Exhibit 10.5

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (“Agreement”) is entered into as of this 18th day of
October, 2006 by and among VERTICAL COMMUNICATIONS, INC., a Delaware corporation
(“VCI”), VERTICAL COMMUNICATIONS ACQUISITION CORP., a Delaware corporation
(“VCAC” and together with VCI, the “Borrowers” and each a “Borrower”), and
COLUMBIA PARTNERS, L.L.C. INVESTMENT MANAGEMENT, as agent and investment manager
(“Investment Manager”), for the benefit of itself and NEIPF, L.P. (“Lender”).

WHEREAS, Borrowers, Investment Manager and Lender entered into a certain Credit
Agreement of even date herewith as amended, modified, supplemented or otherwise
modified from time to time (the “Credit Agreement”), pursuant to which Lender
has agreed to provide certain credit extensions to Borrowers to be evidenced by
Borrowers’ issuance to Lender of certain notes in the aggregate principal amount
of up to Thirty Million Dollars ($30,000,000). As a condition of the credit
extensions under the Credit Agreement, Lender has required that Borrowers enter
into this Agreement.

NOW THEREFORE, in order to induce Lender and Investment Manager to enter into
the Credit Agreement, Borrowers hereby agree in favor of Investment Manager, for
the benefit of Investment Manager and Lender, as set forth below.

ARTICLE I

CREDIT AGREEMENT

1.1 Incorporation by Reference. This Agreement is entered into pursuant to the
terms and conditions of the Credit Agreement and each of the terms and
conditions of the Credit Agreement are hereby incorporated by reference.

1.2 Definitions. Any capitalized term used herein and not otherwise defined
herein shall have the meaning given to it in the Credit Agreement.

Terms used herein which are defined in the Code and not otherwise defined herein
shall have the respective meanings ascribed to such terms in the Code. To the
extent the definition of any category or type of collateral is modified by any
amendment, modification or revision to the Code, such modified definition will
apply automatically under this Agreement as of the date of such amendment,
modification or revision.

 

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ARTICLE II

GRANT OF SECURITY INTEREST

2.1 Grant. As security for the full, prompt and complete payment and performance
of each of the Obligations when due (whether at stated maturity, by acceleration
or otherwise and whether now existing or hereafter arising), each Borrower
hereby grants to Investment Manager, as agent for the benefit of itself and
Lender, a continuing security interest in all of such Borrower’s right, title
and interest in and to the personal and real property set forth in Exhibit A
attached hereto (collectively, the “Collateral”), subject and subordinate only
to Permitted Encumbrances.

2.2 Rights of Investment Manager and Lender. In addition to the rights and
remedies granted to Investment Manager and Lender herein and in the other Loan
Documents, Investment Manager and Lender (as applicable) shall have all of the
rights and remedies of a secured creditor under the Code with respect to all of
the Collateral.

ARTICLE III

RIGHTS OF INVESTMENT MANAGER AND LENDER; COLLECTION OF ACCOUNTS.

3.1 Contracts and Licenses. Notwithstanding anything contained in this Security
Agreement to the contrary, neither Investment Manager nor Lender shall have any
obligation or liability under any Contractual Obligations or License by reason
of or arising out of this Agreement or the granting to Investment Manager of a
lien therein or the receipt by Investment Manager or Lender of any payment
relating to any Contractual Obligation or License pursuant hereto, nor shall
Investment Manager or Lender be required or obligated in any manner to perform
or fulfill any of the obligations of any Borrower under or pursuant to any
Contractual Obligation or License, or to make any payment, or to make any
inquiry as to the nature or the sufficiency of any payment received by it or the
sufficiency of any performance by any party under any Contractual Obligation or
License, or to present or file any claim, or to take any action to collect or
enforce any performance or the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times. If the
security interest granted hereby in any rights of either Borrower under any
contract included in the Collateral is prohibited by such contract, then the
security interest hereby granted therein nonetheless remains effective to the
extent allowed by the Code or other applicable law but is otherwise limited by
that prohibition.

3.2 Collection of Accounts. Investment Manager authorizes Borrowers to collect
their Accounts, provided that such collection is performed in a prudent and
businesslike manner, and Investment Manager may, upon the occurrence and during
the continuation of any Event of Default and without notice, limit or terminate
said authority at any time. Upon the occurrence and during the continuance of
any Event of Default, at the request of Investment Manager, Borrowers shall
deliver all original and other documents evidencing and relating to the
performance of labor or services or to Licenses which created such Accounts,
including, without limitation, all original orders, invoices, related shipping
receipts, and licenses.

 

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3.3 Notification and Verification. Investment Manager may at any time, upon the
occurrence and during the continuance of any Event of Default, without notifying
Borrowers of its intention to do so, notify Account Debtors of Borrowers,
parties to the Contractual Obligations of Borrowers, obligors in respect of
Instruments of Borrowers and obligors in respect of Chattel Paper of Borrowers,
that the Accounts and the right, title and interest of Borrowers in and under
such Contractual Obligations, Instruments and Chattel Paper have been assigned
to Investment Manager and that payments shall be made directly to Investment
Manager. Upon the occurrence and during the continuance of an Event of Default
and at the request by Investment Manager, Borrowers shall so notify such Account
Debtors, parties to such Contractual Obligations, obligors in respect of such
Instruments and obligors in respect of such Chattel Paper. Upon the occurrence
and during the continuance of any Event of Default, Investment Manager may, in
its name or in the name of others, communicate with such Account Debtors,
parties to such Contractual Obligations, obligors in respect of such Instruments
and obligors in respect of such Chattel Paper to verify with such parties, to
Investment Manager’s satisfaction, the existence, amount and terms of any such
Accounts, Contractual Obligations, Instruments or Chattel Paper.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

To induce Investment Manager and Lender to enter into the transactions
contemplated by the Credit Agreement, Borrowers jointly and severally represent
and warrant as of the date hereof as follows (which representations and
warranties shall survive the execution and delivery of this Agreement and the
funding of the credit extensions):

4.1 Priority of Security Interest. This Agreement creates a legal and valid
security interest on and in all of the Collateral in which Borrowers or any of
them now has rights and all filings and other actions necessary to perfect such
security interest have been duly taken. Accordingly, Investment Manager has a
fully perfected security interest in all of the Collateral in which Borrowers or
any of them now has rights, subject only to Permitted Encumbrances.

4.2 Other Names. No Borrower has changed its name or used any other name or any
trade name within the five (5) years immediately preceding the date of this
Agreement except as set forth on the Perfection Certificate attached hereto as
Exhibit B (the “Perfection Certificate”). No Borrower shall conduct business
under any other name than that given above nor change or reorganize the type of
business entity under which it does business except upon 30 days prior written
notice to Investment Manager. If such a change of name or business entity shall
occur, Borrowers guarantee that all documents, instruments and agreements
reasonably requested by Investment Manager to evidence that the applicable
Borrower under such new name or such new business entity is a “Borrower” under
the Credit Agreement and the other Loan Documents shall be prepared and filed at
Borrowers’ expense no more than ten days after such change of name or business
entity is effective.

 

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4.3 Location of Goods and Inventory. All of the Goods of Borrowers and Inventory
of Borrowers are located only at the Real Estate or leased locations described
in the Perfection Certificate, and none of the Goods or Inventory of Borrowers
is stored with, or in the possession of, any bailee, warehouseman,
subcontractor, or other similar Person except as noted in the Perfection
Certificate.

4.4 Accuracy of Perfection Certificate. The information contained in the
Perfection Certificate, is true, accurate and complete in all material respects.

4.5 Intellectual Property. As of the date of this Agreement, no Borrower has any
registered Intellectual Property or applications therefor except as noted in the
Perfection Certificate or in the Credit Agreement. Each Borrower owns the sole,
full and clear title to its Intellectual Property, subject to Permitted
Encumbrances. To the best of Borrowers’ knowledge, each of the Copyrights,
Trademarks and Patents of Borrowers is valid and enforceable, and no part of the
Intellectual Property has been judged invalid or unenforceable, in whole or in
part. Borrowers’ rights as licensees of intellectual property do not give rise
to more than 5% of their consolidated gross revenues in any given month,
including without limitation revenue derived from the sale, licensing, rendering
or disposition of any product or service.

ARTICLE V

COVENANTS

Until the monetary Obligations are repaid in full and each of the other
Obligations has been satisfied in full and discharged and in addition to the
covenants set forth in the Credit Agreement, Borrowers jointly and severally
covenant and agree as follows:

5.1 Books and Records.

5.1.1 Borrowers will keep and maintain, at their own cost and expense,
satisfactory and materially complete books and records of and with respect to
the Collateral, including, without limitation, records of the status of any
pending applications or registrations for Intellectual Property;

5.1.2 Investment Manager shall have access to the above-referenced books and
records and any other data relating to the Collateral at such times and upon
such notice as set forth in Section 4.1 of the Credit Agreement; and

5.1.3 Subject to its duty to exercise reasonable care with respect to the
Collateral and to maintain the confidentiality of confidential information,
Investment Manager shall have a special property interest in all books and
records of Borrowers pertaining to the Collateral and, at any time, upon the
request by Investment Manager upon the occurrence and during the continuance of
an Event of Default, Borrowers shall, at their own cost and expense, deliver all
such books or records to Investment Manager or its designated representatives
and shall deliver to Investment Manager or its designated representatives all
original and other documents evidencing and relating to the Collateral.

 

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5.2 Equipment. Borrowers shall use their Equipment solely in the conduct of its
business and in a prudent and proper manner. Borrowers shall keep all of their
Equipment at the principal places of business or at those locations stated in
the Perfection Certificate and shall not change the location of any item of the
Equipment without 30 days prior written notice to Investment Manager.

5.3 Goods and Inventory. Borrowers shall keep, store or regularly garage all of
the Goods and Inventory of Borrowers in a prudent, reasonably secure and proper
manner at Borrowers’ principal places of business or at those locations stated
in the Perfection Certificate and shall not change the location of any item of
the Goods or Inventory other than in the ordinary course of business without
providing Investment Manager with advance written notice at least thirty
(30) days prior to such relocation.

5.4 Deposit Accounts. Borrowers shall, at Investment Manager’s request, procure
control agreements in favor of Investment Manager, for the benefit of Investment
Manager and Lender, from each third party in possession of a deposit account
that is included within the definition of Collateral (and therefore subject to
Investment Manager’s security interest hereby granted).

5.5 No Transfers of Collateral. Notwithstanding that Proceeds are included
within the definition of “Collateral” (and therefore subject to Investment
Manager’s security interest hereby granted), no Borrower shall sell, assign,
transfer or otherwise dispose of the Collateral or any portion thereof or any
interest therein without the prior written consent of Investment Manager, except
to the extent expressly permitted by the terms and conditions of the Credit
Agreement.

5.6 Liens, Claims and Attachments. Borrowers shall at Borrowers’ expense,
maintain the Collateral free from all Liens (other than Permitted Encumbrances),
and Borrowers shall notify Investment Manager within two (2) days after receipt
of notice of any Lien, attachment or judicial proceeding affecting the
Collateral in whole or in material part.

5.7 Maintenance, Repairs and Replacements. Borrowers shall keep and maintain, or
cause to be kept and maintained, all of the tangible Collateral in good
condition, subject to normal wear and tear, and shall provide all maintenance
and service and make all repairs and replacements necessary for such purpose,
subject to Borrowers’ commercially reasonable discretion and the economic
viability of such repair or replacement. If any parts or accessories forming
part of the tangible Collateral become worn out, lost, destroyed, damaged beyond
repair or otherwise permanently rendered unfit for use, Borrowers, at their own
expense, shall within a reasonable time replace such parts or accessories or
cause the same to be replaced by replacement parts or accessories that have a
value and utility at least equal to the parts or accessories replaced, subject
to Borrowers’ commercially reasonable discretion and the economic viability of
such repair or replacement. All accessories, parts and replacements for or which
are added to or become attached to any of the tangible Collateral shall
immediately be deemed incorporated in the tangible Collateral and subject to the
security interests granted by Borrowers under this Agreement.

 

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5.8 Right to Inspect. Investment Manager shall have the right to inspect all of
the tangible Collateral; such times and upon such notice as provided in
Section 4.1 of the Credit Agreement.

5.9 Insurance; Application of Insurance Proceeds. Borrowers shall maintain
insurance in accordance with Section 4.3 of the Credit Agreement. The proceeds
of the insurance maintained by Borrowers and payable as a result of loss of or
damage to any of the tangible Collateral shall be applied in accordance with the
Credit Agreement. Each Borrower irrevocably appoints Investment Manager as such
Borrower’s attorney-in-fact to make claim for, receive payment of, and execute
and endorse all documents, checks or drafts received in payment for loss or
damage under any of these insurance policies.

5.10 Financing Statements; Recording Costs; Possession of Collateral. Borrowers
shall promptly deliver to Investment Manager all UCC Financing Statements or UCC
continuation statements or other documents reasonably required, or procure any
documents reasonably required (including UCC termination statements, as
necessary), to carry out the transactions contemplated by the Loan Documents and
to maintain Investment Manager’s perfected security interest in all of the
Collateral with the lien priority indicated in the Credit Agreement. Each
Borrower further authorizes the Investment Manager to file UCC-1 financing
statements naming such Borrower as debtor and the Investment Manager as secured
party, including, without limitation, financing statements describing the
collateral as “all assets” or “all personal property” or words of similar
import. Borrowers shall pay all state and local stamp or documentary taxes,
recordation and transfer taxes, clerks’ fees and filing fees, and all other
costs to record such documents and to perfect and maintain Investment Manager’s
perfected security interest in all of the Collateral with the lien priority
indicated in the Credit Agreement. If any material portion of the Collateral is
of a type as to which it is necessary or desirable for Investment Manager to
take possession of the Collateral in order to perfect, or maintain the priority
of, Investment Manager’s security interest, then on or prior to the Initial
Closing Date, Borrowers shall deliver all such Collateral to Investment Manager,
and, with respect to any such Collateral acquired by any Borrower after the
Initial Closing Date, such Borrower shall promptly deliver same to Investment
Manager. A carbon, photographic, photocopy or other reproduction of a security
agreement (including this Agreement) or financing statement shall be sufficient
as a financing statement.

5.11 Supporting Materials. Borrowers, upon request by Investment Manager, shall
provide Investment Manager from time to time with: (a) written statements or
schedules identifying and describing the Collateral, and all additions,
substitutions, and replacements thereof, in such detail as Investment Manager
may reasonably require; (b) copies of customers’ invoices or billing statements;
(c) proof of the sale or lease of goods or evidence of the satisfactory
performance of services which gave rise to any Accounts; and (d) such other
schedules and information as Investment Manager reasonably may require. The
items to be provided under this Section 5.11 shall be in form reasonably
satisfactory to Investment Manager and are to be delivered to Investment Manager
from time to time solely for Investment Manager’s convenience in maintaining
records of

 

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the Collateral. Borrowers’ failure to give any of such items to Investment
Manager shall not affect, terminate, modify or otherwise limit Investment
Manager’s security interest in any of the Collateral.

5.12 Notification of Delays. Borrowers, upon request by Investment Manager,
shall regularly advise Investment Manager of any material delay in delivery or
performance, or material claims made, in regard to any of the Collateral.

5.13 No Material Changes. No Borrower shall make any material change to the
terms of any general intangible, chattel paper, instrument or account (if the
account has a book value equal to or greater than ten percent (10%) of
Borrowers’ annual gross revenues), without the prior written permission of
Investment Manager. Material changes shall include, without limitation:
(a) granting an extension of the time of payment of any of the accounts, chattel
paper, instruments, or amounts due under any contract or document,
(b) compromising, compounding or settling the same for less than the full amount
thereof, (c) releasing, wholly or partly, any person liable for the payment
thereof, or (d) allowing any credit or discount whatsoever thereon other than
trade discounts or rebates granted in the ordinary course of Borrowers’
businesses.

5.14 Additional Covenants Relating to Accounts and Chattel Paper.

5.14.1 Borrowers shall, upon request by Investment Manager, deliver to
Investment Manager within fifteen (15) calendar days after the last day of each
month, a listing and aging report for the Accounts, in form and substance
reasonably satisfactory to Investment Manager, together with such other
information and financial reports as Investment Manager may request in
Investment Manager’s reasonable discretion from time to time; and

5.14.2 Upon the request by Investment Manager, at any time after the occurrence
and during the continuance of an Event of Default, Borrowers shall deposit, or
cause to be deposited, all checks, drafts, cash and other remittances in payment
of, or on account of payment of, any and all Accounts and Chattel Paper (all of
the foregoing herein collectively referred to as “items of payment”) to an
account (the “Collateral Account”) designated by Investment Manager at a bank or
other financial institution designated by Investment Manager. Neither Investment
Manager nor Lender shall be responsible for the solvency of any such bank or
other financial institution, or the management and administration of the
Collateral Account. Investment Manager alone shall have the power to access and
make withdrawals from the Collateral Account. Borrowers shall deposit such items
of payment for credit to the Collateral Account within one banking day of the
receipt thereof and in precisely the form received, except for the endorsement
of Borrowers where necessary to permit the collection of such items of payment,
which endorsement each Borrower hereby agrees to make. Pending such deposit,
Borrowers will not commingle any such items of payment with any of their other
funds or property, but will hold them separate and apart. Investment Manager
shall be entitled, from time to time in Investment Manager’s discretion, to
apply the funds in the Collateral Account against any of the Obligations.

 

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5.14.3 No Borrower shall create any Chattel Paper without placing a legend on
such Chattel Paper acceptable to Investment Manager indicating that Investment
Manager has a security interest in the Chattel Paper.

5.15 Additional Covenants Relating to Intellectual Property.

5.15.1 No Borrower shall file any application for the issuance or registration
of a Patent, Copyright or Trademark with the United States Copyright Office or
the United States Patent and Trademark Office or any similar office or agency in
the United States or any other country, unless such Borrower has notified
Investment Manager in writing of such action within thirty (30) days after such
filing and, upon request by Investment Manager, such Borrower shall execute and
deliver to Investment Manager any and all assignments, agreements, instruments,
documents and such other papers as may reasonably be requested by Investment
Manager to effect an assignment of such application to Investment Manager
reflecting the security interest granted hereby;

5.15.2 Borrowers will, without cost to Investment Manager or Lender, render any
assistance reasonably necessary to Investment Manager in any proceeding before
the United States Copyright Office or the United States Patent and Trademark
Office or any similar office or agency in the United States or any other country
to maintain each application or registration for any Patents, Copyrights or
Trademarks, including, without limitation, the filing of all renewals and the
payment of all annuities.

5.15.3 Borrowers shall register or cause to be registered on an expedited basis
(to the extent not already registered) with the United States Patent and
Trademark Office or the United States Copyright Office, as applicable: (i) those
intellectual property rights listed on any exhibits or schedules to the
Intellectual Property Security Agreement delivered to Investment Manager by
Borrowers in connection with this Agreement, within 30 days of the date of this
Agreement, (ii) all registrable intellectual property rights any Borrower has
developed as of the date of this Agreement but heretofore failed to register,
within 30 days of the date of this Agreement, subject, however, to Borrowers’
commercially reasonable discretion as to whether registration is in the best
interests of Borrowers, and (iii) those additional registrable intellectual
property rights developed or acquired by any Borrower after the date of this
Agreement (including without limitation major revisions or additions which
significantly improve the functionality of the intellectual property rights
listed on such exhibits or schedules), subject, however, to Borrowers’
commercially reasonable discretion as to whether registration is in the best
interests of Borrowers. Borrowers shall give Investment Manager prompt notice of
all such applications or registrations. As of the date hereof, no Borrower has
any Patents, Copyrights or Trademarks issued by, or the subject of pending
applications or registrations in, the United States Copyright Office or the
United States Patent and Trademark Office or any similar office or agency in the
United States or any other country, other than those described in such exhibits
or schedules.

5.15.4 Borrowers shall execute and deliver such additional instruments and
documents from time to time as Investment Manager shall reasonably request to
perfect Investment Manager’s security interest in the Intellectual Property.

 

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5.15.5 Borrowers shall to the extent determined by them in their commercially
reasonable discretion (i) protect, defend and maintain the validity and
enforceability of the Trademarks, Patents and Copyrights, (ii) use commercially
reasonable efforts to detect infringements of the Trademarks, Patents and
Copyrights and promptly advise Investment Manager in writing of material
infringements detected and (iii) prevent any material Trademarks, Patents or
Copyrights to be abandoned, forfeited or dedicated to the public without the
written consent of Investment Manager.

5.15.6 Investment Manager may from time to time audit Borrowers’ Intellectual
Property to confirm compliance with this Section 5.15.

5.15.7 Investment Manager shall have the right, but not the obligation, to take,
at Borrowers’ sole expense, any actions that Borrowers are required under this
Section 5.15 to take but which Borrowers fail to take, after 15 days’ notice to
Borrowers.

5.15.8 Borrowers shall reimburse and indemnify Investment Manager and Lender for
all costs and expenses incurred in the reasonable exercise of the rights set
forth under this Section 5.15.

5.16 Consent of Inbound Licensors. Prior to entering into or becoming bound by
any license or agreement that will constitute a Material Agreement, Borrowers
shall take commercially reasonable efforts, if requested by Investment Manager,
to obtain the consent of, or waiver by, any person whose consent or waiver is
necessary for Borrowers’ interest in such licenses or contract rights to be
deemed Collateral and for Investment Manager to have a security interest in it
that might otherwise be restricted by the terms of the applicable license or
agreement, whether now existing or entered into in the future.

5.17 Notice to Investment Manager; Joinder by Borrowers. Borrowers will promptly
notify Investment Manager if any Borrower learns of any unauthorized use or
infringement by any Person with respect to any of the Collateral. If requested
by Investment Manager, Borrowers, at Borrowers’ expense, shall join with
Investment Manager in such action as Investment Manager, in Investment Manager’s
discretion, may reasonably deem advisable for the protection of the perfected,
first-priority continuing security interest, subject only to the Permitted
Encumbrances.

ARTICLE VI

DEFAULT AND REMEDIES

Upon the occurrence and during the continuance of any Event of Default,
Investment Manager may exercise, in addition to those available at law or in
equity, all of the following rights and remedies:

6.1 Assemble Collateral. Investment Manager may require Borrowers (at Borrowers’
sole expense) to assemble and to forward promptly any or all of the Goods,
Equipment, Chattel

 

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Paper, and Inventory to Investment Manager at such location(s) as shall be
reasonably required by Investment Manager.

6.2 Take Possession. Without breaching the peace, Investment Manager may enter
upon the premises where any Goods, Equipment, Chattel Paper, monies, deposit
accounts or rights to money are located and take immediate possession thereof,
by summary proceedings or otherwise, and Investment Manager may remove any of
such items, all without liability of Investment Manager to any Borrower for or
by reason of such entry, taking of possession or removal in the absence of gross
negligence or willful misconduct or violation of the Code.

6.3 Appointment of Receiver. Investment Manager shall be entitled to appointment
of a receiver to take possession of and to manage all or any portion of the
Collateral. Investment Manager may obtain such appointment without notice to, or
demand of any Borrower, on an ex parte basis before any court of competent
jurisdiction, and without regard to the adequacy of the Collateral as security
for the Obligations.

6.4 Sale of Collateral. Investment Manager in accordance with the Code may sell,
assign, and deliver or otherwise dispose of or cause to be sold or otherwise
disposed of, the whole or any part of the Collateral, at one or more
commercially reasonable public or private sales, without demand or advertisement
of the time or place of sale or of any adjournment thereof, each of which is
hereby expressly waived to the extent permitted by applicable law. The sale or
other disposition may be made for such price and upon such terms and conditions
as Investment Manager, if any, may deem best in its exercise of its commercially
reasonable discretion. Investment Manager may apply the proceeds from such sale
or sales or such other disposition or dispositions: first, to the settlement of
all liens or claims on the Collateral with a lien priority greater than that of
Investment Manager, if any; second, to the payment of all expenses connected
with the assembly, preservation, preparation, and sale or other disposition of
the Collateral, including any trustees’ or auctioneers’ fees, commissions or
other expenses; third, to the payment and satisfaction in full of the
Obligations; and fourth, returning the excess, if any, to Borrowers. Each
Borrower hereby expressly waives all rights of appraisal, whether before or
after the sale or other disposition, and any right of redemption after the sale
or other disposition.

6.5 Attorney-in-Fact. Upon the occurrence and during the continuance of an Event
of Default, each Borrower hereby irrevocably appoints Investment Manager as such
Borrower’s attorney-in-fact, with power of substitution, to do each of the
following in the name of such Borrower or in the name of Investment Manager or
otherwise, for the use and benefit of Investment Manager and Lender, but at the
cost and expense of Borrowers, and without notice to any Borrower:

6.5.1 notify the debtors or other party(ies) obligated under any of the
Accounts, Chattel Paper or General Intangibles to make payments thereon directly
to Investment Manager, and to take control of the cash and non-cash proceeds of
any Collateral;

6.5.2 compromise, extend, or renew any of the Collateral or deal with the same
as it may deem advisable;

 

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6.5.3 release, make exchanges, substitutions, or surrender all or any part of
the Collateral;

6.5.4 remove from such Borrower’s place of business all books, records, ledger
sheets, correspondence, invoices and documents, relating to or evidencing any of
the Collateral or without cost or expense to Investment Manager, make such use
of such Borrower’s place(s) of business as may be reasonably necessary to
administer, control and collect the Collateral;

6.5.5 repair, alter or supply goods, if any, necessary to fulfill in whole or in
part the purchase order of any Account Debtor;

6.5.6 demand, collect, receipt for and give renewals, extensions, discharges and
releases of any of the Collateral;

6.5.7 institute and prosecute legal and equitable proceedings to enforce
collection of, or realize upon, any of the Collateral;

6.5.8 settle, renew, extend, compromise, compound, exchange or adjust claims
with respect to any of the Collateral or any legal proceedings brought with
respect thereto;

6.5.9 endorse the name of such Borrower upon any items of payment relating to
the Collateral or upon any proof of claim in bankruptcy against an Account
Debtor;

6.5.10 institute and prosecute necessary legal and equitable proceedings to
reclaim any of the goods sold to any debtor obligated on an Account, Chattel
Paper, or General Intangible at a time when such debtor was insolvent;

6.5.11 receive and open all mail addressed to such Borrower and notify the
postal authorities to change the address for the delivery of mail to such
Borrower to such address as Investment Manager may designate; and

6.5.12 execute and deliver on behalf of such Borrower one or more instruments of
assignment of the Intellectual Property (or application, letters patent or
recording relating thereto), in form suitable for filing, recording or
registration.

6.6 Right to Make Payments or Otherwise Cure. Whether or not such failure shall
constitute an Event of Default, Investment Manager may, in its sole discretion,
pay any amount or do any act which Borrowers or any of them fails to do or pay
as required by the terms of this Agreement or any of the other Loan Documents.
Investment Manager may also take any actions, make any payments, or incur any
reasonable expenses (including, without limitation, the payment of filing fees,
court costs, travel expenses and attorneys’ fees) as may be necessary or
appropriate to preserve, defend, protect, maintain, record or enforce the
Obligations, the Collateral, or the security interest granted hereunder.

 

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6.7 Right to Defend. Whether or not such failure shall constitute an Event of
Default, if any material portion of the Collateral is or becomes the subject of
any litigation or other proceeding and Borrowers fail to reasonably defend such
litigation or other proceeding and to reasonably protect Borrowers’ and
Investment Manager’s rights in such Collateral in good faith, then Investment
Manager may, at its sole option, elect to defend and control the defense of such
litigation or other proceeding, including the right to: (a) select and retain
counsel; (b) determine whether settlement shall be offered or accepted; and
(c) determine and negotiate all settlement terms. Investment Manager, if it so
elects, shall be fully, jointly and severally, indemnified by Borrowers and
shall be reimbursed for all costs of litigation and settlement, including,
without limitation, all costs, expenses and reasonable attorneys’ fees for
actions taken in compliance with this Section. Any payments made pursuant to the
authority granted in Article VI and Section 6.6 above or this Section 6.7 shall
be deemed added to the principal amounts outstanding under the Credit Agreement
and shall accrue interest as provided in the Credit Agreement.

ARTICLE VII

ADDITIONAL PROVISIONS

7.1 Deficiency. Borrowers shall be and remain liable for all of the Obligations
remaining after crediting to Borrowers any net proceeds received by Investment
Manager following exercise of any of its rights and remedies hereunder.

7.2 No Duty to Act. Nothing contained in this Agreement or any of the other Loan
Documents shall be construed as requiring Investment Manager or Lender to take
any particular enforcement or remedial action or combination of enforcement or
remedial actions at any time.

7.3 Remedies Not Limited; Partial Exercise. All of Investment Manager’s and
Lender’s rights and remedies, whether provided under this Agreement, the other
Loan Documents, at law, in equity, or otherwise shall be cumulative and none is
exclusive. Such rights and remedies may be enforced alternatively, successively
or concurrently, and each Borrower hereby agrees that Investment Manager may
enforce its rights hereunder with respect to individual items or classes of
Collateral without waiving or prejudicing in any respect Investment Manager’s
rights hereunder with respect to any other items or classes of Collateral.
Investment Manager and Lender may exercise any other right or remedy which may
be available to them under this Agreement, the Credit Agreement or applicable
law, including, without limitation, the remedies set forth in Section 7.2 of the
Credit Agreement, or may proceed by appropriate court action to enforce the
terms hereof, to recover damages for the breach hereof, or to rescind this
Agreement in whole or in part.

7.4 Costs of Enforcement. Borrowers shall be liable for all reasonable costs
incurred by Investment Manager and Lender in collecting any sums owed to
Investment Manager and Lender under the Loan Documents or in otherwise enforcing
any of the Obligations (whether or not suit is brought), including, but not
limited to, all reasonable attorneys’ fees and expenses, court costs, and
reasonable costs of consultants, appraisers and other advisors retained by
Investment Manager and Lender. To the extent of any exercise by Investment
Manager or Lender of their rights under

 

12.

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Section 6.6, any reasonable expenditures made for such purpose shall be added to
the principal amount outstanding under the Credit Agreement.

7.5 Mitigation of Damages. To the extent permitted by the applicable law, each
Borrower hereby waives any notice or other mandatory requirements of applicable
law, now or hereafter in effect, which might require Investment Manager to sell,
lease or otherwise use any of the Collateral in mitigation of Investment
Manager’s or Lender’s damages; provided, however, that such Borrower does not
waive any legal requirement that Investment Manager act in a commercially
reasonable manner.

7.6 No Waivers by Investment Manager. No failure of Investment Manager or Lender
to exercise, or delay by Investment Manager or Lender in the exercise of, any
rights or remedies granted herein following the occurrence of an Event of
Default shall constitute a waiver of any of Investment Manager’s or Lender’s
rights with respect to such Event of Default or any subsequent Event of Default
(whether or not similar). Any failure or delay by Investment Manager or Lender
to require strict performance by any Borrower of any of the provisions,
warranties, terms and conditions contained herein or in any other agreement,
document or instrument, shall not affect Investment Manager’s and Lender’s right
to demand strict compliance and performance therewith.

7.7 Waiver of Notice and Hearing Regarding Probable Cause by Borrowers. Each
Borrower acknowledges being advised of a constitutional right, as to
pre-judgment relief as may be sought by Investment Manager through the process
of a court, to notice and a court hearing to determine whether, upon default,
there is probable cause to sustain the validity of Investment Manager’s claim
and whether Investment Manager is entitled to possession of the Collateral.
Being so advised, each Borrower, in regard to such relief, hereby voluntarily
gives up, waives and surrenders any right to a notice and hearing to determine
whether there is probable cause to sustain the validity of Investment Manager’s
claim. Any notices required pursuant to any state or local law shall be deemed
reasonable if mailed by Investment Manager to the persons entitled thereto at
its last known address at least ten days prior to disposition of the Collateral,
and in reference to a private sale, need state only that Investment Manager
intends to negotiate such a sale.

7.8 Investment Manager’s Actions. Investment Manager and Lender may take or
release the Collateral or other security, may release any party primarily or
secondarily liable for any indebtedness to Investment Manager or Lender, may
grant extensions, renewals or indulgences with respect to such indebtedness, and
may apply any other security therefor held by either of them to the satisfaction
of such indebtedness, all without prejudice to any of their rights or Borrowers’
obligations hereunder or under any of the other Loan Documents.

7.9 Liability for Loss. Neither Investment Manager nor Lender shall be liable
for any loss to the Collateral in its possession, nor shall such loss diminish
the debt due, even if the loss is caused or contributed by Investment Manager’s
or Lender’s negligence, except as otherwise provided in the Code.

 

13.

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7.10 Notices. All notices hereunder shall be given in accordance with the notice
provisions in the Credit Agreement. Borrowers agree that ten (10) days prior
notice of the time and place of any public sale of all or any portion of the
Collateral, or of the time after which a private sale of all or any portion of
the Collateral will be made, is commercially reasonable notice.

7.11 Further Assurances. Borrowers will promptly and duly execute and deliver to
Investment Manager such further documents and assurances and take such further
actions as Investment Manager may from time to time reasonably request in order
to carry out the intent and purpose of this Agreement and to establish and
protect the rights and remedies created or intended to be created in favor of
Investment Manager, for the benefit of Investment Manager and Lender hereunder.

7.12 Termination of Agreement; Release of Security Interest. Upon the repayment
in full of all payment Obligations and the satisfaction of all other
Obligations, this Agreement shall terminate without further action by Investment
Manager, Lender or any other Person. Notwithstanding the foregoing, upon
request, Investment Manager will execute and deliver to Borrowers any releases,
termination statements or similar instruments of reconveyance as Borrowers may
reasonably request. All such instruments and documents shall be prepared by
Borrowers and filed or recorded by Borrowers, at Borrowers’ sole expense, and
Investment Manager shall have no duty, obligation or liability with respect
thereto, except as otherwise provided in the Code.

7.13 Headings. The headings in this Agreement are for convenience of reference
only and shall not define or limit any of the terms or provisions hereof.

[signature page follows]

 

14.

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IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto
execute this Agreement as of the day and year first above written.

 

VERTICAL COMMUNICATIONS, INC.

By:

 

/s/ WILLIAM Y. TAUSCHER

Name:

 

William Y. Tauscher

Title:

 

President

VERTICAL COMMUNICATIONS ACQUISITION CORP.

By:

 

/s/ WILLIAM Y. TAUSCHER

Name:

 

William Y. Tauscher

Title:

 

President

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

as Investment Manager

By:

 

/s/ JASON A. CRIST

Name:

 

Jason A. Crist

Title:

 

Managing Director

[Signature Page to Security Agreement]

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EXHIBIT A

COLLATERAL DESCRIPTION

The Collateral consists of all of each Borrower’s right, title and interest in
and to the following, all whether now owned or hereafter developed, arising or
acquired and wherever located:

All goods and equipment, 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, 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 such Borrower’s
custody or possession or in transit and including any returns upon any accounts
or other proceeds, including insurance 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, including, without limitation,
payment intangibles, goodwill, trademarks, servicemarks, trade styles, trade
names, patents, patent applications, leases, contracts, licenses, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, software,
computer discs, computer tapes, literature, reports, catalogs, design rights,
tax and other types of refunds, returned and unearned insurance premiums,
payments of insurance and rights to payment of any kind;

All accounts, contract rights, royalties, license rights and all other forms of
obligations owing to such Borrower arising out of the sale or lease of goods,
the licensing of technology or the rendering of services by such 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 such Borrower;

All letter-of-credit rights (whether or not evidenced by a writing);

All documents (including warehouse receipts), cash, cash equivalents, deposit
accounts, securities, securities entitlements, securities accounts (including
health-care-insurance receivables and credit card receivables), commodity
accounts, commodity contracts, investment property, financial assets, letters of
credit rights, certificates of deposit, instruments (including promissory notes)
and chattel paper (including electronic chattel paper and tangible chattel
paper) and such 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; all trade secret rights, including all rights to
unpatented inventions, know-how, operating manuals, license rights and
agreements and confidential information; all mask work or similar rights
available for the

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protection of semiconductor chips; all claims for damages by way of any past,
present and future infringement of any of the foregoing;

All commercial tort claims, if any, described below; and

All books relating to the foregoing and any and all claims, rights and interests
in any of the above and all replacements of, substitutions for, additions and
accessions to and proceeds thereof.

All terms above have the meanings given to them in the Uniform Commercial Code
in effect in the State of New York, as amended or supplemented from time to
time.

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EXHIBIT B

PERFECTION CERTIFICATE