Document:

Exhibits 10.40.1

 Exhibit 10.40.1 
  
 THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED IN A TRANSACTION NOT INVOLVING ANY PUBLIC OFFERING AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. 
  
 VISUAL NETWORKS, INC. 
  
 NONSTATUTORY STOCK OPTION GRANT AGREEMENT 
  
 This Grant Agreement (the “Agreement”) is entered into this
12th day of July, 2004 (the “Grant Date”), by and between VISUAL NETWORKS, INC., a Delaware corporation (the “Company”), and DONALD E. CLARKE (the “Optionee”). 
  
 In consideration of the premises, mutual covenants and agreements herein, the
Company and the Optionee agree as follows: 
  
 1. Grant of
Option. The Company hereby grants to the Optionee a nonstatutory stock option to purchase from the Company, at a price of $2.54 per share (the “Exercise Price”), 300,000 shares of Common Stock of the Company, $0.01 par value per
share (“Common Stock”), subject to the provisions of this Agreement (the “Option”). The Option will expire at 5:00 p.m. Eastern Time on the last business day preceding the tenth anniversary of the Grant Date (the
“Expiration Date”), unless fully exercised or terminated earlier. 
  
 2. Terminology. 
  
 (a) Except where the context otherwise requires, the term “Company” as used herein includes Visual Networks, Inc. and its affiliates. 
  

(b) This Agreement will be administered by Compensation Committee of the Board of Directors of the Company or by the full Board of
Directors in its discretion (each hereinafter referred to as the “Administrator”). 
  
 (c) The term “Fair Market Value” as used herein means, with respect to a share of Common Stock for any purpose on a
particular date, the value determined by the Administrator in good faith. However, if the Common Stock is registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”), “Fair Market
Value” means, as applicable, (i) either the closing price or the average of the high and low sale price on the relevant date, as determined in the Administrator’s discretion, quoted on the New York Stock Exchange, the American Stock
Exchange, or the Nasdaq National Market; (ii) the last sale price on the relevant date quoted on the Nasdaq SmallCap Market; (iii) the average of the high bid and low asked prices on the relevant date quoted on the Nasdaq OTC Bulletin Board Service
or by the National Quotation Bureau, Inc. or a comparable service as determined in the Administrator’s discretion; or (iv) if the Common Stock is not quoted by any of the above, the average of the closing bid and asked prices on the relevant
date furnished by a professional market maker for the Common Stock, or by such other source, selected by the Administrator. If no public trading of the Common Stock occurs on the relevant date, then Fair Market Value shall be determined as of the
next preceding date on which trading of the Common Stock does occur. For all purposes under this Agreement, the term “relevant date” as used in this Section 2(c) means either the date as of which Fair Market Value is to be
determined or the next preceding date on which public trading of the Common Stock occurs, as determined in the Administrator’s discretion. 
  

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 3. Exercise of Option. 
  
 (a) Right to Exercise. Except as otherwise provided in this Agreement, this Option may be exercised
as to its vested portion at any time and from time to time, in whole or in part, on or before the Expiration Date or earlier termination of the Option. In the event of the Optionee’s death, disability, or other termination of employment or
service relationship, the exercisability is governed by Section 4 below. 
  
 (b) Vesting. The Option will become vested over forty-eight (48) months, as follows; provided, however, that the Optionee is in the continuous employ of or in a service relationship with
the Company from the date the Optionee’s employment with the Company commences (“Commencement Date”) through the applicable date upon which vesting is scheduled to occur: 
  

	 	(i)	25% of the Option shall be vested on the first anniversary of the Grant Date, and 

  

	 	(ii)	2.083% of the Option shall become vested, on the 12th day of each month, over a thirty-six (36) month period that commences July 12, 2005 (rounded down to the nearest whole share each month, except for the final month, in which case vesting is rounded up). 

  
 Unless the Option has earlier terminated, vesting of the Option will be accelerated so that
the outstanding unvested portion of the Option will become vested as to 100% of such unvested portion immediately before the occurrence of a Change in Control in the Company. For purposes of this Agreement, a “Change in Control of the
Company” shall occur or be deemed to have occurred only if: 
  
 (1) any “person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the
Company, or any corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company), is or becomes the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities; 
  
 (2) during any period of two consecutive years ending during the term of the Plan, individuals who at the
beginning of such period constitute the Board of Directors of the Company, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect any transaction described in clause (1), (3)
or (4) of this Section 3(b)) whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who were either directors at the
beginning of the period or whose election or whose nomination for election was previously so approved (collectively, the “Disinterested Directors”), cease for any reason to constitute a majority of the Board of Directors;

  
 (3) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation
or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no “person” (as herein above defined) acquires more than 50% of the combined voting power of the Company’s
then outstanding securities; or 
  

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 (4) the stockholders of the Company approve a plan of complete liquidation of the Company
or the sale of all or substantially all of the Company’s assets which, in either case, has not previously been approved by a majority of the Disinterested Directors. 
  
 (c) Exercise Procedure. Subject to the conditions set forth in this Agreement, this Option shall be
exercised by delivery of written notice of exercise on any business day to the Corporate Secretary of the Company in such form as the Company may require from time to time. Such notice shall specify the number of shares in respect of which the
Option is being exercised and shall be accompanied by full payment of the Exercise Price for such shares in accordance with Section 3(d) of this Agreement. The exercise will be effective upon receipt by the Corporate Secretary of the Company of such
written notice accompanied by the required payment or properly executed, irrevocable instructions to effectuate a broker-assisted cashless exercise. The Option may be exercised only in multiples of whole shares and may not be exercised at any one
time as to fewer than ten (10) shares (or such lesser number of shares as to which the Option is then exercisable). No fractional shares will be issued pursuant to this Option. 
  
 (d) Method of Payment. Payment of the Exercise Price may be made by delivery of cash, certified or
cashier’s check, money order or other cash equivalent acceptable to the Administrator in its discretion, a broker-assisted cashless exercise in accordance with Regulation T of the Board of Governors of the Federal Reserve System through a
brokerage firm approved by the Administrator, or a combination of the foregoing. In addition, payment of the Exercise Price may be made by any of the following methods, or a combination thereof, as determined by the Administrator in its discretion
at the time of exercise: (i) by tender (via actual delivery or attestation) to the Company of other shares of Common Stock of the Company which have a Fair Market Value on the date of tender equal to the Exercise Price, provided that
such shares have been owned by the Optionee for a period of at least six months free of any substantial risk of forfeiture or were purchased on the open market without assistance, direct or indirect, from the Company; or (ii) by any other method
approved by the Administrator. 
  
 (e)
Issuance of Shares upon Exercise. Upon due exercise of the Option, in whole or in part, in accordance with the terms of this Agreement, the Company will issue to the Optionee, the brokerage firm specified in the Optionee’s delivery
instructions pursuant to a broker-assisted cashless exercise, or such other person exercising the Option, as the case may be, the number of shares of Common Stock so paid for, in the form of fully paid and nonassessable stock and will deliver
certificates therefor as soon as practicable thereafter. The stock certificates for any shares of Common Stock issued hereunder will, unless such shares are registered or an exemption from registration is available under applicable federal and state
law, bear a legend restricting transferability of such shares. 
  
 4. Termination of Employment or Service. 
  
 (a) Exercise Period Following Cessation of Employment or Service Relationship, In General. If the Optionee ceases to be employed by, or in a service relationship with, the Company for any reason other than
death, total and permanent disability (as defined in Section 4(b) below) or discharge for Cause (as defined in Section 4(d) below), (i) this Option will terminate immediately upon such cessation to the extent it is unvested, and (ii) this Option
will be exercisable during the three (3) month period following such cessation with respect its vested portion, but in no event after the Expiration Date. Unless sooner terminated, this Option will terminate in its entirety upon the expiration of
such three (3) month period. 
  
 (b)
Disability of Optionee. Notwithstanding the provisions of Section 4(a) above, if the Optionee ceases his employment or service relationship with the Company as a result of his or her total and permanent disability, (i) this Option will
terminate immediately upon such cessation to the extent it is unvested, and (ii) this Option will be exercisable during the one (1) year period following such cessation with respect to its vested portion, but in no event after the Expiration Date.
Unless sooner 

  

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terminated, this Option will terminate in its entirety upon the expiration of such (1) year period. For purposes of this Agreement, “total and
permanent disability” means the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to
last for a continuous period of not less than twelve months. The Administrator may require such proof of total and permanent disability as the Administrator in its sole discretion deems appropriate and the Administrator’s good faith
determination as to whether the Optionee is totally and permanently disabled will be final and binding on all parties concerned. 
  
 (c) Death of Optionee. If the Optionee dies prior to the Expiration Date or other termination of the Option, including if the
Optionee dies during the three (3) month period following termination of service for reasons other than Cause, (i) this Option will terminate immediately upon the Optionee’s death to the extent it is unvested, and (ii) this Option will be
exercisable during the one (1) year period following the date of death of the Optionee with respect to its vested portion, but in no event after the Expiration Date, by the Optionee’s executor, personal representative, or the person(s) to whom
this Option is transferred by will or the laws of descent and distribution. Unless sooner terminated, this Option will terminate in its entirety upon the expiration of such one (1) year period. 
  
 (d) Cause. Notwithstanding anything to the contrary
herein, this Option will terminate in its entirety, regardless of whether the Option is vested in whole or in part, immediately upon the Optionee’s discharge of employment or service relationship for Cause or upon the Optionee’s commission
of conduct constituting Cause during any period following the cessation of employment or service relationship during which the Option otherwise would be exercisable. For purposes of this Agreement, “Cause” shall have the meaning set
forth in the employment agreement entered into between the Optionee and the Company, as the same may be amended from time to time, and shall be determined in a manner consistent with the procedure set forth therein. 
  
 5. Adjustments and Business Combinations. 
  
 (a) Adjustments for Events Affecting Common Stock. In
the event of changes affecting the Company, the capitalization of the Company or the Common Stock of the Company by reason of any stock dividend, spin-off, split-up, recapitalization, merger, consolidation, business combination or exchange of shares
and the like, the Administrator will, in its discretion, make appropriate adjustments to the number, kind and price of shares covered by this Option, and will, in its discretion and without the consent of the Optionee, make any other adjustments in
this Option, including but not limited to reducing the number of shares subject to the Option or providing or mandating alternative settlement methods such as settlement of the Option in cash or in shares of Common Stock or other securities of the
Company or of any other entity, or in any other matters which relate to the Option as the Administrator, in its sole discretion, determines to be necessary or appropriate. 
  
 (b) Adjustments for Unusual Events. The Administrator is authorized to make, in its discretion and
without the consent of the Optionee, adjustments in the terms and conditions of, and the criteria included in, the Option in recognition of unusual or nonrecurring events affecting the Company, or the financial statements of the Company or any
affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Administrator determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Option. 
  
 (c) Binding Nature of Adjustments. Adjustments under this Section 5 will be made by the Administrator, whose determination as to what adjustments, if any, will be made and the extent thereof will be final, binding and conclusive. No
fractional shares will be issued pursuant to this Option on account of any such adjustments. 
  

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 6. Compliance with Securities Laws; Listing and Registration. If at any time the
Administrator determines that the delivery of Common Stock under this Agreement is or may be unlawful under the laws of any applicable jurisdiction, or federal or state securities laws, the right to exercise the Option or receive shares of Common
Stock pursuant to the Option shall be suspended until the Administrator determines that such delivery is lawful. The Company shall have no obligation to effect any registration or qualification of the Common Stock under federal or state laws.

  
 The Company may require that the Optionee, as a condition to
exercise of the Option, and as a condition to the delivery of any share certificate, make such written representations (including representations to the effect that such person will not dispose of the Common Stock so acquired in violation of federal
or state securities laws) and furnish such information as may, in the opinion of counsel for the Company, be appropriate to permit the Company to issue the Common Stock in compliance with applicable federal and state securities laws. 

  
 7. Investment Representations. The Optionee represents,
warrants and covenants that: 
  
 (a) Any shares purchased upon
exercise of this Option shall be acquired for the Optionee’s account for investment only and not with a view to, or for sale in connection with, any distribution of the shares in violation of the Securities Act of 1933 (the “Securities
Act”) or any rule or regulation under the Securities Act, and that he will not distribute the same in violation of any state or federal law or regulation. 
  
 (b) The Optionee has had such opportunity as he has deemed adequate to obtain from representatives of the Company such
information as is necessary to permit the Optionee to evaluate the merits and risks of his investment in the Company. 
  
 (c) The Optionee is able to bear the economic risk of holding shares acquired pursuant to the exercise of this Option for an indefinite period.

  
 (d) The Optionee understands that (i) the shares acquired
pursuant to the exercise of this Option will not be registered under the Securities Act or under the securities laws of any state and are “restricted securities” within the meaning of Rule 144 under the Securities Act; (ii) such shares
cannot be sold, transferred or otherwise disposed of unless they are subsequently registered under the Securities Act, and such registration or qualification as may be necessary under the securities laws of any state, or an exemption from
registration is then available; (iii) in any event, the exemption from registration under Rule 144 will not be available for at least one year from date of exercise and even then will not be available unless a public market then exists for the
Common Stock, adequate information concerning the Company is then available to the public and other terms and conditions of Rule 144 are complied with; and (iv) there is as of the date of this Agreement no registration statement on file with the
Securities and Exchange Commission with respect to any stock of the Company covered by this Option and the Company has no obligation or current intention to register any shares acquired pursuant to the exercise of this Option under the Securities
Act. 
  
 By making payment upon exercise of this Option, the
Optionee shall be deemed to have reaffirmed, as of the date of such payment, the representations made in this Section 7. 
  
 8. Reservation of Shares. The Company will reserve and set apart and have at all times, free from preemptive rights, a number of shares of
authorized but unissued Common Stock deliverable upon the exercise of this Option sufficient to enable it at any time to fulfill all its obligations hereunder. 
  

9. Non-Guarantee of Employment or Consulting Relationship. Nothing in this Agreement alters the at-will or other employment or consulting status
of the Optionee, nor is to be construed as a contract of employment or consulting relationship between the Company and the Optionee, or as a 

  

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contractual right of Optionee to continue in the employ of, or in a consulting relationship with, the Company, or as a limitation of the right of the Company
to discharge the Optionee at any time with or without cause or notice and whether or not such discharge results in the failure of any portion of the Option to vest or any other adverse effect on the Optionee’s interests under this Agreement.

  
 10. No Rights as a Stockholder. The Optionee will not
have any of the rights of a stockholder with respect to the shares of Common Stock that may be issued upon the exercise of the Option until such shares of Common Stock have been issued to him or her upon the due exercise of the Option. No adjustment
will be made for dividends or distributions or other rights for which the record date is prior to the date such certificate or certificates are issued. 
  
 11. Nonstatutory Nature of the Option. This Option is not intended to qualify as an “incentive stock option” within the meaning of
Code section 422, and this Agreement will be so construed. The Optionee acknowledges that, upon exercise of this Option, the Optionee will recognize taxable income in an amount equal to the excess of the then Fair Market Value of the shares over the
Exercise Price and must comply with the provisions of Section 12 of this Agreement with respect to any tax withholding obligations that arise as a result of such exercise. 
  
 12. Withholding of Taxes. At the time the Option is exercised, in whole or in part, or at any time thereafter as
requested by the Company, the Optionee hereby authorizes withholding from payroll or any other payment of any kind due the Optionee and otherwise agrees to make adequate provision for foreign, federal, state and local taxes required by law to be
withheld, if any, which arise in connection with the Option. The Company may require the Optionee to make a cash payment to cover any withholding tax obligation as a condition of exercise of the Option. If the Optionee does not make such payment
when requested, the Company may refuse to issue any stock certificate until arrangements satisfactory to the Administrator for such payment have been made. 
  
 The Company may, in its sole discretion, permit the Optionee to satisfy, in whole or in part, any withholding tax obligation which may arise in connection
with the Option either by electing to have the Company withhold from the shares to be issued upon exercise that number of shares, or by electing to deliver to the Company already-owned shares, in either case having a Fair Market Value equal to the
amount necessary to satisfy the statutory minimum withholding amount due. 
  
 13. The Company’s Rights. The existence of this Option will not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or other stocks with preference ahead of or convertible into, or
otherwise affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of the Company’s assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise. 
  
 14. Optionee. Whenever
the word “Optionee” is used in any provision of this Agreement under circumstances where the provision should logically be construed, as determined by the Administrator, to apply to the estate, personal representative or beneficiary
to whom this Option may be transferred by will or by the laws of descent and distribution, the word “Optionee” will be deemed to include such person. 
  

15. Nontransferability of Option. This Option is nontransferable otherwise than by will or the laws of descent and distribution and during the
lifetime of the Optionee, the Option may be exercised only by the Optionee or, during the period the Optionee is under a legal disability, by the Optionee’s guardian or legal representative. Except as provided above, the Option may not be
assigned, transferred, pledged, hypothecated or disposed of in any way (whether by operation of law or otherwise) and will not 

  

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be subject to execution, attachment or similar process. 
  
 16. Notices. All notices and other communications made or given pursuant to this Agreement will be in writing and will be sufficiently made or
given if hand delivered or mailed by certified mail, addressed to the Optionee at the address contained in the records of the Company, or addressed to the Company for the attention of its Corporate Secretary at its principal office or, if the
receiving party consents in advance, transmitted and received via telecopy or via such other electronic transmission mechanism as may be available to the parties. 
  
 17. Effect of Administrator’s Decision. All actions taken and decisions and determinations made by the
Administrator on all matters relating to this Agreement pursuant to the powers vested in it hereunder shall be in the Administrator’s sole and absolute discretion and shall be conclusive and binding on all parties concerned, including the
Optionee, the Company, its stockholders, director and officers, and their respective successors in interest. 
  
 18. Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the stock option granted hereunder. Any oral
or written agreements, representations, warranties, written inducements, or other communications made prior to the execution of this Agreement with respect to the stock option granted hereunder will be void and ineffective for all purposes.

  
 19. Amendment. This Agreement may be amended from time
to time by the Administrator in its discretion; provided, however, that this Agreement may not be modified in a manner that would have a materially adverse effect on the Option as determined in the discretion of the Board of Directors, except as
provided in a written document signed by each of the parties hereto. 
  
 20. Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Maryland, other than the conflict of laws principles thereof. 
  
 21. Headings. The headings in this Agreement are for reference
purposes only and will not affect the meaning or interpretation of this Agreement. 
  

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 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer
as of the date first above written. 
  

			
	 VISUAL NETWORKS, INC.

		
	 By:
	 	 /s/ Lawrence S. Barker

	 	 	 Lawrence S. Barker

	 	 	 President and Chief Executive Officer

  
 The undersigned hereby
acknowledges that he has carefully read this Agreement and agrees to be bound by all of the provisions set forth herein. 
  

	
	 OPTIONEE

	
	 /s/ Donald E. Clarke

	 Donald E. Clarke

	
	 Date: July 12, 2004

  

 8Exhibits 10.50

 Exhibit 10.50 
  

  
 LOAN AND SECURITY AGREEMENT 
  
 by and among

  
 VISUAL NETWORKS, INC. AND ITS SUBSIDIARIES,

  
 as Borrowers 
  
 and 
  
 SILICON VALLEY BANK, 
  
 as Bank 
  
 July 22, 2004 
  

  

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 LOAN AND SECURITY AGREEMENT 
  
 THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated July 22, 2004, between SILICON VALLEY BANK
(“Bank”), whose address is 3003 Tasman Drive, Santa Clara, California 95054 and having a loan production office at 8020 Towers Crescent Drive, Suite 475, Vienna, Virginia 22182 and VISUAL NETWORKS, INC., a Delaware corporation,
VISUAL NETWORKS INTERNATIONAL OPERATIONS, INC., a Delaware corporation, VISUAL NETWORKS OPERATIONS, INC., a Delaware corporation, AVESTA TECHNOLOGIES, LLC, a Delaware limited liability company, and NET2NET, LLC, a Delaware
limited liability company (each a “Borrower” and collectively, “Borrowers”), whose address is c/o the Company at 2092 Gaither Road, Rockville, Maryland 20850, provides the terms on which Bank will lend to Borrowers and Borrowers
will repay Bank. The parties agree as follows: 
  

	1.	ACCOUNTING AND OTHER TERMS 

  
 Accounting terms not defined in this Agreement will be construed following GAAP. Calculations and determinations must be made following GAAP. The term
“financial statements” includes the notes and schedules. The terms “including” and “includes” always mean “including (or includes) without limitation,” in this or any Loan Document.  
  

	2.	LOAN AND TERMS OF PAYMENT 

  

	2.1	Promise to Pay. 

  
 Borrowers jointly and severally promise to pay Bank the unpaid principal amount of all Credit Extensions and interest on the unpaid principal amount of
the Credit Extensions. 
  

	2.1.1	Revolving Advances. 

  
 (a) Bank will make Advances not exceeding (i) the lesser of (A) the Committed Revolving Line or (B) the Borrowing Base. Amounts borrowed under this
Section may be repaid and reborrowed during the term of this Agreement. All advances shall be evidenced by the Revolving Promissory Note to be executed and delivered by Borrowers to Bank on the Closing Date and shall be repaid in accordance with the
terms of the Revolving Promissory Note. 
  
 (b) To obtain an
Advance, Company must notify Bank by facsimile or telephone by 3:00 p.m. Eastern time on the Business Day the Advance is to be made. Company must promptly confirm the notification by delivering to Bank the Loan Payment/Advance Request Form attached
as Exhibit B (the “Payment/Advance Form”). Bank will credit Advances to Company’s deposit account. Bank may make Advances under this Agreement based on instructions from a Responsible Officer of Company or his or her designee
or without instructions if the Advances are necessary to meet Obligations which have become due. Bank may rely on any telephone notice given by a person whom Bank reasonably believes is a Responsible Officer of Company or designee. Borrowers will
indemnify Bank for any loss Bank suffers due to such reliance. 
  
 (c) The Committed Revolving Line terminates on the Revolving Maturity Date, when all Advances are immediately payable. 
  
 (d) Bank’s obligation to lend the undisbursed portion of the Committed Revolving Line will terminate if, in Bank’s sole, but reasonable,
discretion, there has been a material adverse change in the general affairs, management, results of operation, condition (financial or otherwise) or the prospect of repayment of the Obligations, or there has been any material 

  

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adverse deviation by Borrowers from the most recent business plan of Borrowers presented to and accepted by Bank prior to the execution of this Agreement.

  

	2.2	Overadvances. 

  
 If Borrowers’ Obligations under Section 2.1.1 exceed the lesser of either (i) the Committed Revolving Line or (ii) the Borrowing Base, Borrowers
shall immediately pay Bank the excess. 
  

	2.3	Interest Rate, Payments. 

  
 (a) Interest Rate. Advances accrue interest on the outstanding principal balance in accordance with the Revolving Promissory Note. After an Event of
Default, Obligations accrue interest at five percent (5%) above the rate effective immediately before the Event of Default. The interest rate on the Obligations 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 Committed Revolving Line is payable on the fifth (5th) day of each month. Bank may debit any of
any Borrower’s deposit accounts including Account Number 3300020208 for principal and interest payments owing or any amounts any Borrower owes Bank under any of the Loan Documents. Bank will promptly notify Company when it debits any such
accounts. These debits are not a set-off. Payments received after 12:00 noon Eastern time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment is due the
next Business Day and additional fees or interest corresponding to the intervening days accrue. 
  
 (c) Lockbox. All proceeds of Collateral shall be deposited by each Borrower into a lockbox account, or such other “blocked account” as Bank may
specify, pursuant to a blocked account agreement in the form attached hereto as Exhibit E. 
  

	2.4	Joint Liability. 

  
 Each Person included in the term “Borrower” hereby covenants and agrees with Bank as follows: 
  
 (a) The Obligations include all present and future indebtedness, duties,
obligations, and liabilities under the Loan Documents, whether now existing or contemplated or hereafter arising, of any one or more of the Borrowers. 
  
 (b) Reference in this Agreement and the other Loan Documents to the “Borrower” or otherwise with respect to any one or more of the Persons now
or hereafter included in the definition of “Borrower” shall mean each and every such Person and any one or more of such Persons, jointly and severally, unless the context requires otherwise. 
  
 (c) Each Person included in the term “Borrower” in the discretion
of its respective management is to agree among themselves as to the allocation of the benefits of the proceeds of the Committed Revolving Line, provided, however, that each such Person shall be deemed to have represented and warranted to Bank at the
time of allocation that each benefit and use of proceeds is permitted under this Agreement. 
  
 (d) For administrative convenience, each Person included in the term “Borrower” hereby irrevocably appoints the Company as each Borrower’s attorney-in-fact, with power of 

  

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substitution (with the prior written consent of Bank in the exercise of its sole and absolute discretion), in the name of the Company or in the name of any
Borrower or otherwise to take any and all actions with respect to this Agreement, the other Loan Documents, the Obligations and/or the Collateral (including, without limitation, the proceeds thereof) as the Company may so elect from time to time,
including, without limitation, actions to (i) request advances under the Committed Revolving Line, and direct Bank to disburse or credit the proceeds of any Advance directly to an account of the Company, any one or more of such Persons or otherwise,
which direction shall evidence the making of such Advance and shall constitute the acknowledgment by each such Person of the receipt of the proceeds of such Advance, (ii) enter into, execute, deliver, amend, modify, restate, substitute, extend
and/or renew this Agreement, any other Loan Documents, security agreements, mortgages, deposit account agreements, instruments, certificates, waivers, letter of credit applications, releases, documents and agreements from time to time, and (iii)
endorse any check or other item of payment in the name of such Person or in the name of the Company. The foregoing appointment is coupled with an interest, cannot be revoked without the prior written consent of Bank, and may be exercised from time
to time through the Company’s Responsible Officer, or other Person or Persons designated by the Company to act from time to time on behalf of the Company. 
  

(e) Each Person included in the term “Borrower” hereby irrevocably authorizes Bank to make Advances to any one or more of such Persons,
pursuant to the provisions of this Agreement upon the written, oral or telephone request of any one or more of the Persons who is from time to time a Responsible Officer of the Company under the provisions of the most recent certificate of corporate
resolutions and/or incumbency of the Person included in the term “Borrower” on file with Bank and also upon the written, oral or telephone request of any one of the Persons who is from time to time a Responsible Officer of the Company
under the provisions of the most recent certificate of corporate resolutions and/or incumbency for the Company on file with Bank. 
  
 (f) Bank assumes no responsibility or liability for any errors, mistakes, and/or discrepancies in the oral, telephonic, written or other transmissions of
any instructions, orders, requests and confirmations by any one or more of the Persons included in the term “Borrower” in connection with any Credit Extension or any other transaction in connection with the provisions of this Agreement.

  

	2.5	Inter-Company Debt, Contribution. 

  
 Without implying any limitation on the joint and several nature of the Obligations, Bank agrees that, notwithstanding any other provision of this
Agreement, the Persons included in the term “Borrower” may create reasonable inter-company indebtedness between or among the Persons included in the term “Borrower” with respect to the allocation of the benefits and proceeds of
the Credit Extensions under this Agreement. The Persons included in the term “Borrower” agree among themselves, and Bank consents to that agreement, that each such Person shall have rights of contribution from all of the such Persons to
the extent such Person incurs Obligations in excess of the proceeds of the Advances received by, or allocated to such Person. All such indebtedness and rights shall be, and are hereby agreed by the Persons included in the term “Borrower”
to be, subordinate in priority and payment to the indefeasible repayment in full in cash of the Obligations, and, unless Bank agrees in writing otherwise, shall not be exercised or repaid in whole or in part until all of the Obligations have been
indefeasibly paid in full in cash. Each Person included in the term “Borrower” agrees that all of such inter-company 

  

 4 

 
indebtedness and rights of contribution are part of the Collateral and secure the Obligations. Each Person included in the term “Borrower” hereby
waives all rights of counter claim, recoupment and offset between or among themselves arising on account of that indebtedness and otherwise. No Person included in the term “Borrower” shall evidence the inter-company indebtedness or rights
of contribution by note or other instrument, and shall not secure such indebtedness or rights of contribution with any Lien or security. 
  

	2.6	Borrowers are Integrated Group. 

  
 Each Person included in the term “Borrower” hereby represents and warrants to Bank that each of them will derive benefits, directly and
indirectly, from each Credit Extension, both in their separate capacity and as a member of the integrated group to which each such Person belongs and because the successful operation of the integrated group is dependent upon the continued successful
performance of the functions of the integrated group as a whole, because (i) the terms of the Credit Extension provided under this Agreement are more favorable than would otherwise would be obtainable by such Persons individually, and (ii) the
additional administrative and other costs and reduced flexibility associated with individual loan arrangements which would otherwise be required if obtainable would substantially reduce the value to such Persons of the Credit Extension. 

 

	2.7	Primary Obligations. 

  
 The obligations and liabilities of each Person included in the term “Borrower” shall be primary, direct and immediate, shall not be subject to
any counterclaim, recoupment, set off, reduction or defense based upon any claim that such Person may have against any one or more of the other Persons included in the term “Borrower”, Bank and/or any other guarantor and shall not be
conditional or contingent upon pursuit or enforcement by Bank of any remedies it may have against Persons included in the term “Borrower” with respect to this Agreement, or any of the other Loan Documents, whether pursuant to the terms
thereof or by operation of law. Without limiting the generality of the foregoing, Bank shall not be required to make any demand upon any of the Persons included in the term “Borrower”, or to sell the Collateral or otherwise pursue, enforce
or exhaust its or their remedies against the Persons included in the term “Borrower” or the Collateral either before, concurrently with or after pursuing or enforcing its rights and remedies hereunder. Any one or more successive or
concurrent actions or proceedings may be brought against each Person included in the term “Borrower”, either in the same action, if any, brought against any one or more of the Persons included in the term “Borrower” or in
separate actions or proceedings, as often as Bank may deem expedient or advisable. Without limiting the foregoing, it is specifically understood that any modification, limitation or discharge of any of the liabilities or obligations of any one or
more of the Persons included in the term “Borrower”, any other guarantor or any obligor under any of the Loan Documents, arising out of, or by virtue of, any bankruptcy, arrangement, reorganization or similar proceeding for relief of
debtors under federal or state law initiated by or against any one or more of the Persons included in the term “Borrower”, in their respective capacities as borrowers and guarantors under this Agreement, or under any of the Loan Documents
shall not modify, limit, lessen, reduce, impair, discharge, or otherwise affect the liability of any other Borrower under this Agreement in any manner whatsoever, and this Agreement shall remain and continue in full force and effect. It is the
intent and purpose of this Agreement that each Person included in the term “Borrower” shall and does hereby waive all rights and benefits which might accrue to any other guarantor by reason of any such proceeding, and the Persons included
in the term “Borrower” agree that they shall be liable for the full amount of the obligations and liabilities under this Agreement regardless of, and 

  

 5 

 
irrespective to, any modification, limitation or discharge of the liability of any one or more of the Persons included in the term “Borrower”, any
other guarantor or any other obligor under any of the Loan Documents, that may result from any such proceedings. 
  

	2.8	Fees. 

  
 Borrowers will pay: 
  
 (a) Facility Fee. A fully earned, nonrefundable fee in the amount of Thirty Thousand Dollars ($30,000). 
  
 (b) Unused Line Fee. Borrowers shall pay to Bank a fee (collectively,
the “Unused Line Fees” and individually, a “Unused Line Fee”) in an amount equal to fifteen hundredths of one percent (0.15%) per annum of the average daily unused and undisbursed portion of the Committed Revolving Line accruing
during each month. The accrued and unpaid portion of the Unused Line Fee shall be paid by the Borrowers to Bank on the last day of each month, commencing on the first such date following the date hereof, and on the Revolving Maturity Date.

  
 (c) Bank Expenses. All Bank Expenses (including
reasonable attorneys’ fees and reasonable expenses) incurred through and after the date of this Agreement, are payable when due. 
  

	3.	CONDITIONS OF LOANS 

  

	3.1	Conditions Precedent to Initial Credit Extension. 

  
 Bank’s obligation to make the initial Credit Extension is subject to: 
  
 (a) this Agreement; 
  
 (b) the Revolving Note; 
  
 (c) the Negative Pledge Agreement; 
  
 (d) a certificate of the Secretary or member, as applicable, of each Borrower with respect to articles or incorporation, operating agreement, bylaws,
incumbency and resolutions authorizing the execution and delivery of this Agreement; 
  
 (e) financing statements (Forms UCC-1); 
  
 (f) insurance certificate; 
  
 (g) payment of the fees
and Bank Expenses then due specified in Section 2.8 hereof; 
  
 (h) Certificate of Foreign Qualification (if applicable); 
  
 (i) Bank shall have completed an initial audit of Borrowers’ Collateral; and 
  
 (j) Bank shall have received evidence that the Company’s outstanding debentures in the amount of approximately $10,500,000 have been repaid in full; and 
  
 (k) such other documents, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate. 
  

	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 
  
 (b) the representations and warranties in Section 5 must be true on the date
of the Payment/Advance Form and on the effective date of each Credit Extension and no Event of 

  

 6 

 
Default may have occurred and be continuing, or result from the Credit Extension. Each Credit Extension is Borrowers’ representation and warranty on
that date that the representations and warranties of Section 5 remain true. 
  

	4.	CREATION OF SECURITY INTEREST 

  

	4.1	Grant of Security Interest. 

  
 Each Borrower grants Bank a continuing security interest in all presently existing and later acquired Collateral to secure all Obligations and performance
of each of Borrowers’ duties under the Loan Documents. Except for Permitted Liens, any security interest will be a first priority security interest in the Collateral. Bank upon the occurrence and during the continuance of any Event of Default,
may place a “hold” on any deposit account of any Borrower maintained with Bank. If this Agreement is terminated, Bank’s lien and security interest in the Collateral will continue until Borrowers fully satisfy their Obligations.

  

	4.2	Authorization to File. 

  
 Each Borrower authorizes Bank to file financing statements without notice to any Borrower, with all appropriate jurisdictions, as Bank deems appropriate,
in order to perfect or protect Bank’s interest in the Collateral. 
  

	5.	REPRESENTATIONS AND WARRANTIES 

  
 Each Borrower represents and warrants as follows: 
  

	5.1	Due Organization and Authorization. 

  
 Each Borrower and each Subsidiary is duly existing and in good standing in the state set forth in the first page of this Agreement and qualified and
licensed to do business in, and in good standing in, any state in which the conduct of its business or its ownership of property requires that it be qualified, except where the failure to do so could not reasonably be expected to cause a Material
Adverse Change. Each Borrower’s and each Subsidiary’s exact legal name is as set forth on the first page of this Agreement. The execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with
any Borrower’s formation documents, nor constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which, or by which it is bound, in which the default could
reasonably be expected to cause a Material Adverse Change. 
  

	5.2	Collateral. 

  
 Each Borrower has good title to its Collateral, free of Liens except Permitted Liens. The Accounts are bona fide, existing obligations, and the service or
property has been performed or delivered to the account debtor or its agent for immediate shipment to and unconditional acceptance by the account debtor. No Borrower has any notice of any actual or imminent Insolvency Proceeding of any account
debtor whose accounts are an Eligible Account in any Borrowing Base Certificate. All Inventory is in all material respects of good and marketable quality, free from material defects.  
  

	5.3	Litigation. 

  
 Except as set froth on the Schedule, there are no actions or proceedings pending or, to the knowledge of any Borrower’s Responsible Officers,
threatened by or against any Borrower or any Subsidiary in which a likely adverse decision could reasonably be expected to cause a Material Adverse Change. 
  

 7 

	5.4	No Material Adverse Change in Financial Statements. 

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

	5.5	Solvency. 

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

	5.6	Regulatory Compliance. 

  
 No Borrower is an “investment company” or a company “controlled” by an “investment company” under the Investment Company
Act. No Borrower is engaged as one of its important activities in extending credit for margin stock (under Regulations T and U of the Federal Reserve Board of Governors). Each Borrower has complied in all material respects with the Federal Fair
Labor Standards Act. Each Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to cause a Material Adverse Change. None of any Borrower’s or any Subsidiary’s properties or assets has
been used by any Borrower or any Subsidiary or, to the best of any Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Each Borrower and each
Subsidiary has timely filed all required tax returns and paid, or made adequate provision to pay, all material taxes, except those being contested in good faith with adequate reserves under GAAP. Each Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all government authorities that are necessary to continue its business as currently conducted, except where the failure to do so could not
reasonably be expected to cause a Material Adverse Change. 
  

	5.7	Subsidiaries. 

  
 No Borrower owns any stock, partnership interest or other equity securities except for Permitted Investments. 
  

	5.8	Full Disclosure. 

  
 No written representation, warranty or other statement of any Borrower in any certificate or written statement given to Bank (taken together with all such
written certificates and written statements to Bank) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading. It being recognized
by Bank that the projections and forecasts provided by any Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ
from the projected and forecasted results. 
  

	6.	AFFIRMATIVE COVENANTS 

  
 Borrowers will do all of the following for so long as Bank has an obligation to make any Credit Extension, or there are outstanding Obligations:

  

	6.1	Government Compliance. 

  
 Except with respect to the Former Entities defined on the Schedule, each Borrower will maintain its and all Subsidiaries’ legal existence and good
standing as a Registered Organization 

  

 8 

 
in only the State set forth on the first page of this Agreement and maintain qualification in each jurisdiction in which the failure to so qualify would
reasonably be expected to cause a material adverse effect on any Borrower’s business or operations. Each Borrower will comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with
which could have a material adverse effect on any Borrower’s business or operations or would reasonably be expected to cause a Material Adverse Change. 
  

	6.2	Financial Statements, Reports, Certificates. 

  
 (a) Company will deliver to Bank: (i) at any times that the aggregate of Borrowers’ outstanding Obligations averages in excess of $500,000 during any
calendar month, Company will deliver to Bank as soon as available, but no later than thirty (30) days after the last day of such month, a company prepared consolidated balance sheet and income statement covering Company’s consolidated
operations during the period certified by a Responsible Officer and in a form acceptable to Bank; (ii) as soon as available, but no later than forty five (45) days after the last day of the first, second and third quarters, respectively, of each
fiscal year, the Company’s 10-Q filings for such fiscal quarter, covering Company’s consolidated operations during the period certified by a Responsible Officer of Company; (iii) as soon as available, but no later than ninety (90) days
after the last day of Company’s fiscal year, the Company’s 10-K filing; (iv) a prompt report of any legal actions pending or threatened against any Borrower or any Subsidiary that could result in damages or costs to any Borrower or any
Subsidiary of $500,000 or more; (v) promptly notify Bank of any material changes to any Borrower’s business plan and/or financial projections; and (vi) budgets, sales projections, operating plans or other financial information Bank reasonably
requests. Bank agrees that information received by Bank pursuant to this Section will be kept confidential in accordance with Section 12.8 of this Agreement. 
  
 (b) So long as any Obligations are outstanding, within thirty (30) days after the last day of each month, Company will deliver to Bank a Borrowing Base
Certificate signed by a Responsible Officer of Company in the form of Exhibit C, with aged listings of accounts receivable. 
  
 (c) So long as any Obligations are outstanding, within thirty (30) days after the last day of each month and within forty five (45) days after the last
day of each fiscal quarter, Company will deliver to Bank with the monthly financial statements a Compliance Certificate signed by a Responsible Officer of Company in the form of Exhibit D. 
  
 (d) Allow Bank to audit Borrowers’ Collateral at Borrower’s
expense. Such audits will be conducted no more often than every twelve (12) months unless an Event of Default has occurred and is continuing and the expenses associated with such audits will be Bank’s reasonable and customary expenses.

  

	6.3	Inventory; Returns. 

  
 Borrowers will keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between any Borrower and its
account debtors will follow each Borrower’s customary practices as they exist at execution of this Agreement. Company must promptly notify Bank of all returns, recoveries, disputes and claims, that involve more than $200,000. 
  

 9 

	6.4	Taxes. 

  
 Each Borrower will make, and cause each Subsidiary to make, timely payment of all material federal, state, and local taxes or assessments (other than
taxes and assessments which any Borrower is contesting in good faith, with adequate reserves maintained in accordance with GAAP) and will deliver to Bank, on demand, appropriate certificates attesting to the payment. 
  

	6.5	Insurance. 

  
 Each Borrower will keep its business and the Collateral insured for risks and in amounts standard for such Borrower’s industry, and as Bank may
reasonably request. Insurance policies will be in a form, with companies, and in amounts that are satisfactory to Bank in Bank’s reasonable discretion. All property policies will have a lender’s loss payable endorsement showing Bank as an
additional loss payee and all liability policies will show the Bank as an additional insured and provide that the insurer must give Bank at least twenty (20) days notice before canceling its policy. At Bank’s request, Borrowers will deliver
certified copies of policies and evidence of all premium payments. Proceeds payable under any policy will, at Bank’s option, be payable to Bank on account of the Obligations. 
  

	6.6	Primary Accounts. 

  
 Each Borrower will maintain its primary operating and investment accounts with Bank and/or Bank’s Affiliates. 
  

	6.7	Financial Covenants. 

  
 Borrowers will maintain on a consolidated basis as of the last day of each month (unless otherwise stated below): 
  
 (a) Liquidity Ratio. A Liquidity Ratio of at least 1.50 to 1.00 as of
each quarter end, commencing March 31, 2004; 
  
 (b) Minimum
EBITDA. EBITDA of not less than the following amounts as of each fiscal quarter below: 
  

			
	 EBITDA:
	  	Quarter Ending:
	 ($500,000)
	  	March 31, 2004;
	 ($750,000)
	  	June 30, 2004;
	 $             0
	  	September 30, 2004; and
	 $  750,000
	  	December 31, 2004.

  

	6.8	Further Assurances. 

  
 Borrowers will execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s security interest in
the Collateral or to effect the purposes of this Agreement. 
  

	7.	NEGATIVE COVENANTS 

  
 Borrowers will not do any of the following without Bank’s prior written consent, for so long as Bank has an obligation to make Credit Extensions or
there are any outstanding Obligations: 
  

	7.1	Dispositions. 

  
 Convey, sell, lease, transfer or otherwise dispose of (collectively “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part
of its business or property, except for Transfers (i) of Inventory in the ordinary course of business; (ii) of non-exclusive licenses and similar arrangements for the use of the property of any Borrower or its Subsidiaries in the ordinary
course of business; or (iii) of worn-out or obsolete Equipment or other assets which are no longer 

  

 10 

 
necessary or required in the conduct of Borrowers’ business; or (iv) of Permitted Investments. Notwithstanding the foregoing, the Borrowers may Transfer
assets or liabilities between and among Borrowers without the consent of Bank, provided that at the time of any Transfer no Event of Default has occurred and is continuing hereunder, and that no such Transfer causes an impairment in the perfection
or priority of Bank’s security interest in such Collateral or in the value of such Collateral. 
  

	7.2	Changes in Business, Ownership, Management or Business Locations. 

  
 Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by any Borrower or reasonably related
thereto or have a material change in the composition of its current executive management. Borrowers will not, without at least thirty (30) days prior written notice, change the state of formation, relocate any Borrower’s chief executive office
or add any new offices or business locations. 
  

	7.3	Mergers or Acquisitions. 

  
 Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to
acquire, all or substantially all of the capital stock or property of another Person, except where (i) no Event of Default has occurred and is continuing or would result from such action during the term of this Agreement; (ii) a Borrower will be or
will control the surviving entity; and (iii) a Subsidiary may merge or consolidate into another Subsidiary or into a Borrower. 
  

	7.4	Indebtedness. 

  
 Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness. 
  

	7.5	Encumbrance. 

  
 Create, incur, or allow any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit
any of its Subsidiaries to do so, except for Permitted Liens, or permit any Collateral not to be subject to the first priority security interest granted here, subject to Permitted Liens. 
  

	7.6	Distributions; Investments. 

  
 Except as expressly permitted by Section 7.3, (i) directly or indirectly acquire or own any Person, or make any Investment in any Person, other than
Permitted Investments, or permit any of its Subsidiaries to do so or (ii) pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock, except of repurchase of stock or stock options from former employees or
directors of Borrowers under the terms of applicable repurchase agreements, provided that at the time of such repurchase, no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases. 
  

	7.7	Transactions with Affiliates. 

  
 Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of any Borrower except for transactions that are in the
ordinary course of such Borrower’s business, upon fair and reasonable terms that are no less favorable to any Borrower than would be obtained in an arm’s length transaction with a nonaffiliated Person. 
  

	7.8	Subordinated Debt. 

  
 Make or permit any payment on any Subordinated Debt, except under the terms of the Subordinated Debt, or amend any provision in any document relating to
the Subordinated Debt without Bank’s prior written consent. 
  

 11 

	7.9	Compliance. 

  
 Become an “investment company” or a company controlled by an “investment company,” under the Investment Company Act of 1940 or
undertake as one of its important activities extending credit to purchase or carry margin stock, or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if any such occurrence for failure to comply or the violation could reasonably be expected to
have a material adverse effect on Borrower’s business or operations or would reasonably be expected to cause a Material Adverse Change, or permit any of its Subsidiaries to do so. 
  

	8.	EVENTS OF DEFAULT 

  
 Any one of the following is an Event of Default: 
  

	8.1	Payment Default. 

  
 If Borrowers fail to pay any of the Obligations within three (3) days after their due date. During the three (3) day period the failure to cure the
default is not an Event of Default (but no Credit Extension will be made during the cure period); 
  

	8.2	Covenant Default. 

  
 (a) If Borrowers fail to perform any obligation under Sections 6.2 or 6.7 or violates any of the covenants contained in Article 7 of this Agreement, or

  
 (b) If any Borrower fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or agreement contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between any Borrower and Bank and as to any default under such other
term, provision, condition, covenant or agreement that can be cured, has failed to cure such default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day
period or cannot after diligent attempts by Borrowers be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrowers shall have an additional reasonable period (which shall not in any case
exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default (provided that no Credit Extensions will be made during such cure
period); 
  

	8.3	Material Adverse Change. 

  
 A Material Adverse Change shall be deemed to have occurred if there (i) occurs a material adverse change in the business, operations, or condition
(financial or otherwise) of any Borrower, or (ii) is a material impairment of the prospect of repayment of any portion of the Obligations or (iii) is a material impairment of the value or priority of Bank’s security interests in the Collateral
which is not fully covered by insurance, as determined by Bank. 
  

	8.4	Attachment. 

  
 If any material portion of any Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver and the
attachment, seizure or levy is not removed in ten (10) days, or if any Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business or if a judgment or other claim becomes a Lien on a material portion
of any Borrower’s assets, or if a notice of lien, levy, or assessment is filed 

  

 12 

 
against any of any Borrower’s assets by any government agency and not paid within ten (10) days after such Borrower receives notice. These are not
Events of Default if stayed or if a bond is posted pending contest by such Borrower (but no Credit Extensions will be made during the cure period); 
  

	8.5	Insolvency. 

  
 If any Borrower becomes insolvent or if any Borrower begins an Insolvency Proceeding or an Insolvency Proceeding is begun against any Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before any Insolvency Proceeding is dismissed); 
  

	8.6	Other Agreements. 

  
 If there is a default in any agreement between any Borrower and a third party that gives the third party the right to accelerate any Indebtedness
exceeding $200,000 or that could cause a Material Adverse Change; 
  

	8.7	Judgments. 

  
 If a money judgment(s) in the aggregate of at least $200,000 is rendered against any Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); 
  

	8.8	Misrepresentations. 

  
 If any Borrower or any Person acting for any Borrower makes any material misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document; or 
  

	8.9	Subsidiaries. 

  
 Any circumstance described in Sections 8.3, 8.4, 8.5 or 8.7 occurs to any Subsidiary of any Borrower. 
  

	9.	BANK’S RIGHTS AND REMEDIES 

  

	9.1	Rights and Remedies. 

  
 When an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following: 
  
 (a) Declare all Obligations immediately due and payable (but if an Event of
Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank); 
  
 (b) Stop advancing money or extending credit for any Borrower’s benefit under this Agreement or under any other agreement between any Borrower and
Bank; 
  
 (c) Settle or adjust disputes and claims directly with
account debtors for amounts, on terms and in any order that Bank in good faith considers advisable; 
  
 (d) Make any payments and do any acts it considers necessary or reasonable to protect its security interest in the Collateral. Borrowers will assemble the
Collateral if Bank requires and make it available as Bank designates. Bank may lawfully enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien
which appears to be prior or superior to its security interest and pay all expenses incurred. Each Borrower grants Bank a license to lawfully enter and occupy any of its premises, without charge, to exercise any of Bank’s rights or remedies;

  

 13 

 (e) Apply to the Obligations any (i) balances and deposits of any Borrower with Bank or its Affiliate it
holds, or (ii) amount held by Bank owing to or for the credit or the account of any Borrower; 
  
 (f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is granted a non-exclusive, royalty-free license or other right to use, without charge,
each Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section, each Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit; and 

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

	9.2	Power of Attorney. 

  
 Effective only when an Event of Default occurs and during its continuance, each Borrower irrevocably appoints Bank as its lawful attorney to: (i) endorse
any Borrower’s name on any checks or other forms of payment or security; (ii) sign each Borrower’s name on any invoice or bill of lading for any Account or drafts against account debtors, (iii) make, settle, and adjust all claims under any
Borrower’s insurance policies; (iv) settle and adjust disputes and claims about the Accounts directly with account debtors, for amounts and on terms Bank determines reasonable; and (v) transfer the Collateral into the name of Bank or a third
party as the Code permits. Bank may exercise the power of attorney to sign each Borrower’s name on any documents necessary to perfect or continue the perfection of any security interest regardless of whether an Event of Default has occurred.
Bank’s appointment as each Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank’s obligation to provide
Credit Extensions terminates. 
  

	9.3	Accounts Collection. 

  
 When an Event of Default occurs and during its continuance, Bank may notify any Person owing any Borrower money of Bank’s security interest in the
funds and verify the amount of the Account. Each Borrower must collect all payments in trust for Bank and, if requested by Bank, immediately deliver the payments to Bank in the form received from the account debtor, with proper endorsements for
deposit. 
  

	9.4	Bank Expenses. 

  
 If any Borrower fails to pay any amount or furnish any required proof of payment to third persons, Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5 and take any action under the policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then applicable rate and secured by the
Collateral. No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default. 
  

	9.5	Bank’s Liability for Collateral. 

  
 If Bank complies with reasonable banking practices and the Code, it is not liable for: (a) the safekeeping of the Collateral; (b) any loss or damage to
the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Each Borrower bears all risk of loss, damage or destruction of the Collateral. 
  

 14 

	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. 

  
 Following an Event of Default and during the continuance thereof, with respect to the Obligations under the Loan Documents, each Borrower waives demand,
notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on
which any Borrower is liable. 
  

	10.	NOTICES 

  
 All notices or demands by any party about this Agreement or any other related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt requested, or by telefacsimile to the addresses set forth at the beginning of this Agreement. A party may change its notice address by giving the other party written
notice. 
  

	11.	CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER 

  
 Virginia law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in the Commonwealth of Virginia provided, however, that if for any reason the Bank can not avail itself of the courts of the Commonwealth of Virginia, each Borrower and Bank each submit to the jurisdiction of the State
and Federal Courts in Santa Clara County, California. 
  
 EACH BORROWER AND
BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT
FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL. 
  

	12.	GENERAL PROVISIONS 

  

	12.1	Successors and Assigns. 

  
 This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrowers may not assign this Agreement or any rights
under it, other than as a result of an acquisition permitted under Section 7.3, without Bank’s prior written consent which may be granted or withheld in Bank’s discretion. Bank has the right, without the consent of or notice to Borrowers,
to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits under this Agreement. 
  

	12.2	Indemnification. 

  
 Except for loses directly caused by Bank’s gross negligence or willful misconduct, each Borrower will indemnify, defend and hold harmless Bank and
its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities asserted by any other party in 

  

 15 

 
connection with the transactions contemplated by the Loan Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank from, following, or
consequential to transactions between Bank and any Borrower (including reasonable attorneys fees and expenses). 
  

	12.3	Time of Essence. 

  
 Time is of the essence for the performance of all obligations in this Agreement. 
  

	12.4	Severability of Provision. 

  
 Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision. 
  

	12.5	Amendments in Writing, Integration. 

  
 All amendments to this Agreement must be in writing and signed by each Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. 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
each Borrower in Section 12.2 to indemnify Bank will survive until all statutes of limitations for actions that may be brought against Bank have run. 
  

	12.8	Confidentiality. 

  
 In handling any confidential information, Bank will exercise the same degree of care that it exercises for its own proprietary information, but disclosure
of information may be made (i) to Bank’s subsidiaries or affiliates in connection with their business with Borrowers, (ii) to prospective transferees or purchasers of any interest in the loans (provided, however, Bank shall use commercially
reasonable efforts in obtaining such prospective transferee or purchasers agreement of the terms of this provision), (iii) as required by law, regulation, subpoena, or other order, (iv) as required in connection with Bank’s examination or audit
and (v) as Bank considers appropriate in exercising remedies under this Agreement. Confidential information does not include information that either: (a) is in the public domain or in Bank’s possession when disclosed to Bank, or becomes part of
the public domain after disclosure to Bank; or (b) is disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information. 
  

	12.9	Effective Date. 

  
 Notwithstanding anything set forth in this Agreement or any Loan Document to the contrary, this Agreement and all of the Loan Documents shall not be
effective until the date on which the Bank executes this Agreement as indicated on the signature page to this Agreement. 
  

	12.10	Attorneys’ Fees, Costs and Expenses. 

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

 16 

	13.	DEFINITIONS 

  

	13.1	Definitions. 

  
 In this Agreement: 
  
 “Accounts” has the meaning set forth in the Code and includes all existing and later arising accounts, contract rights, and other
obligations owed any Borrower in connection with its sale or lease of goods (including licensing software and other technology) or provision of services, all credit insurance, guaranties, other security and all merchandise returned or reclaimed by
any Borrower and each Borrower’s Books relating to any of the foregoing. 
  
 “Advance” or “Advances” is a loan advance (or advances) under the Committed Revolving Line. 
  
 “Affiliate” of a Person is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by
or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members. 
  
 “Bank Expenses” are all reasonable audit fees and expenses
and reasonable costs and expenses (including reasonable attorneys’ fees and expenses) for preparing, negotiating, administering, defending and enforcing the Loan Documents (including appeals or Insolvency Proceedings). 
  
 “Borrower’s Books” are all of each Borrower’s
books and records including ledgers, records regarding each Borrower’s assets or liabilities, the Collateral, business operations or financial condition and all computer programs or discs or any equipment containing the information. 

 
 “Borrowing Base” is eighty percent (80%) of Eligible
Accounts as determined by Bank from Borrower’s most recent Borrowing Base Certificate; provided, however, that Bank may lower the percentage of the Borrowing Base after performing an audit of Borrower’s Collateral.

  
 “Business Day” is any day that is not a
Saturday, Sunday or a day on which the Bank is closed. 
  
 “Closing Date” is the date of this Agreement. 
  
 “Code” is the Uniform Commercial Code, in effect in the Commonwealth of Virginia as in effect from time to time. 
  
 “Collateral” is the property described on Exhibit A. 
  
 “Committed Revolving Line” is Advances of up to Six Million Dollars ($6,000,000). 
  
 “Contingent Obligation” is, for any Person, any direct or
indirect liability, contingent or not, of that Person for (i) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly liable; (ii) any obligations for undrawn letters of credit for the account of that Person; and (iii) all obligations from any interest rate, currency or commodity swap
agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not
include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably
anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under the guarantee or other support arrangement. 
  
 “Credit Extension” is each Advance or any other extension of credit by Bank for any Borrower’s
benefit. 
  

 17 

 “EBITDA” is earnings before interest, taxes, depreciation and amortization, provided
however that EBITDA shall not include and shall not account for a) one-time, non-recurring charges arising from or in connection with the Company’s repayment of those certain 5% Senior Secured Convertible Debentures issued by the Company and
certain Subsidiaries pursuant to that certain Securities Purchase Agreement dated as of March 25, 2002 to the holders thereunder or b) legal costs and expenses not to exceed $1,000,000 in the aggregate during the current fiscal year in connection
with the Patent Litigation described and defined in Schedule 5.3 
  
 “Eligible Accounts” are Accounts in the ordinary course of a Borrower’s business that meet all of each Borrower’s representations and warranties in Section 5; but Bank may change eligibility standards by
giving Company prior written notice. Unless Bank agrees otherwise in writing, Eligible Accounts will not include: 
  
 (a) Accounts that the account debtor has not paid within 90 days of invoice date; 
  
 (b) Accounts for an account debtor, 50% or more of whose Accounts have not been paid within 90 days of invoice date;

  
 (c) Credit balances over 90 days from invoice date;

  
 (d) Accounts for an account debtor, including Affiliates,
whose total obligations to Borrowers exceed 25% of all Accounts, for the amounts that exceed that percentage, unless the Bank approves in writing; 
  
 (e) Accounts for which the account debtor does not have its principal place of business in the United States; 
  
 (f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality, unless assigned to Bank in accordance with the Federal Assignment of Claims Act; 
  
 (g) Accounts for which any Borrower owes the account debtor, but only up to the amount owed (sometimes called “contra” accounts, accounts
payable, customer deposits or credit accounts); 
  
 (h) Accounts
for demonstration or promotional equipment, or in which goods are consigned, sales guaranteed, sale or return, sale on approval, bill and hold, or other terms if account debtor’s payment may be conditional; 
  
 (i) Accounts for which the account debtor is a Borrower’s Affiliate,
officer, employee, or agent; 
  
 (j) Accounts in which the account
debtor disputes liability or makes any claim and Bank believes there may be a basis for dispute (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of
business; 
  
 (k) Accounts for which Bank reasonably determines
collection to be doubtful. 
  
 “Equipment” has
the meaning set forth in the Code and includes all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which any Borrower has any interest. 
  

 18 

 “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. 
  
 “Inventory” has the meaning set forth in the Code and includes is present and future inventory in which any Borrower has any interest,
including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or later owned
by or in the custody or possession, actual or constructive, of any Borrower, including inventory temporarily out of its custody or possession or in transit and including returns on any accounts or other Proceeds from the sale or disposition of any
of the foregoing and any documents of title. 
  
 “Investment” is any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person. 
  
 “Letter-of-credit right” means a right to payment or
performance under a letter of credit, whether or not the beneficiary has demanded or is at the time entitled to demand payment or performance. 
  
 “Lien” is a mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance. 
  
 “Liquidity Ratio” means with respect to any period of period
of determination, the ratio of (i) the sum of (a) Quick Assets, plus (b) eighty percent (80%) of Accounts to (ii) the aggregate amount of outstanding Obligations. 
  
 “Loan Documents” are, collectively, this Agreement, the Revolving Promissory Note, any note, or
notes or guaranties executed by any Borrower, and any other present or future agreement between any Borrower and/or for the benefit of Bank in connection with this Agreement, all as amended, extended or restated. 
  
 “Material Adverse Change” has the meaning set forth in
Section 8.3. 
  
 “Obligations” are debts,
principal, interest, Bank Expenses and other amounts any Borrower owes Bank now or later, including cash management services, letters of credit and foreign exchange contracts, if any and including interest accruing after Insolvency Proceedings begin
and debts, liabilities, or obligations of any Borrower assigned to Bank. 
  
 “Permitted Indebtedness” is: 
  
 (a) Each 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 incurred in the ordinary course of business; 
  

 19 

 (e) Indebtedness secured by Permitted Liens; 
  
 (f) Indebtedness between any Borrowers who are parties to the Loan Documents;
and 
  
 (g) Extensions, refinancings, modifications, amendments
and restatements of any item above, provided that the principal amount is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrowers or their Subsidiaries, as the case may be. 
  
 “Permitted Investments” are: 
  
 (a) Investments shown on the Schedule and existing on the Closing Date; and

  
 (b) 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 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. 
  
 “Permitted Liens” are: 
  
 (a) Liens existing on the Closing Date and shown on the Schedule or arising under this Agreement or other Loan Documents; 
  
 (b) Liens for taxes, fees, assessments or other government charges or levies,
either not delinquent or being contested in good faith and for which such Borrower maintains adequate reserves on its Books, if they have no priority over any of Bank’s security interests; 
  
 (c) Purchase money Liens (i) on Equipment acquired or held by a Borrower or
its Subsidiaries incurred for financing the acquisition of the Equipment, or (ii) existing on equipment when acquired, if the Lien is confined to the property and improvements and the Proceeds of the equipment; 
  
 (d) Licenses or sublicenses granted in the ordinary course of a
Borrower’s business and any interest or title of a licensor or under any license or sublicense, if the licenses and sublicenses do not prohibit granting Bank a security interest; 
  
 (e) Leases or subleases granted in the ordinary course of a Borrower’s
business, including in connection with such Borrower’s leased premises or leased property; 
  
 (f) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase. 
  
 “Person” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company association, trust,
unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency. 
  

“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest rate. 
  
 “Proceeds” has the meaning described in the Code as in
effect from time to time. 
  

 20 

 “Quick Assets” is, on any date, the Borrowers’ consolidated, unrestricted cash and
cash equivalents determined according to GAAP. 
  
 “Registered Organization” means an organization organized solely under the law of a single state or the United States and as to which the state or the United States must maintain a public record showing the organization to
have been organized. 
  
 “Responsible Officer” is
each of the Chief Executive Officer, the President, the Chief Financial Officer and the Controller of any Borrower. 
  
 “Revolving Maturity Date” is July 22, 2005. 
  
 “Revolving Promissory Note” means that certain Revolving Promissory Note of even date herewith in the maximum principal amount of Six
Million Dollars ($6,000,000) from Borrowers in favor of Bank, together with all renewals, amendments, modifications and substitutions, therefor. 
  
 “Schedule” is any attached schedule of exceptions. 
  
 “Senior Secured Convertible Debentures” means those certain 5% senior secured convertible debentures issued
by the Company and certain Subsidiaries pursuant to that certain Securities Purchase Agreement dated as of March 25, 2002. 
  
 “Subordinated Debt” is debt incurred by any Borrower subordinated to Borrowers’ indebtedness owed to Bank and which is reflected in
a written agreement in a manner and form acceptable to Bank and approved by Bank in writing. 
  
 “Subsidiary” is for any Person, or any other business entity of which more than 50% of the voting stock or other equity interests is owned or controlled, directly or indirectly, by the Person or one
or more Affiliates of the Person. 
  
 “Supporting
Obligation” means a Letter-of-credit right, secondary obligation or obligation of a secondary obligor or that supports the payment or performance of an account, chattel paper, a document, a general intangible, an instrument or investment
property. 
  
 [Signatures appear on the following page]

  

 21 

											
	 	 	 	 	 BORROWERS:
	 	 
				
	 WITNESS/ATTEST:
	 	 	 	VISUAL NETWORKS, INC.	 	 
					
	 /s/ Hank Deily
	 	 	 	 By:
	 	 /s/ Lawrence S. Barker
	 	(SEAL)
	 	 	 	 	 	 	 	 	 Name: Lawrence S. Barker
	 	 
	 	 	 	 	 	 	 	 	 Title: President and Chief Executive Officer
	 	 

  

											
				
	 WITNESS/ATTEST:
	 	 	 	VISUAL NETWORKS INTERNATIONAL OPERATIONS, INC.	 	 
					
	 /s/ Hank Deily
	 	 	 	 By:
	 	 /s/ Lawrence S. Barker
	 	(SEAL)
	 	 	 	 	 	 	 	 	 Name: Lawrence S. Barker
	 	 
	 	 	 	 	 	 	 	 	 Title: President and Chief Executive Officer
	 	 

  

											
				
	 WITNESS/ATTEST:
	 	 	 	VISUAL NETWORKS OPERATIONS, INC.	 	 
					
	 /s/ Hank Deily
	 	 	 	 By:
	 	 /s/ Lawrence S. Barker
	 	(SEAL)
	 	 	 	 	 	 	 	 	 Name: Lawrence S. Barker
	 	 
	 	 	 	 	 	 	 	 	 Title: President and Chief Executive Officer
	 	 

  

											
				
	 WITNESS/ATTEST:
	 	 	 	AVESTA TECHNOLOGIES, LLC	 	 
					
	 /s/ Hank Deily
	 	 	 	 By:
	 	 /s/ Lawrence S. Barker
	 	(SEAL)
	 	 	 	 	 	 	 	 	 Name: Lawrence S. Barker
	 	 
	 	 	 	 	 	 	 	 	 Title: President and Chief Executive Officer
	 	 

  

 22 

											
	 WITNESS/ATTEST:
	 	 	 	NET2NET, LLC	 	 
	 	 	 	 	By: VISUAL NETWORKS, INC.	 	 
					
	 /s/ Hank Deily
	 	 	 	 By:
	 	 /s/ Lawrence S. Barker
	 	(SEAL)
	 	 	 	 	 	 	 Name:
	 	 Lawrence S. Barker
	 	 
	 	 	 	 	 	 	 Title:
	 	 President and Chief Executive Officer
	 	 
				
	 	 	 	 	 BANK:
	 	 
				
	 	 	 	 	SILICON VALLEY BANK	 	 
					
	 	 	 	 	 By:
	 	 /s/ Chris York
	 	 
	 	 	 	 	 	 	 Name:
	 	 Chris York
	 	 
	 	 	 	 	 	 	 Title:
	 	 Vice President
	 	 
					
	 	 	 	 	 	 	 Effective as of July 22, 2004
	 	 

  

 23 

 EXHIBIT A 
  

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

  

 24 

 
except that the Collateral shall include the Proceeds of all the Intellectual Property that are accounts, (i.e. accounts receivable) of Borrower, or general
intangibles consisting of rights to payment, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in such accounts and general
intangibles of any Borrower that are Proceeds of the Intellectual Property, then the Collateral shall automatically, and effective as of the Closing Date, include the Intellectual Property to the extent necessary to permit perfection of Bank’s
security interest in such accounts and general intangibles of any Borrower that are Proceeds of the Intellectual Property. 
  
 Each Borrower and Bank are parties to that certain Negative Pledge Agreement, whereby each Borrower, in connection with Bank’s loan or loans to
Borrower, has agreed, among other things, not to sell, transfer, assign, mortgage, pledge, lease grant a security interest in, or encumber any of its Intellectual Property or enter into any agreement, document, instrument or other arrangement
(except with or in favor of the Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting each Borrower from selling, transferring, assigning, mortgaging, pledging, leasing, granting a security interest in, or
encumbering any of its Intellectual Property, without Bank’s prior written consent. 
  

 25 

 EXHIBIT B 
  
 LOAN PAYMENT/ADVANCE REQUEST FORM 
  
 DEADLINE FOR
SAME DAY PROCESSING IS 3:00 E.S.T. 
  

					
	Fax To:	 	617/969-5962	 	Date:
                            

  
  ̈ LOAN
PAYMENT:                                    
                     CLIENT NAME (BORROWER) 
  

			
	From Account
#                                       
 	 	To Account
#                                       
 
	                                (Deposit Account #)	 	                                (Loan Account #)

  
 Principal
$                                        
and/or Interest
$                                        
                                     
  
 All Borrower’s representations and warranties in the Loan and Security Agreement are
true, correct and complete in all material respects to on the date of the telephone transfer request for and advance, but those representations and warranties expressly referring to another date shall be true, correct and complete in all material
respects as of the date: 
  
 Authorized Signature:
                                        
                             Phone Number:
                                       
  
  
  ̈ LOAN ADVANCE: 
  
 Complete Outgoing Wire Request section below if all or a portion of the funds from this loan advance are for an outgoing wire. 
  

			
	From Account
#                                       
 	 	To Account
#                                       
 
	                                    (Loan Account
#)	 	                            (Deposit Account
#)
		
	Amount of Advance
$                              	 	 

  
 All Borrower’s representations
and warranties in the Loan and Security Agreement are true, correct and complete in all material respects to on the date of the telephone transfer request for and advance, but those representations and warranties expressly referring to another date
shall be true, correct and complete in all material respects as of the date: 
  
 Authorized Signature:
                                        
                             Phone Number:
                                       
  
  
 OUTGOING WIRE
REQUEST 
  
 Complete only if all or a portion of funds from
the loan advance above are to be wired. 
  
 Deadline for same day processing is 12:00 p.m., E.S.T. 
  

			
	Beneficiary Name:
                                       
 	 	Amount of Wire:
$                                       
 
		
	Beneficiary Bank:
                                       
 	 	Account Number:
                                       
 
	
	City and State:
                                        
                                        
        
	
	Beneficiary Bank Transit (ABA) #:
                                        
                     Beneficiary Bank Code (Swift, Sort, Chip, etc.):     
	 	 	              (For International Wire Only)
		
	Intermediary Bank:
                                       
 	 	Transit (ABA) #:
                                       
 
	
	For Further Credit to:
                                        
                                        
                                        
                    
	
	Special Instruction:
                                        
                                        
                                        
                        

  
 By signing below, I (we)
acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the 

  

 26 

 
terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me
(us). 
  

			
		
	 Authorized Signature:
                                        
        
	 	 2nd
Signature (If Required):                                 

		
	 Print Name/Title:
                                        
        
	 	 Print Name/Title:
                                        
        

		
	 Telephone #
                                        
                
	 	 Telephone #
                                        
                

  

 27 

 EXHIBIT C 
 BORROWING BASE CERTIFICATE 
  

							
	 Borrowers:
	  	 Visual Networks, Inc. and its Subsidiaries
	  	 Bank:
	  	Silicon Valley Bank
	 	  	2092 Gaither Road	  	 	  	 3003 Tasman Drive

	 	  	 Rockville, Maryland 20850
	  	 	  	 Santa Clara, CA 95054

	Commitment Amount: $6,000,000	  	 	  	 

  
 ACCOUNTS RECEIVABLE 
  

					
	 1.      Accounts Receivable Book Value as of
        
	  	$                                      
          
	 2.      Additions (please explain on reverse)
	  	$                                      
          
	 3.      TOTAL ACCOUNTS RECEIVABLE
	  	$                                      
          
		
	 ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
	  	 
		
	 4.      Amounts over 90 days due from invoice date
	  	$                                      
          
	 5.      Balance of 50% over 90 day accounts
	  	$                                      
          
	 6.      Credit balances over 90 days
	  	$                                      
          
	 7.      Concentration Limits (25%)
	  	$                                      
          
	 8.      Foreign Accounts
	  	$                                      
          
	 9.      Governmental Accounts
	  	$                                      
          
	 10.    Contra Accounts
	  	$                                      
          
	 11.    Promotion or Demo Accounts
	  	$                                      
          
	 12.    Intercompany/Employee Accounts
	  	$                                      
          
	 13.    Other (please explain on reverse)
	  	$                                      
          
	 14.    TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS
	  	$                                      
          
	 15.    Eligible Accounts (#3 minus #14)
	  	$                                      
          
	 16.    LOAN VALUE OF ACCOUNTS (80% of #15)
	  	$                                      
          
		
	 BALANCES
	  	 
		
	 17.    Maximum Loan Amount
	  	$6,000,000
	 18.    Total Funds Available [Lesser of #17 or #16]
	  	$                                      
          
	 19.    Present balance owing on Line of Credit
	  	$                                      
          
	 20.    RESERVE POSITION (#18 minus #19)
	  	$                                      
          

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

  

									
	 COMMENTS:
	 	 	 	 BANK USE ONLY

					
	By:	 	 	 	 	 	 	 	 
	 	 	 Authorized Signer
	 	 	 	 Rec’d By:
                                        
                

	 	 	 	 	 	 	 	 	 Auth. Signer

	 	 	 	 	 	 	 Date:
                                        
                        

				
	 	 	 	 	 	 	 Verified:
                                        
                   

	 	 	 	 	 	 	 	 	 Auth. Signer

	 	 	 	 	 	 	 Date:
                                        
                        

  

 28 

 EXHIBIT D 
 COMPLIANCE CERTIFICATE 
  

			
	 TO:
	  	 SILICON VALLEY BANK

	 	  	 3003 Tasman Drive

	 	  	 Santa Clara, CA 95054

		
	 FROM:
	  	 VISUAL NETWORKS, INC.

	 	  	 2092 Gaither Road

	 	  	 Rockville, Maryland 20850

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

							
	 Reporting Covenant

	  	 Required

	  	 Complies

	 Monthly financial statements (if outstandings exceed $500,000)
	  	 Monthly within 30 days
	  	Yes	  	No
	 10-Q
	  	 Quarterly within 45 days
	  	Yes	  	No
	 10-K
	  	 FYE within 120 days
	  	Yes	  	No
	 A/R Agings
	  	 Monthly within 30 days
	  	Yes	  	No
	 A/R Audit
	  	 Initial and Annual
	  	Yes	  	No
	 Borrowing Base Certificate + CC
	  	 Monthly within 30 days
	  	Yes	  	No

  

												
	 Financial Covenant

	  	Required

	 	 	Actual

	  	 Complies

	 Maintain on a Monthly Basis:
	  	 	 	 	 	 	 	  	 	  	 
	 Minimum Liquidity Ratio
	  	 	1.50:1.00	 	 	 	            :1.00	  	Yes	  	No
	 EBITDA
	  	 	 	 	 	 	 	  	 	  	 
	 March 31, 2004
	  	 	($500,000	)	 	$	                    	  	Yes	  	No
	 June 30, 2004
	  	 	($750,000	)	 	$	                    	  	Yes	  	No
	 September 30, 2004
	  	$	0	 	 	$	                    	  	Yes	  	No
	 December 31, 2004
	  	$	750,000	 	 	$	                    	  	Yes	  	No

  

 29 

									
	 Comments Regarding Exceptions: See Attached.
	 	 	 	BANK USE ONLY
				
	 Sincerely,
	 	 	 	 Received by:
	 	 
	 	 	 	 	 	 	 AUTHORIZED SIGNER

	_________________	 	 	 	 	 	 
				
	 	 	 	 	 Date:
	 	 
				
	 SIGNATURE
	 	 	 	 Verified:
	 	 
	 	 	 	 	 	 	 AUTHORIZED SIGNER

				
	 TITLE
	 	 	 	 Date:
	 	 
				
	 	 	 	 	 	 	 Compliance Status:
                                        
        Yes     No

				
	 DATE
	 	 	 	 	 	 

  

 30 

 EXHIBIT E 
 LOCK BOX AGREEMENT 
  

 31 

 Schedule to Loan and Security Agreement 
  
 The exact correct corporate name of Borrower is (attach a copy of the formation documents,
e.g., articles, partnership agreement): VISUAL NETWORKS, INC., a Delaware corporation, VISUAL NETWORKS INTERNATIONAL OPERATIONS, INC., a Delaware corporation, VISUAL NETWORKS OPERATIONS, INC., a Delaware corporation, AVESTA
TECHNOLOGIES, LLC, a Delaware limited liability company, and NET2NET, LLC, a Delaware limited liability company 
  
 Borrower’s State of formation: see above 
  
 Borrower has operated under only the following other names (if none, so state): 
 ____________________________________________________________________________________________ 
  
 All other address at which the Borrower does business are as follows (attach additional sheets if necessary and include all warehouse addresses): 
  
 Borrower has deposit accounts and/or investment accounts located only at the following institutions: 
  
 List Acct. Numbers: 
  
 Liens existing on the Closing Date and disclosed to and accepted by Bank in writing: 
  
 None 
  

Investments existing on the Closing Date and disclosed to and accepted by Bank in writing: 
  
 None 
  
 Subordinated Debt: 
  
 Indebtedness on the Closing Date and disclosed to and consented to by Bank in writing: None 
  
 Schedule 5.1 
  
 The Company has or is in the process of winding down, liquidating, dissolving or converting to an LLC, the following subsidiaries (collectively, the “Former
Entities”): 
  

	 	1.	Visual Networks Insurance, Inc. 

  

	 	2.	Visual Networks, Ltd. (Bermuda) 

  

	 	3.	Visual Networks Protection, Inc. 

  

	 	4.	Visual Networks Texas Operations, Inc. 

  

	 	5.	Visual Networks of Texas, L.P. 

  

	 	6.	Avesta Technologies, Inc. (converted to LLC) 

  

	 	7.	Inverse Network Technologies, Inc. (converted to LLC). 

  
 Schedule 5.3 
  
 Borrower is not subject to litigation which would have a material adverse effect on the Borrower’s financial condition, except the following (attach additional comments, if needed): 
  
 On January 23, 2004, the Company received notice that a lawsuit had been
filed by Paradyne Networks, Inc., of Largo, Florida (“Paradyne”), in the U.S. District Court for the Middle District of Florida, Tampa Division, seeking damages, and injunctive and declaratory relief, for the Company’s alleged
infringement of patents owned by Paradyne. (the “Patent Litigation”). 
  
 Schedule 5.6 
  
 The Company is currently undergoing a
self-initiated sales tax audit by its independent accountants, Ernst & Young. The Company currently estimates that any liability for unpaid sales taxes will not exceed $300,000 in the aggregate. 
  
 Tax ID Number
                                        
                                        

  
 Organizational Number, if
any:                                       
              
  

 32

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