded software and peripheral equipment and all engineering,
processing and manufacturing equipment, office machinery, furniture, materials
handling equipment, tools, attachments, accessories, automotive equipment,
trailers, trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock
and other equipment of every kind and nature, trade fixtures and fixtures not
forming a part of real property, together with all additions and accessions
thereto, replacements therefor, all parts therefor, all substitutes for any of
the foregoing, fuel therefor, and all manuals, drawings, instructions,
warranties and rights with respect thereto, and all products and proceeds
thereof and condemnation awards and insurance proceeds with respect thereto.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and any regulations promulgated thereunder.

“ERISA Affiliate” means, with respect to Borrower, any trade or business
(whether or not incorporated) that, together with Borrower, are treated as a
single employer within the meaning of Sections 414(b), (c), (m) or (o) of the
IRC.

“ERISA Event” means, with respect to any Borrower or any ERISA Affiliate,
(a) any event described in Section 4043(c) of ERISA with respect to a Title IV
Plan; (b) the withdrawal of any Borrower or ERISA Affiliate from a Title IV Plan
subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the
complete or partial withdrawal of any Borrower or any ERISA Affiliate from any
Multiemployer Plan; (d) the filing of a notice of intent to terminate a Title IV
Plan or the treatment of a plan amendment as a termination under Section 4041 of
ERISA; (e) the institution

 

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of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC;
(f) the failure by any Borrower or ERISA Affiliate to make when due required
contributions to a Multiemployer Plan or Title IV Plan unless such failure is
cured within 30 days; (g) any other event or condition that might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Title IV Plan or
Multiemployer Plan or for the imposition of liability under Section 4069 or
4212(c) of ERISA; (h) the termination of a Multiemployer Plan under
Section 4041A of ERISA or the reorganization or insolvency of a Multiemployer
Plan under Section 4241 or 4245 of ERISA; or (i) the final determination that a
Qualified Plan’s qualification or tax exempt status should be revoked; or
(j) the termination of a Plan described in Section 4064 of ERISA.

“ESOP” means a Plan that is intended to satisfy the requirements of
Section 4975(e)(7) of the IRC.

“Event of Default” has the meaning ascribed to it in Section 7.1.

“Facility Fees” has the meaning ascribed to it in Section 1.5(b).

“Fair Labor Standards Act” means the Fair Labor Standards Act, 29 U.S.C. §201 et
seq.

“Fees” means any and all fees payable to Investment Manager or Lender pursuant
to the Agreement or any of the other Loan Documents, including without
limitation, the Facility Fees.

“Financial Statements” means the consolidated and consolidating income
statements, statements of cash flows and balance sheets of Borrower delivered in
accordance with Section 6.1.

“Fiscal Quarter” means any of the three month periods of Borrower ending on
March 31, June 30, September 30 and December 31 of each year.

“Fiscal Year” means any of the annual accounting periods of Borrower ending on
June 30 of each year.

“Fixtures” means all “fixtures” as such term is defined in the Code, now owned
or hereafter acquired by Borrower.

“GAAP” means generally accepted accounting principles in the United States of
America, consistently applied.

“General Intangibles” means “general intangibles,” as such term is defined in
the Code, now owned or hereafter acquired by Borrower, including all right,
title and interest that Borrower may now or hereafter have in or under any
Contractual Obligation, all payment intangibles, customer lists, Licenses,
Copyrights, Trademarks, Patents, and all applications therefor and reissues,
extensions or renewals thereof, rights in Intellectual Property, interests in
partnerships, joint ventures and other business associations, licenses, permits,
copyrights, trade secrets, proprietary or confidential information, inventions
(whether or not patented or patentable), technical information, procedures,
designs, knowledge, know how, software, data bases, data,

 

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skill, expertise, experience, processes, models, drawings, materials and
records, goodwill (including the goodwill associated with any Trademark or
Trademark License), all rights and claims in or under insurance policies
(including insurance for fire, damage, loss and casualty, whether covering
personal property, real property, tangible rights or intangible rights, all
liability, life, key man and business interruption insurance, and all unearned
premiums), uncertificated securities, chooses in action, deposit, checking and
other bank accounts, rights to receive tax refunds and other payments, rights to
receive dividends, distributions, cash, instruments and other property in
respect of or in exchange for pledged Stock and Investment Property, rights of
indemnification, all books and records, correspondence, credit files, invoices
and other papers, including all tapes, cards, computer runs and other papers and
documents in the possession or under the control of Borrower or any computer
bureau or service company from time to time acting for Borrower.

“Governmental Authority” means any nation or government, any state or other
political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.

“Guaranteed Indebtedness” means, as to any Person, any obligation of such Person
guaranteeing, providing comfort or otherwise supporting any Indebtedness, lease,
dividend, or other obligation (“primary obligation”) of any other Person (the
“primary obligor”) in any manner, including any obligation or arrangement of
such Person to (a) purchase or repurchase any such primary obligation,
(b) advance or supply funds (i) for the purchase or payment of any such primary
obligation or (ii) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance sheet
condition of the primary obligor, (c) purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, (d) protect the beneficiary of such arrangement from loss (other
than product warranties given in the ordinary course of business) or
(e) indemnify the owner of such primary obligation against loss in respect
thereof. The amount of any Guaranteed Indebtedness at any time shall be deemed
to be an amount equal to the lesser at such time of (x) the stated or
determinable amount of the primary obligation in respect of which such
Guaranteed Indebtedness is incurred and (y) the maximum amount for which such
Person may be liable pursuant to the terms of the instrument embodying such
Guaranteed Indebtedness, or, if not stated or determinable, the maximum
reasonably anticipated liability (assuming full performance) in respect thereof.

“Hazardous Material” means any substance, material or waste that is regulated
by, or forms the basis of liability now or hereafter under, any Environmental
Laws, including any material or substance that is (a) defined as a “solid
waste,” “hazardous waste,” “hazardous material,” “hazardous substance,”
“extremely hazardous waste,” “restricted hazardous waste,” “pollutant,”
“contaminant,” “hazardous constituent,” “special waste,” “toxic substance” or
other similar term or phrase under any Environmental Laws, or (b) petroleum or
any fraction or by product thereof, asbestos, polychlorinated biphenyls (PCB’s),
or any radioactive substance.

“Indebtedness” means, with respect to any Person, without duplication (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property payment for which is deferred six (6) months or more, but
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creditors incurred in the ordinary course of business that are unsecured and not
overdue by more than six (6) months unless being contested in good faith,
(b) all reimbursement and other obligations with respect to letters of credit,
bankers’ acceptances and surety bonds, whether or not matured, (c) all
obligations evidenced by notes, bonds, debentures or similar instruments,
(d) all indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property),
(e) all Capital Lease Obligations, (f) all obligations of such Person under
commodity purchase or option agreements or other commodity price hedging
arrangements, in each case whether contingent or matured, (g) all obligations of
such Person under any foreign exchange contract, currency swap agreement,
interest rate swap, cap or collar agreement or other similar agreement or
arrangement designed to alter the risks of that Person arising from fluctuations
in currency values or interest rates, in each case whether contingent or
matured, (h) all Indebtedness referred to above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property or other assets (including accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness, (i) earnouts” and
similar payment obligations, except for such obligations which are payable
solely in Stock, (j) Contingent Obligations and (k) the Obligations.

“Indemnitees” has the meaning ascribed to it in Section 10.1.

“Initial Bridge Note” has the meaning ascribed to it in Section 1.1(a).

“Initial Closing” has the meaning ascribed to it in Section 1.1(a).

“Initial Closing Date” has the meaning ascribed to it in Section 1.1(a).

“Initial Public Offering” means the closing of a firmly underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of a Borrower.

“Initial Warrant” has the meaning ascribed to it in Section 1.2

“Intellectual Property” means any and all Licenses, Patents, Copyrights,
Trademarks, and the goodwill associated with such Trademarks.

“Intellectual Property Security Agreement” means the Intellectual Property
Security Agreement made in favor of Investment Manager, for the benefit of
itself and Lender, by Borrower.

“Inventory” means any “inventory,” as such term is defined in the Code, now
owned or hereafter acquired by Borrower, wherever located, including inventory,
merchandise, goods and other personal property that are held by or on behalf of
Borrower for sale or lease or are furnished or are to be furnished under a
contract of service, or that constitute raw materials, work in process, finished
goods, returned goods, supplies or materials of any kind, nature or description
used or consumed or to be used or consumed in Borrower’s business or in the

 

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processing, production, packaging, promotion, delivery or shipping of the same,
including all supplies and embedded software.

“Investment” means (i) any direct or indirect purchase or other acquisition by
Borrower of any Stock, or other ownership interest in, any other Person, and
(ii) any direct or indirect loan, advance or capital contribution by Borrower to
any other Person, including all indebtedness and accounts receivable from that
other Person that are not current assets or did not arise from sales to that
other Person in the ordinary course of business.

“Investment Manager” means Columbia Partners, L.L.C. Investment Management in
its capacity as Investment Manager for Lender or its successor appointed
pursuant to Section 9.3.

“Investment Property” means all “investment property,” as such term is defined
in the Code, now owned or hereafter acquired by Borrower, wherever located,
including: (i) all securities, whether certificated or uncertificated, including
stocks, bonds, interests in limited liability companies, partnership interests,
treasuries, certificates of deposit, and mutual fund shares; (ii) all securities
entitlements of Borrower, including the rights of Borrower to any securities
account and the financial assets held by a securities intermediary in such
securities account and any free credit balance or other money owing by any
securities intermediary with respect to that account; (iii) all securities
accounts of Borrower; (iv) all commodity contracts of Borrower; and (v) all
commodity accounts held by Borrower.

“IRC” means the Internal Revenue Code of 1986, as amended, and all regulations
promulgated thereunder.

“IRR” means, with respect to the calculation of a Payment Premium then due or
owing pursuant to the terms of this Agreement, a referenced interest rate that,
when used as a discount rate, causes (a) the net present value (as of the
Subsequent Closing Date) of the aggregate payments made by Borrower relating to
the Term Note of principal, accrued interest and the applicable Payment Premium
from the Subsequent Closing Date through the payment date to which the
applicable Payment Premium relates (excluding, for avoidance of doubt, all other
payments, including the Facility Fees and other fees and expenses), to equal
(b) the net present value (as of the Subsequent Closing Date) of principal
loaned by Lender in connection with the Term Note from the Subsequent Closing
Date through the payment date to which the applicable Payment Premium relates.

“IRS” means the Internal Revenue Service.

“Lender” means NEIPF, L.P., and if Lender shall decide to assign all or any
portion of the Obligations, such term shall include any assignee of Lender.

“License” means any Copyright License, Patent License, Trademark License or
other license of rights or interests now held or hereafter acquired by Borrower.

“Lien” means any mortgage or deed of trust, pledge, hypothecation, assignment,
deposit arrangement, lien, charge, claim, security interest, easement or
encumbrance, or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any lease or title
retention agreement, any financing lease having substantially the

 

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same economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement perfecting a security interest under the Code or
comparable law of any jurisdiction).

“Liquidity Event” means a Change of Control or an Initial Public Offering with
respect to any Borrower.

“Litigation” has the meaning ascribed to it in Section 6.1(j).

“Loan Documents” means the Agreement, the Notes, the Collateral Documents and
all other agreements, instruments, documents and certificates executed and
delivered to, or in favor of, Investment Manager or Lender and including all
other pledges, powers of attorney, consents, assignments, contracts, notices,
and all other written matter whether heretofore, now or hereafter executed by or
on behalf of Borrower, or any employee of Borrower, and delivered to Investment
Manager or Lender in connection with the Agreement or the transactions
contemplated thereby. Any reference in the Agreement or any other Loan Document
to a Loan Document shall include all appendices, exhibits or schedules thereto,
and all amendments, restatements, supplements or other modifications thereto,
and shall refer to the Agreement or such Loan Document as the same may be in
effect at any and all times such reference becomes operative.

“Loans” means, collectively, all of the loans made by Lender hereunder in
exchange for Notes.

“Material Adverse Effect” means a material adverse effect on (a) the business,
assets, operations, or financial condition of Borrower, (b) Borrower’s ability
to pay any of the Loans or any other payment Obligations, or perform any of the
other material non-payment Obligations in accordance with the terms of the
Agreement and the other Loan Documents, (c) the Collateral (taken as a whole) or
Investment Manager’s Liens, on behalf of itself and Lender, on the Collateral or
the priority of such Liens, or (d) Investment Manager’s or Lender’s rights and
remedies under the Agreement and the other Loan Documents.

“Material Agreement” means any written contract, agreement, instrument,
commitment or other written arrangement to which Borrower is a party, the
absence of which would reasonably be expected to have a Material Adverse Effect
(other than the Loan Documents).

“Maturity Date” has the meaning ascribed to it in Section 1.3(b).

“Moody’s” means Moody’s Investor’s Services, Inc.

“Multiemployer Plan” means a “multiemployer plan” as defined in
Section 4001(a)(3) of ERISA, and to which Borrower or any ERISA Affiliate is
making, is obligated to make or has made or been obligated to make,
contributions on behalf of participants who are or were employed by any of them.

“Notes” means, collectively, the Bridge Notes and the Term Note.

 

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“Obligations” means all loans, advances, debts, liabilities and obligations, for
the performance of covenants, tasks or duties or for payment of monetary amounts
(whether or not such performance is then required or contingent, or such amounts
are liquidated or determinable), owing by Borrower to Investment Manager or
Lender, and all covenants and duties regarding such amounts, of any kind or
nature, present or future, whether or not evidenced by any note, agreement or
other instrument, in each case, arising under the Agreement or any of the other
Loan Documents. This term includes all principal, interest (including all
interest that accrues after the commencement of any case or proceeding by or
against Borrower in bankruptcy, whether or not allowed in such case or
proceeding), Fees, Charges, expenses, attorneys’ fees and any other sum
chargeable to Borrower under the Agreement or any of the other Loan Documents,
but expressly excludes the obligations of the Borrower under the Warrants.

“Partial Liquidity Event” means the issuance after the Initial Closing Date by
Borrower of indebtedness for borrowed money (other than the issuance of the
Subsequent Bridge Note and the Term Note) or the sale by Borrower of equity
securities in a public offering or in a private sale to a Person for cash in
which such Borrower receives aggregate net proceeds in excess of Thirty Million
Dollars ($30,000,000); provided that none of the following events shall
constitute a Partial Liquidity Event: (i) the issuance of VCI’s Series E
Preferred Stock and warrants to purchase VCI’s Common Stock in connection
therewith prior to or concurrent with the Subsequent Closing Date (including the
issuance of Common Stock of VCI upon conversion of such Series E Preferred
Stock, the payment of “in kind” dividends, the issuance of shares of VCI’s
Common Stock upon the exercise of such warrants or the operation of
anti-dilution provisions with respect thereto); (ii) the issuance, vesting or
exercise of board, employee, management and consultant equity incentives;
(iii) the incurrence by Borrower of the (A) Permitted Working Capital Facility
(as defined in the definition of Senior Indebtedness below); (B) permitted loans
or leases for the purchase of Equipment or software up to an aggregate amount
not to exceed Two Million Dollars ($2,000,000); (C) the Obligations, or
(D) short term inventory, receivables or vendor financing; (iv) the issuance and
sale of the Warrants; (v) the issuance of acquisition consideration and related
earn-outs, notes and similar payments to Vodavi Technology, Inc. or Affiliates
of Vodavi Technology, Inc.; or (vi) the issuance of securities upon the exercise
of the Warrants or any warrant issued by VCI and outstanding as of the Initial
Closing Date.

“Patent License” means rights under any written agreement now owned or hereafter
acquired by Borrower granting any right with respect to any invention on which a
Patent is in existence.

“Patents” means all of the following in which Borrower now holds or hereafter
acquires any interest: (a) all letters patent of the United States or any other
country, all registrations and recordings thereof, and all applications for
letters patent of the United States or of any other country, including
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State or any other country, and (b) all reissues, continuations, continuations
in part or extensions thereof.

“Payment Premium” has the meaning ascribed to it in Section 1.4.

 

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“PBGC” means the Pension Benefit Guaranty Corporation.

“Pension Plan” means a Plan described in Section 3(2) of ERISA.

“Permitted Acquisition” shall mean (a) an acquisition by merger of Vertical
Acquisition Sub Inc., a Delaware corporation and wholly owned subsidiary of VCI
into Vodavi Technology, Inc. pursuant to the terms set forth in that certain
Agreement and Plan of Merger in substantially the form set forth on Exhibit
2.2(i) hereto, and (b) any other acquisition by Borrower or any of its
Subsidiaries of any Person or all or a substantial part of such Person’s capital
stock or other equity interests or assets as is approved in advance by
Investment Manager and Lender in their sole discretion.

“Permitted Distributions” shall mean (a) dividends and other distributions and
advances declared and paid in cash by any Subsidiary of a Borrower to such
Borrower; and (b) purchases, acquisitions, redemptions, retirements and
dividends payable solely in Stock.

“Permitted Encumbrances” means the following encumbrances: (a) all Liens
existing on the Initial Closing Date on specific items of Equipment and Real
Estate and described on Schedule 5.2 attached hereto; (b) Purchase Money Liens;
(c) statutory Liens of landlords and Liens of carriers, warehousemen, bailees,
mechanics, materialmen and other like Liens imposed by law, created in the
ordinary course of business and securing amounts not yet due (or which are being
contested in good faith, by appropriate proceedings or other appropriate actions
which are sufficient to prevent imminent foreclosure of such Liens), and with
respect to which adequate reserves or other appropriate provisions are being
maintained by the applicable Borrower in accordance with GAAP; (d) deposits made
(and the Liens thereon) in the ordinary course of business of the applicable
Borrower (including, without limitation, security deposits for leases, indemnity
bonds, surety bonds and appeal bonds) in connection with workers’ compensation,
unemployment insurance and other types of social security benefits or to secure
the performance of tenders, bids, contracts (other than for the repayment or
guarantee of borrowed money or purchase money obligations), statutory
obligations and other similar obligations arising as a result of progress
payments under government contracts; (e) Liens granted to Investment Manager,
for the benefit of Lender, by each Borrower; (f) Liens of judgment creditors,
provided that such Liens do not exceed $100,000 in the aggregate at any time
(other than Liens bonded or insured to the reasonable satisfaction of the
Investment Manager); (g) Permitted Tax Liens; (h) easements (including, without
limitation, reciprocal easement agreements and utility agreements),
encroachments, minor defects or irregularities in title, variation and other
restrictions, charges or encumbrances (whether or not recorded) affecting the
Real Estate, if applicable, and which in the aggregate (i) do not materially
interfere with the occupation, use or enjoyment by any Borrower of its business
or property so encumbered and (ii) in the reasonable business judgment of
Investment Manager, do not materially and adversely affect the value of such
Real Estate; (i) Liens granted by Borrower on personal and/or real property to
secure the payment and performance of Senior Indebtedness; provided that in the
case of Senior Indebtedness that is working capital Indebtedness, such Liens are
granted only on Borrower’s accounts receivable and/or Inventory and proceeds
thereof; (j) bid and performance bonds and Liens in respect thereof in the
ordinary course of business and in an aggregate amount not to exceed $5,000,000
outstanding at any time, on reasonable and customary terms, (k) a security
interest in favor of Silicon Valley Bank in an account of Borrower maintained at
Silicon Valley

 

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Bank to secure the obligations with respect to the SVB L/Cs and ongoing cash
management services related to credit card servicing not exceeding $1,100,000 in
the aggregate; provided, for avoidance of doubt, that the SVB L/Cs shall not be
secured by any assets of Borrower other than the account referenced above.

“Permitted Indebtedness” means (a) current Indebtedness maturing in less than
one year and incurred in the ordinary course of business for raw materials,
supplies, equipment, services, Taxes or labor; (b) Indebtedness secured by
Purchase Money Liens; (c) Indebtedness arising under this Agreement;
(d) deferred Taxes and other expenses incurred in the ordinary course of
business; (e) Subordinated Debt; (f) Senior Indebtedness; (g) other Indebtedness
existing on the Initial Closing Date and listed on Schedule 5.2 attached hereto;
(h) guarantees of Capital Leases; (i) unsecured guarantees by any Borrower of
any Indebtedness or other obligation of any other Borrower permitted hereunder
or of obligations under any real property lease for premises occupied by any
Borrower; (j) employee, management and consultant equity incentives,
(k) Indebtedness for the purchase of Equipment or software by Borrower up to an
aggregate amount not to exceed Two Million Dollars ($2,000,000), (l) short term
inventory, receivables or vendor financing; (m) all reimbursement and other
obligations with respect to letters of credit, bankers’ acceptances and surety
bonds, whether or not matured; (n) Permitted Acquisition Indebtedness; and
(o) obligations to Silicon Valley Bank with respect to the SVB L/Cs.

“Permitted Tax Liens” means liens for Taxes not due and payable and liens for
Taxes that the applicable Borrower is contesting in good faith, by appropriate
proceedings which are sufficient to prevent imminent foreclosure of such liens,
and with respect to which adequate reserves are being maintained by such
Borrower in accordance with GAAP; provided that in either case, such liens
(a) are not filed of record in any public office, (b) other than with respect to
Real Estate, are not senior in priority to the liens granted by such Borrower to
Investment Manager, for the benefit of Lender, or (c) do not secure taxes owed
to the United States of America (or any department or agency thereof) or any
State or State authority, if applicable State law provides for the priority of
tax liens in a manner similar to the laws of the United States of America.

“Person” means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, limited liability
company, institution, public benefit corporation, other entity or government
(whether federal, state, county, city, municipal, local, foreign, or otherwise,
including any instrumentality, division, agency, body or department thereof).

“Plan” means, at any time, an “employee benefit plan,” as defined in
Section 3(3) of ERISA (other than a Title IV Plan), that any Borrower or any
ERISA Affiliate maintains, contributes to or has an obligation to contribute to
on behalf of participants who are or were employed by such Borrower.

“Pledge Agreements” means any pledge agreement in favor of Investment Manager or
Lender.

 

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“Projections” means Borrower’s forecasted consolidated and consolidating:
(a) balance sheets; (b) profit and loss statements; (c) cash flow statements;
and (d) capitalization statements, all prepared on a Subsidiary by Subsidiary or
division-by-division basis, if applicable, and otherwise consistent with the
historical Financial Statements of Borrower, together with appropriate
supporting details and a statement of underlying assumptions.

“Purchase Money Liens” shall mean (i) liens on any item of Equipment acquired by
the applicable Borrower after the date of this Agreement, provided that (a) each
such lien shall attach only to the Equipment acquired, (b) a description of the
Equipment so acquired is furnished by such Borrower to Investment Manager, and
(ii) liens on any item of Equipment acquired by the applicable Borrower after
the date of this Agreement arising in connection with a Capital Lease of such
Equipment, provided, that each such lien shall attach only to the Equipment
leased.

“Qualified Assignee” means (a) Lender and any other similar investment fund that
invests in commercial loans and that is managed or advised by Investment
Manager, and (b) any commercial bank, savings and loan association, savings
bank, commercial finance lender or other financial institution which is an
“accredited investor” (as defined in Regulation D under the Securities Act)
which extends credit or buys loans as one of its businesses, including insurance
companies, mutual funds, lease financing companies and commercial finance
companies, in each case, which has a rating of BBB or higher from S&P and a
rating of Baa2 or higher from Moody’s at the date that it becomes a Lender and
which, through its applicable lending office, is capable of lending to Borrower
without the imposition of any withholding or similar taxes.

“Qualified Plan” means a Pension Plan that is intended to be tax-qualified under
Section 401(a) of the IRC.

“Quarterly Interest Payment Date” means March 31, June 30, September 30 and
December 31 of each year during the term hereof.

“Real Estate” has the meaning ascribed to it in Section 3.12.

“Release” means any release, threatened release, spill, emission, leaking,
pumping, pouring, emitting, emptying, escape, injection, deposit, disposal,
discharge, dispersal, dumping, leaching or migration of Hazardous Material in
the indoor or outdoor environment, including the movement of Hazardous Material
through or in the air, soil, surface water, ground water or property.

“Restricted Payment” means, with respect to any Person (a) the declaration or
payment of any dividend or the incurrence of any liability to make any other
payment or distribution of cash or other property or assets in respect of Stock
of such Person; (b) any payment on account of the purchase, redemption,
defeasance, sinking fund or other retirement of such Person’s Stock or any other
payment or distribution made in respect thereof, either directly or indirectly;
(c) any payment or prepayment of principal or premium, if any, or interest, fees
or other charges on or with respect to, and any redemption, purchase,
retirement, defeasance, sinking fund or similar payment and any claim for
rescission with respect to any Subordinated Debt; (d) any payment made to
redeem, purchase, repurchase or retire, or to obtain the surrender of, any
outstanding warrants, options or other rights to acquire Stock of such Person
now or hereafter outstanding;

 

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(e) any payment of a claim for the rescission of the purchase or sale of, or for
material damages arising from the purchase or sale of, any shares of such
Person’s Stock or of a claim for reimbursement, indemnification or contribution
arising out of or related to any such claim for damages or rescission;
(f) except for Allowed Payments (as defined below), any payment, loan,
contribution, or other transfer of funds or other property to any Stockholder of
such Person other than payment of compensation in the ordinary course of
business to Stockholders who are employees of such Person; and (g) any payment
of management fees (or other fees of a similar nature) or out-of-pocket expenses
in connection therewith by such Person to any Stockholder of such Person or its
Affiliates. As used in this paragraph, “Allowed Payments” means:

(i) ordinary course of business payments to any vendor, supplier or customer of
such Person who is also a Stockholder of such Person; provided such arrangements
are upon standard terms and conditions and fair and reasonable terms, no less
favorable to Borrower than it could obtain in a comparable arms length
transaction with an unrelated third party; and

(ii) payments of accounts payable generated from liquidated damages owed as a
result of prior financing documents to a Stockholder of such Person; provided
that payments made under this subclause (ii) shall only be considered Allowed
Payments if such payment does not cause a Default or Event of Default to occur
and/or no Default or Event of Default is then continuing, and either (A) after
giving effect to such payment, Borrower’s (for such purpose including Borrower
and each of its Subsidiaries on a consolidated basis as of the date of
calculation) EBITDA for the trailing twelve month period measured as of the end
of the month immediately preceding such payment (as further reduced to take into
account the contemplated payment notwithstanding that the payment may take place
after the subject twelve month measurement period) shall not be less than One
Dollar ($1) or (B) the payment is in the form of Stock or warrants to acquire
Stock.

“Retiree Welfare Plan” means, at any time, a Welfare Plan that provides for
continuing coverage or benefits for any participant or any beneficiary of a
participant after such participant’s termination of employment, other than
continuation coverage provided pursuant to Section 4980B of the IRC and at the
sole expense of the participant or the beneficiary of the participant.

“Revenue” means, consistent with Borrower’s internal management reporting system
as of the date of this Agreement, the pro forma sales of products and services,
which is equal to revenue determined in accordance with GAAP, plus current
period invoiced amounts that are deferred under GAAP for systems sales
associated with long term customer Contractual Obligations, minus the current
period revenue recognition of prior period systems sales.

“S&P” means Standard & Poor’s Ratings Services, a division of the McGraw-Hill
Companies, Inc.

“Security Agreement” means the Security Agreement of even date herewith entered
into by and among Investment Manager, on behalf of itself and Lender, and
Borrower.

 

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“Senior Indebtedness” means (a) working capital Indebtedness secured only by
Borrower’s accounts receivable and/or Inventory and proceeds thereof after the
date of this Agreement with such lender or lenders and on such terms as are
reasonably acceptable to Investment Manager and Lender (the “Permitted Working
Capital Facility”); and (b) such other Indebtedness which is senior in right of
payment and priority to the Obligations in favor of a financial institution or
financial institutions acceptable to, and consented to, by Investment Manager
and Lender in their sole discretion.

“Solvent” means, with respect to any Person on a particular date, that on such
date (a) the fair value of the property of such Person is greater than the total
amount of liabilities, including subordinated and contingent liabilities, of
such Person; (b) the present fair saleable value of the assets of such Person is
not less than the amount that will be required to pay the probable liability of
such Person on its debts and liabilities, including subordinated and contingent
liabilities as they become absolute and matured; (c) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
Person’s ability to pay as such debts and liabilities mature; and (d) such
Person is not engaged in a business or transaction, and is not about to engage
in a business or transaction, for which such Person’s property would constitute
an unreasonably small capital. The amount of contingent liabilities (such as
Litigation, guaranties and pension plan liabilities) at any time shall be
computed as the amount that, in light of all the facts and circumstances
existing at the time, represents the amount that can be reasonably be expected
to become an actual or matured liability.

“Stock” means all shares, options, warrants, general or limited partnership
interests, membership interests or other equivalents (regardless of how
designated) of or in a corporation, partnership, limited liability company or
equivalent entity whether voting or nonvoting, including common stock, preferred
stock or any other “equity security” (as such term is defined in Rule 3a11 1 of
the General Rules and Regulations promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934).

“Stockholder” means, with respect to any Person, each holder of Stock of such
Person.

“Subordinated Debt” means any Indebtedness of Borrower subordinated to the
Obligations in a manner and form satisfactory to Investment Manager and Lender
in their sole discretion.

“Subsequent Bridge Note” has the meaning ascribed to it in Section 1.1(b).

“Subsequent Closing” has the meaning ascribed to it in Section 1.1(b).

“Subsequent Closing Date” has the meaning ascribed to it in Section 1.1(b).

“Subsidiary” means, with respect to any Person, (a) any corporation of which an
aggregate of more than 50% of the outstanding Stock having ordinary voting power
to elect a majority of the board of directors of such corporation (irrespective
of whether, at the time, Stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time, directly or indirectly, owned legally or
beneficially by such Person or one or more Subsidiaries of such Person, or with
respect to which any such Person has the right to vote or designate the vote of
more than 50% of such Stock

 

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whether by proxy, agreement, operation of law or otherwise, and (b) any
partnership or limited liability company in which such Person and/or one or more
Subsidiaries of such Person shall have an interest (whether in the form of
voting or participation in profits or capital contribution) of more than 50% or
of which any such Person is a general partner or may exercise the powers of a
general partner. Unless the context otherwise requires, each reference to a
Subsidiary shall be a reference to a Subsidiary of Borrower.

“SVB L/Cs” shall mean (a) that certain $700,000 letter of credit issued by
Silicon Valley Bank for the benefit of Tecom Co. Ltd; (b) that certain $140,000
letter of credit issued by Silicon Valley Bank for the benefit of SRI Mission
Towers II LLC; and (c) that certain $99,076.74 letter of credit issued by
Silicon Valley Bank for the benefit of One Memorial drive Sublease LLC, in each
case including renewals, extensions and replacements of such letters of credit
provided the amount of each such letter of credit is not increased.

“Taxes” shall mean all federal, state, municipal and other governmental taxes,
levies, charges, claims and assessments which are or may be owed or collected by
each Borrower with respect to its business, operations, Collateral or otherwise.

“Term Fee” has the meaning ascribed to it in Section 1.5(b).

“Term Note” has the meaning ascribed to it in Section 1.1(b).

“Termination Date” means the date on which (a) the Loans have been indefeasibly
repaid in full, (b) all other Obligations under the Agreement and the other Loan
Documents have been completely discharged, and (c) Borrower shall not have any
further right to borrow any monies under the Agreement.

“Title IV Plan” means a Pension Plan (other than a Multiemployer Plan), that is
covered by Title IV of ERISA.

“Trademark License” means rights under any written agreement now owned or
hereafter acquired by Borrower granting any right to use any Trademark.

“Trademarks” means all of the following now owned or hereafter adopted or
acquired by Borrower: (a) all trademarks, trade names, corporate names, business
names, trade styles, service marks, logos, internet domain names, other source
or business identifiers, prints and labels on which any of the foregoing have
appeared or appear, designs and general intangibles of like nature (whether
registered or unregistered), all registrations and recordings thereof, and all
applications in connection therewith, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any state or territory thereof, or any
other country or any political subdivision thereof; (b) all reissues, extensions
or renewals thereof; and (c) all goodwill associated with or symbolized by any
of the foregoing.

“Unfunded Pension Liability” means, at any time, the aggregate amount, if any,
of the sum of (a) the amount by which the present value of all accrued benefits
under each Title IV Plan exceeds the fair market value of all assets of such
Title IV Plan allocable to such benefits in accordance with Title IV of ERISA,
all determined as of the most recent valuation date for each

 

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such Title IV Plan using the actuarial assumptions for funding purposes in
effect under such Title IV Plan, and (b) for a period of 5 years following a
transaction which might reasonably be expected to be covered by Section 4069 of
ERISA, the liabilities (whether or not accrued) that could be avoided by
Borrower or any ERISA Affiliate as a result of such transaction.

“Warrants” has the meaning ascribed to it in Section 1.2.

“Welfare Plan” means a Plan described in Section 3(1) of ERISA.

Rules of construction with respect to accounting terms used in the Agreement or
the other Loan Documents shall be as set forth or referred to in this Annex A.
All other undefined terms contained in any of the Loan Documents which are
defined in Article 9 of the Code shall, unless the context indicates otherwise,
have the meanings provided in Article 9 of the Code. Unless otherwise specified,
references in the Agreement or any of the Appendices to a Section, subsection or
clause refer to such Section, subsection or clause as contained in the
Agreement. The words “herein,” “hereof” and “hereunder” and other words of
similar import refer to the Agreement as a whole, including all Annexes,
Exhibits and Schedules, as the same may from time to time be amended, restated,
modified or supplemented, and not to any particular section, subsection or
clause contained in the Agreement or any such Annex, Exhibit or Schedule.

Wherever from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and the plural, and pronouns
stated in the masculine, feminine or neuter gender shall include the masculine,
feminine and neuter genders. The words “including”, “includes” and “include”
shall be deemed to be followed by the words “without limitation”; the word “or”
is not exclusive; references to Persons include their respective successors and
assigns (to the extent and only to the extent permitted by the Loan Documents)
or, in the case of governmental Persons, Persons succeeding to the relevant
functions of such Persons; and all references to statutes and related
regulations shall include any amendments of the same and any successor statutes
and regulations. Whenever any provision in any Loan Document refers to the
knowledge (or an analogous phrase) of the Borrower, such words are intended to
signify that Borrower has actual knowledge or awareness of a particular fact or
circumstance or that Borrower, if it had exercised reasonable diligence, would
have known or been aware of such fact or circumstance.

 

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