Document:

Consent and Waiver Agreement

 Exhibit 10.2 
 CONSENT AND WAIVER AGREEMENT 
 This CONSENT AND WAIVER AGREEMENT (this “Agreement”)
is made and entered into as of this 17th day of March, 2008 among Vertical Communications, Inc., a Delaware corporation (the “Company”), and each of the undersigned holders (collectively, the “Stockholders”) of
(i) shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”) and warrants to purchase Common Stock (the “Warrants”), (ii) the Company’s Series D Convertible Preferred
Stock, par value $1.00 per share (the “Series D Preferred Stock”) and (iii) the Company’s Series E Convertible Preferred Stock, par value $1.00 per share (the “Series E Preferred Stock”), each of whom are
parties to any of the Prior Agreements (as such term is defined below) (such Stockholders holding a sufficient number of shares of Common Stock, Warrants, Series D Preferred Stock and/or Series E Preferred Stock to take the actions provided for
herein). 
 WHEREAS, the Company and certain holders of the Company’s Series E Preferred Stock (the “Series E Preferred
Stockholders”) are parties to that certain Amended and Restated Securities Purchase Agreement, dated as of December 1, 2006 (the “December 2006 Agreement”); 
 WHEREAS, the Company and certain holders of the Company’s Series D Preferred Stock (the “Series D Preferred Stockholders”)
are parties to that certain Securities Purchase Agreement, dated as of February 9, 2006 (the “February 2006 Agreement”); 
 WHEREAS, the Company and certain holders of the Company’s Common Stock (the “Common Stockholders”) are parties to, as applicable, (i) that certain Stock Purchase Agreement, dated September 28, 2005
(the “2005 Agreement”), and (ii) that certain Stock Purchase Agreement, dated September 28, 2004 (the “2004 Agreement,” and together with the December 2006 Agreement, the February 2006 Agreement and the
2005 Agreement, the “Prior Agreements”); 
 WHEREAS, the Company desires to enter into that certain Securities
Purchase Agreement of even date herewith (the “2008 Agreement”) with certain investors, including the Stockholders (the “Initial Investors”), relating to the issuance of certain Subordinated Convertible Promissory
Notes in an aggregate principal amount of $5,250,000 (the “Initial Notes”); 
 WHEREAS, after the execution and
delivery of the 2008 Agreement, the Company may sell to certain investors (the “Subsequent Investors,” and together with the Initial Investors, the “Investors”) a number of additional Notes (the “Subsequent
Notes,” and together with the Initial Note, the “Notes”) on identical terms and conditions as contained in the 2008 Agreement;  
 WHEREAS, upon the occurrence of a Qualifying Investment (as defined in the Notes), (i) the Notes are convertible into shares of Section 5(a) Preferred Stock (as defined in the Notes), with the powers,
designations, preferences and rights (the “Preferred Terms”) set forth on Exhibit B of the Notes, and (ii) the Company will issue to the Investors warrants to purchase Common Stock in substantially the form attached to
the Notes as Exhibit A (the “2008 Warrants”), each in accordance with the terms of the Purchase Agreement and the Notes; 

 WHEREAS, if no Qualifying Investment has occurred on or before the Outside Date (as defined in the
Notes), the Notes are convertible into shares of Section 5(b) Preferred Stock (as defined in the Notes) with the Preferred Terms set forth in Exhibit C of the Notes (the applicable series of preferred stock designated pursuant to the
Notes is referred to herein as the “Series F Preferred Stock”); 
 WHEREAS, solely with respect to the issuance of
the (i) the Notes, (ii) the Series F Preferred Stock, (iii) the 2008 Warrants (if applicable), (iv) the Common Stock upon conversion of the Series F Preferred Stock and (v) the Common Stock upon exercise of the 2008 Warrants
(if applicable), the Series E Preferred Stockholders desire to waive (the “Series E Waiver”) the application and effect of (1) Section 5(d)(iv) [Adjustment of Series E Conversion Price Upon Issuance of Additional Shares of
Common Stock] of the Certificate of Powers, Designations, Preferences and Rights of the Series E Preferred Stock (the “Series E Certificate of Designations”) and (2) Section 8(a) of each of the warrants issued pursuant to
the December 2006 Agreement (collectively, the “December 2006 Warrants”); 
 WHEREAS, as contemplated in the Notes,
upon a Conversion Event (as defined in the Notes), the Company will file a certificate of powers, designations and rights to designate the Series F Preferred Stock (the “Series F Certificate of Designations”) with the Secretary of
State of Delaware; 
 WHEREAS, in connection with the 2008 Agreement, the Company desires to amend its Amended and Restated
Certificate of Incorporation, as amended, to increase the number of shares of Common Stock the Company is authorized to issue from 250,000,000 shares to 750,000,000 shares (the “Charter Amendment”); 
 WHEREAS, the Stockholders desire to approve an amendment to the Company’s 2004 Stock Incentive Plan, as amended (the “Plan”)
to increase the shares available for awards under the Plan to 80,000,000 shares of the Company’s Common Stock (the “Plan Amendment”); and 
 WHEREAS, the Stockholders desire to make certain consents and waivers in connection with (i) the 2008 Agreement and the transactions contemplated thereby; (ii) the issuance of the Initial Notes to the
Initial Investors; (iii) the issuance of the Subsequent Notes to the Subsequent Investors; (iv) the terms of the Section 5(a) Preferred Stock and Section 5(b) Preferred Stock, as set forth in the Notes; (v) the Series E
Waiver (vi) the filing of the Series F Certificate of Designations with the Secretary of State of Delaware; (vii) the issuance of the Series F Preferred Stock and, if applicable, the 2008 Warrants, upon conversion of the Notes;
(viii) the Charter Amendment; and (ix) the Plan Amendment. 
 NOW, THEREFORE, in consideration of the foregoing and the
promises and covenants set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto consent and agree as follows: 
 1. Consents. Each undersigned Stockholder hereby consents to (a) the 2008 Agreement and the transactions contemplated thereby; (b) the issuance of the
Initial Notes to the Initial Investors; (c) the issuance of the Subsequent Notes to the Subsequent Investors; (d) the terms of the Section 5(a) Preferred Stock and Section 5(b) Preferred Stock, as set forth in the Notes; (e)

  

					
	 Consent and Waiver Agreement
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the filing of the Series F Certificate of Designations with the Secretary of State of Delaware; (f) the issuance of the Series F Preferred Stock and, if
applicable, the 2008 Warrants, upon conversion of the Notes; (g) the Charter Amendment and the transactions contemplated thereby; and (h) the Plan Amendment and the transactions contemplated thereby. Each Stockholder understands that his,
her or its consent hereunder is irrevocable unless otherwise agreed to in writing by the Company. 
 2. Series E Waiver. The undersigned Series E
Preferred Stockholders, solely with respect to the issuance of (i) the Notes, (ii) the Series F Preferred Stock, (iii) 2008 Warrants (if applicable), (iv) the Common Stock upon conversion of the Series F Preferred Stock and
(v) the Common Stock upon exercise of the 2008 Warrants (if applicable): 
 (a) On behalf of all holders of Series E Preferred Stock,
hereby waive the application and effect of Section 5(d)(iv) [Adjustment of Series E Conversion Price Upon Issuance of Additional Shares of Common Stock] of the Series E Certificate of Designations, and any rights, powers or preferences the
holders of the Series E Preferred Stockholder may have thereunder. 
 (b) On behalf of all holders of December 2006 Warrants, hereby waive
the application and effect of Section 8(a) [Adjustments to Warrant Price and Warrant Shares] of each December 2006 Warrant, and any rights the holders of the December 2006 Warrants may have thereunder. 
 (c) Each undersigned Series E Preferred Stockholder understands that his, her or its waiver hereunder is irrevocable unless otherwise agreed to in
writing by the Company. Each undersigned Series E Preferred Stockholder further acknowledges that, as a result of his, her or its waiver hereunder, the Series E Conversion Price (as defined in the Series E Certificate of Designations) and the
Warrant Price (as defined in each December 2006 Warrant) shall not be adjusted as a result of the issuance of the Notes, the Series F Preferred Stock and/or the 2008 Warrants (if applicable). 
 3. Waiver of Provisions of December 2006 Agreements. The undersigned Series E Preferred Stockholders that are party to the December 2006 Agreement hereby waive
Section 3.1 [Right of First Refusal] of the December 2006 Agreement with respect to themselves, and, in addition, on behalf of all of the parties to the December 2006 Agreement, hereby waive Sections 4.2 [Creation of Senior or Pari Passu
Equity; Issuance of Equity Securities], 4.9 [Restrictions on Indebtedness], 4.13 [Adjustments to Warrants] and 4.14 [Credit Agreement] of the December 2006 Agreement, solely for the purposes of effecting the transactions contemplated by the 2008
Agreement and waive Sections 4.7 [Change to Charter/By-laws] and 4.10 [Change in Authorized Capital Stock] solely with respect to the Charter Amendment. The undersigned Series E Preferred Stockholders agree that any grant or issuance of awards under
the Plan after the Plan Amendment is completed shall not be deemed to be “Additional Shares of Common Stock” as such term is defined in the Certificate of Powers, Designations, Preferences and Rights of the Series E Preferred Stock and the
Warrants issued in connection with the December 2006 Agreement if such grant or issuance (a) complies with Section 4.12 [Issuance of Compensatory Equity Awards] of the December 2006 Agreement, and (b) does not exceed the maximum
number of shares available for awards under the Plan. Each undersigned Series E Preferred Stockholder understands that his, her or its waiver and agreements hereunder are irrevocable unless otherwise agreed to in writing by the Company. 

 

					
	 Consent and Waiver Agreement
	  	3	  	

 4. Waiver of Provisions of February 2006 Agreement. The undersigned Series D Preferred Stockholders that are party
to the February 2006 Agreement hereby waive Section 3.1 [Right of First Refusal] of the February 2006 Agreement with respect to themselves, and, in addition, on behalf of all of the parties to the February 2006 Agreement, hereby waive Sections
4.2 [Creation of Senior or Pari Passu Equity; Issuance of Equity Securities], 4.9 [Restrictions on Indebtedness] and 4.13 [Adjustments to Warrants] of the February 2006 Agreement, solely for the purposes of effecting the transactions contemplated by
the 2008 Agreement and waive Sections 4.7 [Change to Charter/By-laws] and 4.10 [Change in Authorized Capital Stock] solely with respect to the Charter Amendment. The undersigned Series D Preferred Stockholders agree that any grant or issuance of
awards under the Plan after the Plan Amendment is completed shall not be deemed to be “Additional Shares of Common Stock” as such term is defined in the Certificate of Powers, Designations, Preferences and Rights of the Series D Preferred
Stock and the Warrants issued in connection with the February 2006 Agreement if such grant or issuance (a) complies with Section 4.12 [Issuance of Compensatory Equity Awards] of the February 2006 Agreement, and (b) does not exceed the
maximum number of shares available for awards under the Plan. Each undersigned Series D Preferred Stockholder understands that his, her or its waiver and agreements hereunder are irrevocable unless otherwise agreed to in writing by the Company.

 5. Waiver of Provisions of the 2005 Agreement. The undersigned Common Stockholders that are party to the 2005 Agreement hereby waive
Section 3.4 [Right of First Refusal] of the 2005 Agreement with respect to themselves, and, in addition, on behalf of all of the parties to the 2005 Agreement, hereby waive Sections 4.2 [Creation of Senior or Pari Passu Equity; Issuance of
Equity Securities], 4.9 [Restrictions on Indebtedness] and 4.13 [Adjustments to Warrants] of the 2005 Agreement, solely for the purposes of effecting the transactions contemplated by the 2008 Agreement and waive Sections 4.7 [Change to
Charter/By-laws] and 4.10 [Change in Authorized Capital Stock] solely with respect to the Charter Amendment. Each undersigned Common Stockholder that is a party to the 2005 Agreement understands that his, her or its waiver hereunder is irrevocable
unless otherwise agreed to in writing by the Company. 
 6. Waiver of Provisions of the 2004 Agreement. The undersigned Common Stockholders that are
party to the 2004 Agreement hereby waive Section 3.4 [Right of First Refusal] with respect to themselves, and, in addition, on behalf of all of the parties to the 2004 Agreement, hereby waive Sections 4.2 [Creation of Senior or Pari Passu
Equity; Issuance of Equity Securities] and 4.9 [Restrictions on Indebtedness] of the 2004 Agreement, solely for the purposes of effecting the transactions contemplated by the 2008 Agreement and waive Sections 4.7 [Change to Charter/By-laws] and 4.10
[Change in Authorized Capital Stock] solely with respect to the Charter Amendment. Each undersigned Common Stockholder that is a party to the 2004 Agreement understands that his, her or its waiver hereunder is irrevocable unless otherwise agreed to
in writing by the Company. 
 7. ROFR Parties. As contemplated by Section 1.4 of the 2008 Agreement, certain ROFR Offerees shall be
afforded the ROFR Rights (as such terms are defined in the 2008 Agreement). If any such ROFR Offerees exercises such ROFR Rights, then such ROFR Offerees shall become a party to this Agreement with the same effect as if such ROFR Offerees executed
this Agreement on the date hereof. 
  

					
	 Consent and Waiver Agreement
	  	4	  	

 8. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument. This Agreement may be executed via facsimile, which shall be deemed an original. 
 9. Severability. If any provision of this Agreement shall be declared void or unenforceable by any judicial or administrative authority, the validity or enforceability of any other provision and of the entire Agreement shall not be
affected. 
 10. Enforceability. Upon execution of this Agreement by the undersigned Stockholders, the validity of any waiver, consent or amendment
made hereunder shall be unaffected by the failure of any one or more stockholders of the Company to execute this Agreement. 
 11. Governing Law. This
Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York. 
 12. Further Assurances. Following
the date hereof, each party shall execute, deliver, acknowledge and file, or shall cause to be executed, acknowledged, delivered and filed, all such further instruments, certificates and other documents and shall take, or cause to be taken, such
other actions as may reasonably be requested by any other party in order to carry out the provisions of this Agreement. 
 13. Confidentiality. Each
undersigned Stockholder hereby agrees that, except as required by law, to hold in confidence the 2008 Agreement, this Agreement, all of the terms thereof and all of the transactions contemplated thereby and hereby until such time as the material
terms thereof and hereof are publicly disclosed by the Company (which the Company agrees to do in compliance with applicable law). 
 [Signature page follows] 
  

					
	 Consent and Waiver Agreement
	  	5	  	

 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above
written. 
  

			
	COMPANY:
	
	VERTICAL COMMUNICATIONS, INC.
		
	By:	 	 /s/ KENNETH M. CLINEBELL

		 	Kenneth M. Clinebell, Chief Financial Officer and Secretary

 Signature Page to Consent and Waiver Agreement 

			
	STOCKHOLDERS:
	
	M/C VENTURE PARTNERS V, L.P.
		
	By:	 	M/C VP V, LLC, its general partner
		
	By:	 	 /s/ John W. Watkins

	Name:	 	John W. Watkins
	Title:	 	Manager
	
	M/C VENTURE INVESTORS, LLC
		
	By:	 	 /s/ John W. Watkins

	Name:	 	John W. Watkins
	Title:	 	Manager
	
	CHESTNUT VENTURE PARTNERS, L.P.
		
	By:	 	Chestnut Street Partners, Inc., its general partner
		
	By:	 	 /s/ John W. Watkins

	Name:	 	John W. Watkins
	Title:	 	Manager

 Signature Page to Consent and Waiver Agreement 

			
	PATHFINDER VENTURES III, L.L.C.
	
	By: RRS Investments II, L.L.C., an Arizona limited liability company
	
	By: Stolworthy Revocable Trust, its Manager
		
	By:	 	 /s/ R. RANDY STOLWORTHY

		 	R. Randy Stolworthy, its Trustee
	
	PATHFINDER VENTURES IV, L.L.C.
	
	By: RRS Investments II, L.L.C., an Arizona limited liability company
	
	By: Stolworthy Revocable Trust, its Manager
		
	By:	 	 /s/ R. RANDY STOLWORTHY

		 	R. Randy Stolworthy, its Trustee

 Signature Page to Consent and Waiver Agreement 

	
	 /s/ William Y. Tauscher

	WILLIAM Y. TAUSCHER, Individually

  

					
	 Signature Page to Consent and Waiver AgreementSubordinated Convertible Promissory Note

 Exhibit 10.3 
 THIS SUBORDINATED CONVERTIBLE PROMISSORY NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR,
SUBJECT TO THE TERMS AND CONDITIONS HEREOF, AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE BORROWER THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT. 
 PAYMENT OF THIS SUBORDINATED CONVERTIBLE PROMISSORY NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY IS SUBORDINATED IN THE MANNER AND TO THE EXTENT SET FORTH IN (A) THE SUBORDINATION AGREEMENT DATED AS OF MARCH 17, 2008 AMONG MAKER, SILICON
VALLEY BANK, LENDER AND THE OTHER PARTIES THERETO AND (B) THE SUBORDINATION AGREEMENT DATED AS OF MARCH 17, 2008 AMONG MAKER, NEIPF, L.P., COLUMBIA PARTNERS, L.L.C. INVESTMENT MANAGEMENT, LENDER AND THE OTHER PARTIES THERETO, IN EACH CASE TO
THE PRIOR PAYMENT IN FULL OF ALL “SENIOR DEBT” DESCRIBED IN SUCH SUBORDINATION AGREEMENTS, AND EACH HOLDER OF THIS SUBORDINATED CONVERTIBLE PROMISSORY NOTE, BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE PROVISIONS OF SUCH SUBORDINATION
AGREEMENTS. 
 VERTICAL COMMUNICATIONS, INC. 
 SUBORDINATED CONVERTIBLE PROMISSORY NOTE 
  

			
	[PRINCIPAL AMOUNT] 	  	March 17, 2008

 FOR VALUE RECEIVED, Vertical Communications, Inc., a Delaware corporation (the
“Maker”), hereby promises to pay to [INVESTOR] or his/her/its assigns (the “Lender”), on demand made on or after the 12 month anniversary of the date hereof (subject to Sections 2, 5 and 6
herein) (the “Maturity Date”), the aggregate principal sum of $[PRINCIPAL AMOUNT] or such part thereof as from time to time remains outstanding, whichever is less, together with interest on the balance of principal remaining unpaid
from time to time accruing on and from the date hereof at an annual rate equal to 15% (this “Note”). Interest shall be calculated based on a 360-day year of twelve 30-day months, but in no event shall the rate of interest exceed the
maximum rate, if any, allowable under applicable law. 
 This Note is one of a series of subordinated convertible promissory notes of similar
tenor (collectively, the “Notes”) issued or to be issued by the Maker from and after the date hereof pursuant to that certain Securities Purchase Agreement dated as of MARCH 17, 2008, by and among the Maker and the investors listed
on Exhibit A thereto (as originally executed and as the same may be amended, modified, supplemented or restated from time to time in accordance with its terms, the “Securities Purchase Agreement”). Any payments made by the
Maker on any Notes will be made simultaneously on all Notes in an amount prorated among the Notes in proportion to the original principal amount of each Note. 
 1. Payment. All payments on account of principal and interest shall be made in lawful money of the United States of America at the principal office of the Lender, or such other place as the holder hereof may
from time to time designate in writing to the Maker. All payments by the Maker under 

 
this Note shall be in immediately available funds. All payments by the Maker under this Note shall be applied first to any fees and expenses due and payable
hereunder, then to accrued interest due and payable hereunder and the remainder, if any, to the outstanding principal. Furthermore, all payments by the Maker under this Note shall be made without set-off or counterclaim and be free and clear and
without any deduction or withholding for any taxes or fees of any nature whatever, unless the obligation to make such deduction or withholding is imposed by applicable law. 
 2. Pre-payment. This Note may not be prepaid, in whole or in part, without the prior written consent of the Lender. Any prepayment of principal
shall be accompanied by a payment of accrued interest in respect of the principal being prepaid. 
 3. Transfer and Exchange. The
holder of this Note may, prior to maturity thereof, surrender such Note at the principal office of the Maker for transfer or exchange. Within a reasonable time after notice to the Maker from such holder of its intention to make such exchange and
without expense to such holder, except for any transfer or similar tax which may be imposed on the transfer or exchange, the Maker shall issue in exchange therefor another note or notes (each a of which shall be considered a “Note” for all
purposes hereunder) for the same aggregate principal amount as the unpaid principal amount of the Note so surrendered, having the same maturity and rate of interest, containing the same provisions and subject to the same terms and conditions as the
Note so surrendered. Each new Note shall be made payable to such person or persons, or transferees, as the holder of such surrendered Note may designate, and such transfer or exchange shall be made in such a manner that no gain or loss of principal
or interest shall result therefrom. The Maker may elect not to permit a transfer of the Note if it has not obtained satisfactory assurance that such transfer (i) is exempt from the registration requirements of, or covered by an effective
registration statement under, the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder and (ii) is in compliance with all applicable state securities laws, and in connection with such transfer, Maker may
reasonably request an opinion of counsel (either from counsel to Maker or counsel to the transferor), which opinion shall be reasonably satisfactory to the Maker. 
 4. New Note. Upon receipt of evidence reasonably satisfactory to the Maker of the loss, theft, destruction or mutilation of the Note, the Maker will issue a new Note, of like tenor and amount and dated the date
to which interest has been paid, in lieu of such lost, stolen, destroyed or mutilated Note, and in such event the Lender agrees to indemnify and hold harmless the Maker in respect of any such lost, stolen, destroyed or mutilated Note. 
 5. Conversion of Note. 
 (a)
Automatic Conversion Upon a Qualifying Investment. If this Note remains outstanding upon the closing of a Qualifying Investment (as hereinafter defined), then all of the outstanding principal amount under this Note and any accrued and unpaid
interest thereon shall be converted automatically into shares of the Maker’s to-be-created Series F Preferred Stock, $1.00 par value per share (the “Section 5(a) Preferred Stock”), at a rate equal to one (1) share of
Section 5(a) Preferred Stock issued for each $1,000 of outstanding principal and accrued but unpaid interest under this Note, with any resulting fraction of a share being rounded to the nearest whole share (with 0.5 being rounded up). The
Lender acknowledges and agrees that the Section 5(a) Preferred Stock shall have the powers, designations, preferences and rights set forth on Exhibit B attached hereto. In connection with the automatic conversion of the Note contemplated
by this Section 5(a), the Maker shall issue to the Lender a warrant in substantially the form attached hereto as Exhibit A (the “Warrant”) to purchase shares of the Maker’s Common Stock, $0.01 par value per
share (the “Common Stock”), with an exercise price per share equal to $0.01. The Warrant shall be exercisable for such number of whole shares of Common Stock (rounded to the nearest whole share, with 0.5 being rounded up) equal to
the quotient of (i) 100% of the original principal amount of this Note divided by (ii) $0.05. 
  

 Subordinated Convertible Promissory Note – Page 2 

 (b) Automatic Conversion if No Qualifying Investment. If a Qualifying Investment has not occurred
on or before May 16, 2008 (the “Outside Date”), then all of the outstanding principal amount under this Note and any accrued and unpaid interest thereon shall be converted automatically into shares of the Maker’s
to-be-created Series F Preferred Stock, $1.00 par value per share (the “Section 5(b) Preferred Stock”), at a rate equal to one (1) share of Section 5(b) Preferred Stock issued for each $1,000 of outstanding principal and
accrued but unpaid interest under this Note, with any resulting fraction of a share being rounded to the nearest whole share (with 0.5 being rounded up). The Lender acknowledges and agrees that the Section 5(b) Preferred Stock shall have the
powers, designations, preferences and rights set forth on Exhibit C attached hereto. 
 (c) Certain Definitions. For purposes
of this Note, the following terms shall have the following meanings: 
 (i) “Conversion Event” shall mean the conversion of
the Note pursuant to either Section 5(a) or Section 5(b). 
 (i) “Conversion Securities” shall mean
either shares of Section 5(a) Preferred Stock (if the Note is being converted pursuant to Section 5(a) above) or Section 5(b) Preferred Stock (if the Note is being converted pursuant to Section 5(b) above).

 (iii) “Qualifying Investment” shall mean an investment by LG-Nortel Co., Ltd. (“LG-Nortel”) in the
Maker which (x) is consummated on or before the Outside Date, and (y) is pursuant to the terms and conditions of the Securities Purchase Agreement (and LG-Nortel becomes a party thereto) and (z) LG-Nortel acquires at
least $1,000,000 in principal amount of the Notes. 
 (d) Conversion Procedures. In connection with a Conversion Event, the following
procedures shall apply: 
 (i) The Maker shall give notice (in accordance with Section 11 hereof) of such Conversion Event to the
Lender as soon as is practicable prior to the occurrence of such Conversion Event (the “Conversion Notice”). The Conversion Notice shall specify the date of such event and the nature and amount of the securities which may be issued
upon such conversion. 
 (ii) Within three (3) business days of receiving the Conversion Notice, the holder of the Note shall surrender
the Note at the office of the Maker for the applicable amount of the Conversion Securities. Thereupon, within two (2) business days after the effective date of the Conversion Event, there shall be issued and delivered to such holder one or more
certificates representing the Conversion Securities and, if applicable, a Warrant (if the Note is converted pursuant to Section 5(a) above). The Maker shall not be obligated to issue the Conversion Securities issuable upon such
conversion unless the Note being converted is either delivered to the Maker or any such transfer agent or the holder notifies the Maker or any such transfer agent that such certificate has been lost, stolen or destroyed and executes an agreement
satisfactory to the Maker to indemnify the Maker from any loss incurred by it in connection therewith. 
 (e) Further Assurances. In
connection with the conversion of the Note in connection with a Conversion Event, the Maker shall take all necessary steps to cause the creation and issuance of the Conversion Securities including, without limitation, (1) obtaining all
approvals and authorizations of the Maker’s Board of Directors and stockholders to create and issue the such Conversion Securities; (2) 

  

 Subordinated Convertible Promissory Note – Page 3 

 
amending the Maker’s certificate of incorporation by filing with the Secretary of State of the State of Delaware a certificate of designations similar
in form and substance as the certificate of designations described in clause (i) on Exhibit B (in the case of a Conversion Event pursuant to Section 5(a)) or clause (i) on Exhibit C (in the case of a Conversion
Event pursuant to Section 5(b)), as the case may be, and any such certificate of designations for such Conversion Securities shall be in form and substance reasonably satisfactory to the holder or holders of at least a majority of the
aggregate principal amount outstanding under the Notes; and (3) taking any other actions and/or executing such other documents, agreements or instruments as may be reasonably requested by the holder or holders of at least a majority of the
aggregate principal amount outstanding under the Notes. 
 (f) Cancellation of Note. Upon the automatic conversion of the entire
principal amount of the Note and any accrued and unpaid interest thereon pursuant to this Section 5, the Note shall be canceled. 
 6. Default; Effects. 
 (a) Definition. Any of the following shall constitute an event of default (an “Event of
Default”) under this Note: 
 (i) the dissolution or termination of business of Maker or any of its subsidiaries; 
 (ii) the Maker fails to pay any of the principal, interest or any other amounts payable under this Note when due and payable; 
 (iii) the Maker files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law or any other law for the
relief of, or relating to, debtors, now or hereafter in effect, or seeks the appointment of a custodian, receiver, trustee (or other similar official) of the Maker or all or any substantial portion of the Maker’s assets, or makes any assignment
for the benefit of creditors or takes any action in furtherance of any of the foregoing, or fails to generally pay its debts as they become due; 
 (iv) an involuntary petition is filed, or any proceeding or case is commenced, against the Maker (unless such proceeding or case is dismissed or discharged within 60 days of the filing or commencement thereof) under any bankruptcy,
reorganization, arrangement, insolvency, adjustment of debt, liquidation or moratorium statute now or hereafter in effect, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is applied or appointed
for the Maker or to take possession, custody or control of any property of the Maker, or an order for relief is entered against the Maker in any of the foregoing; or 
 (v) the occurrence of a breach or default under any agreement, instrument or document to which the Maker is a party or by which it is bound, involving any obligation for borrowed money of more than $100,000 in the
aggregate. 
 (b) Effects. Upon the occurrence of an Event of Default or at any time thereafter, (i) any part or all of the then
outstanding principal balance of this Note and interest due to the holder hereunder shall become immediately due and payable without notice or demand only upon the consent of the holder or holders of at least a majority of the aggregate
principal amount outstanding under the Notes; and (ii) the Lender shall have all of the rights and remedies afforded creditors generally by the applicable federal laws or the laws of the Commonwealth of Massachusetts. 
  

 Subordinated Convertible Promissory Note – Page 4 

 7. Subordination. This Note is subject to the provisions of (a) a Subordination Agreement,
dated as of the date hereof among the Investors (as defined in the Securities Purchase Agreement), the Maker and Silicon Valley Bank; and (b) a Subordination Agreement, dated as of the date hereof among the Investors, the Maker and NEIPF, L.P.

 8. Governing Law. This Note shall be governed by and construed in accordance with the General Corporation Law of the State of
Delaware as to matters within the scope thereof, and as to all other matters shall be governed by, and construed in accordance with, the internal laws of the Commonwealth of Massachusetts. 
 9. Collection Expenses. The Maker further agrees, subject only to any limitation imposed by applicable law, to pay all expenses, including
reasonable attorneys’ fees, incurred by the holder of this Note in endeavoring to collect any amounts payable hereunder which are not paid when due. 
 10. Amendment and Waiver; Effects. No waiver of any obligation of the Maker under this Note shall be effective unless it is in a writing signed by the holder or holders of at least 35% of the aggregate
principal amount outstanding under the Notes, which waiver shall be binding on and effective against all of the Notes. No delay or omission on the part of the Lender in exercising any right under this Note shall operate as a waiver of such right or
of any other right of the Lender. A waiver by the holder of any right or remedy under this Note on any occasion shall not be a bar to exercise of the same right or remedy on any subsequent occasion or of any other right or remedy at any time. This
Note may be amended only by a written instrument signed by (i) the Maker and (ii) the holder or holders of a majority of the aggregate principal amount outstanding under the Notes, which amendment shall be binding on and effective against
all of the Notes. 
 11. Notices. Any notice required or permitted under this Note shall be in writing (including facsimile
communications and electronic mail) and shall be deemed to have been given (i) on the date of delivery, if personally delivered to the party to whom notice is to be given, (ii) the third day after mailing, if mailed to the party to whom
notice is to be given, by certified mail, return receipt requested, postage prepaid or (iii) on the date of delivery, if delivered via confirmed facsimile or electronic mail and, in each case, addressed to the addressee at the address of the
addressee as provided in the Securities Purchase Agreement, or to the most recent address, specified by written notice, given to the sender pursuant to this Section 11. 
 12. Miscellaneous. The Maker and every endorser and guarantor of this Note, regardless of the time, order or place of signing, hereby waives
presentment, demand, protest and notices of every kind and assents to any permitted extension of time of payment and to the addition or release of any other party primarily or secondarily liable hereunder. 
 13. Forum; Waiver of Jury Trial. MAKER AGREES THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS NOTE MAY BE
INITIATED AND PROSECUTED IN THE STATE OR FEDERAL COURTS, AS THE CASE MAY BE, LOCATED IN THE CITY OF BOSTON, MASSACHUSETTS. MAKER CONSENTS TO AND SUBMITS TO THE EXERCISE OF JURISDICTION OVER ITS PERSON BY ANY SUCH COURT HAYING JURISDICTION OVER THE
SUBJECT MATTER, WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO MAKER AT ITS ADDRESS FOR NOTICES AS PROVIDED HEREIN. IN ANY ACTION, SUIT OR PROCEEDING.
IN RESPECT OF OR ARISING OUT OF THIS NOTE, MAKER WAIVES TRIAL BY JURY AND ANY OBJECTION BASED ON FORUM NON CONVENIENS OR VENUE. 
  

 Subordinated Convertible Promissory Note – Page 5 

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 Subordinated Convertible Promissory Note – Page 6 

 IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by its duly authorized officers
as of the date first above written. 
  

			
	VERTICAL COMMUNICATIONS, INC.
		
	 By:
	 	 /s/ KEN CLINEBELL

	 Name:
	 	Ken Clinebell
	 Title:
	 	CFO

  

 Signature Page to Subordinated Convertible Promissory Note 

 Exhibit A 
 Form of Warrant 

 Exhibit B 
 Summary of Terms of Section 5(a) Preferred Stock 
 (i) except as otherwise set forth in this Exhibit B,
the powers, designations, preferences and rights of the Section 5(a) Preferred Stock shall be substantially similar to those of the Maker’s Series E Preferred Stock, $0.01 par value per share (the “Series E Preferred
Stock”), set forth in that certain Certificate of Powers, Designations, Preferences and Rights of the Series E Convertible Preferred Stock filed with the Secretary of State of the State of Delaware on November 30, 2006 (the
“Certificate of Designations”); 
 (ii) the Section 5(a) Preferred Stock shall be pari passu with the Series E Preferred Stock with
respect to the payment of dividends, redemption, rights upon liquidation, dissolution or winding up of the affairs of the Maker and any sale of the Maker including, without limitation, a sale of all or substantially all of its assets, merger, stock
purchase, self-tender, reorganization or another business transaction including, without limitation, any Deemed Liquidation Event (as defined in the Maker’s certificate of incorporation); and 
 (iii) the original issue price of the Section 5(a) Preferred Stock shall be $1,000 per share and the initial conversion price of the Section 5(a) Preferred
Stock shall be $0.05 (subject to further adjustment for future dilutive issuances), such that one (1) share of Section 5(a) Preferred Stock shall initially convert into approximately 20,000 shares of Common Stock (subject to further
adjustment for future dilutive issuances). 

 Exhibit C 
 Summary of Terms of Section 5(b) Preferred Stock 
 (i) except as otherwise set forth in this Exhibit C,
the powers, designations, preferences and rights of the Section 5(b) Preferred Stock shall be substantially similar to those set forth in the Certificate of Designations; 
 (ii) the Section 5(b) Preferred Stock shall rank senior to all other classes or series of capital stock of the Maker with respect to the payment of dividends, redemption, rights upon liquidation, dissolution or
winding up of the affairs of the Maker and any sale of the Maker including, without limitation, a sale of all or substantially all of its assets, merger, stock purchase, self-tender, reorganization or another business transaction including, without
limitation, any Deemed Liquidation Event (as defined in the Maker’s certificate of incorporation) (collectively, the “Rights and Preferences”); 
 (iii) the Section 5(b) Preferred Stock shall accrue a cash dividend at the rate per annum of $120.00 per share, which such dividend shall be cumulative, compound annually and shall be payable (or deemed payable)
on the triggering events applicable to the dividend on the Series E Preferred Stock set forth in the Certificate of Designations (but, for the avoidance of doubt, such dividend shall be paid in full before any dividend is paid on any other shares of
the Maker’s capital stock, except for any dividend paid in capital stock or securities of the Company that rank junior to the Section 5(b) Preferred Stock with respect to the Rights and Preferences) (the dividend described in this
clause (iii) is referred to as the “Section 5(b) Series F Accruing Dividends”). The Section 5(b) Preferred Stock shall have no prohibitions on any distributions paid or the issuance of any Common Stock upon
conversion or exercise of any shares of preferred stock, warrants to purchase common stock or options to purchase common stock issued and outstanding prior to the issuance of the Section 5(b) Preferred Stock; 
 (iv) in connection with any (A) redemption of shares of Section 5(b) Preferred Stock and (B) liquidation, dissolution or winding up of the affairs of the
Maker and any sale of the Maker including, without limitation, by sale of all or substantially all of its assets, merger, stock purchase, self-tender, reorganization or another business transaction including, without limitation, any Deemed
Liquidation Event, the holders of Section 5(b) Preferred Stock shall be entitled to receive, in preference to all other holders of capital stock of the Maker, an amount equal to three (3) times the Section 5(b) Purchase Price (as
defined below) per share plus all declared and unpaid dividends and all Section 5(b) Series F Accruing Dividends; 
 (v) after payment in full of all
payments required to be made under the Maker’s certificate of incorporation with respect to shares of the Maker’s preferred stock (including, without limitation, the amounts described in clause (iv) above), the
Section 5(b) Preferred Stock shall be “participating preferred stock” and shall participate with the holders of the Common Stock (on an as-converted to Common Stock basis) in connection with any distributions on account of any
liquidation, dissolution or winding up of the affairs of the Maker and any sale of the Maker including, without limitation, by sale of all or substantially all of its assets, merger, stock purchase, self-tender, reorganization or another business
transaction including, without limitation, any Deemed Liquidation Event; and 
 (vi) the original issue price of the Section 5(b) Preferred Stock shall
be $1,000 per share (the “Section 5(b) Purchase Price”) and the initial conversion price of the Section 5(b) Preferred Stock shall be $0.05 (subject to further adjustment for future dilutive issuances), such that one
(1) share of Section 5(b) Preferred Stock shall initially convert into approximately 20,000 shares of Common Stock (subject to further adjustment for future dilutive issuances). 

 Schedule of Investors 
  

				
	 Name of Investor
	  	Principal Amount
	 M/C Venture Partners V, L.P.
	  	$	2,359,672.50
	 M/C Venture Investors, LLC
	  	$	96,370.00
	 Chestnut Venture Partners, L.P.
	  	$	43,957.50
	 Pathfinder Ventures IV, L.L.C.
	  	$	1,500,000.00
	 William Y. Tauscher
	  	$	1,000,000.00

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