EXHIBIT 10.1
 
 
 
LOAN AND SECURITY AGREEMENT
by and among
VISUAL NETWORKS, INC.,
VISUAL NETWORKS INTERNATIONAL OPERATIONS, INC.,
VISUAL NETWORKS OPERATIONS, INC.,
AVESTA TECHNOLOGIES, LLC,
and
NET2NET, LLC,
as Borrowers
and
SILICON VALLEY BANK,
as Bank
June 17, 2005
 
 

 

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LOAN AND SECURITY AGREEMENT
     THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated June 17, 2005,
between SILICON VALLEY BANK (“Bank”), whose address is 3003 Tasman Drive, Santa
Clara, California 95054 and having a loan production office at 8020 Towers
Crescent Drive, Suite 475, Vienna, Virginia 22182 and VISUAL NETWORKS, INC., a
Delaware corporation (the “Company”), VISUAL NETWORKS INTERNATIONAL OPERATIONS,
INC., a Delaware corporation (“Visual Networks International Operations”),
VISUAL NETWORKS OPERATIONS, INC., a Delaware corporation (“Visual Networks
Operations”), AVESTA TECHNOLOGIES, LLC, a Delaware limited liability company
(“Avesta Technologies”), and NET2NET, LLC, a Delaware limited liability company
(“Net2Net”) (Visual Networks International Operations, Visual Networks
Operations, Avesta Technologies and Net2Net, each a “Subsidiary” and
collectively, “Subsidiaries”) (Company and Subsidiaries, each a “Borrower” and
collectively, “Borrowers”), whose address is c/o the Company at 2092 Gaither
Road, Rockville, Maryland 20850, provides the terms on which Bank will lend to
Borrowers and Borrowers will repay Bank. The parties agree as follows:
1. ACCOUNTING AND OTHER TERMS
     Accounting terms not defined in this Agreement will be construed following
GAAP. Calculations and determinations must be made following GAAP. The term
“financial statements” includes the notes and schedules. The terms “including”
and “includes” always mean “including (or includes) without limitation,” in this
or any Loan Document.
2. LOAN AND TERMS OF PAYMENT
     2.1 Promise to Pay.
          Borrowers jointly and severally promise to pay Bank the unpaid
principal amount of all Credit Extensions and interest on the unpaid principal
amount of the Credit Extensions.
          2.1.1 Revolving Advances.
          (a) At all times in which all Senior Secured Convertible Debentures
have not been paid in full by Borrowers (such period being called, the
“Non-Formula Period”), Bank will make Advances not exceeding the Committed
Revolving Line.
          (b) At all times other than during the Non-Formula Period (such
periods being called, the “Formula Period”) Bank will make Advances not
exceeding the lesser of (A) the Committed Revolving Line or (B) the Borrowing
Base. Advances during the Non-Formula Period will be repaid in full with the
initial Advance during the Formula Period. Amounts borrowed under this Section
may be repaid and reborrowed during the term of this Agreement. All Advances
shall be evidenced by the Revolving Promissory Note to be executed and delivered
by Borrowers to Bank on the Closing Date and shall be repaid in accordance with
the terms of this Agreement.
          (c) To obtain an Advance, Company must notify Bank by facsimile or
telephone by 3:00 p.m. Eastern time on the Business Day the Advance is to be
made. Company must promptly confirm the notification by delivering to Bank the
Loan Payment/Advance Request Form attached as Exhibit B (the “Payment/Advance
Form”). Bank will credit Advances to Company’s deposit account. Bank may make
Advances under this Agreement based on instructions from a Responsible Officer
of Company or his or her designee or without instructions if the Advances are
necessary to meet Obligations which have become due. Bank may rely on any
telephone notice given by a person whom Bank reasonably believes is a
Responsible Officer of Company or designee. Borrowers will indemnify Bank for
any loss Bank suffers due to such reliance.
          (d) The Committed Revolving Line terminates on the Non-Formula Period
Maturity Date, when all Advances made during the Non-Formula Period are
immediately due and payable. In the event that Borrower satisfies the conditions
to convert the Committed Revolving Line to the Formula Period, the Committed
Revolving Line will continue until the Formula Period Maturity Date, when all
Formula Period Advances are immediately due and payable.
          (e) Bank’s obligation to lend the undisbursed portion of the Committed
Revolving Line will terminate if, in Bank’s sole discretion, there has been a
material adverse change in the general affairs,

 

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management, results of operation, condition (financial or otherwise) or the
prospect of repayment of the Obligations, or there has been any material adverse
deviation by Borrowers from the most recent business plan of Borrowers presented
to and accepted by Bank prior to the execution of this Agreement.
     2.2 Overadvances.
          If during the Non-Formula Period, Borrowers’ Obligations under
Section 2.1.1 exceed the Committed Revolving Line, or if during the Formula
Period, Borrower’s Obligations under Section 2.1.1 exceed the lesser of either
(i) the Committed Revolving Line or (ii) the Borrowing Base, Borrowers shall
immediately pay Bank the excess.
     2.3 Interest Rate, Payments.
          (a) Interest Rate. (i) Advances during the Non-Formula Period accrue
interest on the outstanding principal balance at a per annum rate equal to six
percent (6%) above the Prime Rate (the “Non-Formula Period Interest Rate”);
(ii) Advances during the Formula Period accrue interest on the outstanding
principal balance at a per annum rate equal to two percent (2%) above the Prime
Rate (the “Formula Period Interest Rate”; together with Non-Formula Period
Interest Rate being called collectively the “Interest Rates”, and individually,
the “Interest Rate”). After an Event of Default, Obligations accrue interest at
five percent (5%) above the Interest Rate effective immediately before the Event
of Default. The Interest Rates on the Obligations increase or decrease when the
Prime Rate changes. Interest is computed on a 360-day year for the actual number
of days elapsed.
          (b) Payments. Interest due on the Committed Revolving Line is payable
on the Payment Date of each month. Bank may debit any of any Borrowers’ deposit
accounts including Account Number                                          for
principal and interest payments owing or any amounts any Borrower owes Bank
under any of the Loan Documents. Bank will promptly notify Company when it
debits any such accounts. These debits are not a set-off. Payments received
after 12:00 noon Eastern time are considered received at the opening of business
on the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest
accrue.
          (c) Lockbox. All proceeds of Collateral shall be deposited by each
Borrower into a lockbox account.
2.4 Joint Liability.
          Each Person included in the term “Borrower” hereby covenants and
agrees with Bank as follows:
          (a) The Obligations include all present and future indebtedness,
duties, obligations, and liabilities under the Loan Documents, whether now
existing or contemplated or hereafter arising, of any one or more of the
Borrowers.
          (b) Reference in this Agreement and the other Loan Documents to the
“Borrower” or otherwise with respect to any one or more of the Persons now or
hereafter included in the definition of “Borrower” shall mean each and every
such Person and any one or more of such Persons, jointly and severally, unless
the context requires otherwise.
          (c) Each Person included in the term “Borrower” in the discretion of
its respective management is to agree among themselves as to the allocation of
the benefits of the proceeds of the Committed Revolving Line, provided, however,
that each such Person shall be deemed to have represented and warranted to Bank
at the time of allocation that each benefit and use of proceeds is permitted
under this Agreement.
          (d) For administrative convenience, each Person included in the term
“Borrower” hereby irrevocably appoints the Company as each Borrower’s
attorney-in-fact, with power of substitution (with the prior written consent of
Bank in the exercise of its sole and absolute discretion), in the name of the
Company or in the name of any Borrower or otherwise to take any and all actions
with respect to this Agreement, the other Loan Documents, the Obligations and/or
the Collateral (including, without limitation,

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the proceeds thereof) as the Company may so elect from time to time, including,
without limitation, actions to (i) request advances under the Committed
Revolving Line, and direct Bank to disburse or credit the proceeds of any
Advance directly to an account of the Company, any one or more of such Persons
or otherwise, which direction shall evidence the making of such Advance and
shall constitute the acknowledgment by each such Person of the receipt of the
proceeds of such Advance, (ii) enter into, execute, deliver, amend, modify,
restate, substitute, extend and/or renew this Agreement, any other Loan
Documents, security agreements, mortgages, deposit account agreements,
instruments, certificates, waivers, letter of credit applications, releases,
documents and agreements from time to time, and (iii) endorse any check or other
item of payment in the name of such Person or in the name of the Company. The
foregoing appointment is coupled with an interest, cannot be revoked without the
prior written consent of Bank, and may be exercised from time to time through
the Company’s Responsible Officer, or other Person or Persons designated by the
Company to act from time to time on behalf of the Company.
          (e) Each Person included in the term “Borrower” hereby irrevocably
authorizes Bank to make Advances to any one or more of such Persons, pursuant to
the provisions of this Agreement upon the written, oral or telephone request of
any one or more of the Persons who is from time to time a Responsible Officer of
the Company under the provisions of the most recent certificate of corporate
resolutions and/or incumbency of the Person included in the term “Borrower” on
file with Bank and also upon the written, oral or telephone request of any one
of the Persons who is from time to time a Responsible Officer of the Company
under the provisions of the most recent certificate of corporate resolutions
and/or incumbency for the Company on file with Bank.
          (f) Bank assumes no responsibility or liability for any errors,
mistakes, and/or discrepancies in the oral, telephonic, written or other
transmissions of any instructions, orders, requests and confirmations by any one
or more of the Persons included in the term “Borrower” in connection with any
Credit Extension or any other transaction in connection with the provisions of
this Agreement.
2.5 Inter-Company Debt, Contribution.
          Without implying any limitation on the joint and several nature of the
Obligations, Bank agrees that, notwithstanding any other provision of this
Agreement, the Persons included in the term “Borrower” may create reasonable
inter-company indebtedness between or among the Persons included in the term
“Borrower” with respect to the allocation of the benefits and proceeds of the
Credit Extensions under this Agreement. The Persons included in the term
“Borrower” agree among themselves, and Bank consents to that agreement, that
each such Person shall have rights of contribution from all of the such Persons
to the extent such Person incurs Obligations in excess of the proceeds of the
Advances received by, or allocated to such Person. All such indebtedness and
rights shall be, and are hereby agreed by the Persons included in the term
“Borrower” to be, subordinate in priority and payment to the indefeasible
repayment in full in cash of the Obligations, and, unless Bank agrees in writing
otherwise, shall not be exercised or repaid in whole or in part until all of the
Obligations have been indefeasibly paid in full in cash. Each Person included in
the term “Borrower” agrees that all of such inter-company indebtedness and
rights of contribution are part of the Collateral and secure the Obligations.
Each Person included in the term “Borrower” hereby waives all rights of counter
claim, recoupment and offset between or among themselves arising on account of
that indebtedness and otherwise. No Person included in the term “Borrower” shall
evidence the inter-company indebtedness or rights of contribution by note or
other instrument, and shall not secure such indebtedness or rights of
contribution with any Lien or security.
2.6 Borrowers are Integrated Group.
          Each Person included in the term “Borrower” hereby represents and
warrants to Bank that each of them will derive benefits, directly and
indirectly, from each Credit Extension, both in their separate capacity and as a
member of the integrated group to which each such Person belongs and because the
successful operation of the integrated group is dependent upon the continued
successful performance of the functions of the integrated group as a whole,
because (i) the terms of the Credit Extension provided under this Agreement are
more favorable than would otherwise would be obtainable by such Persons
individually, and (ii) the additional administrative and other costs and reduced
flexibility associated with

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individual loan arrangements which would otherwise be required if obtainable
would substantially reduce the value to such Persons of the Credit Extension.
2.7 Primary Obligations.
          The obligations and liabilities of each Person included in the term
“Borrower” shall be primary, direct and immediate, shall not be subject to any
counterclaim, recoupment, set off, reduction or defense based upon any claim
that such Person may have against any one or more of the other Persons included
in the term “Borrower”, Bank and/or any other guarantor and shall not be
conditional or contingent upon pursuit or enforcement by Bank of any remedies it
may have against Persons included in the term “Borrower” with respect to this
Agreement, or any of the other Loan Documents, whether pursuant to the terms
thereof or by operation of law. Without limiting the generality of the
foregoing, Bank shall not be required to make any demand upon any of the Persons
included in the term “Borrower”, or to sell the Collateral or otherwise pursue,
enforce or exhaust its or their remedies against the Persons included in the
term “Borrower” or the Collateral either before, concurrently with or after
pursuing or enforcing its rights and remedies hereunder. Any one or more
successive or concurrent actions or proceedings may be brought against each
Person included in the term “Borrower”, either in the same action, if any,
brought against any one or more of the Persons included in the term “Borrower”
or in separate actions or proceedings, as often as Bank may deem expedient or
advisable. Without limiting the foregoing, it is specifically understood that
any modification, limitation or discharge of any of the liabilities or
obligations of any one or more of the Persons included in the term “Borrower”,
any other guarantor or any obligor under any of the Loan Documents, arising out
of, or by virtue of, any bankruptcy, arrangement, reorganization or similar
proceeding for relief of debtors under federal or state law initiated by or
against any one or more of the Persons included in the term “Borrower”, in their
respective capacities as borrowers and guarantors under this Agreement, or under
any of the Loan Documents shall not modify, limit, lessen, reduce, impair,
discharge, or otherwise affect the liability of any other Borrower under this
Agreement in any manner whatsoever, and this Agreement shall remain and continue
in full force and effect. It is the intent and purpose of this Agreement that
each Person included in the term “Borrower” shall and does hereby waive all
rights and benefits which might accrue to any other guarantor by reason of any
such proceeding, and the Persons included in the term “Borrower” agree that they
shall be liable for the full amount of the obligations and liabilities under
this Agreement regardless of, and irrespective to, any modification, limitation
or discharge of the liability of any one or more of the Persons included in the
term “Borrower”, any other guarantor or any other obligor under any of the Loan
Documents, that may result from any such proceedings.
     2.8 Fees.
          Borrowers will pay:
          (a) Facility Fee. A fully earned, nonrefundable fee in the amount of
Forty Thousand Dollars ($40,000), payable on the Closing Date.
          (b) [***]
          (c) Bank Expenses. All Bank Expenses (including reasonable attorneys’
fees and reasonable expenses) incurred through and after the date of this
Agreement, are payable when due.
3. CONDITIONS OF LOANS
     3.1 Conditions Precedent to Initial Credit Extension.
          Bank’s obligation to make the initial Credit Extension is subject to:
          (a) this Agreement;
          (b) the Revolving Promissory Note
          (c) a certificate of the Secretary or member, as applicable, of each
Borrower with respect to articles of incorporation, operating agreement, bylaws,
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
          (d) financing statements (Forms UCC-1);
 
[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES
AND EXCHANGE ACT OF 1934, AS AMENDED.

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          (e) insurance certificates;
          (f) payment of the fees and Bank Expenses then due specified in
Sections 2.8(a) and 2.8(c) hereof;
          (g) Certificate of Foreign Qualification (if applicable); and
          (h) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
     3.2 Conditions Precedent to First Advance During Formula Period.
          In addition to the conditions precedent in Section 3.1 hereof, Bank’s
obligation to make the initial Advance during Formula Period is subject to:
          (a) Bank shall have received written confirmation from the Company
that all existing holders of the Senior Secured Convertible Debentures have been
paid in full; and
          (b) Bank has a first priority security interest on the Collateral
(subject only to Permitted Liens).
     3.3 Conditions Precedent to all Credit Extensions.
          Bank’s obligations to make each Credit Extension, including the
initial Credit Extension, is subject to the following:
          (a) timely receipt of any Payment/Advance Form; and
          (b) the representations and warranties in Section 5 must be true on
the date of the Payment/Advance Form and on the effective date of each Credit
Extension and no Event of Default may have occurred and be continuing, or result
from the Credit Extension. Each Credit Extension is Borrowers’ representation
and warranty on that date that the representations and warranties of Section 5
remain true.
4. CREATION OF SECURITY INTEREST
     4.1 Grant of Security Interest.
          Each Borrower grants Bank a continuing security interest in all
presently existing and later acquired Collateral to secure all Obligations and
performance of each of Borrowers’ duties under the Loan Documents, which in
accordance with the provisions of Section 12.11, prior to the repayment in full
of the Senior Secured Convertible Debentures are pari pasu with the rights of
the holders of the Senior Secured Convertible Debentures. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank upon the occurrence and during the continuance of any Event of
Default, may place a “hold” on any deposit account of any Borrower maintained
with Bank. If this Agreement is terminated, Bank’s lien and security interest in
the Collateral will continue until Borrowers fully satisfy their Obligations.
     4.2 Authorization to File.
          Each Borrower authorizes Bank to file financing statements without
notice to any Borrower, with all appropriate jurisdictions, as Bank deems
appropriate, in order to perfect or protect Bank’s interest in the Collateral.
     4.3 Release of Intellectual Property.
          Bank agrees that during the Formula Period upon written request of
Borrowers, Bank will file partial releases, at Borrowers’ expense, on its Lien
on the Intellectual Property, provided that no Event of Default shall have
occurred and be continuing at such time.
5. REPRESENTATIONS AND WARRANTIES
          Each Borrower represents and warrants as follows:

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     5.1 Due Organization and Authorization.
          Each Borrower and each Subsidiary is duly existing and in good
standing in the state set forth in the first page of this Agreement and
qualified and licensed to do business in, and in good standing in, any state in
which the conduct of its business or its ownership of property requires that it
be qualified, except where the failure to do so could not reasonably be expected
to cause a Material Adverse Change. Each Borrower and each Subsidiary’s exact
legal name is as set forth on the first page of this Agreement. The execution,
delivery and performance of the Loan Documents have been duly authorized, and do
not conflict with any Borrower’s formation documents, nor constitute an event of
default under any material agreement by which Borrower is bound. Borrower is not
in default under any agreement to which, or by which it is bound, in which the
default could reasonably be expected to cause a Material Adverse Change.
     5.2 Collateral.
          (a) Each Borrower has good title to its Collateral, free of Liens
except Permitted Liens. The Accounts are bona fide, existing obligations, and
the service or property has been performed or delivered to the account debtor or
its agent for immediate shipment to and unconditional acceptance by the account
debtor. No Borrower has any notice of any actual or imminent Insolvency
Proceeding of any account debtor whose accounts are an Eligible Account in any
Borrowing Base Certificate. All Inventory is in all material respects of good
and marketable quality, free from material defects.
          (b) In addition, during the Non-Formula Period only:
     (i) except as noted on the Schedule, no Borrower is a party to, nor is
bound by, any material license or other material agreement with respect to which
any Borrower is the licensee that prohibits or otherwise restricts such Borrower
from granting a security interest in that Borrower’s interest in such license or
agreement or any other property; and
     (ii) each Borrower is the sole owner of the Intellectual Property, except
for non-exclusive licenses granted to its customers in the ordinary course of
business. Each Patent is valid and enforceable and no part of the Intellectual
Property has been judged invalid or unenforceable, in whole or in part, and
except as set forth in the Schedule no claim has been made that any part of the
Intellectual Property violates the rights of any third party, except to the
extent such claim could not reasonably be expected to cause a Material Adverse
Change.
     5.3 Litigation.
          Except as set forth in the Schedule, there are no actions or
proceedings pending or, to the knowledge of any Borrower’s Responsible Officers,
threatened by or against any Borrower or any Subsidiary in which a likely
adverse decision could reasonably be expected to cause a Material Adverse
Change.
     5.4 No Material Adverse Change in Financial Statements.
          All consolidated financial statements for any Borrower, and any
Subsidiary, delivered to Bank fairly present in all material respects Company’s
consolidated financial condition and Company’s consolidated results of
operations. There has not been any material deterioration in any Borrower’s
consolidated financial condition since the date of the most recent consolidated
financial statements submitted to Bank.
     5.5 Solvency.
          The fair salable value of Borrowers’ assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrowers are
not left with unreasonably small capital after the transactions in this
Agreement or any of the Loan Documents; and Borrower is able to pay its debts
(including trade debts) as they mature.
     5.6 Regulatory Compliance.
          No Borrower is an “investment company” or a company “controlled” by an
“investment company” under the Investment Company Act. No Borrower is engaged as
one of its important activities in

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extending credit for margin stock (under Regulations T and U of the Federal
Reserve Board of Governors). Each Borrower has complied in all material respects
with the Federal Fair Labor Standards Act. Each Borrower has not violated any
laws, ordinances or rules, the violation of which could reasonably be expected
to cause a Material Adverse Change. None of any Borrower’s or any Subsidiary’s
properties or assets has been used by any Borrower or any Subsidiary or, to the
best of any Borrower’s knowledge, by previous Persons, in disposing, producing,
storing, treating, or transporting any hazardous substance other than legally.
Except as set forth in the Schedule, each Borrower and each Subsidiary has
timely filed all required tax returns and paid, or made adequate provision to
pay, all material taxes, except those being contested in good faith with
adequate reserves under GAAP. Each Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are necessary to
continue its business as currently conducted, except where the failure to do so
could not reasonably be expected to cause a Material Adverse Change.
     5.7 Subsidiaries.
          No Borrower owns any stock, partnership interest or other equity
securities except for Permitted Investments.
     5.8 Full Disclosure.
          No written representation, warranty or other statement of any Borrower
in any certificate or written statement given to Bank (taken together with all
such written certificates and written statements to Bank) contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained in the certificates or statements not misleading. It
being recognized by Bank that the projections and forecasts provided by any
Borrower in good faith and based upon reasonable assumptions are not viewed as
facts and that actual results during the period or periods covered by such
projections and forecasts may differ from the projected and forecasted results.
     5.9 Securities Purchase Agreement Transaction.
          Bank has received true and correct copies of the Securities Purchase
Agreement and each of the other Security Purchase Agreement Documents, executed,
delivered and/or furnished on or before the Closing Date in connection with the
Securities Purchase Agreement Transaction. Neither the Securities Purchase
Agreement nor any of the other Securities Purchase Agreement Documents have been
modified, changed, supplemented, canceled, amended or otherwise altered or
affected, except as otherwise disclosed to Bank in writing on or before the
Closing Date. The Securities Purchase Agreement Transaction has been effected,
closed and consummated pursuant to, and in accordance with, the terms and
conditions of the Securities Purchase Agreement and with all applicable laws.
6. AFFIRMATIVE COVENANTS
          Borrowers will do all of the following for so long as Bank has an
obligation to make any Credit Extension, or there are outstanding Obligations:
     6.1 Government Compliance.
          Each Borrower will maintain its and all Subsidiaries’ legal existence
and good standing as a Registered Organization in only the State set forth on
the first page of this Agreement and maintain qualification in each jurisdiction
in which the failure to so qualify would reasonably be expected to cause a
material adverse effect on any Borrower’s business or operations. Each Borrower
will comply, and have each Subsidiary comply, with all laws, ordinances and
regulations to which it is subject, noncompliance with which could have a
material adverse effect on any Borrower’s business or operations or would
reasonably be expected to cause a Material Adverse Change. The Borrower may
merge any Borrower or any Subsidiary of a Borrower into any other Borrower or
dissolve any Borrower if substantially all of the assets of such Borrower are
first transferred to any other Borrower.
     6.2 Financial Statements, Reports, Certificates.
          (a) Company will deliver to Bank: (i) as soon as available, but no
later than thirty (30) days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Company’s consolidated
operations during the period certified by a Responsible Officer and in a

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form acceptable to Bank; (ii) as soon as available, but no later than ninety
(90) days after the last day of Company’s fiscal year, audited consolidated
financial statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm reasonably acceptable to Bank; (iii) as soon as
available, but no later than ninety (90) days after the last day of Company’s
fiscal year, the Company’s 10-K filing; (iv) a prompt report of any legal
actions pending or threatened against any Borrower or any Subsidiary that could
result in damages or costs to any Borrower or any Subsidiary of $500,000 or
more; and (v) budgets, sales projections, operating plans or other financial
information Bank reasonably requests; and (vi) during the Non-Formula Period
only, prompt notice of any material change in the composition of the
Intellectual Property, including any subsequent ownership right of any Borrower
in or to any Copyright, Patent or Trademark not shown in any intellectual
property security agreement between Borrowers and Bank or knowledge of an event
that materially adversely affects the value of the Intellectual Property. Bank
agrees that information received by Bank pursuant to this Section will be
subject to the provisions of Section 12.8 of this Agreement.
          (b) Within thirty (30) days after the last day of each month, Company
will deliver to Bank a Borrowing Base Certificate signed by a Responsible
Officer of Company in the form of Exhibit C, with aged listings of accounts
receivable and accounts payable.
          (c) Within thirty (30) days after the last day of each month, Company
will deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer of Company in the form of Exhibit D.
          (d) Allow Bank to audit Borrowers’ Collateral at Borrower’s expense.
Such audits will be conducted no more often than every six (6) months unless an
Event of Default has occurred and is continuing.
     6.3 Inventory; Returns.
          Borrowers will keep all Inventory in good and marketable condition,
free from material defects. Returns and allowances between any Borrower and its
account debtors will follow each Borrower’s customary practices as they exist at
execution of this Agreement. Company must promptly notify Bank of all returns,
recoveries, disputes and claims, that involve more than $200,000.
     6.4 Taxes.
          Each Borrower will make, and cause each Subsidiary to make, timely
payment of all material federal, state, and local taxes or assessments (other
than taxes and assessments which any Borrower is contesting in good faith, with
adequate reserves maintained in accordance with GAAP) and will deliver to Bank,
on demand, appropriate certificates attesting to the payment.
     6.5 Insurance.
          Each Borrower will keep its business and the Collateral insured for
risks and in amounts standard for such Borrower’s industry, and as Bank may
reasonably request. Insurance policies will be in a form, with companies, and in
amounts that are satisfactory to Bank in Bank’s reasonable discretion. All
property policies will have a lender’s loss payable endorsement showing Bank as
an additional loss payee and all liability policies will show the Bank as an
additional insured and provide that the insurer must give Bank at least twenty
(20) days notice before canceling its policy. At Bank’s request, Borrowers will
deliver certified copies of policies and evidence of all premium payments.
Proceeds payable under any policy will, at Bank’s option, be payable to Bank on
account of the Obligations.
     6.6 Primary Accounts.
          Each Borrower will maintain its primary operating and investment
accounts with Bank.
     6.7 Financial Covenants.
          During the Formula Period only, Borrowers will maintain as of the last
day of each month (unless otherwise stated below):
          (a) Liquidity Ratio. A Liquidity Ratio of at least 1.50 to 1.00.

8

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          (b) Minimum Revenue: Borrowers will achieve minimum ninety (90) day
rolling revenue of not less than the following amounts for each of the following
periods:

              Ninety day   Period   Rolling Revenue  
June 30, 2005,
  $ 10,250,000;  
July 31, 2005 and
       
August 31, 2005
       
 
       
September 30, 2005 and
  $ 11,000,000;  
October 31, 2005
       
 
       
November 30, 2005 and
  $ 11,250,000  
December 31, 2005
       

          In addition to any and all other rights and remedies of Bank under the
Loan Documents, in the event Borrower fails to comply with the obligations of
Section 6.7, [***].
     6.8 Subordination of Inside Debt.
          All present and future indebtedness of Borrowers to its officers,
directors and shareholders (other than Indebtedness currently outstanding under
the Senior Secured Convertible Debentures) (“Inside Debt”) shall, at all times,
be subordinated to the Obligations pursuant to a subordination agreement on
Bank’s standard form. Borrowers represent and warrant that there is no Inside
Debt presently outstanding. Prior to incurring any Inside Debt in the future,
Borrowers shall cause the Person to whom such Inside Debt will be owed to
execute and deliver to Bank a subordination agreement on Bank’s standard form.
     6.9 Registration of Intellectual Property Rights.
          During the Non-Formula Period only, each Borrower:
          (a) shall not register any Copyrights with the United States Copyright
Office unless it: (i) has given at least fifteen (15) days’ prior notice to Bank
of its intent to register such Copyrights and has provided Bank with a copy of
the application it intends to file with the United States Copyright Office
(excluding exhibits thereto); (ii) executes a security agreement or such other
documents as Bank may reasonably request in order to maintain the perfection and
priority of Bank’s security interest in the Copyrights proposed to be registered
with the United States Copyright Office; and (iii) records such security
documents with the United States Copyright Office contemporaneously with filing
the Copyright application(s) with the United States Copyright Office. Each
Borrower shall promptly provide to Bank a copy of the Copyright application(s)
filed with the United States Copyright Office, together with evidence of the
recording of the security documents necessary for Bank to maintain the
perfection and priority of its security interest in such Copyrights;
          (b) shall provide written notice to Bank of any application filed by
Borrower in the United States Patent Trademark Office for a patent or to
register a trademark or service mark within thirty (30) days of any such filing;
and
          (c) will (i) protect, defend and maintain the validity and
enforceability of the Intellectual Property and promptly advise Bank in writing
of material infringements and (ii) not allow any Intellectual Property material
to each Borrower’s business to be abandoned, forfeited or dedicated to the
public without Bank’s written consent.
     6.10 Additional Provisions Regarding Collateral.
          (a) Borrowers will provide written notice to Bank within thirty
(30) days of entering or becoming bound by any such license or agreement which
are reasonably likely to have a material impact on Borrowers’ business or
financial condition (other than over-the-counter software that is commercially
available to the public).
 
[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES
AND EXCHANGE ACT OF 1934, AS AMENDED.

9

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          (b) Borrowers shall take such steps as Bank reasonably requests to
obtain the consent of, authorization by, or waiver by, any person whose consent
or waiver is necessary for all such licenses or contract rights to be deemed
“Collateral” and for Bank to have a security interest in it that might otherwise
be restricted or prohibited by law or by the terms of any such license or
agreement (such consent or authorization may include a licensor’s agreement to a
contingent assignment of the license to Bank if the Bank determines that is
necessary in its good faith judgment), whether now existing or entered into in
the future.
     6.11 Further Assurances.
          Borrowers will execute any further instruments and take further action
as Bank reasonably requests to perfect or continue Bank’s security interest in
the Collateral or to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
          Borrowers will not do any of the following without Bank’s prior
written consent, for so long as Bank has an obligation to make Credit Extensions
or there are any outstanding Obligations:
     7.1 Dispositions.
          Convey, sell, lease, transfer or otherwise dispose of (collectively
“Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, except for Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of any Borrower or its Subsidiaries in the ordinary
course of business; or (iii) of worn-out or obsolete Equipment.
     7.2 Changes in Business, Ownership, Management or Business Locations.
          Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by any Borrower or reasonably
related thereto or have a material change in its management or a change in its
ownership of greater than twenty five percent (25%) (other than by the sale of
Borrowers’ equity securities in a public offering or to venture capital
investors so long as Borrowers identify and advise Bank of the venture capital
investors prior to the closing of the investment). Borrowers will not, without
at least thirty (30) days prior written notice, change their legal name, change
their state of formation, relocate any Borrower’s chief executive office or add
any new offices or business locations.
     7.3 Mergers or Acquisitions.
          Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except where (i) no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement; (ii) a Borrower will be or will control the surviving entity; and
(iii) a Subsidiary may merge or consolidate into another Subsidiary or into a
Borrower.
     7.4 Indebtedness.
          Create, incur, assume, or be liable for any Indebtedness, or permit
any Subsidiary to do so, other than Permitted Indebtedness.
     7.5 Encumbrance.
          Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here, subject to Permitted Liens. In addition, during the Non-Formula Period
only, Borrowers shall not sell, transfer, assign, mortgage, pledge, lease, grant
a security interest in, or encumber, or enter into any agreement, document,
instrument or other arrangement (except with or in favor of the Bank) with any
Person which directly or indirectly prohibits or has the effect of prohibiting
Borrowers from selling, transferring,

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assigning, mortgaging, pledging, leasing, granting a security interest in or
upon, or encumbering any of Borrowers’ Intellectual Property.
     7.6 Distributions; Investments.
          Except as expressly permitted by Section 7.3, (i) directly or
indirectly acquire or own any Person, or make any Investment in any Person,
other than Permitted Investments, or permit any of its Subsidiaries to do so, or
(ii) pay any dividends or make any distribution or payment or redeem, retire or
purchase any capital stock, except for any repurchase of stock or stock options
from former employees or directors of Borrowers in an aggregate amount not to
exceed $100,000 under the terms of applicable repurchase agreements, provided
that at the time of such repurchase, no Event of Default has occurred, is
continuing or would exist after giving effect to any such repurchase.
     7.7 Transactions with Affiliates.
          Other than intercompany transaction between or among Borrowers and
their Subsidiaries, directly or indirectly enter into or permit to exist any
material transaction with any Affiliate of any Borrower except for transactions
that are in the ordinary course of such Borrower’s business, upon fair and
reasonable terms that are no less favorable to any Borrower than would be
obtained in an arm’s length transaction with a nonaffiliated Person.
     7.8 Subordinated Debt.
          Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank’s prior written consent.
     7.9 Compliance.
          Become an “investment company” or a company controlled by an
“investment company,” under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Credit Extension for that purpose; fail to
meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, if the
violation could reasonably be expected to have a material adverse effect on
Borrower’s business or operations or would reasonably be expected to cause a
Material Adverse Change, or permit any of its Subsidiaries to do so.
8. EVENTS OF DEFAULT
          Any one of the following is an Event of Default:
     8.1 Payment Default.
          If Borrowers fail to pay any of the Obligations when due within three
(3) days after their due date. During the three (3) day period the failure to
cure the default is not an Event of Default (but no Credit Extension will be
made during the cure period);
     8.2 Covenant Default.
          (a) If Borrowers fail to perform any obligation under Sections 6.2 or
6.7 or violates any of the covenants contained in Article 7 of this Agreement,
or
          (b) If any Borrower fails or neglects to perform, keep, or observe any
other material term, provision, condition, covenant, or agreement contained in
this Agreement, in any of the Loan Documents, or in any other present or future
agreement between any Borrower and Bank and as to any default under such other
term, provision, condition, covenant or agreement that can be cured, has failed
to cure such default within ten (10) days after the occurrence thereof;
provided, however, that if the default cannot by its nature be cured within the
ten (10) day period or cannot after diligent attempts by Borrowers be cured
within such ten (10) day period, and such default is likely to be cured within a
reasonable time, then Borrowers shall have an additional reasonable period
(which shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to have cured

11

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such default shall not be deemed an Event of Default (provided that no Credit
Extensions will be made during such cure period).
     8.3 Material Adverse Change.
          If there (i) occurs a material adverse change in the business,
operations, or condition (financial or otherwise) of any Borrower, or (ii) is a
material impairment of the prospect of repayment of any portion of the
Obligations or (iii) is a material impairment of the value or priority of Bank’s
security interests in the Collateral.
     8.4 Attachment.
          If any material portion of any Borrower’s assets is attached, seized,
levied on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in ten (10) days, or if any Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
any Borrower’s assets, or if a notice of lien, levy, or assessment is filed
against any of any Borrower’s assets by any government agency and not paid
within ten (10) days after such Borrower receives notice. These are not Events
of Default if stayed or if a bond is posted pending contest by such Borrower
(but no Credit Extensions will be made during the cure period);
     8.5 Insolvency.
          If any Borrower becomes insolvent or if any Borrower begins an
Insolvency Proceeding or an Insolvency Proceeding is begun against any Borrower
and not dismissed or stayed within 30 days (but no Credit Extensions will be
made before any Insolvency Proceeding is dismissed);
     8.6 Other Agreements.
          If there is a default under Borrowers’ indebtedness to the existing
holders of the Senior Secured Convertible Debentures pursuant to the terms of
the Securities Purchase Agreement or in any agreement between any Borrower and a
third party that gives the third party the right to accelerate any Indebtedness
exceeding $200,000 or that could cause a Material Adverse Change;
     8.7 Judgments.
          If a money judgment(s) in the aggregate of at least $250,000 is
rendered against any Borrower and is unsatisfied and unstayed for 10 days (but
no Credit Extensions will be made before the judgment is stayed or satisfied);
     8.8 Misrepresentations.
          If any Borrower or any Person acting for any Borrower makes any
material misrepresentation or material misstatement now or later in any warranty
or representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document; or
     8.9 Subsidiaries.
          Any circumstance described in Sections 8.3, 8.4, 8.5 or 8.7 occurs to
any Subsidiary of any Borrower, which could, if taken as a whole, have a
material adverse effect on the Borrowers.
9. BANK’S RIGHTS AND REMEDIES
     9.1 Rights and Remedies.
          When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
          (a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);
          (b) Stop advancing money or extending credit for any Borrower’s
benefit under this Agreement or under any other agreement between any Borrower
and Bank;

12

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          (c) Settle or adjust disputes and claims directly with account debtors
for amounts, on terms and in any order that Bank in good faith considers
advisable;
          (d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrowers will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may lawfully enter premises where the Collateral is located,
take and maintain possession of any part of the Collateral, and pay, purchase,
contest, or compromise any Lien which appears to be prior or superior to its
security interest and pay all expenses incurred. Each Borrower grants Bank a
license to lawfully enter and occupy any of its premises, without charge, to
exercise any of Bank’s rights or remedies;
          (e) Apply to the Obligations any (i) balances and deposits of any
Borrower with Bank or its Affiliate it holds, or (ii) amount held by Bank owing
to or for the credit or the account of any Borrower;
          (f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral. Bank is granted a
non-exclusive, royalty-free license or other right to use, without charge, each
Borrower’s labels, Patents, Copyrights, rights of use of any name, trade
secrets, trade names, Trademarks, service marks, and advertising matter, or any
similar property as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank’s
exercise of its rights under this Section, each Borrower’s rights under all
licenses and all franchise agreements inure to Bank’s benefit; and
          (g) Bank may place a “hold” on any account maintained with Bank and
deliver a notice of exclusive control, any entitlement order, or other
directions or instructions pursuant to any control agreement or similar
agreements providing control of any Collateral;
          (h) Dispose of the Collateral according to the Code; and
          (i) In addition to Bank’s rights in this Section, if any Borrower
fails to comply with any obligation under Section 6.7, [***].
     9.2 Power of Attorney.
          Effective only when an Event of Default occurs and during its
continuance, each Borrower irrevocably appoints Bank as its lawful attorney to:
(i) endorse any Borrower’s name on any checks or other forms of payment or
security; (ii) sign each Borrower’s name on any invoice or bill of lading for
any Account or drafts against account debtors, (iii) make, settle, and adjust
all claims under any Borrower’s insurance policies; (iv) settle and adjust
disputes and claims about the Accounts directly with account debtors, for
amounts and on terms Bank determines reasonable; and (v) transfer the Collateral
into the name of Bank or a third party as the Code permits. Bank may exercise
the power of attorney to sign each Borrower’s name on any documents necessary to
perfect or continue the perfection of any security interest regardless of
whether an Event of Default has occurred. Bank’s appointment as each Borrower’s
attorney in fact, and all of Bank’s rights and powers, coupled with an interest,
are irrevocable until all Obligations have been fully repaid and performed and
Bank’s obligation to provide Credit Extensions terminates.
     9.3 Accounts Collection.
          When an Event of Default occurs and during its continuance, Bank may
notify any Person owing any Borrower money of Bank’s security interest in the
funds and verify the amount of the Account. Each Borrower must collect all
payments in trust for Bank and, if requested by Bank, immediately deliver the
payments to Bank in the form received from the account debtor, with proper
endorsements for deposit.
     9.4 Bank Expenses.
          If any Borrower fails to pay any amount or furnish any required proof
of payment to third persons, Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank’s waiver of any Event of Default.
 
[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES
AND EXCHANGE ACT OF 1934, AS AMENDED.

13

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     9.5 Bank’s Liability for Collateral.
          If Bank complies with reasonable banking practices and the Code, it is
not liable for: (a) the safekeeping of the Collateral; (b) any loss or damage to
the Collateral; (c) any diminution in the value of the Collateral; or (d) any
act or default of any carrier, warehouseman, bailee, or other Person. Each
Borrower bears all risk of loss, damage or destruction of the Collateral.
     9.6 Remedies Cumulative.
          Bank’s rights and remedies under this Agreement, the Loan Documents,
and all other agreements are cumulative. Bank has all rights and remedies
provided under the Code, by law, or in equity. Bank’s exercise of one right or
remedy is not an election, and Bank’s waiver of any Event of Default is not a
continuing waiver. Bank’s delay is not a waiver, election, or acquiescence. No
waiver is effective unless signed by Bank and then is only effective for the
specific instance and purpose for which it was given.
     9.7 Demand Waiver.
          Each Borrower waives demand, notice of default or dishonor, notice of
payment and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which any Borrower is
liable.
10. NOTICES
          All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A party may change its notice address by giving the other party
written notice.
11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
          Virginia law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in the Commonwealth of Virginia provided,
however, that if for any reason the Bank can not avail itself of the courts of
the Commonwealth of Virginia, each Borrower and Bank each submit to the
jurisdiction of the State and Federal Courts in Santa Clara County, California.
EACH BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12. GENERAL PROVISIONS
     12.1 Successors and Assigns.
          This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrowers may not assign this Agreement or any
rights under it, other than as a result of an acquisition permitted under
Section 7.3, without Bank’s prior written consent which may be granted or
withheld in Bank’s discretion. Bank has the right, without the consent of or
notice to Borrowers, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank’s obligations, rights and benefits
under this Agreement.
     12.2 Indemnification.
          Each Borrower will indemnify, defend and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and any Borrower (including reasonable attorneys fees and
expenses), except for losses caused by Bank’s gross negligence or willful
misconduct.

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     12.3 Time of Essence.
          Time is of the essence for the performance of all obligations in this
Agreement.
     12.4 Severability of Provision.
          Each provision of this Agreement is severable from every other
provision in determining the enforceability of any provision.
     12.5 Amendments in Writing, Integration.
          All amendments to this Agreement must be in writing and signed by each
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements [***]. Except as
set forth in the previous sentence, all prior agreements, understandings,
representations, warranties, and negotiations between the parties about the
subject matter of this Agreement merge into this Agreement and the Loan
Documents. Borrowers may terminate this Agreement on not less than five
(5) Business Days’ prior written notice to Bank, provided that at the time of
such notice all Obligations are paid in full, and no Event of Default has
occurred and is continuing.
     12.6 Counterparts.
          This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
     12.7 Survival.
          All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of each Borrower in Section 12.2 to indemnify Bank will survive until all
statutes of limitations for actions that may be brought against Bank have run.
     12.8 Confidentiality.
          In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank’s subsidiaries or affiliates,
(ii) to prospective transferees or purchasers of any interest in the loans
(provided, however, Bank shall use commercially reasonable efforts in obtaining
such prospective transferee or purchasers agreement to the terms of this
provision), (iii) as required by law, regulation, subpoena, or other order,
(iv) as required in connection with Bank’s examination or audit and (v) as Bank
considers appropriate in exercising remedies under this Agreement. Confidential
information does not include information that either: (a) is in the public
domain or in Bank’s possession when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank; or (b) is disclosed to Bank by a third
party, if Bank does not know that the third party is prohibited from disclosing
the information.
     12.9 Effective Date.
          Notwithstanding anything set forth in this Agreement or any Loan
Document to the contrary, this Agreement and all of the Loan Documents shall not
be effective until the date on which the Bank executes this Agreement as
indicated on the signature page to this Agreement.
     12.10 Attorneys’ Fees, Costs and Expenses.
          In any action or proceeding between any Borrower and Bank arising out
of the Loan Documents, the prevailing party will be entitled to recover its
reasonable attorneys’ fees and other reasonable costs and expenses incurred, in
addition to any other relief to which it may be entitled .
     12.11 Third Party Beneficiaries.
          This Agreement provides that Bank’s first priority security interest
on the Collateral will be pari passu with the rights of the holders of the
Senior Secured Convertible Debentures. This Agreement and the duties and
obligations contained herein shall be solely for the benefit of Bank and the
holders of the Senior Secured Convertible Debentures, as third-party
beneficiaries, and shall give such holders of the
 
[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES
AND EXCHANGE ACT OF 1934, AS AMENDED.

15

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Senior Secured Convertible Debentures the right to prohibit Bank from taking any
enforcement action with respect to the Collateral which would violate Section 9
of the Securities Purchase Agreement.
13. DEFINITIONS
     13.1 Definitions.
          In this Agreement:
          “Accounts” has the meaning set forth in the Code and includes all
existing and later arising accounts, contract rights, and other obligations owed
any Borrower in connection with its sale or lease of goods (including licensing
software and other technology) or provision of services, all credit insurance,
guaranties, other security and all merchandise returned or reclaimed by any
Borrower and each Borrower’s Books relating to any of the foregoing.
          “Advance” or “Advances” is a loan advance (or advances) under the
Committed Revolving Line.
          “Affiliate” of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person’s senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person’s managers and members.
          “Bank Expenses” are all audit fees and expenses and reasonable costs
and expenses (including reasonable attorneys’ fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
          “Borrower’s Books” are all of each Borrower’s books and records
including ledgers, records regarding each Borrower’s assets or liabilities, the
Collateral, business operations or financial condition and all computer programs
or discs or any equipment containing the information.
          “Borrowing Base” is eighty percent (80%) of Eligible Accounts as
determined by Bank from Borrower’s most recent Borrowing Base Certificate;
provided, however, that Bank may lower the percentage of the Borrowing Base
after performing an audit of Borrower’s Collateral.
          “Business Day” is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
          “Closing Date” is the date of this Agreement.
          “Code” is the Uniform Commercial Code, in effect in the Commonwealth
of Virginia as in effect from time to time.
          “Collateral” is the property described on Exhibit A.
          “Committed Revolving Line” is Advances of up to Four Million Dollars
($4,000,000).
          “Contingent Obligation” is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but “Contingent
Obligation” does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
          “Copyrights” are all copyright rights, applications or registrations
and like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.
          “Credit Extension” is each Advance, or any other extension of credit
by Bank for any Borrower’s benefit.

16

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          “Eligible Accounts” are Accounts in the ordinary course of a
Borrower’s business that meet all of each Borrower’s representations and
warranties in Section 5; but Bank may change eligibility standards by giving
Company prior written notice. Unless Bank agrees otherwise in writing, Eligible
Accounts will not include:
          (a) Accounts that the account debtor has not paid within 90 days of
invoice date;
          (b) Accounts for an account debtor, 50% or more of whose Accounts have
not been paid within 90 days of invoice date;
          (c) Credit balances over 90 days from invoice date;
          (d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrowers exceed 25% of all Accounts, for the amounts that exceed
that percentage, unless the Bank approves in writing except for those certain
Accounts from SBC Communications Inc., MCI, Inc., Sprint Corporation, Verizon
Communications Inc., AT&T Corp., for which the percentage may be 35%;
          (e) Accounts for which the account debtor does not have its principal
place of business in the United States;
          (f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality except for
Accounts of the United States if the payee has assigned its payment rights to
Bank and the assignment has been acknowledged under the Assignment of Claims Act
of 1940 (31 U.S.C. 3727);
          (g) Accounts for which any Borrower owes the account debtor, but only
up to the amount owed (sometimes called “contra” accounts, accounts payable,
customer deposits or credit accounts);
          (h) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on approval, bill
and hold, or other terms if account debtor’s payment may be conditional;
          (i) Accounts for which the account debtor is a Borrower’s Affiliate,
officer, employee, or agent;
          (j) Accounts in which the account debtor disputes liability or makes
any claim and Bank believes there may be a basis for dispute (but only up to the
disputed or claimed amount), or if the Account Debtor is subject to an
Insolvency Proceeding, or becomes insolvent, or goes out of business;
          (k) Accounts for which Bank reasonably determines collection to be
doubtful.
          “Equipment” has the meaning set forth in the Code and includes all
present and future machinery, equipment, tenant improvements, furniture,
fixtures, vehicles, tools, parts and attachments in which any Borrower has any
interest.
          “ERISA” is the Employment Retirement Income Security Act of 1974, and
its regulations.
          “Formula Period Maturity Date” is December 31, 2005.
          “GAAP” is generally accepted accounting principles.
          “Indebtedness” is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and
(d) Contingent Obligations.
          “Insolvency Proceeding” are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
          “Intellectual Property” is:
          (a) Copyrights, Trademarks and Patents including amendments, renewals,
extensions, and all licenses or other rights to use and all license fees and
royalties from the use;

17

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          (b) Any trade secrets and any intellectual property rights in computer
software and computer software products now or later existing, created, acquired
or held;
          (c) All design rights which may be available to any Borrower now or
later created, acquired or held;
          (d) Any claims for damages (past, present or future) for infringement
of any of the rights above, with the right, but not the obligation, to sue and
collect damages for use or infringement of the intellectual property rights
above;
          (e) All Proceeds and products of the foregoing, including all
insurance, indemnity or warranty payments.
          “Inventory” has the meaning set forth in the Code and includes is
present and future inventory in which any Borrower has any interest, including
merchandise, raw materials, parts, supplies, packing and shipping materials,
work in process and finished products intended for sale or lease or to be
furnished under a contract of service, of every kind and description now or
later owned by or in the custody or possession, actual or constructive, of any
Borrower, including inventory temporarily out of its custody or possession or in
transit and including returns on any accounts or other Proceeds from the sale or
disposition of any of the foregoing and any documents of title.
          “Investment” is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
          “Letter-of-credit right” means a right to payment or performance under
a letter of credit, whether or not the beneficiary has demanded or is at the
time entitled to demand payment or performance.
          “Lien” is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
          “Liquidity Ratio” means the ratio of (i) the sum of (a) Quick Assets,
plus (b) Accounts to (ii) the aggregate amount of outstanding Obligations.
          “Loan Documents” are, collectively, this Agreement, the Revolving
Promissory Note, any note, or notes or guaranties executed by any Borrower, and
any other present or future agreement between any Borrower and/or for the
benefit of Bank in connection with this Agreement, all as amended, extended or
restated.
          “Material Adverse Change” means the occurrence of any of the events
set forth in Section 8.3.
          “Non-Formula Period Maturity Date” is October 31, 2005.
          “Obligations” are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including cash management services,
letters of credit and foreign exchange contracts, if any and including interest
accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of any Borrower assigned to Bank.
          “Patents” are patents, patent applications and like protections,
including improvements, divisions, continuations, renewals, reissues, extensions
and continuations-in-part of the same.
          “Payment Date” is the fourteenth (14th) day of each month.
          “Permitted Indebtedness” is:
          (a) During the Non-Formula Period only, each Borrower’s indebtedness
to the holders of the Senior Secured Convertible Debentures;
          (b) Each Borrower’s indebtedness to Bank under this Agreement or any
other Loan Document;
          (c) Indebtedness existing on the Closing Date and shown on the
Schedule;
          (d) Subordinated Debt;
          (e) Indebtedness to trade creditors incurred in the ordinary course of
business;
          (f) Indebtedness secured by Permitted Liens;

18

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          (g) Indebtedness between any Borrowers who are parties to the Loan
Documents; and
          (h) Extensions, refinancings, modifications, amendments and
restatements of any item above, provided that the principal amount is not
increased or the terms thereof are not modified to impose more burdensome terms
upon Borrowers.
          “Permitted Investments” are:
          (a) Investments shown on the Schedule and existing on the Closing
Date;
          (b) Investments in Subsidiaries; and
          (c) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within one
(1) year from its acquisition, (ii) commercial paper maturing no more than one
(1) year after its creation and having the highest rating from either Standard &
Poor’s Corporation or Moody’s Investors Service, Inc., and (iii) Bank’s
certificates of deposit issued maturing no more than one (1) year after issue.
          “Permitted Liens” are:
          (a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
          (b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
such Borrower maintains adequate reserves on its Books, if they have no priority
over any of Bank’s security interests;
          (c) Purchase money Liens (i) on Equipment acquired or held by a
Borrower or its Subsidiaries incurred for financing the acquisition of the
Equipment, or (ii) existing on equipment when acquired, if the Lien is confined
to the property and improvements and the Proceeds of the equipment;
          (d) Licenses or sublicenses granted in the ordinary course of a
Borrower’s business and any interest or title of a licensor or under any license
or sublicense, if the licenses and sublicenses permit granting Bank a security
interest;
          (e) Leases or subleases granted in the ordinary course of Borrower’s
business, including in connection with Borrower’s leased premises or leased
property;
          (f) Liens in favor of the existing holders of the Senior Secured
Convertible Debentures, which Liens are pari passu with Bank’s Lien; and
          (g) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
          “Person” is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
          “Prime Rate” is Bank’s most recently announced “prime rate,” even if
it is not Bank’s lowest rate.
          “Proceeds” has the meaning described in the Code as in effect from
time to time.
          “Quick Assets” is, on any date, the Borrowers’ consolidated,
unrestricted cash and cash equivalents determined according to GAAP.
          “Registered Organization” means an organization organized solely under
the law of a single state or the United States and as to which the state or the
United States must maintain a public record showing the organization to have
been organized.
          “Responsible Officer” is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of any Borrower.

19

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          “Revolving Promissory Note” means that certain Revolving Promissory
Note of even date herewith in the maximum principal amount of Four Million
Dollars ($4,000,000) from Borrowers in favor of Bank, together with all
renewals, amendments, modifications and substitutions, therefor.
          “Schedule” is any attached schedule of exceptions.
          “Securities Purchase Agreement” means that certain securities purchase
agreement dated March 25, 2002 issued by the Company and certain Subsidiaries to
the holders thereunder.
          “Securities Purchase Agreement Documents” means collectively the
Securities Purchase Agreement and any and all other agreements, documents or
instruments (together with any and all amendments, modifications, and
supplements thereto, restatements thereof, and substitutes therefor) previously,
now or hereafter executed and delivered by the Borrower, the Seller, or any
other Person in connection with the Securities Purchase Agreement Transaction.
          “Securities Purchase Agreement Transaction” means the purchase
agreement transaction of the Senior Secured Convertible Debentures contemplated
by the provisions of the Securities Purchase Agreement.
          “Senior Secured Convertible Debentures” means those certain senior
secured convertible debentures issued by the Company and certain Subsidiaries
pursuant to the Securities Purchase Agreement.
          “Subordinated Debt” is debt incurred by any Borrower subordinated to
Borrowers’ indebtedness owed to Bank and which is reflected in a written
agreement in a manner and form acceptable to Bank and approved by Bank in
writing.
          “Subsidiary” is for any Person, or any other business entity of which
more than fifty percent (50%) of the voting stock or other equity interests is
owned or controlled, directly or indirectly, by the Person or one or more
Affiliates of the Person.
          “Supporting Obligation” means a Letter-of-credit right, secondary
obligation or obligation of a secondary obligor or that supports the payment or
performance of an account, chattel paper, a document, a general intangible, an
instrument or investment property.
          “Trademarks” are trademark and servicemark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of each Borrower connected with the trademarks.
[Signatures appear on the following page]

20

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                          BORROWERS:    
 
                WITNESS/ATTEST:       VISUAL NETWORKS, INC.    
 
               
/s/ Sean Hunt
      By:   /s/Lawrence Barker   (SEAL)
 
               
 
          Name: Lawrence Barker
Title: President    
 
                WITNESS/ATTEST:       VISUAL NETWORKS INTERNATIONAL
OPERATIONS, INC.    
 
               
/s/ Sean Hunt
      By:   /s/ Lawrence Barker   (SEAL)
 
               
 
          Name: Lawrence Barker
Title: President    
 
                WITNESS/ATTEST:       VISUAL NETWORKS OPERATIONS, INC.    
 
               
/s/ Sean Hunt
      By:   /s/Lawrence Barker   (SEAL)
 
               
 
          Name: Lawrence Barker
Title: President    
 
                WITNESS/ATTEST:       AVESTA TECHNOLOGIES, LLC    
 
               
/s/ Sean Hunt
      By:   /s/ Lawrence Barker   (SEAL)
 
               
 
          Name: Lawrence Barker
Title: President    
 
                WITNESS/ATTEST:       NET2NET, LLC
By: VISUAL NETWORKS, INC.    
 
               
/s/ Sean Hunt
      By:   /s/ Lawrence Barker   (SEAL)
 
               
 
          Name: Lawrence Barker
Title: President    
 
               
 
      BANK:        
 
                        SILICON VALLEY BANK    
 
               
 
      By:   /s/ Megan Scheffel    
 
               
 
          Name: Megan Scheffel
Title: Vice President    
 
                        Effective as of June 17, 2005    

21

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EXHIBIT A
     The Collateral consists of all of each Borrower’s right, title and interest
in and to the following:
     All goods and equipment as defined in the Uniform Commercial Code now owned
or hereafter acquired, including, without limitation, all machinery, fixtures,
vehicles (including motor vehicles and trailers), and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing, wherever
located;
     All Inventory as defined in the Uniform Commercial Code and includes, now
owned or hereafter acquired, including, without limitation, all merchandise, raw
materials, parts, supplies, packing and shipping materials, work in process and
finished products including such inventory as is temporarily out of Borrower’s
custody or possession or in transit and including any returns upon any accounts
or other Proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
     All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
     All Accounts as defined in the Uniform Commercial Code and includes now
existing and hereafter arising accounts, contract rights, royalties, license
rights and all other forms of obligations owing to any Borrower arising out of
the sale or lease of goods, the licensing of technology or the rendering of
services by any Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower;
     All Letter-Of-Credit Rights (whether or not the letter of credit is
evidenced by a writing);
     All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and any Borrower’s Books relating to the foregoing;
     All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; and
     All Supporting Obligations and all of each Borrower’s Books relating to the
foregoing and any and all claims, rights and interests in any of the above and
all substitutions for, additions and accessions to and Proceeds thereof.

 

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EXHIBIT B

         
Loan Payment/Advance Request Form
Deadline for same day processing is 3:00 E.S.T.

       
Fax To: VA (703) 356-7643

  Date   :                                         

                 
o Loan Payment:
                                                                 Client Name
(Borrower)    
From Account #:
                                                                 To Account #:  
                                                            
 
  (Deposit Account #)           (Loan Account #)
 
               
Principal: $
  and/or Interest     $      

All Borrower’s representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects to on the date of the
telephone transfer request for and advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of the date:

             
Authorized Signature:
                                                                 Phone Number:  
                                                            

             
o Loan Advance
           
 
            Complete Outgoing Wire Request section below if all or a portion of
the funds from this loan advance are for an outgoing wire.
 
           
From Account #:
                                                               (Loan Account #)
  To Account #:                                                               
(Deposit Account #)
 
           
Amount of Advance:
  $                                                                      All
Borrower’s representations and warranties in the Loan and Security Agreement are
true, correct and complete in all material respects to on the date of the
telephone transfer request for and advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of the date:

             
Authorized Signature:
                                                                 Phone Number:  
                                                            
 
           

Outgoing Wire Request
Complete only if all or a portion of funds from the loan advance above are to be
wired.
Deadline for same day processing is 12:00 p.m., E.S.T.

             
Beneficiary Name:
                                                                 Amount of Wire:
                                                              
Beneficiary Bank:
                                                                 Account Number:
                                                              
City and State:
                                                                      

             
Beneficiary Bank Transit (ABA) #:
                                             Beneficiary Bank Code (Swift, Sort,
Chip, etc.):
(For International Wire Only)                                                 

             
Intermediary Bank:
                                                                 Transit (ABA)
#:                                                                For Further
Credit to:
                                                                                                                                                                
Special
Instruction:                                                                                                                                                                

By signing below, I (we) acknowledge and agree that my (our) funds transfer
request shall be processed in accordance with and subject to the terms and
conditions set forth in the agreements(s) covering funds transfer service(s),
which agreements(s) were previously received and executed by me (us).

             
Authorized Signature:
                                                                 2nd Signature
(If Required)                                           
Print Name/Title:
                                                                 Print
Name/Title:                                           
Telephone Number:
      Telephone Number:    

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EXHIBIT C
BORROWING BASE CERTIFICATE
(For Use during Formula Period)

                 
Borrowers:
  Visual Networks, Inc.,       Bank:   Silicon Valley Bank
 
  Visual Networks International Operations, Inc.,           3003 Tasman Drive
 
  Visual Networks Operations, Inc.,           Santa Clara, CA 95054
 
  Avesta Technologies, LLC, and            
 
  Net2Net, LLC            
 
  2092 Gaither Road            
 
  Rockville, Maryland 20850            
Commitment
  Amount: $4,000,000            

              ACCOUNTS RECEIVABLE        
1.
  Accounts Receivable Book Value as of                  $                    
2.
  Additions (please explain on reverse)       $                    
3.
  TOTAL ACCOUNTS RECEIVABLE       $                    
 
            ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)        
4.
  Amounts over 90 days due   $                        
5.
  Balance of 50% over 90 day accounts   $                        
6.
  Credit balances over 90 days   $                        
7.
  Concentration Limits   $                        
8.
  Foreign Accounts   $                        
9.
  Governmental Accounts   $                        
10.
  Contra Accounts   $                        
11.
  Promotion or Demo Accounts   $                        
12.
  Intercompany/Employee Accounts   $                        
13.
  Other (please explain on reverse)   $                        
14.
  TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS       $                    
15.
  Eligible Accounts (#3 minus #14)       $                    
16.
  LOAN VALUE OF ACCOUNTS (80% of #15)       $                    
 
            BALANCES        
17.
  Maximum Loan Amount   $4,000,000        
18.
  Total Funds Available [Lesser of #17 or #16]       $                    
19.
  Present balance owing on Line of Credit   $                        
20.
  RESERVE POSITION (#18 minus #19 and #20)       $                    

The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.
COMMENTS:

         
 
       
 
    BANK USE ONLY  
 
       
 
    Rec’d By:                                          
 
    Auth. Signer  
 
       
By:                                        
    Date:                                           
          Authorized Signer
       
 
       
 
    Verified:                                           
 
    Auth. Signer  
 
    Date:                                           
 
       
 
       

 

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EXHIBIT D
COMPLIANCE CERTIFICATE

     
TO:
  SILICON VALLEY BANK
 
  3003 Tasman Drive
 
  Santa Clara, California 95054
 
   
FROM:
  VISUAL NETWORKS, INC.,
 
  VISUAL NETWORKS INTERNATIONAL OPERATIONS, INC.,
 
  VISUAL NETWORKS OPERATIONS, INC.,
 
  AVESTA TECHNOLOGIES, LLC, and
 
  NET2NET, LLC
 
  2092 Gaither Road
 
  Rockville, Maryland 20850

The undersigned authorized officer of Visual Networks, Inc. (“Company”)
certifies that under the terms and conditions of the Loan and Security Agreement
among Company, the Borrowers named therein and Bank (the “Agreement”),
(i) Borrowers are in complete compliance for the period ending ___with all
required covenants except as noted below and (ii) all representations and
warranties in the Agreement are true and correct in all material respects on
this date. In addition, the authorized officer of Company certifies that each
Borrower and each Subsidiary (1) has timely filed all required tax returns and
paid, or made adequate provision to pay, all material taxes, except those being
contested in good faith with adequate reserves under GAAP and (ii) no liens have
been levied or claims made against any Borrower or any Subsidiary relating to
unpaid employee payroll or benefits which Borrower have not previously notified
in writing to Bank. Attached are the required documents supporting the
certification. The Officer certifies that these are prepared in accordance with
Generally Accepted Accounting Principles (GAAP) consistently applied from one
period to the next except as explained in an accompanying letter or footnotes.
The Officer acknowledges that no borrowings may be requested at any time or date
of determination that any Borrower is not in compliance with any of the terms of
the Agreement, and that compliance is determined not just at the date this
certificate is delivered.
Please indicate compliance status by circling Yes/No under “Complies” column.

              Reporting Covenant   Required   Complies
Monthly financial statements + CC
  Monthly within 30 days   Yes   No
Annual (Audited)
  FYE within 90 days   Yes   No
10-K
  FYE within 90 days   Yes   No
A/R & A/P Agings
  Monthly within 30 days   Yes   No
A/R Audit
  Semi-Annual   Yes   No
Borrowing Base Certificate
(for use during the Formula Period only)
  Monthly within 30 days   Yes   No

                                  Financial Covenant   Required     Actual    
Complies  
For Use During the Formula Period Only:
                               
Minimum Liquidity Ratio
    1.50:1.00       _____:1.00     Yes   No
 
                               
Maintain on a Monthly Basis
                               
Minimum 90-Day Rolling Revenue
                               
June 30, 2005, July 31, 2005 and August 31, 2005
  $ 10,250,000     $       Yes   No
September 30, 2005 and October 31, 2005
  $ 11,000,000     $       Yes   No
November 30, 2005 and December 31, 2005
  $ 11,250,000     $       Yes   No

 

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Comments Regarding Exceptions: See Attached.
Sincerely,
 
 
Signature
 
Title
 
Date

         
BANK USE ONLY    
 
       
Received by:
       
 
       
 
  authorized signer    
 
       
Date:
       
 
       
 
       
Verified:
       
 
       
 
  authorized signer    
 
       
Date:
       
 
       
 
        Compliance Status:     Yes                     No                       
 

 

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Schedule to Loan and Security Agreement
The exact correct corporate name of Borrower is (attach a copy of the formation
documents, e.g., articles, partnership agreement):
                                                                                
Borrower’s State of formation:
                                                                                                    
Borrower has operated under only the following other names (if none, so state):
 
All other addresses at which the Borrower does business are as follows (attach
additional sheets if necessary and include all warehouse addresses):
Borrower has deposit accounts and/or investment accounts located only at the
following institutions:
List Acct. Numbers:
Liens existing on the Closing Date and disclosed to and accepted by Bank in
writing:
Investments existing on the Closing Date and disclosed to and accepted by Bank
in writing:
Subordinated Debt:
Indebtedness on the Closing Date and disclosed to and consented to by Bank in
writing:
The following is a list of the Borrower’s copyrights (including copyrights of
software) which are registered with the United States Copyright Office. (Please
include name of the copyright and registration number and attach a copy of the
registration):
The following is a list of all software which the Borrower sells, distributes or
licenses to others, which is not registered with the United States Copyright
Office. (Please include versions which are not registered:
The following is a list of all of the Borrower’s patents which are registered
with the United States Patent Office. (Please include name of the patent and
registration number and attach a copy of the registration.):
The following is a list of all of the Borrower’s patents which are pending with
the United States Patent Office. (Please include name of the patent and a copy
of the application.):

 

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The following is a list of all of the Borrower’s registered trademarks. (Please
include name of the trademark and a copy of the registration.):
Borrower is not subject to litigation which would have a material adverse effect
on the Borrower’s financial condition, except the following (attach additional
comments, if needed):
Tax ID Number
                                                                                
Organizational Number, if any: