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                                                                   EXHIBIT 10.11


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                          LOAN AND SECURITY AGREEMENT
                          COSINE COMMUNICATIONS, INC.
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                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S>                                                                         <C>
                                                                            PAGE

1 ACCOUNTING AND OTHER TERMS                                                   1

2 LOAN AND TERMS OF PAYMENT                                                    1
     2.1 Credit Extensions                                                     1
     2.2 Interest Rate, Payments                                               2
     2.3 Fees                                                                  2

3 CONDITIONS OF LOANS                                                          2
     3.1 Conditions Precedent to Initial Credit Extension                      2
     3.2 Conditions Precedent to all Credit Extensions                         2

4 CREATION OF SECURITY INTEREST                                                3
     4.1 Grant of Security Interest                                            3

5 REPRESENTATION AND WARRANTIES                                                3
     5.1 Due Organization and Authorization                                    3
     5.2 Collateral                                                            3
     5.3 Litigation                                                            4
     5.4 No Material Adverse Change in Financial Statements                    4
     5.5 Solvency                                                              4
     5.6 Regulatory Compliance                                                 4
     5.7 Subsidiaries                                                          5
     5.8 Full Disclosure                                                       5

6 AFFIRMATIVE COVENANTS                                                        5
     6.1 Government Compliance                                                 5
     6.2 Financial Statements, Reports, Certificates                           5
     6.3 Inventory; Returns                                                    6
     6.4 Taxes                                                                 6
     6.5 Insurance                                                             6
     6.6 Primary Accounts                                                      6
     6.7 Financial Covenants                                                   6
     6.8 Registration of Intellectual Property Rights                          6
     6.9 Further Assurances                                                    7

7 NEGATIVE COVENANTS                                                           7
     7.1 Dispositions                                                          7
     7.2 Changes in Business, Ownership, Management or Business Locations      7
     7.3 Mergers or Acquisitions                                               7
     7.4 Indebtedness                                                          8
</TABLE>

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<TABLE>
<S>                                                         <C>
     7.5  Encumbrance......................................  8
     7.6  Distributions; Investments.......................  8
     7.7  Transactions with Affiliates.....................  8
     7.8  Subordinated Debt................................  8
     7.9  Compliance.......................................  8

8 EVENTS OF DEFAULT........................................  9
     8.1  Payment Default..................................  9
     8.2  Covenant Default.................................  9
     8.3  Material Adverse Change..........................  9
     8.4  Attachment.......................................  9
     8.5  Insolvency....................................... 10
     8.6  Other Agreements................................. 10
     8.7  Judgments........................................ 10
     8.8  Misrepresentations............................... 10

9 BANK'S RIGHTS AND REMEDIES............................... 10
     9.1  Rights and Remedies.............................. 10
     9.2  Power of Attorney................................ 11
     9.3  Accounts Collection.............................. 11
     9.4  Bank Expenses.................................... 12
     9.5  Bank's Liability for Collateral.................. 12
     9.6  Remedies Cumulative.............................. 12
     9.7  Demand Waiver.................................... 12

10 NOTICES................................................. 12

11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER.............. 13

12 GENERAL PROVISIONS...................................... 13
     12.1 Successors and Assigns........................... 13
     12.2 Indemnification.................................. 13
     12.3 Time of Essence.................................. 13
     12.4 Severability of Provision........................ 13
     12.5 Amendments in Writing Integration................ 14
     12.6 Counterparts..................................... 14
     12.7 Survival......................................... 14
     12.8 Confidentiality.................................. 14
     12.9 Attorneys' Fees, Costs and Expenses.............. 14

13 DEFINITIONS............................................. 14
     13.1 Definitions...................................... 14
</TABLE>


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     This LOAN AND SECURITY AGREEMENT dated May 29, 1998, between SILICON VALLEY
BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara, California 95054
with a loan production office located at 1731 Embarcadero, Ste. 220, Palo Alto,
California 94303 and COSINE COMMUNICATIONS, INC. ("Borrower"), whose address is
1070 Sixth Avenue, Suite 200, Belmont, California 94002 provides the terms on
which Bank will lend to Borrower and Borrower 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. This Agreement shall be construed to impart upon
Bank a duty to act reasonably at all times.

2.   LOAN AND TERMS OF PAYMENT

     2.1  Credit Extensions

     Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.

          2.1.1     Equipment Advances.

                    (a)  Through February 15, 1999 (the "Equipment Availability
End Date"), Bank will make advances ("Equipment Advance" and, collectively,
"Equipment Advances") not exceeding the Committed Equipment Line. The Equipment
Advances may only be used to finance Equipment and may not exceed 100% of the
equipment invoice excluding taxes, shipping, warranty charges, freight discounts
and installation expense. Software may constitute up to 60% of the aggregate
Equipment Advances.

                    (b)  Interest accrues from the date of each Equipment
Advance at the rate in Section 2.2(a) and is payable monthly until the
Equipment Availability End Date occurs. Equipment Advances outstanding on the
Equipment Availability End Date are payable in 36 equal monthly installments of
principal, plus accrued interest, beginning on the twenty-eighth (28th) of each
month following the Equipment Availability End Date and ending on February 15,
2002 (the "Equipment Maturity Date"). Equipment Advances when repaid may not be
reborrowed.

                    (c)  To obtain an Equipment Advance, Borrower must notify
Bank (the notice is irrevocable) by facsimile no later than 3:00 p.m. Pacific
time 1 Business Day before the day on which the Equipment Advance is to be
made. The notice in the form of Exhibit B

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(Payment/Advance Form) must be signed by a Responsible Officer or designee and
include a copy of the invoice for the Equipment being financed.

2.2  Interest Rate, Payments.

               (a)  Interest Rate. Equipment Advances accrue interest on the
outstanding principal balance at a per annum rate of 0.75 percentage points
above the Prime Rate. After an Event of Default, Obligations accrue interest at
5.00 percentage points above the rate effective immediately before the Event of
Default. The interest rate increases or decreases 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 Equipment Advances is payable
on the twenty-eighth (28th) of each month. Bank may debit any of Borrower's
deposit accounts including Account Number _______________ for principal and
interest payments or any amounts Borrower owes Bank. Bank will notify Borrower
when it debits Borrower's accounts. These debits are not a set-off. Payments
received after 12:00 noon Pacific 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.

     2.3  Fees

     Borrower will pay:

               (a)  Facility Fee. A fully earned, non-refundable Facility Fee
of $3,125 due on the Closing Date; and

               (b)  Bank Expenses. All Bank Expenses (including reasonable
attorney's fees and 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 the
condition precedent that it receive the agreements, documents and fees it
requires.

     3.2  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



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               (b)  the representations and warranties in Section 5 must be
materially 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
Borrower's 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.

     Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and
performance of each of Borrower's duties under the Loan Documents. Except for
Permitted Liens, any security interest will be a first priority security
interest in the Collateral. Bank may place a "hold" on any deposit account
pledged as Collateral. Notwithstanding the foregoing, the security interest
granted herein shall not extend to and the term "Collateral" shall not include
any property, rights or licenses to the extent the granting of a security
interest therein (i) would be contrary to applicable law or (ii) is prohibited
by or would constitute a default under any material agreement or document
governing such property, rights or licenses, of which Borrower has given Bank
prior written notice in a form reasonably acceptable to Bank (but only to the
extent such prohibition is enforceable under applicable law); provided however
that the term "Collateral" shall include such property, rights or licenses upon
the cessation of contractual restrictions (i) and (ii) above on the grant of a
security interest in such otherwise excluded "Collateral".

5.   REPRESENTATIONS AND WARRANTIES

     Borrower represents and warrants as follows:

     5.1  Due Organization and Authorization.

     Borrower and each Subsidiary is duly existing and in good standing in its
state of formation 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 for states as to which any
failure so to qualify would not have a Material Adverse Effect).

     The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with 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 would reasonably be expected to have a
Material Adverse Change.

     5.2  Collateral.

     Borrower has good title to the Collateral, free of Liens except Permitted
Liens. All Inventory is in all material aspects of good and marketable quality,
free from material defects.

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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 no
claim has been made that any part of the Intellectual Property violates the
rights of any third party.

     5.3  Litigation.

     Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision would reasonably be expected to cause a
Material Adverse Change.

     5.4  No Material Adverse Change in Financial Statements.

     All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.

     5.5  Solvency.

     The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as
they mature.

     5.6  Regulatory Compliance.

     Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations G, T and U of the Federal Reserve Board of Governors). Borrower has
complied with the Federal Fair Labor Standards Act. Borrower has not violated
any laws, ordinances or rules, the violation of which could cause a Material
Adverse Change. None of Borrower's or any Subsidiary's properties or assets has
been used by Borrower or any Subsidiary or, to the best of Borrower's
knowledge, by previous Persons, in disposing, producing, storing, treating, or
transporting any hazardous substance other than legally. Borrower and each
Subsidiary has timely filed all required tax returns and paid, or made adequate
provision to pay, all taxes, except those being contested in good faith with
adequate reserves under GAAP. 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 any failure to do
so could not reasonably be expected to cause a Material Adverse Change.



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     5.7  Subsidiaries.

     Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.

     5.8  Full Disclosure.

     No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank taken together with all such
certificates and written statements given 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.

6.   AFFIRMATIVE COVENANTS

     Borrower will do all of the following:

     6.1  Government Compliance.

     Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify could reasonably be expected to
have a material adverse effect on Borrower's business or operations. 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 Borrower's business or operations or cause a
Material Adverse Change.

     6.2  Financial Statements, Reports, Certificates.

               (a)  Borrower will deliver to Bank: (i) as soon as available,
but no later than 30 days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during the period, in a form and certified by a Responsible Officer
acceptable to Bank; (ii) as soon as available, but no later than 90 days after
the last day of Borrower's fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an opinion
on the financial statements, approved by Bank in its sole discretion, from an
independent certified public accounting firm acceptable to Bank; (iii) a prompt
report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any Subsidiary
of $100,000 or more; (iv) budgets, sales projections, operating plans or other
financial information Bank requests; and (v) prompt notice of any material
change in the composition of the Intellectual Property, including any
subsequent ownership right of Borrower in or to any Copyright, Patent or
Trademark not shown in any intellectual property security agreement between
Borrower and Bank or knowledge of an event that materially adversely affects
the value of the Intellectual Property.



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           (b) Within 30 days after the last day of each month, Borrower will
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit C.

      6.3   Inventory; Returns.

      Borrower will keep all Inventory in good and marketable condition, free
form material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution
of this Agreement. Borrower must promptly notify Bank of all returns,
recoveries, disputes and claims, that involve more than $50,000.

      6.4   Taxes.

      Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.

      6.5   Insurance.

      Borrower will keep its business and the Collateral insured for risks and
in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are reasonably satisfactory to Bank. 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 20 days
notice before canceling its policy. At Bank's request, Borrower 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.

      Borrower will maintain its principal depository accounts with Bank.

      6.7   Financial Covenants.

      Borrower hereby covenants and agrees with Bank that its cash balances
will not deviate more than 10% below the figures stated in its business plan
dated April 20, 1998, measured quarterly, within twenty (20) days of quarter
end.

      6.8   Registration of Intellectual Property Rights.

      Borrower will register with the United States Patent and Trademark Office
or the United States Copyright Office Intellectual Property rights on Exhibits
A, B, C, and D to the Intellectual Property Security Agreement within 30 days
of the date of this Agreement, and additional


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Intellectual Property rights developed or acquired including revisions or
additions with any product before the sale or licensing of the product to any
third party.

     Borrower 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 to be
abandoned, forfeited or dedicated to the public without Bank's written consent.

     6.9  Further Assurances.

     Borrower 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

     Borrower will not do any of the following:

     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, other than 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 Borrower or its Subsidiaries in the ordinary course
of business; (iii) otherwise permitted under this Section 7; (iv) in an
aggregate amount not exceeding One Hundred Twenty-Five Thousand Dollars
($125,000) in any fiscal year; or (v) of worn-out or obsolete Equipment, or new
Equipment financed by other vendors.

     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 borrower or have a material
change in its ownership of greater than 25%, other than the sale by Borrower of
equity securities of Borrower. Borrower will not, without at least 30 days
prior written notice, relocate its chief executive office or add any new
offices or business locations.

     7.3  Mergers or Acquisitions.

     (i) 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 if no Event of Default has occurred and is
continuing or wold result from such action during the term of this Agreement or
result in a decrease of more than 25% of Tangible Net Worth; or (ii) merge or
consolidate a Subsidiary into another Subsidiary or into Borrower.

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        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 herein subject only to Permitted Liens.

        7.6     Distributions; Investments.

        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. Pay any dividends or make any distribution or
payment or redeem, retire or purchase any capital stock, except for (i) the
repurchase of capital stock from directors, officers, employees and/or
consultants upon exercise of Borrower's right of repurchase upon termination of
employment or services to Borrower in an aggregate amount not to exceed One
Hundred Twenty-Five Thousand Dollars ($125,000), provided, however, that
immediately prior to and following such repurchases there exists no Event of
Default under the Loan Documents (ii) the conversion by Borrower of any of its
convertible securities into other securities pursuant to the terms of such
convertible securities or otherwise in exchange therefor, and (iii) the
repurchase of Borrower's capital stock from the proceeds of the issuance by
Borrower of capital stock or Subordinated Debt.

        7.7     Transactions with Affiliates.

        Directly or indirectly enter or permit any material transaction with
any Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an
arm's length transaction with a non-affiliated 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 Advance 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


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Standards Act or violate any other law or regulation, if the violation could
have a material adverse effect on Borrower's business or operations or 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 Borrower fails to pay the principal of, or any interest on, any
Equipment Advances when due and payable; or fails to pay any portion of any
other Obligations not constituting such principal or interest, including
without limitation Bank Expenses, within thirty (30) days of receipt by
Borrower of an invoice for such other Obligations;

        8.2     Covenant Default.

        If Borrower does not perform any obligation in Sections 6.6, 6.7, 6.8,
or 6.9 or violates any covenant in Section 7 or does not perform or observe any
other material term, condition or covenant in this Agreement, any Loan
Documents, or in any agreement between Borrower and Bank and as to any default
under a term, condition or covenant that can be cured, has not cured the
default within 10 days after it occurs, or if the default cannot be cured
within 10 days or cannot be cured after Borrower's attempts within such 10 day
period, and the default may be cured within a reasonable time, then Borrower
has an additional period (of not more than 30 days) to attempt to cure the
default. During the additional time, the failure to cure the default is not an
Event of Default (but no Credit Extensions will be made during the cure period);

        8.3     Material Adverse Change.

                (i)     If there occurs a material impairment in the perfection
or priority of the Bank's security interest in the Collateral or in the value
of such Collateral which is not covered by adequate insurance or (ii) if the
Bank determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.

        8.4     Attachment.

        If any material portion of 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 10 days, or if 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
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice.

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These are not Events of Default if stayed or if a bond is posted pending contest
by Borrower (but no Credit Extensions will be made during the cure period);

     8.5  Insolvency.

     If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 45 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);

     8.6  Other Agreements.

     If there is a default in any agreement between Borrower and a third party
that gives the third party the right to accelerate any Indebtedness exceeding
$100,000 or that could cause a Material Adverse Change;

     8.7  Judgments.

     If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 30 days (but no Advances
will be made before the judgment is stayed or satisfied); or

     8.8  Misrepresentations.

     If Borrower or any Person acting for 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.

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 Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;

          (c)  Settle or adjust disputes and claims directly with account
debtors for amounts, on terms and in any order that Bank considers advisable;



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<PAGE>   14
          (d)  Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may 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. Borrower grants Bank a license to 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
Borrower it holds, or (ii) any amount held by Bank owing to or for the credit
or the account of 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,
Borrower's labels, Patents, Copyrights, Mask Works, 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, Borrower's
rights under all licenses and all franchise agreements inure to Bank's
benefit; and

          (g)  Dispose of the Collateral according to the Code.

     9.2  Power of Attorney.

     Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's
name on any checks or other forms of payment or security; (ii) sign 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 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
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 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 continues, Bank may notify any Person
owing Borrower money of  Bank's security interest in the funds and verify the
amount of the Account. 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.

                                       11
<PAGE>   15
     9.4  Bank Expenses.

     If 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.

     9.5  Bank's Liability for Collateral.

     If Bank complies with its obligations under Section 9207 of the Code and
other applicable law 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. 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.

     Borrower waives demand, notice of default or dishonor, notice of payments
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 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.

                                       12
<PAGE>   16
11.   CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

      California 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 Santa Clara County, California.

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. Borrower may not assign this Agreement or any
rights under it 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 Borrower, 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.

      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 Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.

      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.



                                       13
<PAGE>   17
     12.5 Amendments in Writing, Integration.

     All amendments to this Agreement must be in writing and signed by Borrower
and Bank. This Agreement represents the entire agreement about this subject
matter, and supersedes prior negotiations or agreements. 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.

     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 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
in connection with their business with Borrower, (ii) to prospective
transferees or purchasers of any interest in the Loans, (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 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 Attorneys' Fees, Costs and Expenses.

     In any action or proceeding between Borrower and Bank arising out of the
Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other costs and expenses incurred, in addition to any other
relief to which it may be entitled.

                                       14
<PAGE>   18

13.   DEFINITIONS

      13.1  Definitions.

      In this Agreement:

      "ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed 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 Borrower and Borrower's Books relating to any of the
foregoing.

      "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 or
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 Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs
or any equipment containing the information.

      "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 California Uniform Commercial Code.

      "COLLATERAL" is the property described on Exhibit A.

      "COMMITTED EQUIPMENT LINE" is a Credit Extension of up to $1,250,000.

      "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


                                       15
<PAGE>   19
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 Equipment Advance or any other extension of
credit by Bank for Borrower's benefit.

     "CURRENT LIABILITIES" are the aggregate amount of Borrower's total
liabilities which mature within one (1) year.

     "EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.

     "EQUIPMENT ADVANCE" is defined in Section 2.1.1.

     "EQUIPMENT AVAILABILITY END DATE" is defined in Section 2.1.1.

     "EQUIPMENT MATURITY DATE" is defined in Section 2.1.1.

     "ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.

     "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:

                                       16


<PAGE>   20
                (a) Copyrights, Trademarks, Patents, and Mask Works including
amendments, renewals, extensions, and all licenses or other rights to use and
all license fees and royalties from the use;

                (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 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;

        All proceeds and products of the foregoing, including all insurance,
indemnity or warranty payments.

        "INVENTORY" is present and future inventory in which 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 Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance 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.

        "LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.

        "LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or any guarantor, and any other present or
future agreement between Borrower and/or for the benefit of Bank in connection
with this Agreement, all as amended, extended or restated.

        "MASK WORKS" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.

        "MATERIAL ADVERSE CHANGE" is defined in Section 8.3.

        "OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and Foreign
Exchange Contracts and

                                       17
<PAGE>   21
including interest accruing after Insolvency Proceedings begin and debts,
liabilities, or obligations of 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.

      "PERMITTED INDEBTEDNESS" is:

      (a)   Borrower's indebtedness to Bank under this Agreement or any other
Loan Document;

      (b)   Indebtedness existing on the Closing Date and shown on the Schedule;

      (c)   Subordinated Debt;

      (d)   Indebtedness to trade creditors and with respect to surety bonds
and similar obligations incurred in the ordinary course of business;

      (e)   Indebtedness secured by Permitted Liens;

      (f)   Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of Borrower (provided
that the primary obligations are not prohibited hereby), and Indebtedness of
any Subsidiary to any other Subsidiary and Contingent Obligations of any
Subsidiary with respect to obligations of any other Subsidiary (provided that
the primary obligations are not prohibited hereby);

      (g)   Capital leases or indebtedness incurred solely to purchase
equipment which is secured in accordance with clause (c) of "Permitted Liens"
below and is not in excess of the purchase price of such equipment plus related
financing costs;

      (h)   Other Indebtedness not otherwise permitted by Section 7.4 not
exceeding One Hundred Twenty-Five Thousand Dollars ($125,000) in the aggregate
outstanding at any time; and

      (i)   Extensions, refinancings, modifications, amendments and
restatements of any of items of Permitted Indebtedness (a) through (h) above,
provided that the principal amount thereof is not increased or the terms
thereof are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.

      "PERMITTED INVESTMENTS" are:

      (a)   Investments shown on the Schedule and existing on the Closing Date;
and

      (b)   (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial



                                       18
<PAGE>   22
paper maturing no more than 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 1
year after issue.

     (c) any Investments permitted by Borrower's investment policy, as amended
from time to time, provided such investment policy (and any amendments
thereto) has been previously approved by Bank in writing;

     (d) Investments consisting of the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business;

     (e)  Investments accepted in connection with Transfers permitted by
Section 7.1;

     (f) Investments of Subsidiaries in or to other Subsidiaries or Borrower,
and Investments by Borrower in Subsidiaries not exceeding One Hundred
Twenty-Five Thousand Dollars ($125,000) in the aggregate at any time;

     (g) Investments consisting of (i) travel advances and employee relocation
loans and other employee loans and advances in the ordinary course of business,
and (ii) loans to employees, officers or directors relating to the purchase of
equity securities of Borrower or its Subsidiaries pursuant to employee stock
purchase plans or agreements approved by Borrower's Board of Directors;

     (h) Investments (including debt obligations) received in connection with
the bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with, customers or suppliers
arising in the ordinary course of business;

     (i) Investments consisting of notes receivable of, or prepaid royalties and
other credit extensions to, customers and suppliers who are not Affiliates, in
the ordinary course of business; provided that this paragraph (i) shall not
apply to Investments by Borrower in any Subsidiary;

     (j) Deposit accounts of Borrower in which Bank has a Lien prior to any
other lien; and

     (k) Other Investments not otherwise permitted by Section 7.6 not exceeding
One Hundred Twenty-Five Thousand Dollars ($125,000) in the aggregate at any
time.

     "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
Borrower maintains adequate reserves on its Books, if they have no priority
over any of Bank's security interests;

                                       19


<PAGE>   23
     (c)  Purchase money Liens (i) on Equipment acquired or held by 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)  Leases or subleases and (non-exclusive) licenses or sublicenses
granted in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower and its Subsidiaries taken as a
whole, and any interest or title of a lessor, licensor or under any lease or
license;

     (e)  Liens on assets (including the proceeds thereof and accessions
thereto) that existed at the time such assets were acquired by Borrower or any
Subsidiary (including Liens on assets of any corporation that existed at the
time it became or becomes a Subsidiary); provided such Liens are not granted in
contemplation of or in connection with the acquisition of such asset by
Borrower or a Subsidiary;

     (f)  Liens in favor of customs and revenue authorities arising as a matter
of law to secure payments of customs duties in connection with the importation
of goods;

     (g)  Liens that are not prior to the Lien of Bank which constitute rights
of set-off of a customary nature or banker's Liens with respect to amount on
deposit, whether arising by operation of law or by contract, in connection with
arrangements entered into with banks in the ordinary course of business;

     (h)  Liens on insurance proceeds in favor of insurance companies granted
solely as security for financed premiums;

     (i)  Liens arising from judgments, decrees or attachments in circumstances
not constituting an Event of Default under Section 8.7;

     (j)  Easements, reservations, rights-of-way, restrictions, minor defects
or irregularities in title and other similar charges or encumbrances affecting
real property not constituting a Material Adverse Effect;

     (k)  Deposits under worker's compensation, unemployment insurance, social
security and other similar laws, or to secure the performance of bids, tenders
or contracts (other than for the repayment of borrowed money) or to secure
indemnity, performance or other similar bonds for the performance of bids,
tenders or contracts (other than for the repayment of borrowed money) or to
secure statutory obligations (other than liens arising under ERISA or
environmental liens) or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds in the ordinary course of business;


                                       20
<PAGE>   24
        (l) Liens arising by operation of law such as mechanics',
materialman's, carriers', warehousemen's liens incurred in the ordinary course
of business, where such claim is stayed or an adequate bond has been posted
pending a good faith contest by Borrower (provided that no Equipment Advances
will be required to be made during such cure period); and

        (m) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a), (c), (d), (e), (f), (g), (h),
(k), and (l), 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.

        "QUICK ASSETS" is, on any date, the Borrower's consolidated,
unrestricted cash, cash equivalents, net billed accounts receivable and
investments with maturities of fewer than 12 months determined according to
GAAP.

        "RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.

        "SCHEDULE" is any attached schedule of exceptions.

        "SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).

        "SUBSIDIARY" is for any Person, or any other business entity of which
more than 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.

        "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 any assignor connected with the trademarks.

                                       21
<PAGE>   25
BORROWER:

COSINE COMMUNICATIONS, INC.

By: /s/ DEAN HAMILTON
   ----------------------------------------

Title:
      -------------------------------------

BANK:

SILICON VALLEY BANK

By: /s/ GREG OLSEN
   ----------------------------------------

Title: Vice President
      -------------------------------------


                                       22
<PAGE>   26

                                   EXHIBIT A

        The Collateral consists of all of Borrower's right, title and interest
in and to the following:

        All goods and equipment 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, 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,
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 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 not existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by 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 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 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 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.