Document:

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                                                                   EXHIBIT 10.10

                              [FINOVA LETTERHEAD]

                       MASTER LOAN AND SECURITY AGREEMENT

         Master Loan and Security Agreement No. S730 Dated May 19, 1999

FINOVA Capital Corporation ("we," "us" or "FINOVA"), having its principal place
of business at 1850 North Central Avenue, Phoenix, Arizona 85004 is willing to
make a loan (the "Loan") to CoSine Communications, Inc. ("you" or "Borrower"),
having its principal place of business at 1200 Bridge Parkway, Redwood City, CA
94065, in one or more advances made from time to time (individually, an
"Advance" and collectively, the "Advances"), in the aggregate principal amount
of up to Two-Million Five-hundred Thousand Dollars ($2,500,000.00), under the
terms and conditions contained in this Master Loan and Security Agreement (this
"Master Agreement"). The entire Loan will be "cross collateralized" and secured
by the collateral (the "Collateral") described in each schedule (individually,
a "Schedule" and collectively, "Schedules") which will be executed in
connection with each Advance and the related Note (as hereinafter defined). The
Collateral includes the Equipment hereinafter described and any and all
replacement parts, additions, accessories and accessions that you may add to
the Equipment, as well as all replacements and substitutions of the Equipment
and all proceeds of the Equipment, including, without limitation, insurance
proceeds. We may treat any Schedule as a separate loan and security agreement
containing all of the provisions of this Master Agreement.

1.   THE CREDIT

     (a)  ADVANCES. Each Advance shall be evidenced by and the specific terms
applicable thereto set forth in a Note and related Schedule. All of the Notes
and Schedules, taken together, will evidence the entire Loan. We will only make
the Loan to you if all the conditions in this Master Agreement have been met to
our satisfaction. We will rely on your representations and warranties contained
in this Master Agreement, in making the Loan. The terms of this Master
Agreement will each apply to the entire Loan.

     (b)  USE OF PROCEEDS. The proceeds of the Advances will be used solely to
reimburse you for your payment of the purchase price for equipment which is
satisfactory to us and which is described in the applicable Schedule
("Equipment"). If you have not yet paid for the Equipment (but the same is
otherwise satisfactory to us), the proceeds of the Advance will be paid by us
directly to the supplier (which you have chosen) to pay the purchase price of
the Equipment.

     (c)  NOTES. Your obligation to repay the Advance and to pay interest
thereon will be evidenced by separate secured promissory notes (individually, a
"Note" and collectively, the "Notes'). Each Note will be dated the date of the
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Schedule to which the Advance evidenced by the Note is related. The related
Schedule will be deemed to be part of the Note.

     (d)  TERM. The term ("Term") of each Schedule (and the related Advance)
begins upon the date that we make payment for the Collateral covered under the
Schedule (the "Closing Date"). The Term continues until you fully perform all
of your obligations under this Master Agreement, each related Schedule and the
related Note(s).

     (e)  LOAN ACCOUNT. We will keep a loan account on our books and records
for the Loan. We will record all payments of principal and interest in the loan
account. Unless the entries in the loan account are clearly in error, the loan
account will definitively indicate the outstanding principal balance and
accrued interest on the Loan.

     (f)  PAYMENTS. The scheduled payments of principal and interest (the
"Payments") are indicated on and due and payable in accordance with the terms
and applicable Note and Schedule. The Payments are payable in advance and
otherwise on the dates and in the amounts set forth on the applicable Schedule.

     (g)  FIRST PAYMENT AND SUBSEQUENT PAYMENTS. The first payment under a Note
and Advance ("First Payment") is due at the beginning of its Term and shall, at
our option, either be deducted from the proceeds of the Advance or paid directly
to us by you. Subsequent Payments are due on the thirtieth (30th) day of each
successive month (28th in February) as set forth on the Schedule until you pay
to us in full all of the Payments and any other fees, costs, charges and
expenses that you owe us.

     (h)  INTEREST. Prior to Maturity of an Advance, you will pay us interest
on the Advance at the interest rate indicated in the applicable Schedule (the
"Interest Rate"). "Maturity" means the scheduled maturity or any earlier date
on which we accelerate the Loan. The Payment amount indicated in the Schedule
includes interest at the applicable Interest Rate. Interest is calculated in
advance using a year of 360 days with twelve months of 30 days.

     (i)  INTERIM INTEREST PAYMENT. If an Advance is made on a day other than
the thirtieth (30th) or thirty-first (31st) day of a month, you will also pay
to us, together with the First Payment, interest on the Advance at the
applicable interest rate for the period from the date the Advance is made until
the twenty-ninth (29th) day of the month in which the Advance is made. If an
Advance is made on the thirty-first (31st) day of a month, you will also
pay to us, together with the First Payment, interest on the Advance at the
applicable interest rate for the period from the date the Advance is made until
the twenty-ninth (29th) day of the following month. If an Advance is made on
the thirtieth (30th) day of a month, no interim interest will be due.

     (j)  DEFAULT INTEREST RATE. After Maturity of the Loan or any Advance, you
will pay us interest thereon at a rate of four (4%) percent per year above the
applicable Interest Rate. This is referred to as the "Default Rate."

     (k)  USURY. You and we intend to obey the law. If the Interest Rate
charged would exceed the maximum legal rate, you will only have to pay the
maximum legal rate. You do not have to pay any excess interest over and above
the maximum legal rate of interest. However, if it later becomes legal for you
to pay all or part of any excess interest, you will then pay it to us upon our
request.

     (l)  PAYMENT DETAILS. You will make all Payments due under this Master
Agreement by 12:00 P.M., Connecticut time, on the day they are due. You will
make all Payments in US Dollars (US$) in immediately available funds. We do not
have to make or give "presentment, demand, protest or notice" to get paid. You
waive "presentment, demand, protest and notice."

     (m)  APPLICATION OF PAYMENTS. Each Payment under this Master Agreement is
to be applied in the following order: first, to any fees, costs, expenses and
charges you may owe us; second, to any interest due; and third to the principal
balance.

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     (n)  PREPAYMENT. You may not prepay the Loan or any Advance, in whole or
in part.

     (o)  NO SETOFFS. Your obligation to pay us all Payments is absolute and
unconditional. You are not excused from making the Payments, in full, for any
reason. You agree that you have no defense for failure to make the Payments and
you will not make any counterclaims or setoffs to avoid making the Payments.

2.   SECURITY INTEREST

     (a)  You grant us a first and only lien on and security interest in the
Collateral. The Collateral secures the full and timely payment and performance
of all of your now existing or hereafter arising indebtedness, liabilities and
obligations to us, whether under this Master Agreement, the Schedules, the
Notes and any other agreement, loan or lease that you may at any time or times
have with us or otherwise (collectively, the "Obligations"). You also grant us
a security interest in any additional collateral identified in any Schedule.
Any additional collateral is considered to be "Collateral" and it secures all
of the Obligations.

     (b)  If we request, you will put labels supplied by us stating "PROPERTY
SUBJECT TO A SECURITY INTEREST HELD BY FINOVA CAPITAL CORPORATION" on the
Collateral where they are clearly visible.

     (c)  You give us permission to add to this Master Agreement or any
Schedule the serial numbers and other information about the Collateral.

     (d)  You give us permission to file this Master Agreement or Uniform
Commercial Code financing statements, at your expense, in order to perfect our
security interest in the Collateral. You also give us permission to sign your
name on the Uniform Commercial Code financing statements where this is
permitted by law.

     (e)  You will pay our fees and costs for documentation, closing,
administration and termination of this Master Agreement, the Notes and
Schedules. These fees include such items as reasonable attorneys fees and
expenses incurred in preparing this Master Agreement and all agreements,
instruments and documents executed in connection herewith, and all amendments,
supplements and waivers hereto and thereto, as well as due diligence searches
and fees for preparing and filing UCC terminations and releases. You will also
pay any filing, recording or stamp fees or taxes resulting from filing this
Master Agreement or Uniform Commercial Code financing statements.

     (f)  At your expense, you will defend our first priority security interest
in the Collateral against, and keep the Collateral free of, any legal process,
liens, other security interests, attachments, levies and executions. You will
give us immediate written notice of any legal process, liens, attachments,
levies or executions, and you will indemnify us against any loss that results
to us from these causes.

     (g)  You will notify us at least 15 days before you change the address of
your principal executive office or principal place of business. Your principal
executive office and principal place of business are set forth at the beginning
of this Master Agreement.

     (h)  You will promptly sign and return additional documents that we may
reasonably request in order to protect our first priority security interest in
the Collateral.

     (i)  Except as set forth in a Schedule, the Collateral is personal
property and will remain personal property. Except as set forth in a Schedule,
you will not incorporate it into real estate and will not do anything that will
cause the Collateral to become part of real estate or a fixture.

3.   CONDITIONS OF LENDING

     (a)  See our Commitment Letter to you dated May 10, 1999 (the "Commitment
Letter"), which you and we consider to be a part of this Master Agreement. The
terms and conditions of the Commitment Letter continue following the making of
the first Advance, including, without

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limitation, conditions to the Loan. However, if there is a conflict between the
terms and conditions of this Master Agreement, any Schedule or any Note and the
terms and conditions of the Commitment Letter, then you and we agree that the
terms and conditions of this Master Agreement, the Schedules and the Notes
control over the Commitment Letter terms and conditions.

     (b)  Before we disburse any proceeds of any Advance, we also require the
following:

          (i)   That no payment is past due to us under any other agreement,
loan or lease that you or any guarantor have with us.

          (ii)  That you are complying with all terms of this Master Agreement,
the Schedules and the Notes and there are no defaults hereunder or thereunder.

          (iii) That we have received all the documents we requested, including
the signed Schedule and Note.

          (iv)  That there has been no material adverse change in your
financial condition, business or operations, or that any guarantor, from the
financial condition that you or any guarantor have disclosed to us.

          (v)   All conditions contained in the Commitment Letter have been
satisfied.

4.   REPRESENTATIONS AND WARRANTIES

You represent and warrant to us as follows:

     (a)  You and each guarantor are duly organized, existing and in good
standing wherever you or it are required by law to be so qualified. You and
each guarantor have full power and authority to execute, deliver and carry out
the provisions of this Master Agreement, the Schedules and the Notes and to
borrow hereunder and thereunder. This Master Agreement, the Schedules and the
Notes are validly executed and delivered by you and the guarantors and are the
legal, valid and binding obligations of you and the guarantors, each
enforceable in accordance with its terms.

     (b)  Neither you nor any guarantor is a defendant under any material
litigation and there are no judgments outstanding against you or any guarantor.

     (c)  All of the Equipment with respect to each Schedule executed by you has
been delivered to you and installed at the location set forth on the Schedule
and you have accepted all of such Equipment for all purposes of this Master
Agreement.

     (d)  You have good title to all of your assets, including, without
limitation, the Collateral, and in the case of the Collateral, free and clear
of all security interests, liens and other encumbrances. Upon filing of UCC-1
financing statements in all applicable filing offices, we will be granted a
first and only perfected lien on and security interest in all of the Collateral.
There are no other security interests, liens or encumbrances covering the
Collateral.

     (e)  You have supplied us with information about the Collateral. You
promise to us that the amount of our Advance as to each item of Equipment is no
more than the fair and usual price for this kind of Equipment, taking into
account any discounts, rebates and allowances that you or any affiliate of
yours may have been given for the Equipment.

     (f)  The Collateral is located at the premises set forth on the Schedule.

     (g)  All financial information and other information that you or any
guarantor have given us is true and complete. You or any guarantor have not
failed to tell us anything that would make the financial information not
misleading. There has been no material adverse change in your financial
condition, business or operations, or the financial condition of any guarantor,
from the financial condition that you disclosed to us.

     (h)  You have complied with all "environmental laws" and will continue to
comply with all "environmental laws." No "hazardous substances" are used,
generated, treated, stored, or

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disposed of by you or at your properties except in compliance with all
environmental laws. "Environmental laws" mean all federal, state or local
environmental laws and regulations, including the following laws: CERCLA, RCRA,
Hazardous Materials Transport act and The Federal Water Pollution Control Act.
"Hazardous substances" means all hazardous or toxic wastes, materials or
substances, as defined in the environmental laws, as well as oil, flammable
substances, asbestos that is or could become friable, urea formaldehyde
insulation, polychlorinated biphenyls and radon gas.

5.   COVENANTS

You agree to do the following things (or not to do the following things if so
stated) until full payment of all amounts due to us under this Master
Agreement, the Schedules and the Notes:

     (a)  CARE, USE, LOCATION, TRANSFER, ENCUMBRANCE AND ALTERATION OF THE
COLLATERAL.

          (i)   You will make sure that the Collateral is maintained in good
operating condition, and that it is serviced, repaired and overhauled when this
is necessary to keep the Collateral in good operating condition. All
maintenance must be done according to the Supplier's or Manufacturer's
requirements or recommendations. All maintenance must also comply with any
legal or regulatory requirements.

          (ii)  You will maintain service logs for the Collateral, if
applicable, and permit us or our agents to inspect the Collateral, the service
logs and service reports. You give us and our agents permission to make copies
of the service logs and service reports.

          (iii) We will give you prior notice if we, or our agents, want to
inspect the Collateral or the service logs or service reports. We may inspect
it during regular business hours. If we find during an inspection that you are
not complying with this Master Agreement or if you are otherwise in default
under this Master Agreement, you (and not us) will pay our travel, meals and
lodging costs, our salary costs, and our costs and fees and those of our agents
for reinspection. You will promptly cure any problems with the Collateral that
are discovered during our inspections.

          (iv)   You will use the Collateral only for business purposes. You
will obey all legal and regulatory requirements in your use of the Collateral.

          (v)    You will make all additions, modifications and improvements to
the Collateral that are required by law or government regulation. Otherwise,
you will not alter the Collateral without our written permission. You will
replace all worn, lost, stolen or destroyed parts of the Collateral with
replacement parts that are as good or better than the original parts.
The new parts will become subject to our security interest upon replacement.

          (vi)   You will not remove the Collateral from the location indicated
in the Schedule.

          (vii)  You have and will have good and merchantable title to all of
the Collateral.

          (viii) You will not convey, assign, sell, mortgage, transfer,
encumber, pledge, hypothecate, grant a security interest in, grant options with
respect to, lease or otherwise dispose of all or any part of any interest
whatsoever in or to any or all of the Collateral, or any interest therein.

     (b) YEAR 2000 COMPLIANT.

You represent, warrant and agree to take all action necessary, including, but
not limited to, due inquiry and due diligence with critical business partners
to assure that there will be no material adverse change to your business by
reason of the advent of the year 2000, including, without limitation, that all
computer-based systems, embedded microchips and other processing capabilities
effectively recognize and process all dates before and after December 31, 1999
("Y2K Compliant"). At our request, you shall provide to us assurance reasonably
acceptable to us that your computer-based systems, embedded microchips and
other processing capabilities are Y2K Compliant.

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     (c) RISK OF LOSS.

         (i) You have the complete risk of loss or damage to the Collateral.
Loss or damage to the Collateral will not relieve you of your obligation to make
the Payments.

         (ii) If any Collateral is lost or damaged, you have two choices
although if you are in default under this Master Agreement, we and not you will
have the two options. The choices are:

         (A) Repair or replace the damaged or lost Collateral so that, once
again, the Collateral is in good operating condition and we have a perfected
first priority security interest in it.

         (B) Pay us the present value (as of the date of payment) of the
remaining Payments. We will calculate the present value using a discount rate of
five (5%) percent per year. Once you have paid us this amount and any other
amount that you may owe us, we will release our security interest in the damaged
or lost Collateral and you (or your insurer) may keep the Collateral for salvage
purposes, on an "AS IS, WHERE IS" basis and without any representation or
warranty whatsoever.

     (d) INSURANCE.

         (i) Until you have made all Payments to us under this Master Agreement,
the Schedules and the Notes and all Obligations have been satisfied in full, you
will keep the Collateral insured. The amount of insurance, the coverage, and the
insurance company must be acceptable to us.

         (ii) If you do not provide us with written evidence of insurance that
is acceptable to us, we may buy the insurance ourselves, at your expense. You
will promptly pay us the cost of this insurance. We have no obligation to
purchase any insurance. Any insurance that we purchase will be our insurance,
and not yours, and we may insure the Collateral beyond the date of satisfaction
of the Obligations.

         (iii) Insurance proceeds may be used to repair or replace damaged or
lost Collateral or to pay us the present value of the Payments, as provided
above.

         (iv) You appoint us as your "attorney-in-fact" to make claims under the
insurance policies, to receive payments under the insurance policies, and to
endorse your name on all documents, checks or drafts relating to insurance
claims for Collateral.

     (e) TAXES.

         (i) You will pay all sales, use, excise, stamp, documentary and ad
valorum taxes, license, recording and registration fees, assessments, fines,
penalties and similar charges imposed on the ownership, possession, use lease or
rental of the Collateral or on the Loan.

         (ii) You will pay all taxes (other than our federal or state net income
taxes) imposed on you or on us regarding the Payments.

         (iii) You will reimburse us for any of these taxes that we pay or
advance.

         (vi) You will file and pay for any personal property taxes on the
Collateral.

     (f) INFORMATION SUPPLIED BY YOU AND ANY GUARANTOR.

         (i) During the Term you will promptly provide us with copies of any
current, quarterly and annual reports and all proxy (or information) statements
you or any guarantor file with the Securities and Exchange Commission ("SEC").

         (ii) You and any guarantor will also provide us with the following
financial statements:

         (A) Quarterly balance sheet and statements of earnings and cash flow -
within 45 days after the end of your first three fiscal quarters in each fiscal
year. These will be certified by the chief financial officer.

         (B) Annual balance sheet and statements of earnings and cash flow -
within 90 days after the end of each fiscal year. These will be audited

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by independent auditors acceptable to us. Their audit report must be
unqualified.

All financial statements will be prepared according to generally accepted
accounting principles, consistently applied. All financial statements and SEC
filings that you or any guarantor provide us will be true and complete. They
will not fail to tell us anything that would make them not misleading.

      (iii) At the same time you deliver the financial statements described in
paragraph 5(f)(ii)(A), you will also provide us with a certificate of your
chief financial officer stating that no default exists, or, if he cannot
certify this because a default does exist, he must specify in reasonable detail
the nature of the default.

      (iv)  The audited financial statements described in paragraph
5(f)(ii)(B), must be accompanied by a certificate of such independent auditor
stating that no default exists, or, if it cannot certify this because a default
does exist, it must specify in reasonable detail the nature of the default.

6.    DEFAULTS

      (a)   DEFAULTS. You are in default if any of the following happens:

            (i)    You do not pay us, when it is due, any Payment or other
payment that you owe us under this Master Agreement, any Schedule or any Note
or that you owe under any other agreement, loan, lease or other financial
arrangement that you have with us.

            (ii)   Any of the financial information that you give us is not true
and complete, or you fail to tell us anything that would make the financial
information not misleading.

            (iii)  You do something you are not permitted to do, or you fail to
do anything that is required of you, under this Master Agreement, any Schedule
or any other lease, loan or other financial arrangement that you have with us.

            (iv)   An event of default occurs for any other lease, loan or
obligation of yours (or any guarantor) that exceeds $50,000 in the aggregate.

            (v)    You or any guarantor file bankruptcy, or involuntary
bankruptcy is filed against you or any guarantor and such involuntary
bankruptcy is not dismissed within sixty (60) days.

            (vi)   You or any guarantor are subject to any other insolvency
proceeding other than bankruptcy (for example, a receivership action or an
assignment for the benefit of creditors) and such proceeding that is
involuntary is not dismissed within sixty (60) days.

            (vii)  Without our permission, you or any guarantor sell all or a
substantial part of its assets, merge or consolidate, or a majority of your
voting stock or interests (or any guarantor's voting stock or interests) is
transferred.

            (viii) There is a material adverse change in your financial
condition, business or operations, or that of any guarantor.

      (b)   REMEDIES, DEFAULT INTEREST, LATE FEES.

            If you are in default we may exercise one or more of our
"remedies." Each of our remedies is independent. We may exercise any of our
remedies, all of our remedies or none of our remedies. We may exercise them in
any order we choose. Our exercise of any remedy will not prevent us from
exercising any other remedy or be an "election of remedies." If we do not
exercise a remedy, or if we delay in exercising a remedy, this does not mean
that we are forgiving your default or that we are giving up our right to
exercise the remedy. Our remedies allow us to do one or more of the following:

            (i)   "Accelerate" the Loan balance under any or all Notes. This
means that we may require you to immediately pay us the entire outstanding
principal balance of the entire Loan.

            (ii)  Require you to immediately pay us all amounts that you are
required to pay us for the entire Term of any other agreements, loan, leases or
financial arrangements that you have with us.

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        (iii) Sue you for the entire outstanding principal balance of the Loan
and all other amounts you owe us (including, without limitation, all accrued and
unpaid interest, including interest at the Default Rate), outstanding fees,
costs, expenses and charges, plus all prepayment premiums.

        (iv) Require you at your expense to assemble the Collateral at a
location we request in the United States of America.

        (v) Remove and repossess the Collateral from where it is located,
without demand or notice, or make the Collateral inoperable. We have your
permission to remove any physical obstructions to removal of the Collateral. We
may also disconnect and separate all Collateral from other property. No court
order, court hearing or "legal process" will be required for us to repossess the
Collateral. You will not be entitled to any damages resulting from removal or
repossession of the Collateral. We may use, ship, store, repair or lease any
Collateral that we repossess. We may sell any repossessed Collateral at private
or public sale. You give us permission to show the Collateral to buyers at your
location free of charge during normal business hours. If we do this, we do not
have to remove the Collateral from your location. If we repossess the Collateral
and sell it, we will give you credit for the net sale price, after subtracting
our costs of repossessing and selling the Collateral. If we rent the Collateral
to somebody else, we will give you credit for the net rent received, after
subtracting our costs of repossessing and renting the Collateral, but the credit
will be discounted to present value using a discount rate equal to the Default
Rate. The credit will be applied against what you owe us under this Master
Agreement, the Schedules, the Notes and any other agreements, loans, leases or
financial arrangements that you have with us, we will refund the amount of the
excess to you.

        (vi) We will have all of our rights and remedies under this Master
Agreement, the Notes, the Schedules and all agreements, instruments and
documents executed in connection herewith and therewith and all of our rights
and remedies under applicable law, whether as a secured party or otherwise.

        (vii) Return conditions:

        (A) Following a default, at our request you will return the Collateral,
freight and insurance prepaid by you, to us at a location we request in the
United States of America. It will be returned in good operating condition, as
required by Section 5 above. The Collateral will not be subject to any liens
when it is returned.

        (B) You will pack or crate the Collateral for shipping in the original
containers, or comparable ones. You will do this carefully and follow all
recommendations of the Supplier and the Manufacturer as to packing or crating.

        (C) You will also return to us the plans, specifications, operating
manuals, software, documentation, discs, warranties and other documents
furnished by the Manufacturer or Supplier. You will also return to us all
service logs and service reports, as well as all written materials that you may
have concerning the maintenance and operation of the Collateral.

        (D) At our request, you will provide us with up to 60 days free storage
of the Collateral at your location, and will let us (or our agent) have access
to the Collateral in order to inspect it, display it to others for purchase and
sell it.

        (E) You will pay us what it costs us to repair the Collateral if you do
not return it in the required condition.

        (viii) You will also pay us the following:

        (A) All our expenses of enforcing our remedies. This includes all our
expenses to repossess, store, ship, repair and sell the Collateral.

        (B) Our reasonable attorney's fees and expenses.

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     (C)  Default interest on everything you owe us from the date of your
default to the date on which we are paid in full at the Default Rate.

     (D)  A premium in the amount of five percent (5%) of the outstanding
principal balance of the Loan.

     (ix) You will pay us a late fee whenever you pay any amount that you owe
us more than ten (10) days after it is due. You will pay the late fee within
one month after the late Payment was originally due. The late fee will be ten
(10%) percent of the late Payment. If this exceeds the highest legal amount we
can charge you, you will only be required to pay the highest legal amount. The
late fee is intended to reimburse us for our collection costs that are caused
by late Payment. It is charged in addition to all other amounts you are required
to pay us, including Default Interest.

     (x) You realize that the damages we could suffer as a result of your
default are very uncertain. This is why we have agreed with you in advance on
the Default Rate to be used in calculating the payments you will owe us if you
default. You agree that, for these reasons, the payments you will owe us if you
default are "agreed" or "liquidated" damages. You understand that these payments
are not "penalties" or "forfeitures."

7.   PERFORMING YOUR OBLIGATIONS IF YOU DO NOT

If you do not perform one or more of your obligations under this Master
Agreement of a Schedule or Note, we may perform it for you. We will notify you
in writing at least ten (10) days before we do this. We do not have to perform
any of your obligations for you. If we do choose to perform them, you will pay
us all of our expenses to perform the obligations. You will also reimburse us
for any money that we advance to perform your obligations, together with
interest at the Default Rate on that amount. These will be additional
"Payments" that you will owe us and you will pay them at the same time that
your next Payment is due.

8.   INDEMNITY

     (a)  You will indemnify us, defend us and hold us harmless from and against
any and all claims, expenses and attorney's fees concerning or arising from the
Collateral, this Master Agreement, any Schedule or Note, or your breach of any
representation, warranty or covenant. It includes, without limitation, any
claims, losses or charges concerning, arising out of or in connection with the
manufacture, selection, delivery, possession, use, operation or return of the
Collateral and any claims, losses or damages concerning, arising out of or in
connection with this Master Agreement, any Schedule or the Notes.

     (b)  This obligation of yours to indemnify us continues even after the
Term is over.

9.   MISCELLANEOUS

     (a)  ASSIGNMENT.

WE MAY ASSIGN OR GRANT A SECURITY INTEREST IN THIS MASTER AGREEMENT, ANY
SCHEDULE, ANY NOTE OR ANY PAYMENTS WITHOUT YOUR PERMISSION. THE PERSON TO WHOM
WE ASSIGN IS CALLED THE "ASSIGNEE."  THE ASSIGNEE WILL NOT HAVE ANY OF OUR
OBLIGATIONS UNDER THIS MASTER AGREEMENT. YOU WILL NOT BE ABLE TO RAISE ANY
DEFENSE, COUNTERCLAIM OR OFFSET AGAINST THE ASSIGNEE. NOTWITHSTANDING ANY SUCH
ASSIGNMENT OR GRANTING OF A SECURITY INTEREST, WE WILL CONTINUE TO BE LIABLE
FOR ALL OF OUR OBLIGATIONS UNDER THIS MASTER AGREEMENT.

UNLESS YOU RECEIVE OUR WRITTEN PERMISSION, YOU MAY NOT ASSIGN OR TRANSFER YOUR
RIGHTS UNDER THIS MASTER AGREEMENT OR ANY SCHEDULE. YOU ALSO ARE NOT ALLOWED TO
LEASE OR RENT THE COLLATERAL OR LET ANYBODY ELSE USE IT UNLESS WE GIVE YOU OUR
WRITTEN PERMISSION.

                                       9
<PAGE>   10

        (b) ACCEPTANCE BY FINOVA, GOVERNING LAW, JURISDICTION, VENUE, SERVICE
OF PROCESS, WAIVER OF JURY TRIAL.

THIS MASTER AGREEMENT WILL ONLY BE BINDING WHEN WE HAVE ACCEPTED IT IN WRITING.

THIS MASTER AGREEMENT IS GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF
ARIZONA (NOT INCLUDING THE "CHOICE OF LAW" DOCTRINE), THE STATE IN WHICH OUR
OFFICE IS LOCATED IN WHICH FINAL APPROVAL OF THE TERMS OR CONDITIONS OF THIS
MASTER AGREEMENT OCCURRED AND FROM WHICH DISBURSEMENT OF THE LOAN PROCEEDS WILL
BE ORDERED. HOWEVER, IF THIS MASTER AGREEMENT IS UNENFORCEABLE UNDER ARIZONA
LAW, IT WILL INSTEAD BE GOVERNED BY THE LAWS OF THE STATE IN WHICH THE
COLLATERAL IS LOCATED.

YOU MAY ONLY SUE US IN FEDERAL OR STATE COURT THAT IS LOCATED IN MARICOPA
COUNTY, ARIZONA. THIS APPLIES TO ALL LAWSUITS UNDER ALL LEGAL THEORIES,
INCLUDING CONTRACT, TORT AND STRICT LIABILITY. YOU CONSENT TO THE PERSONAL
JURISDICTION OF THESE ARIZONA COURTS. YOUR WILL NOT CLAIM THAT MARICOPA COUNTY,
ARIZONA, IS AN "INCONVENIENT FORUM" OR THAT IT IS NOT A PROPER "VENUE."

WE MAY SUE YOU IN ANY COURT THAT HAS JURISDICTION. WE MAY SERVE YOU WITH
PROCESS IN A LAWSUIT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO YOUR
ADDRESS INDICATED AFTER YOUR SIGNATURE BELOW.

YOU AND WE EACH WAIVE ANY RIGHT YOU OR WE MAY HAVE TO A JURY TRIAL IN ANY
LAWSUIT BETWEEN YOU AND US.

        (c) NOTICES. Your address for notices is your address set forth below
your name on the signature page of this Master Agreement. We may give you
written notice in person, by mail, by overnight delivery service, or by fax.
Mail notice will be effective three (3) days after we deposit it with the U.S.
Postal Service. Overnight delivery notice requires a receipt and tracking
number. Fax notice requires a receipt from the sending machine showing that it
has been sent to your fax number and received.

Our address for notices if our address set forth below our name on the signature
page of this Master Agreement, with Attention: Director, Contract
Administration. You will also give copies of all notices to us at our principal
place of business at the address set forth in the opening paragraph of this
Master Agreement, with attention to Vice President, Law Department. You may
give us notice the same way that we may give you notice.

        (d) GENERAL

This Master Agreement benefits our successors and assigns. This Master Agreement
benefits only those successors and assigns of yours that we have approved in
writing.

This Master Agreement binds your successors and assigns. This Master Agreement
binds only those successors and assigns of ours that clearly assume our
obligations in writing.

TIME IS OF THE ESSENCE OF THIS MASTER AGREEMENT.

This Master Agreement, all of the Schedules and the Notes and the Commitment
Letter are together the entire agreement between you and us concerning the
Collateral.

Only an employee of FINOVA who is authorized by corporate resolution or policy
may modify or amend this Master Agreement or any Schedule or Note on our
behalf, and this must be in writing. Only he or she may give up any of our
rights, and this must be in writing. If more than one person is the Borrower
under this Master Agreement, then each of you is jointly and severally liable
for your obligations under this Master Agreement and all Schedules and Notes.

                                       10
<PAGE>   11

This Master Agreement is only for your benefit and for our benefit, as well as
our successors and assigns. It is not intended to benefit any other person.

If any provision in this Master Agreement is unenforceable, then that provision
must be deleted. Only unenforceable provisions are to be deleted. The rest of
this Master Agreement will remain as written.

We may make press releases and publish a tombstone announcing this transaction
and its total amount. You may publicize this transaction with our prior written
consent.

LENDER:                                   BORROWER:

FINOVA CAPITAL CORPORATION                COSINE COMMUNICATIONS, INC.
10 WATERSIDE DRIVE                        1200 BRIDGE PARKWAY
FARMINGTON, CT 06032-3065                 REDWOOD CITY, CA 94065

BY: /s/  Linda A. Moschitto               BY:  /s/ CURTIS DUDNICK
   -----------------------------------       -----------------------------------

PRINTED NAME: Linda A. Moschitto          PRINTED NAME:  CURTIS DUDNICK
              ------------------------                  ------------------------

TITLE: Director - Contract Administration TITLE:  CFO
      --------------------------------          --------------------------------

FAX NUMBER: (860) 676-1814                Taxpayer ID# 94-3280301
                                                       -------------------------
DATE ACCEPTED: May 8, 2000
              ------------------------    FAX NUMBER:  650.437.2453
                                                       -------------------------

                                          DATED:  5.2.00
                                                --------------------------------

STATE OF CALIFORNIA
         ----------
COUNTY OF SAN MATEO
          ---------

I acknowledge that CURTIS DUDNICK who stated that he is C.F.O. of the Borrower
named above, signed this Master Loan and Security Agreement in my presence
today: June 22, 1999. He acknowledged to me that his signature on this Master
Loan and Security Agreement was authorized by a valid resolution or other valid
authorization from Borrower's board of directors or other governing body.

[NOTARY PUBLIC SEAL]

KIMBERLY ADAMY                             /s/ Kimberly Adamy
Commission # 1203924                       ----------------------------------
Notary Public - California                 Notary Public
San Mateo County
My Comm. Expires JUNE 25, 2003                   [SEAL]

                                       11<PAGE>   1

                                                                   EXHIBIT 10.11

--------------------------------------------------------------------------------
                          LOAN AND SECURITY AGREEMENT
                          COSINE COMMUNICATIONS, INC.
--------------------------------------------------------------------------------

<PAGE>   2

                               TABLE OF CONTENTS

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

1 ACCOUNTING AND OTHER TERMS                                                   1

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

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

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

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

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

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

                                       i

<PAGE>   3
<TABLE>
<S>                                                         <C>
     7.5  Encumbrance......................................  8
     7.6  Distributions; Investments.......................  8
     7.7  Transactions with Affiliates.....................  8
     7.8  Subordinated Debt................................  8
     7.9  Compliance.......................................  8

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

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

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

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

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

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

                                       ii
<PAGE>   4
     This LOAN AND SECURITY AGREEMENT dated May 29, 1998, between SILICON VALLEY
BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara, California 95054
with a loan production office located at 1731 Embarcadero, Ste. 220, Palo Alto,
California 94303 and COSINE COMMUNICATIONS, INC. ("Borrower"), whose address is
1070 Sixth Avenue, Suite 200, Belmont, California 94002 provides the terms on
which Bank will lend to Borrower and Borrower will repay Bank. The parties agree
as follows:

1.   ACCOUNTING AND OTHER TERMS

     Accounting terms not defined in this Agreement will be construed following
GAAP Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation," in
this or any Loan Document. This Agreement shall be construed to impart upon
Bank a duty to act reasonably at all times.

2.   LOAN AND TERMS OF PAYMENT

     2.1  Credit Extensions

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

          2.1.1     Equipment Advances.

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

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

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

                                       1
<PAGE>   5
(Payment/Advance Form) must be signed by a Responsible Officer or designee and
include a copy of the invoice for the Equipment being financed.

2.2  Interest Rate, Payments.

               (a)  Interest Rate. Equipment Advances accrue interest on the
outstanding principal balance at a per annum rate of 0.75 percentage points
above the Prime Rate. After an Event of Default, Obligations accrue interest at
5.00 percentage points above the rate effective immediately before the Event of
Default. The interest rate increases or decreases when the Prime Rate changes.
Interest is computed on a 360 day year for the actual number of days elapsed.

               (b)  Payments. Interest due on the Equipment Advances is payable
on the twenty-eighth (28th) of each month. Bank may debit any of Borrower's
deposit accounts including Account Number _______________ for principal and
interest payments or any amounts Borrower owes Bank. Bank will notify Borrower
when it debits Borrower's accounts. These debits are not a set-off. Payments
received after 12:00 noon Pacific time are considered received at the opening
of business on the next Business Day. When a payment is due on a day that is
not a Business Day, the payment is due the next Business Day and additional
fees or interest accrue.

     2.3  Fees

     Borrower will pay:

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

               (b)  Bank Expenses. All Bank Expenses (including reasonable
attorney's fees and expenses) incurred through and after the date of this
Agreement, are payable when due.

3.   CONDITIONS OF LOANS

     3.1  Conditions Precedent to Initial Credit Extension.

     Bank's obligation to make the initial Credit Extension is subject to the
condition precedent that it receive the agreements, documents and fees it
requires.

     3.2  Conditions Precedent to all Credit Extensions.

     Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:

               (a)  timely receipt of any Payment/Advance Form; and

                                       2
<PAGE>   6
               (b)  the representations and warranties in Section 5 must be
materially true on the date of the Payment/Advance Form and on the effective
date of each Credit Extension and no Event of Default may have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on that date that the representations
and warranties of Section 5 remain true.

4.   CREATION OF SECURITY INTEREST

     4.1  Grant of Security Interest.

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

5.   REPRESENTATIONS AND WARRANTIES

     Borrower represents and warrants as follows:

     5.1  Due Organization and Authorization.

     Borrower and each Subsidiary is duly existing and in good standing in its
state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified (except for states as to which any
failure so to qualify would not have a Material Adverse Effect).

     The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower
is bound. Borrower is not in default under any agreement to which or by which
it is bound in which the default would reasonably be expected to have a
Material Adverse Change.

     5.2  Collateral.

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

                                       3
<PAGE>   7
Borrower is the sole owner of the Intellectual Property, except for
non-exclusive licenses granted to its customers in the ordinary course of
business. Each Patent is valid and enforceable and no part of the Intellectual
Property has been judged invalid or unenforceable, in whole or in part, and no
claim has been made that any part of the Intellectual Property violates the
rights of any third party.

     5.3  Litigation.

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

     5.4  No Material Adverse Change in Financial Statements.

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

     5.5  Solvency.

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

     5.6  Regulatory Compliance.

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

                                       4
<PAGE>   8
     5.7  Subsidiaries.

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

     5.8  Full Disclosure.

     No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank taken together with all such
certificates and written statements given to Bank, contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements contained in the certificates or statements not misleading.

6.   AFFIRMATIVE COVENANTS

     Borrower will do all of the following:

     6.1  Government Compliance.

     Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify could reasonably be expected to
have a material adverse effect on Borrower's business or operations. Borrower
will comply, and have each Subsidiary comply, with all laws, ordinances and
regulations to which it is subject, noncompliance with which could have a
material adverse effect on Borrower's business or operations or cause a
Material Adverse Change.

     6.2  Financial Statements, Reports, Certificates.

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

                                       5
<PAGE>   9

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

      6.3   Inventory; Returns.

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

      6.4   Taxes.

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

      6.5   Insurance.

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

      6.6   Primary Accounts.

      Borrower will maintain its principal depository accounts with Bank.

      6.7   Financial Covenants.

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

      6.8   Registration of Intellectual Property Rights.

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

                                       6

<PAGE>   10
Intellectual Property rights developed or acquired including revisions or
additions with any product before the sale or licensing of the product to any
third party.

     Borrower will (i) protect, defend and maintain the validity and
enforceability of the Intellectual Property and promptly advise Bank in writing
of material infringements and (ii) not allow any Intellectual Property to be
abandoned, forfeited or dedicated to the public without Bank's written consent.

     6.9  Further Assurances.

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

7.   NEGATIVE COVENANTS

     Borrower will not do any of the following:

     7.1  Dispositions.

     Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; (iii) otherwise permitted under this Section 7; (iv) in an
aggregate amount not exceeding One Hundred Twenty-Five Thousand Dollars
($125,000) in any fiscal year; or (v) of worn-out or obsolete Equipment, or new
Equipment financed by other vendors.

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

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

     7.3  Mergers or Acquisitions.

     (i) Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except if no Event of Default has occurred and is
continuing or wold result from such action during the term of this Agreement or
result in a decrease of more than 25% of Tangible Net Worth; or (ii) merge or
consolidate a Subsidiary into another Subsidiary or into Borrower.

                                       7
<PAGE>   11

        7.4     Indebtedness.

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

        7.5     Encumbrance.

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

        7.6     Distributions; Investments.

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

        7.7     Transactions with Affiliates.

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

        7.8     Subordinated Debt.

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

        7.9     Compliance.

        Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Advance for that purpose; fail to meet the
minimum funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal
Fair Labor

                                       8

<PAGE>   12
Standards Act or violate any other law or regulation, if the violation could
have a material adverse effect on Borrower's business or operations or cause a
Material Adverse Change, or permit any of its Subsidiaries to do so.

8.      EVENTS OF DEFAULT

        Any one of the following is an Event of Default:

        8.1     Payment Default.

        If Borrower fails to pay the principal of, or any interest on, any
Equipment Advances when due and payable; or fails to pay any portion of any
other Obligations not constituting such principal or interest, including
without limitation Bank Expenses, within thirty (30) days of receipt by
Borrower of an invoice for such other Obligations;

        8.2     Covenant Default.

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

        8.3     Material Adverse Change.

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

        8.4     Attachment.

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

                                       9
<PAGE>   13
These are not Events of Default if stayed or if a bond is posted pending contest
by Borrower (but no Credit Extensions will be made during the cure period);

     8.5  Insolvency.

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

     8.6  Other Agreements.

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

     8.7  Judgments.

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

     8.8  Misrepresentations.

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

9.   BANK'S RIGHTS AND REMEDIES

     9.1  Rights and Remedies.

     When an Event of Default occurs and continues Bank may, without notice or
demand, do any or all of the following:

          (a)  Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are
immediately due and payable without any action by Bank);

          (b)  Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;

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

                                       10

<PAGE>   14
          (d)  Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's
rights or remedies;

          (e)  Apply to the Obligations any (i) balances and deposits of
Borrower it holds, or (ii) any amount held by Bank owing to or for the credit
or the account of Borrower;

          (f)  Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral. Bank is granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, Patents, Copyrights, Mask Works, rights of use of any name,
trade secrets, trade names, Trademarks, service marks, and advertising matter,
or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section, Borrower's
rights under all licenses and all franchise agreements inure to Bank's
benefit; and

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

     9.2  Power of Attorney.

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

     9.3  Accounts Collection.

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

                                       11
<PAGE>   15
     9.4  Bank Expenses.

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

     9.5  Bank's Liability for Collateral.

     If Bank complies with its obligations under Section 9207 of the Code and
other applicable law it is not liable for: (a) the safekeeping of the
Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the
value of the Collateral; or (d) any act or default of any carrier,
warehouseman, bailee, or other person. Borrower bears all risk of loss, damage
or destruction of the Collateral.

     9.6  Remedies Cumulative.

     Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank's exercise of one right or remedy is
not an election, and Bank's waiver of any Event of Default is not a continuing
waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.

     9.7  Demand Waiver.

     Borrower waives demand, notice of default or dishonor, notice of payments
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.

10.  NOTICES

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

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

      California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Clara County, California.

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS.
THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

12.   GENERAL PROVISIONS

      12.1  Successors and Assigns.

      This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.

      12.2  Indemnification.

      Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.

      12.3  Time of Essence.

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

      12.4  Severability of Provision.

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

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

     All amendments to this Agreement must be in writing and signed by Borrower
and Bank. This Agreement represents the entire agreement about this subject
matter, and supersedes prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement
and the Loan Documents.

     12.6 Counterparts.

     This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.

     12.7 Survival.

     All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 12.2 to indemnify Bank will survive until
all statutes of limitations for actions that may be brought against Bank have
run.

     12.8 Confidentiality.

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

     12.9 Attorneys' Fees, Costs and Expenses.

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

                                       14
<PAGE>   18

13.   DEFINITIONS

      13.1  Definitions.

      In this Agreement:

      "ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.

      "AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.

      "BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).

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

      "BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.

      "CLOSING DATE" is the date of this Agreement.

      "CODE" is the California Uniform Commercial Code.

      "COLLATERAL" is the property described on Exhibit A.

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

      "CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does

                                       15
<PAGE>   19
not include endorsements in the ordinary course of business. The amount of a
Contingent Obligation is the stated or determined amount of the primary
obligation for which the Contingent Obligation is made or, if not determinable,
the maximum reasonably anticipated liability for it determined by the Person in
good faith; but the amount may not exceed the maximum of the obligations under
the guarantee or other support arrangement.

     "COPYRIGHTS" are all copyright rights, applications or registrations and
like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.

     "CREDIT EXTENSION" is each Equipment Advance or any other extension of
credit by Bank for Borrower's benefit.

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

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

     "EQUIPMENT ADVANCE" is defined in Section 2.1.1.

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

     "EQUIPMENT MATURITY DATE" is defined in Section 2.1.1.

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

     "GAAP" is generally accepted accounting principles.

     "INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.

     "INSOLVENCY PROCEEDING" are proceedings by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

     "INTELLECTUAL PROPERTY" is:

                                       16

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

                (b) Any trade secrets and any intellectual property rights in
computer software and computer software products now or later existing, created,
acquired or held;

                (c) All design rights which may be available to Borrower now or
later created, acquired or held;

                (d) Any claims for damages (past, present or future) for
infringement of any of the rights above, with the right, but not the obligation,
to sue and collect damages for use or infringement of the intellectual property
rights above;

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

        "INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.

        "INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.

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

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

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

        "MATERIAL ADVERSE CHANGE" is defined in Section 8.3.

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

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

      "PATENTS" are patents, patent applications and like protections,
including improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same.

      "PERMITTED INDEBTEDNESS" is:

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

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

      (c)   Subordinated Debt;

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

      (e)   Indebtedness secured by Permitted Liens;

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

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

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

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

      "PERMITTED INVESTMENTS" are:

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

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

                                       18
<PAGE>   22
paper maturing no more than 1 year after its creation and having the highest
rating from either Standard & Poor's Corporation or Moody's Investors Service,
Inc., and (iii) Bank's certificates of deposit issued maturing no more than 1
year after issue.

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

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

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

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

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

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

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

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

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

     "PERMITTED LIENS" ARE:

     (a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;

     (b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority
over any of Bank's security interests;

                                       19

<PAGE>   23
     (c)  Purchase money Liens (i) on Equipment acquired or held by Borrower or
its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the equipment;

     (d)  Leases or subleases and (non-exclusive) licenses or sublicenses
granted in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower and its Subsidiaries taken as a
whole, and any interest or title of a lessor, licensor or under any lease or
license;

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

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

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

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

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

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

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

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

        (m) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a), (c), (d), (e), (f), (g), (h),
(k), and (l), but any extension, renewal or replacement Lien must be limited to
the property encumbered by the existing Lien and the principal amount of the
indebtedness may not increase.

        "PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or government agency.

        "PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.

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

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

        "SCHEDULE" is any attached schedule of exceptions.

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

        "SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.

        "TRADEMARKS" are trademark and servicemark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of any assignor connected with the trademarks.

                                       21
<PAGE>   25
BORROWER:

COSINE COMMUNICATIONS, INC.

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

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

BANK:

SILICON VALLEY BANK

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

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

                                       22
<PAGE>   26

                                   EXHIBIT A

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

        All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;

        All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above;

        All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;

        All not existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and
any and all credit insurance, guaranties, and other security therefor, as well
as all merchandise returned to or reclaimed by Borrower;

        All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;

        All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any
of the foregoing; and

All Borrower's Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.

<PAGE>   27
                                   EXHIBIT B

                  LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM

             DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.

TO: CENTRAL CLIENT SERVICE DIVISION             DATE:
                                                     --------------------------
FAX#: (408) 496-2426                            TIME:
                                                     --------------------------

FROM: COSINE COMMUNICATIONS, INC.
     --------------------------------------------------------------------------
                             CLIENT NAME (BORROWER)

REQUESTED BY:
             ------------------------------------------------------------------
                            AUTHORIZED SIGNER'S NAME

AUTHORIZED SIGNATURE:
                     ----------------------------------------------------------

PHONE NUMBER:
             ------------------------------------------------------------------

FROM ACCOUNT #                       TO ACCOUNT #
              ---------------------              ------------------------------

REQUESTED TRANSACTION TYPE              REQUESTED DOLLAR AMOUNT

PRINCIPAL INCREASE (ADVANCE)            $
                                         --------------------------------------
PRINCIPAL PAYMENT (ONLY)                $
                                         --------------------------------------
INTEREST PAYMENT (ONLY)                 $
                                         --------------------------------------
PRINCIPAL AND INTEREST (PAYMENT)        $
                                         --------------------------------------

OTHER INSTRUCTIONS:
                   ------------------------------------------------------------

-------------------------------------------------------------------------------

All Borrower's representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone request for and Advance confirmed by this Borrowing Certificate; but
those representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of that date.

-------------------------------------------------------------------------------
                                 BANK USE ONLY

TELEPHONE REQUEST:

The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.

-------------------------------                 --------------------------------
     Authorized Requester                                    Phone #

-------------------------------                 --------------------------------
     Received By (Bank)                                      Phone #

                        -------------------------------
                          Authorized Signature (Bank)

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00010-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00010-of-00352.parquet"}]]