Document:

exv10w3

 

Exhibit 10.3

REGISTRATION RIGHTS AGREEMENT

     This Registration Rights Agreement (the “Agreement”) is made and entered into as of this
8th day of August, 2005 by and among Visual Networks, Inc., a Delaware corporation (the
“Company”), and the “Investors” named in that certain Purchase Agreement by and among the Company
and the Investors (the “Purchase Agreement”).

     The parties hereby agree as follows:

     1. Certain Definitions.

     As used in this Agreement, the following terms shall have the following meanings:

     “Affiliate” means, with respect to any person, any other person which directly or
indirectly controls, is controlled by, or is under common control with, such person.

     “Business Day” means a day, other than a Saturday or Sunday, on which banks in New
York City are open for the general transaction of business.

     “Common Stock” shall mean the Company’s common stock, par value $0.01 per share, and
any securities into which such shares may hereinafter be reclassified.

     “Conversion Shares” means the shares of Common Stock issuable upon the conversion of
the Notes.

     “Investors” shall mean the Investors identified in the Purchase Agreement and any
Affiliate or permitted transferee of any Investor who is a subsequent holder of any Registrable
Securities.

     “Notes” means the 5% Senior Secured Convertible Notes issued to the Investors pursuant
to the Purchase Agreement, the form of which is attached to the Purchase Agreement as Exhibit A.

     “Prospectus” shall mean the prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement, with respect to the terms of the offering of
any portion of the Registrable Securities covered by such Registration Statement and by all other
amendments and supplements to the prospectus, including post-effective amendments and all material
incorporated by reference in such prospectus.

     “Register,” “registered” and “registration” refer to a registration
made by preparing and filing a Registration Statement or similar document in compliance with the
1933 Act (as defined below), and the declaration or ordering of effectiveness of such Registration
Statement or document.

     “Registrable Securities” shall mean (i) the Conversion Shares and (ii) any other
securities issued or issuable with respect to or in exchange for Registrable Securities; provided,
that, a security shall cease to be a Registrable Security upon (A) sale pursuant to a Registration
Statement or Rule 144 under the 1933 Act, or (B) such security becoming eligible for sale by the
Investors pursuant to Rule 144(k).

     “Registration Statement” shall mean any registration statement of the Company filed
under the 1933 Act that covers the resale of any of the Registrable Securities pursuant to the

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provisions of this Agreement, amendments and supplements to such Registration Statement,
including post-effective amendments, all exhibits and all material incorporated by reference in
such Registration Statement.

     “Required Investors” means the Investors holding a majority of the Registrable
Securities.

     “SEC” means the U.S. Securities and Exchange Commission.

     “1933 Act” means the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.

     “1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

     2. Registration.

               (a) Registration Statements.

               (i) Promptly following the closing of the purchase and sale of the securities contemplated by
the Purchase Agreement (the “Closing Date”) but no later than thirty (30) days after the Closing
Date (the “Filing Deadline”), the Company shall prepare and file with the SEC one Registration
Statement on Form S-3 (or, if Form S-3 is not then available to the Company, on such form of
registration statement as is then available to effect a registration for resale of the Registrable
Securities, subject to the Required Investors’ consent), covering the resale of the Registrable
Securities in an amount at least equal to the Conversion Shares. Such Registration Statement shall
include the plan of distribution attached hereto as Exhibit A. Such Registration Statement
also shall cover, to the extent allowable under the 1933 Act and the rules promulgated thereunder
(including Rule 416), such indeterminate number of additional shares of Common Stock resulting from
stock splits, stock dividends or similar transactions with respect to the Registrable Securities.
The Company shall use its reasonable best efforts to obtain from each person who now has piggyback
registration rights a waiver of those rights with respect to the Registration Statement. The
Registration Statement (and each amendment or supplement thereto, and each request for acceleration
of effectiveness thereof) shall be provided in accordance with Section 3(c) to the Investors and
their counsel prior to its filing or other submission. If a Registration Statement covering the
Registrable Securities is not filed with the SEC on or prior to the Filing Deadline, the Company
will make pro rata payments to each Investor, as liquidated damages and not as a penalty, in an
amount equal to 1.5% of the aggregate amount invested by such Investor for each 30-day period or
pro rata for any portion thereof following the Filing Deadline for which no Registration Statement
is filed with respect to the Registrable Securities. Such payments shall constitute the Investors’
exclusive monetary remedy for such events, but shall not affect the right of the Investors to seek
injunctive relief. Such payments shall be made to each Investor in cash.

               (ii) Additional Registrable Securities. Upon the written demand of any Investor and
upon any change in the Conversion Price (as defined in the Notes) such that additional shares of
Common Stock become issuable upon the conversion of the Notes, the Company shall prepare and file
with the SEC one or more Registration Statements on Form S-3 or amend the Registration Statement
filed pursuant to clause (i) above, if such Registration Statement has not previously been declared
effective (or, if Form S-3 is not then available to the

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Company, on such form of registration statement as is then available to effect a registration
for resale of such additional shares of Common Stock (the “Additional Shares”), subject to the
Required Investors’ consent) covering the resale of the Additional Shares, but only to the extent
the Additional Shares are not at the time covered by an effective Registration Statement. Such
Registration Statement also shall cover, to the extent allowable under the 1933 Act and the rules
promulgated thereunder (including Rule 416), such indeterminate number of additional shares of
Common Stock resulting from stock splits, stock dividends or similar transactions with respect to
the Additional Shares. The Company shall use its reasonable best efforts to obtain from each
person who now has piggyback registration rights a waiver of those rights with respect to such
Registration Statement. The Registration Statement (and each amendment or supplement thereto, and
each request for acceleration of effectiveness thereof) shall be provided in accordance with
Section 3(c) to the Investors and their counsel prior to its filing or other submission. If a
Registration Statement covering the Additional Shares is required to be filed under this Section
2(a)(ii) and is not filed with the SEC within five Business Days of the request of any Investor or
upon the occurrence of any of the events specified in this Section 2(a)(ii), the Company will make
pro rata payments to each Investor, as liquidated damages and not as a penalty, in an amount equal
to 1.5% of the aggregate amount invested by such Investor for each 30-day period or pro rata for
any portion thereof following the date by which such Registration Statement should have been filed
for which no Registration Statement is filed with respect to the Additional Shares. Such payments
shall constitute the Investors’ exclusive monetary remedy for such events, but shall not affect the
right of the Investors to seek injunctive relief. Such payments shall be made to each Investor in
cash.

               (b) Expenses. The Company will pay all expenses associated with each registration,
including filing and printing fees, the Company’s counsel and accounting fees and expenses, costs
associated with clearing the Registrable Securities for sale under applicable state securities
laws, listing fees, fees and expenses of one counsel to the Investors and the Investors’ reasonable
expenses in connection with the registration, but excluding discounts, commissions, fees of
underwriters, selling brokers, dealer managers or similar securities industry professionals with
respect to the Registrable Securities being sold.

               (c) Effectiveness.

               (i) The Company shall use commercially reasonable efforts to have the Registration Statement
declared effective as soon as practicable. The Company shall notify the Investors by facsimile or
e-mail as promptly as practicable, and in any event, within twenty-four (24) hours, after any
Registration Statement is declared effective and shall simultaneously provide the Investors with
copies of any related Prospectus to be used in connection with the sale or other disposition of the
securities covered thereby. If (A)(x) a Registration Statement covering the Registrable Securities
is not declared effective by the SEC prior to the earlier of (i) five (5) Business Days after the
SEC shall have informed the Company that no review of the Registration Statement will be made or
(ii) the 90th day after the Closing Date, or (y) a Registration Statement covering
Additional Shares is not declared effective by the SEC within ninety (90) days following the time
such Registration Statement was required to be filed pursuant to Section 2(a)(ii), or (B) after a
Registration Statement has been declared effective by the SEC, sales cannot be made pursuant to
such Registration Statement for any reason (including without limitation by reason of a stop order,
or the Company’s failure to update the Registration

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Statement), but excluding the inability of any Investor to sell the Registrable Securities
covered thereby due to market conditions and except as excused pursuant to subparagraph (ii) below,
then the Company will make pro rata payments to each Investor, as liquidated damages and not as a
penalty, in an amount equal to 1.5% of the aggregate amount invested by such Investor for each 30-
day period or pro rata for any portion thereof following the date by which such Registration
Statement should have been effective (the “Blackout Period”). Such payments shall constitute the
Investors’ exclusive monetary remedy for such events, but shall not affect the right of the
Investors to seek injunctive relief. The amounts payable as liquidated damages pursuant to this
paragraph shall be paid monthly within three (3) Business Days of the last day of each month
following the commencement of the Blackout Period until the termination of the Blackout Period.
Such payments shall be made to each Investor in cash.

               (ii) For not more than twenty (20) consecutive days or for a total of not more than forty-five
(45) days in any twelve (12) month period, the Company may delay the disclosure of material
non-public information concerning the Company, by suspending the use of any Prospectus included in
any registration contemplated by this Section containing such information, the disclosure of which
at the time is not, in the good faith opinion of the Company, in the best interests of the Company
(an “Allowed Delay”); provided, that the Company shall promptly (a) notify the Investors in writing
of the existence of (but in no event, without the prior written consent of an Investor, shall the
Company disclose to such Investor any of the facts or circumstances regarding) material non-public
information giving rise to an Allowed Delay, (b) advise the Investors in writing to cease all sales
under the Registration Statement until the end of the Allowed Delay and (c) use commercially
reasonable efforts to terminate an Allowed Delay as promptly as practicable.

     3. Company Obligations. The Company will use commercially reasonable efforts to
effect the registration of the Registrable Securities in accordance with the terms hereof, and
pursuant thereto the Company will, as expeditiously as possible:

               (a) use commercially reasonable efforts to cause such Registration Statement to become
effective and to remain continuously effective for a period that will terminate upon the earlier of
(i) the date on which all Registrable Securities covered by such Registration Statement as amended
from time to time, have been sold, and (ii) the date on which all Registrable Securities covered by
such Registration Statement may be sold pursuant to Rule 144(k) (the “Effectiveness Period”) and
advise the Investors in writing when the Effectiveness Period has expired;

               (b) prepare and file with the SEC such amendments and post-effective amendments to the
Registration Statement and the Prospectus as may be necessary to keep the Registration Statement
effective for the Effectiveness Period and to comply with the provisions of the 1933 Act and the
1934 Act with respect to the distribution of all of the Registrable Securities covered thereby;

               (c) provide copies to and permit counsel designated by the Investors to review each
Registration Statement and all amendments and supplements thereto no fewer than seven (7) days
prior to their filing with the SEC and not file any document to which such counsel reasonably
objects;

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               (d) furnish to the Investors and their legal counsel (i) promptly after the same is prepared
and publicly distributed, filed with the SEC, or received by the Company (but not later than two
(2) Business Days after the filing date, receipt date or sending date, as the case may be) one (1)
copy of any Registration Statement and any amendment thereto, each preliminary prospectus and
Prospectus and each amendment or supplement thereto, and each letter written by or on behalf of the
Company to the SEC or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other than any portion of
any thereof which contains information for which the Company has sought confidential treatment),
and (ii) such number of copies of a Prospectus, including a preliminary prospectus, and all
amendments and supplements thereto and such other documents as each Investor may reasonably request
in order to facilitate the disposition of the Registrable Securities owned by such Investor that
are covered by the related Registration Statement;

               (e) use commercially reasonable efforts to (i) prevent the issuance of any stop order or other
suspension of effectiveness and, (ii) if such order is issued, obtain the withdrawal of any such
order at the earliest possible moment;

               (f) prior to any public offering of Registrable Securities, use commercially reasonable
efforts to register or qualify or cooperate with the Investors and their counsel in connection with
the registration or qualification of such Registrable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions requested by the Investors and do any and all
other commercially reasonable acts or things necessary or advisable to enable the distribution in
such jurisdictions of the Registrable Securities covered by the Registration Statement; provided,
however, that the Company shall not be required in connection therewith or as a condition thereto
to (i) qualify to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(f), (ii) subject itself to general taxation in any jurisdiction
where it would not otherwise be so subject but for this Section 3(f), or (iii) file a general
consent to service of process in any such jurisdiction;

               (g) use commercially reasonable efforts to cause all Registrable Securities covered by a
Registration Statement to be listed on each securities exchange, interdealer quotation system or
other market on which similar securities issued by the Company are then listed;

               (h) immediately notify the Investors, at any time when a Prospectus relating to Registrable
Securities is required to be delivered under the 1933 Act, upon discovery that, or upon the
happening of any event as a result of which, the Prospectus included in a Registration Statement,
as then in effect, includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, and at the request of any such holder, promptly prepare
and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such
Prospectus as may be necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities, such Prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing; and

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               (i) otherwise use commercially reasonable efforts to comply with all applicable rules and
regulations of the SEC under the 1933 Act and the 1934 Act, take such other actions as may be
reasonably necessary to facilitate the registration of the Registrable Securities hereunder; and
make available to its security holders, as soon as reasonably practicable, but not later than the
Availability Date (as defined below), an earnings statement covering a period of at least twelve
(12) months, beginning after the effective date of each Registration Statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the 1933 Act, including Rule 158
promulgated thereunder (for the purpose of this subsection 3(i), “Availability Date” means the 45th
day following the end of the fourth fiscal quarter that includes the effective date of such
Registration Statement, except that, if such fourth fiscal quarter is the last quarter of the
Company’s fiscal year, “Availability Date” means the 90th day after the end of such fourth fiscal
quarter).

               (j) With a view to making available to the Investors the benefits of Rule 144 (or its
successor rule) and any other rule or regulation of the SEC that may at any time permit the
Investors to sell shares of Common Stock to the public without registration, the Company covenants
and agrees to: (i) make and keep public information available, as those terms are understood and
defined in Rule 144, until the earlier of (A) six months after such date as all of the Registrable
Securities may be resold pursuant to Rule 144(k) or any other rule of similar effect or (B) such
date as all of the Registrable Securities shall have been resold; (ii) file with the SEC in a
timely manner all reports and other documents required of the Company under the 1934 Act; and (iii)
furnish to each Investor upon request, as long as such Investor owns any Registrable Securities,
(A) a written statement by the Company that it has complied with the reporting requirements of the
1934 Act, (B) a copy of the Company’s most recent Annual Report on Form 10-K or Quarterly Report on
Form 10-Q, and (C) such other information as may be reasonably requested in order to avail such
Investor of any rule or regulation of the SEC that permits the selling of any such Registrable
Securities without registration.

     4. Due Diligence Review; Information. The Company shall make available, during normal
business hours, for inspection and review by the Investors, advisors to and representatives of the
Investors (who may or may not be affiliated with the Investors and who are reasonably acceptable to
the Company), all financial and other records, all SEC Filings (as defined in the Purchase
Agreement) and other filings with the SEC, and all other corporate documents and properties of the
Company as may be reasonably necessary for the purpose of such review, and cause the Company’s
officers, directors and employees, within a reasonable time period, to supply all such information
reasonably requested by the Investors or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them), prior to and from time
to time after the filing and effectiveness of the Registration Statement for the sole purpose of
enabling the Investors and such representatives, advisors and underwriters and their respective
accountants and attorneys to conduct initial and ongoing due diligence with respect to the Company
and the accuracy of such Registration Statement.

          The Company shall not disclose material nonpublic information to the Investors, or to advisors
to or representatives of the Investors, unless prior to disclosure of such information the Company
identifies such information as being material nonpublic information and provides

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the Investors, such advisors and representatives with the opportunity to accept or refuse to accept
such material nonpublic information for review and any Investor wishing to obtain such information
enters into an appropriate confidentiality agreement with the Company with respect thereto.

     5. Obligations of the Investors.

               (a) Each Investor shall furnish in writing to the Company such information regarding itself,
the Registrable Securities held by it and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such registration as the
Company may reasonably request. At least five (5) Business Days prior to the first anticipated
filing date of any Registration Statement, the Company shall notify each Investor of the
information the Company requires from such Investor if such Investor elects to have any of the
Registrable Securities included in the Registration Statement. An Investor shall provide such
information to the Company at least two (2) Business Days prior to the first anticipated filing
date of such Registration Statement if such Investor elects to have any of the Registrable
Securities included in the Registration Statement.

               (b) Each Investor, by its acceptance of the Registrable Securities agrees to cooperate with
the Company as reasonably requested by the Company in connection with the preparation and filing of
a Registration Statement hereunder, unless such Investor has notified the Company in writing of its
election to exclude all of its Registrable Securities from such Registration Statement.

               (c) Each Investor agrees that, upon receipt of any notice from the Company of either (i) the
commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the happening of an event
pursuant to Section 3(h) hereof, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such Registrable Securities,
until the Investor’s receipt of the copies of the supplemented or amended prospectus filed with the
SEC and until any related post-effective amendment is declared effective and, if so directed by the
Company, the Investor shall deliver to the Company (at the expense of the Company) or destroy (and
deliver to the Company a certificate of destruction) all copies in the Investor’s possession of the
Prospectus covering the Registrable Securities current at the time of receipt of such notice.

     6. Indemnification.

               (a) Indemnification by the Company. The Company will indemnify and hold harmless each
Investor and its officers, directors, members, employees and agents, successors and assigns, and
each other person, if any, who controls such Investor within the meaning of the 1933 Act, against
any losses, claims, damages or liabilities, joint or several, to which they may become subject
under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue
statement of any material fact contained in any Registration Statement, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof; (ii) any blue sky
application or other document executed by the Company specifically for that purpose or based upon
written information furnished by the Company filed

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in any state or other jurisdiction in order to qualify any or all of the Registrable
Securities under the securities laws thereof (any such application, document or information herein
called a “Blue Sky Application”); (iii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements therein not
misleading; (iv) any violation by the Company or its agents of any rule or regulation promulgated
under the 1933 Act applicable to the Company or its agents and relating to action or inaction
required of the Company in connection with such registration; or (v) any failure to register or
qualify the Registrable Securities included in any such Registration in any state where the Company
or its agents has affirmatively undertaken or agreed in writing that the Company will undertake
such registration or qualification on an Investor’s behalf and will reimburse such Investor, and
each such officer, director or member and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not be
liable in any such case if and to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by such Investor or any such controlling
person in writing specifically for use in such Registration Statement or Prospectus.

               (b) Indemnification by the Investors. Each Investor agrees, severally but not
jointly, to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its
directors, officers, employees, stockholders and each person who controls the Company (within the
meaning of the 1933 Act) against any losses, claims, damages, liabilities and expense (including
reasonable attorney fees) resulting from any untrue statement of a material fact or any omission of
a material fact required to be stated in the Registration Statement or Prospectus or preliminary
prospectus or amendment or supplement thereto or necessary to make the statements therein not
misleading, to the extent, but only to the extent that such untrue statement or omission is
contained in any information furnished in writing by such Investor to the Company specifically for
inclusion in such Registration Statement or Prospectus or amendment or supplement thereto. In no
event shall the liability of an Investor be greater in amount than the dollar amount of the
proceeds (net of all expense paid by such Investor in connection with any claim relating to this
Section 6 and the amount of any damages such Investor has otherwise been required to pay by reason
of such untrue statement or omission) received by such Investor upon the sale of the Registrable
Securities included in the Registration Statement giving rise to such indemnification obligation.

               (c) Conduct of Indemnification Proceedings. Any person entitled to indemnification
hereunder shall (i) give prompt notice to the indemnifying party of any claim with respect to which
it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such
claim with counsel reasonably satisfactory to the indemnified party; provided that any
person entitled to indemnification hereunder shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such counsel shall be at the
expense of such person unless (a) the indemnifying party has agreed to pay such fees or expenses,
or (b) the indemnifying party shall have failed to assume the defense of such claim and employ
counsel reasonably satisfactory to such person or (c) in the reasonable judgment of any such
person, based upon written advice of its counsel, a conflict of interest exists between such person
and the indemnifying party with respect to such claims (in which case, if the person notifies the
indemnifying party in writing that such person elects to

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employ separate counsel at the expense of the indemnifying party, the indemnifying party shall
not have the right to assume the defense of such claim on behalf of such person); and
provided, further, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations hereunder, except to
the extent that such failure to give notice shall materially adversely affect the indemnifying
party in the defense of any such claim or litigation. It is understood that the indemnifying party
shall not, in connection with any proceeding in the same jurisdiction, be liable for fees or
expenses of more than one separate firm of attorneys at any time for all such indemnified parties.
No indemnifying party will, except with the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement that does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such indemnified party of a release from all liability
in respect of such claim or litigation.

               (d) Contribution. If for any reason the indemnification provided for in the preceding
paragraphs (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless,
other than as expressly specified therein, then the indemnifying party shall contribute to the
amount paid or payable by the indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of the indemnified
party and the indemnifying party, as well as any other relevant equitable considerations. No
person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the 1933 Act
shall be entitled to contribution from any person not guilty of such fraudulent misrepresentation.
In no event shall the contribution obligation of a holder of Registrable Securities be greater in
amount than the dollar amount of the proceeds (net of all expenses paid by such holder in
connection with any claim relating to this Section 6 and the amount of any damages such holder has
otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission) received by it upon the sale of the Registrable Securities giving rise to such
contribution obligation.

     7. Miscellaneous.

               (a) Amendments and Waivers. This Agreement may be amended only by a writing signed by
the Company and the Required Investors. The Company may take any action herein prohibited, or omit
to perform any act herein required to be performed by it, only if the Company shall have obtained
the written consent to such amendment, action or omission to act, of the Required Investors.

               (b) Notices. All notices and other communications provided for or permitted hereunder
shall be made as set forth in Section 9.4 of the Purchase Agreement.

               (c) Assignments and Transfers by Investors. The provisions of this Agreement shall be
binding upon and inure to the benefit of the Investors and their respective successors and assigns.
An Investor may transfer or assign, in whole or from time to time in part, to one or more persons
its rights hereunder in connection with the transfer of Registrable Securities by such Investor to
such person, provided that such Investor complies with all laws applicable thereto and provides
written notice of assignment to the Company promptly after such assignment is effected.

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               (d) Assignments and Transfers by the Company. This Agreement may not be assigned by
the Company (whether by operation of law or otherwise) without the prior written consent of the
Required Investors, provided, however, that the Company may assign its rights and delegate its
duties hereunder to any surviving or successor corporation in connection with a merger or
consolidation of the Company with another corporation, or a sale, transfer or other disposition of
all or substantially all of the Company’s assets to another corporation, without the prior written
consent of the Required Investors, after notice duly given by the Company to each Investor.

               (e) Benefits of the Agreement. The terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the respective permitted successors and assigns of the
parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as expressly provided in
this Agreement.

               (f) Counterparts; Faxes. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall constitute one and the
same instrument. This Agreement may also be executed via facsimile, which shall be deemed an
original.

               (g) Titles and Subtitles. The titles and subtitles used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting this Agreement.

               (h) Severability. Any provision of this Agreement that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions hereof but shall be
interpreted as if it were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which renders any
provisions hereof prohibited or unenforceable in any respect.

               (i) Further Assurances. The parties shall execute and deliver all such further
instruments and documents and take all such other actions as may reasonably be required to carry
out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein
contained.

               (j) Entire Agreement. This Agreement is intended by the parties as a final expression
of their agreement and intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings between the parties with respect to
such subject matter.

               (k) Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Agreement
shall be governed by, and construed in accordance with, the internal laws of the

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State of New York without regard to the choice of law principles thereof. Each of the parties
hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of New York
located in New York County and the United States District Court for the Southern District of New
York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this
Agreement and the transactions contemplated hereby. Service of process in connection with any such
suit, action or proceeding may be served on each party hereto anywhere in the world by the same
methods as are specified for the giving of notices under this Agreement. Each of the parties
hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or
proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any
objection to the laying of venue of any such suit, action or proceeding brought in such courts and
irrevocably waives any claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A
TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN
CONSULTED SPECIFICALLY AS TO THIS WAIVER.

-11-

 

     IN WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized
officers to execute this Agreement as of the date first above written.

	 	 	 	 	 
	The Company:	 	VISUAL NETWORKS, INC.
	 
	 	 	 	 
	 

	 	By:	 	/s/ Lawrence S. Barker
	 

	 	 	 	 
	 	 	Name: Lawrence S.
Barker

Title: CEO

-12-

 

	 	 	 	 	 
	The Investors:	 	SPECIAL SITUATIONS FUND III, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ David M. Greenhouse
	 

	 	 	 	 
	 	 	Name: David M. Greenhouse

Title: General Partner
	 
	 	 	 	 
	 	 	SPECIAL SITUATIONS CAYMAN FUND, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ David M. Greenhouse
	 

	 	 	 	 
	 	 	Name: David M. Greenhouse

Title: General Partner
	 
	 	 	 	 
	 	 	SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ David M. Greenhouse
	 

	 	 	 	 
	 	 	Name: David M. Greenhouse

Title: General Partner
	 
	 	 	 	 
	 	 	SPECIAL SITUATIONS TECHNOLOGY FUND, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ David M. Greenhouse
	 

	 	 	 	 
	 	 	Name: David M. Greenhouse

Title: General Partner
	 
	 	 	 	 
	 	 	SPECIAL SITUATIONS TECHNOLOGY FUND II, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ David M. Greenhouse
	 

	 	 	 	 
	 	 	Name: David M. Greenhouse

Title: General Partner
	 
	 	 	 	 
	 	 	[other investors]

-13-

 

Exhibit A

Plan of Distribution

     The selling stockholders, which as used herein includes donees, pledgees, transferees or other
successors-in-interest selling shares of common stock or interests in shares of common stock
received after the date of this prospectus from a selling stockholder as a gift, pledge,
partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise
dispose of any or all of their shares of common stock or interests in shares of common stock on any
stock exchange, market or trading facility on which the shares are traded or in private
transactions. These dispositions may be at fixed prices, at prevailing market prices at the time
of sale, at prices related to the prevailing market price, at varying prices determined at the time
of sale, or at negotiated prices.

     The selling stockholders may use any one or more of the following methods when disposing of
shares or interests therein:

     - ordinary brokerage transactions and transactions in which the broker-dealer solicits
purchasers;

     - block trades in which the broker-dealer will attempt to sell the shares as agent, but may
position and resell a portion of the block as principal to facilitate the transaction;

     - purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

     - an exchange distribution in accordance with the rules of the applicable exchange;

     - privately negotiated transactions;

     - short sales effected after the date the registration statement of which this Prospectus is a
part is declared effective by the SEC;

     - through the writing or settlement of options or other hedging transactions, whether through
an options exchange or otherwise;

     - broker-dealers may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share; and

     - a combination of any such methods of sale.

     The selling stockholders may, from time to time, pledge or grant a security interest in some
or all of the shares of common stock owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the shares of common stock,
from time to time, under this prospectus, or under an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest as

-14-

 

selling stockholders under this prospectus. The selling stockholders also may transfer the shares
of common stock in other circumstances, in which case the transferees, pledgees or other successors
in interest will be the selling beneficial owners for purposes of this prospectus.

     In connection with the sale of our common stock or interests therein, the selling stockholders
may enter into hedging transactions with broker-dealers or other financial institutions, which may
in turn engage in short sales of the common stock in the course of hedging the positions they
assume. The selling stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common stock to broker-dealers
that in turn may sell these securities. The selling stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions or the creation of one or
more derivative securities which require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect
such transaction).

     The aggregate proceeds to the selling stockholders from the sale of the common stock offered
by them will be the purchase price of the common stock less discounts or commissions, if any. Each
of the selling stockholders reserves the right to accept and, together with their agents from time
to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly
or through agents. We will not receive any of the proceeds from this offering. Upon any exercise
of the warrants by payment of cash, however, we will receive the exercise price of the warrants.

     The selling stockholders also may resell all or a portion of the shares in open market
transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that they meet
the criteria and conform to the requirements of that rule.

     The selling stockholders and any underwriters, broker-dealers or agents that participate in
the sale of the common stock or interests therein may be “underwriters” within the meaning of
Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn
on any resale of the shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities
Act will be subject to the prospectus delivery requirements of the Securities Act.

     To the extent required, the shares of our common stock to be sold, the names of the selling
stockholders, the respective purchase prices and public offering prices, the names of any agents,
dealer or underwriter, any applicable commissions or discounts with respect to a particular offer
will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.

     In order to comply with the securities laws of some states, if applicable, the common stock
may be sold in these jurisdictions only through registered or licensed brokers or dealers. In
addition, in some states the common stock may not be sold unless it has been registered or
qualified for sale or an exemption from registration or qualification requirements is available and
is complied with.

-15-

 

     We have advised the selling stockholders that the anti-manipulation rules of Regulation M
under the Exchange Act may apply to sales of shares in the market and to the activities of the
selling stockholders and their affiliates. In addition, we will make copies of this prospectus (as
it may be supplemented or amended from time to time) available to the selling stockholders for the
purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling
stockholders may indemnify any broker-dealer that participates in transactions involving the sale
of the shares against certain liabilities, including liabilities arising under the Securities Act.

     We have agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to the registration of the
shares offered by this prospectus.

     We have agreed with the selling stockholders to keep the registration statement of which this
prospectus constitutes a part effective until the earlier of (1) such time as all of the shares
covered by this prospectus have been disposed of pursuant to and in accordance with the
registration statement or (2) the date on which the shares may be sold pursuant to Rule 144(k) of
the Securities Act.

-16-exv10w4

 

Exhibit 10.4

PLEDGE AND SECURITY AGREEMENT

     PLEDGE AND SECURITY AGREEMENT (this “Agreement”), dated as of August 8, 2005, is by
and among Visual Networks, Inc., a Delaware corporation (the “Borrower”), and such other
parties as may become Grantors hereunder after the date hereof (together with the Borrower, the
“Grantors” and, individually, a “Grantor”) and the Investors named as such in the
Purchase Agreement, dated August 5, 2005 (the “Purchase Agreement”), among the Borrower and
such Investors (collectively, the “Purchasers”).

     WHEREAS, pursuant to the terms of the Purchase Agreement, the Purchasers are acquiring from
the Borrower, (i) $10,000,000 in an aggregate principal amount of the Borrower’s 5% Senior Secured
Convertible Notes (the “Notes”); and

     WHEREAS, the Grantors wish to grant security interests in favor of the Purchasers as herein
provided to secure the obligations of the Borrower under the Notes;

     NOW THEREFORE, in consideration of the promises contained herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:

     1. Definitions. All capitalized terms used herein without definitions shall have the
respective meanings provided therefor in the Purchase Agreement or the Notes. As used herein the
term “Obligations” shall mean all principal, interest (including interest accrued after the
filing of a bankruptcy or similar petition whether or not a claim therefor is enforceable), fees,
expenses and indemnities payable from time to time by the Grantors under the Notes and the other
Transaction Documents, including reimbursements under Section 11. The term “State,” as
used herein, means the State of New York. All terms defined in the Uniform Commercial Code of the
State and used herein shall have the same definitions herein as specified therein. However, if a
term is defined in Article 9 of the Uniform Commercial Code of the State differently than in
another Article of the Uniform Commercial Code of the State, the term has the meaning specified in
Article 9.

     2. Grant of Security Interest. The Grantors hereby grant to the Purchasers, to secure
the payment and performance in full of all of the Obligations, a security interest in and so
pledges to the Purchasers the following properties, assets and rights of the Grantors, wherever
located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof
(all of the same being hereinafter called the “Collateral”):

     (i) goods (including inventory, equipment and any accessions thereto),

     (ii) instruments (including promissory notes),

     (iii) documents,

     (iv) accounts,

 

 

     (v) chattel paper (whether tangible or electronic),

     (vi) deposit accounts,

     (vii) letter-of-credit rights (whether or not the letter of credit is evidenced by a writing),

     (viii) commercial tort claims,

     (ix) securities and all other investment property (“Investment Property”),

     (x) supporting obligations,

     (xi) contract rights or rights to the payment of money, insurance claims and proceeds,

     (xii) general intangibles including, without limitation, all payment intangibles, patents,
patent applications, trademarks, trademark applications, trade names, copyrights, copyright
applications, software, engineering drawings, service marks, customer lists, goodwill, and all
licenses, permits, agreements of any kind or nature pursuant to which the Grantors possess, use or
have authority to possess or use property (whether tangible or intangible) of others or others
possess, use or have authority to possess or use property (whether tangible or intangible) of the
Grantors, and all recorded data of any kind or nature, regardless of the medium of recording
including, without limitation, all software, writings, plans, specifications and schematics; and

     (xiii) all now existing and hereafter acquired or arising (A) capital stock, equity securities
or interests or other Investment Property (including the capital stock described on Schedule
A hereto), (B) all cash dividends and cash distributions with respect to the foregoing
(“Dividends”), (C) all non-cash dividends paid on capital securities, liquidating dividends
paid on capital securities, shares of capital securities resulting from (or in connection with the
exercise of) stock splits, reclassifications, warrants, options, non-cash dividends, mergers,
consolidations, and all other distributions (whether similar or dissimilar to the foregoing) on or
with respect to any capital securities constituting Collateral (excluding Dividends,
“Distributions”), and (D) all certificates, agreements (including stockholders agreements,
partnership agreements, operating agreements and limited liability company agreements), books,
records, writings, data bases, information and other property relating to, used or useful in
connection with, evidencing, embodying, incorporating or referring to, any of the foregoing.

The Purchasers acknowledge that the attachment of the security interest in any commercial tort
claim as original collateral is subject to the Grantor’s compliance with §4.7.

Notwithstanding the foregoing, Collateral shall not include any of the following (collectively, the
“Excluded Collateral”) (1) vehicles subject to a certificate of title statute, and (2)
rights under licenses, permits and contracts in which a security interest

-2-

 

may not be granted except to the extent that such prohibition is not enforceable under the
applicable Uniform Commercial Code, provided, that the Grantors shall not permit any such
prohibitions in any contracts, licenses and permits entered into after the date hereof except in
the ordinary course consistent with past practice.

     3. Authorization to File Financing Statements. The Grantors hereby irrevocably
authorize the Purchasers at any time and from time to time to file in any applicable Uniform
Commercial Code jurisdiction any initial financing statements and amendments thereto against each
Grantor that (a) indicate the Collateral (i) as all assets of such Grantor or words of similar
effect, regardless of whether any particular asset comprised in the Collateral falls within the
scope of Article 9 of the Uniform Commercial Code of the State or such jurisdiction, or (ii) as
being of an equal or lesser scope or with greater detail, and (b) contain any other information
required by part 5 of Article 9 of the Uniform Commercial Code of the State for the sufficiency or
filing office acceptance of any financing statement or amendment, including (i) whether such
Grantor is an organization, the type of organization and any organization identification number
issued to such Grantor and, (ii) in the case of a financing statement filed as a fixture filing or
indicating Collateral as as-extracted collateral or timber to be cut, a sufficient description of
real property to which the Collateral relates. The Grantors agree to furnish any such information
to the Purchasers promptly upon request. Each Grantor also ratifies its authorization for the
Purchasers to have filed in any Uniform Commercial Code jurisdiction any like initial financing
statements or amendments thereto if filed prior to the date hereof.

     4. Other Actions. Further to insure the attachment, perfection and first priority
(subject to Permitted Liens) of, and the ability of the Purchasers to enforce, the Purchasers’
security interest in the Collateral, the Grantors agree, in each case at the Grantor’s own expense,
to take the following actions with respect to the following Collateral:

     4.1. Promissory Notes and Tangible Chattel Paper. If any Grantor shall at any
time hold or acquire any promissory notes or tangible chattel paper, such Grantor shall
forthwith endorse, pledge and deliver the same to the Purchasers, accompanied by such
instruments of transfer or assignment duly executed in blank as the Purchasers may from
time to time specify.

     4.2. Deposit Accounts. For each deposit account (each, a “Deposit
Account”) that any Grantor at any time opens or maintains at any depository bank (each,
a “Depository Bank”), the Grantor shall, at the Purchasers’ request and option,
pursuant to an agreement in form and substance satisfactory to the Purchasers (each, a
“Deposit Account Control Agreement”), upon an Event of Default either (a) cause the
Depositary Bank to agree to comply at any time with instructions from the Purchasers to
such Depositary Bank directing the disposition of funds from time to time credited to such
Deposit Account, without further consent of the Grantor, or (b) arrange for the Purchasers
to become the customers of the Depositary Bank with respect to the Deposit Account, with
the Grantors

-3-

 

being permitted, only with the consent of the Purchasers, to exercise rights to
withdraw funds from such Deposit Account. The Purchasers agree with the Grantors that the
Purchasers shall not give any such instructions or withhold any withdrawal rights from the
Grantors, unless an Event of Default has occurred and is continuing, or, after giving
effect to any withdrawal not otherwise permitted by the Transaction Documents, would occur.
The provisions of this paragraph shall not apply to (i) any Deposit Account for which the
Grantors, the Depositary Bank and the Purchasers have entered into a cash collateral
agreement specially negotiated among any Grantor, the Depositary Bank and the Purchasers
for the specific purpose set forth therein (ii) Deposit Accounts for which any Purchaser is
the depositary, and (iii) items on deposit in any Deposit Account constituting sales tax
remittances.

     4.3. Investment Property. If any Grantor shall at any time hold or acquire
any certificated securities, the Grantor shall forthwith endorse, pledge and deliver the
same to the Purchasers, accompanied by such instruments of transfer or assignment duly
executed in blank as the Purchasers may from time to time specify. If any securities now
or hereafter acquired by any Grantor are uncertificated and are issued to the Grantor or
its nominee directly by the issuer thereof, the Grantor shall immediately notify the
Purchasers thereof and, at the Purchasers’ request and option, pursuant to an agreement in
form and substance satisfactory to the Purchasers, either (a) cause the issuer to agree to
comply with instructions from the Purchasers as to such securities, without further consent
of the Grantor or such nominee, or (b) arrange for the Purchasers to become the registered
owners of the securities. If any securities, whether certificated or uncertificated, or
other investment property now or hereafter acquired by any Grantor are held by the Grantor
or its nominee through a securities intermediary or commodity intermediary, the Grantor
shall immediately notify the Purchasers thereof and, at the Purchasers’ request and option,
pursuant to an agreement in form and substance satisfactory to the Purchasers, either (i)
cause such securities intermediary or (as the case may be) commodity intermediary to agree
to comply with entitlement orders or other instructions from the Purchasers to such
securities intermediary as to such securities or other investment property, or (as the case
may be) to apply any value distributed on account of any commodity contract as directed by
the Purchasers to such commodity intermediary, in each case without further consent of the
Grantor or such nominee, or (ii) in the case of financial assets or other investment
property held through a securities intermediary, arrange for the Purchasers to become the
entitlement holders with respect to such investment property, with the Grantor being
permitted, only with the consent of the Purchasers, to exercise rights to withdraw or
otherwise deal with such investment property. The Purchasers agree with the Grantors that
the Purchasers shall not give any such entitlement orders or instructions or directions to
any such issuer, securities intermediary or commodity intermediary, and shall not withhold
its consent to the exercise of any withdrawal or dealing rights by the Grantors, unless an
Event of Default has occurred and is continuing, or, after giving effect to any such
investment and withdrawal rights not otherwise permitted by the

-4-

 

Transaction Documents, would occur. The provisions of this paragraph shall not apply
to any financial assets credited to a securities account for which any Purchaser is the
securities intermediary.

     4.4. Collateral in the Possession of a Bailee. If any goods are at any time
in the possession of a bailee, the Grantors shall promptly notify the Purchasers thereof
and, if requested by the Purchasers, shall promptly obtain an acknowledgment from the
bailee, in form and substance satisfactory to the Purchasers, that the bailee holds such
Collateral for the benefit of the Purchasers and shall act upon the instructions of the
Purchasers, without the further consent of the Grantor. The Purchasers agree with the
Grantors that the Purchasers shall not give any such instructions unless an Event of
Default has occurred and is continuing or would occur after taking into account any action
by the Grantors with respect to the bailee.

     4.5. Electronic Chattel Payer and Transferable Records. If any Grantor at any
time holds or acquires an interest in any electronic chattel paper or any “transferable
record,” as that term is defined in Section 201 of the federal Electronic Signatures in
Global and National Commerce Act, or in §16 of the Uniform Electronic Transactions Act as
in effect in any relevant jurisdiction, the Grantor shall promptly notify the Purchasers
thereof and, at the request of the Purchasers, shall take such action as the Purchasers may
reasonably request to vest in the Purchasers control, under §9-105 of the Uniform
Commercial Code, of such electronic chattel paper or control under Section 201 of the
federal Electronic Signatures in Global and National Commerce Act or, as the case may be,
§16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of
such transferable record. The Purchasers agree with the Grantors that the Purchasers will
arrange, pursuant to procedures satisfactory to the Purchasers and so long as such
procedures will not result in the Purchasers’ loss of control, for the Grantors to make
alterations to the electronic chattel paper or transferable record permitted under UCC
§9-105 or, as the case may be, Section 201 of the federal Electronic Signatures in Global
and National Commerce Act or §16 of the Uniform Electronic Transactions Act for a party in
control to make without loss of control, unless an Event of Default has occurred and is
continuing or would occur after taking into account any action by the Grantors with respect
to such electronic chattel paper or transferable record.

     4.6. Letter-of-credit Rights. If any Grantor is at any time a beneficiary
under a letter of credit now or hereafter issued in favor of the Grantor, the Grantor shall
promptly notify the Purchasers thereof and, at the request and option of the Purchasers,
the Grantor shall, pursuant to an agreement in form and substance satisfactory to the
Purchasers, either (i) arrange for the issuer and any confirmer of such letter of credit to
consent to an assignment to the Purchasers of the proceeds of any drawing under the letter
of credit or (ii) arrange for the Purchasers to become the transferee beneficiaries of the
letter of credit, with the

-5-

 

Purchasers agreeing, in each case, that the proceeds of any drawing under the letter
to credit are to be applied as provided in the Note.

     4.7. Commercial Tort Claims. If any Grantor shall at any time hold or acquire
a commercial tort claim, the Grantor shall immediately notify the Purchasers in a writing
signed by the Grantor of the brief details thereof and grant to the Purchasers in such
writing a security interest therein and in the proceeds thereof, all upon the terms of this
Agreement, with such writing to be in form and substance satisfactory to the Purchasers.

     5. Other Actions as to any and all Collateral. The Grantors further agree to take any
other action reasonably requested by the Purchasers to insure the attachment, perfection and first
priority (subject to Permitted Liens) of, and the ability of the Purchasers to enforce, the
Purchasers’ security interest in any and all of the Collateral including, without limitation, (a)
executing, delivering and, where appropriate, filing financing statements and amendments relating
thereto under the Uniform Commercial Code, to the extent, if any, that any Grantor’s signature
thereon is required therefor, (b) causing the Purchasers’ names to be noted as secured parties on
any certificate of title for a titled good if such notation is a condition to attachment,
perfection or priority of, or ability of the Purchasers to enforce, the Purchasers’ security
interest in such Collateral, (c) complying with any provision of any statute, regulation or treaty
of the United States as to any Collateral if compliance with such provision is a condition to
attachment, perfection or priority of, or ability of the Purchasers to enforce, the Purchasers’
security interest in such Collateral, (d) obtaining governmental and other third party consents and
approvals, including without limitation any consent of any licensor, lessor or other person
obligated on Collateral, (e) obtaining waivers from landlords in form and substance satisfactory to
the Purchasers, (f) taking all actions required by any earlier versions of the Uniform Commercial
Code or by other law, as applicable in any relevant Uniform Commercial Code jurisdiction, or by
other law as applicable in any foreign jurisdiction, (g) delivery to the Purchasers of stock
certificates (and stock powers duly executed in blank in favor of the Purchasers) covering all of
the capital stock described on Schedule A, and (h) if the Maturity Date is extended, at the
time of such extension entering into with the Purchasers and a service company reasonably
acceptable to the Purchasers and Grantors, a contract requiring (i) the service company to file
continuation statements and (ii) the Grantors to pay the cost of all filings and creation of
continuation and termination statements.

     6. Relation to Other Security Documents. The provisions of this Agreement supplement
the provisions of the other Transaction Documents. Nothing contained in any such Transaction
Document shall derogate from any of the rights or remedies of the Purchasers hereunder. The
provisions of this Agreement shall be read and construed with the other Security Documents referred
to below in the manner so indicated.

     6.1. Copyright Security Agreements. If required by the Purchasers,
concurrently herewith each Grantor is also executing and delivering to the

-6-

 

Purchasers the Copyright Security Agreement (attached hereto as Exhibit I)
pursuant to which the Grantor is granting to the Purchasers security interests in certain
Collateral consisting of copyrights, and copyright registrations. The provisions of the
Copyright Security Agreement are supplemental to the provisions of this Agreement, and
nothing contained in the Copyright Security Agreement shall derogate from any of the rights
or remedies of the Purchasers hereunder. Neither the delivery of, nor anything contained
in, the Copyright Security Agreement shall be deemed to prevent or postpone the time of
attachment or perfection of any security interest in such Collateral created hereby.

     6.2. Trademark Security Agreements. If required by the Purchasers,
concurrently herewith each Grantor is also executing and delivering to the Purchasers the
Trademark Security Agreement (attached hereto as Exhibit II) pursuant to which the
Grantor is granting to the Purchasers security interests in certain Collateral consisting
of trademarks, and trademark registrations. The provisions of the Trademark Security
Agreement are supplemental to the provisions of this Agreement, and nothing contained in
the Trademark Security Agreement shall derogate from any of the rights or remedies of the
Purchasers hereunder. Neither the delivery of, nor anything contained in, the Trademark
Security Agreement shall be deemed to prevent or postpone the time of attachment or
perfection of any security interest in such Collateral created hereby.

     6.3. Patent Security Agreements. If required by the Purchasers, concurrently
herewith each Grantor is also executing and delivering to the Purchasers the Patent
Security Agreement (attached hereto as Exhibit III) pursuant to which the Grantor
is granting to the Purchasers security interests in certain Collateral consisting of
patents, and patent registrations. The provisions of the Patent Security Agreement are
supplemental to the provisions of this Agreement, and nothing contained in the Patent
Security Agreement shall derogate from any of the rights or remedies of the Purchasers
hereunder. Neither the delivery of, nor anything contained in, the Patent Security
Agreement shall be deemed to prevent or postpone the time of attachment or perfection of
any security interest in such Collateral created hereby.

     7. Representations and Warranties Concerning Grantor’s Legal Status. Each Grantor has
previously delivered to the Purchasers a certificate signed by each Grantor and entitled
“Perfection Certificate” (the “Perfection Certificate”). Each Grantor represents and
warrants to the Purchasers as follows: (a) the Grantor’s exact legal name is that indicated on the
Perfection Certificate and on the signature page hereof, (b) the Grantor is an organization of the
type and organized in the jurisdiction set forth in the Perfection Certificate, (c) the Perfection
Certificate accurately sets forth the Grantor’s organizational identification number or accurately
states that the Grantor has none, (d) the Perfection Certificate accurately sets forth the
Grantor’s place of business or, if more than one, its chief executive office as well as the
Grantor’s mailing address if different

-7-

 

and (e) all other information set forth on the Perfection Certificate pertaining to the
Grantor is accurate and complete.

     8. Covenants Concerning Grantor’s Legal Status. Each Grantor covenants with the
Purchasers as follows: (a) without providing at least 30 days prior written notice to the
Purchasers, the Grantor will not change its name, its place of business or, if more than one, chief
executive office, or its mailing address or organizational identification number if it has one, (b)
if the Grantor does not have an organizational identification number and later obtains one, the
Grantor shall forthwith notify the Purchasers of such organizational identification number, and (c)
the Grantor will not change its type of organization, jurisdiction of organization or other legal
structure.

     9. Representations and Warranties Concerning Collateral. Each Grantor further
represents and warrants to the Purchasers as follows: (a) the Grantor is the owner of or has other
rights in or power to transfer the Collateral, free from any adverse lien, security interest or
other encumbrance, except for the security interest created by this Agreement and the Permitted
Liens, (b) none of the Collateral constitutes, or is the proceeds of, “farm products” as
defined in §9-102(a)(34) of the Uniform Commercial Code of the State, (c) none of the account
debtors or other persons obligated on any of the Collateral is a governmental authority subject to
the Federal Assignment of Claims Act or like federal, state or local statute or rule in respect of
such Collateral, (d) the Grantor holds no commercial tort claim except as indicated on Schedule
B hereto as modified from time to time, (e) the Grantor has at all times operated its business
in compliance with all applicable provisions of the federal Fair Labor Standards Act, as amended,
and with all applicable provisions of federal, state and local statutes and ordinances dealing with
the control, shipment, storage or disposal of hazardous materials or substances and (f) all other
information set forth on the Perfection Certificate pertaining to the Collateral is accurate and
complete.

     10. Covenants Concerning Collateral Etc. Each Grantor further covenants with the
Purchasers as follows: (a) the Collateral, to the extent not delivered to the Purchasers pursuant
to §4, will be kept at those locations listed on the Perfection Certificate and the Grantor will
not remove the Collateral from such locations, without providing at least 30 days prior written
notice to the Purchasers, (b) except for the security interest herein granted and Permitted Liens,
the Grantor shall be the owner of or have other rights in the Collateral free from any lien,
security interest or other encumbrance, and the Grantor shall defend the same against all claims
and demands of all persons at any time claiming the same or any interests therein adverse to the
Purchasers, (c) the Grantor shall not pledge, mortgage or create, or suffer to exist a security
interest in the Collateral in favor of any person other than the Purchasers except for Permitted
Liens, (d) the Grantor will not use the Collateral in violation of any policy of insurance thereon,
(e) the Grantor will permit the Purchasers, or their designee, to inspect the Collateral, wherever
located, at any reasonable time during business hours upon prior notice of at least three Business
Days (unless a Default or an Event of Default has occurred and is continuing, in which event no
prior notice shall be required), (f) the

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Grantor will pay promptly when due all taxes, assessments, governmental charges and levies
upon the Collateral or incurred in connection with the use or operation of such Collateral or
incurred in connection with this Agreement other than any taxes contested in good faith and for
which appropriate reserves have been established by the Grantor, (g) the Grantor will continue to
operate, its business in compliance with all applicable provisions of the federal Fair Labor
Standards Act, as amended, and with all applicable provisions of federal, state and local statutes
and ordinances dealing with the control, shipment, storage or disposal of hazardous materials or
substances, and (h) the Grantor will not sell or otherwise dispose, or offer to sell or otherwise
dispose, of the Collateral or any interest therein except for as permitted by the Notes.

     11. Insurance.

     11.1. Maintenance of Insurance. Each Grantor will maintain with financially
sound and reputable insurers insurance with respect to its properties and business against
such casualties and contingencies as shall be in accordance with general practices of
businesses engaged in similar activities in similar geographic areas; provided, however,
that the Borrower shall at all times maintain with financially sound and reputable insurers
such insurance in amounts not less than the insurance maintained by the Borrower as of the
date hereof. Such insurance shall be in such minimum amounts that the Grantor will not be
deemed a coinsurer under applicable insurance laws, regulations and policies and otherwise
shall be in such amounts, contain such terms, be in such forms and be for such periods as
may be reasonably satisfactory to the Purchasers. In addition, all such insurance shall be
payable to the Purchasers as loss payee. Without limiting the foregoing, the Grantors will
(i) keep all of its physical property insured with casualty or physical hazard insurance on
an “all risks” basis, with broad form flood and earthquake coverages and electronic data
processing coverage, with a full replacement cost endorsement and an “agreed amount” clause
in an amount equal to 100% of the full replacement cost of such property, (ii) maintain all
such workers’ compensation or similar insurance as may be required by law and (iii)
maintain, in amounts and with deductibles equal to those generally maintained by businesses
engaged in similar activities in similar geographic areas, general public liability
insurance against claims of bodily injury, death or property damage occurring, on, in or
about the properties of the Grantors; business interruption insurance; and product
liability insurance.

     11.2. Insurance Proceeds. The proceeds of any casualty insurance in respect
of any casualty loss of any of the Collateral shall, subject to the rights, if any, of
other parties with a prior interest in the property covered thereby, (i) so long as no
Default or Event of Default has occurred and is continuing and to the extent that the
amount of such proceeds is less than $150,000, be disbursed to the Grantor for direct
application by the Grantor solely to the repair or replacement of the Grantor’s property so
damaged or destroyed and (ii) in all other circumstances, be held by the Purchasers as cash
collateral for the Obligations and (except to the extent disbursed pursuant to the next
sentence) may be applied to

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the Obligations. The Purchasers may, at their sole option, disburse from time to time
all or any part of such proceeds so held as cash collateral, upon such terms and conditions
as the Purchasers may reasonably prescribe, for direct application by the Grantor solely to
the repair or replacement of the Grantor’s property so damaged or destroyed, or the
Purchasers may apply all or any part of such proceeds to the Obligations.

     11.3. Notice of Cancellation etc. All policies of insurance shall provide for
at least 30 days prior written cancellation notice to the Purchasers, unless a shorter
period is mandated under applicable law. In the event of failure by any Grantor to provide
and maintain insurance as herein provided, the Purchasers may, at their option, provide
such insurance and charge the amount thereof to the Grantor. Each Grantor shall furnish the
Purchasers with certificates of insurance and policies evidencing compliance with the
foregoing insurance provision.

     12. Collateral Protection Expenses; Preservation of Collateral.

     12.1. Expenses Incurred by Purchasers. In their discretion, the Purchasers
may discharge taxes and other encumbrances at any time levied or placed on any of the
Collateral, make repairs thereto and pay any necessary filing fees or, if any Grantor fails
to do so, insurance premiums. Each Grantor agrees to reimburse the Purchasers on demand for
any and all expenditures so made. The Purchasers shall have no obligation to the Grantors
to make any such expenditures, nor shall the making thereof relieve the Grantor of any
default. Any expenses incurred under this Section 12 shall constitute Obligations.

     12.2. Purchasers’ Obligations and Duties. Anything herein to the contrary
notwithstanding, each Grantor shall remain liable under each contract or agreement
comprised in the Collateral to be observed or performed by the Grantor thereunder. The
Purchasers shall not have any obligation or liability under any such contract or agreement
by reason of or arising out of this Agreement or the receipt by the Purchasers of any
payment relating to any of the Collateral, nor shall the Purchasers be obligated in any
manner to perform any of the obligations of the Grantor under or pursuant to any such
contract or agreement, to make inquiry as to the nature or sufficiency of any payment
received by the Purchasers in respect of the Collateral or as to the sufficiency of any
performance by any party under any such contract or agreement, to present or file any
claim, to take any action to enforce any performance or to collect the payment of any
amounts which may have been assigned to the Purchasers or to which the Purchasers may be
entitled at any time or times. The Purchasers’ sole duty with respect to the custody, safe
keeping and physical preservation of the Collateral in their possession, under §9-207 of
the Uniform Commercial Code of the State or otherwise, shall be to deal with such
Collateral in the same manner as the Purchasers deal with similar property for their own
accounts.

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     13. Securities and Deposits. The Purchasers may at any time following and during the
continuance of an Event of Default, at their option, transfer to themselves or any nominee any
securities constituting Collateral, receive any income thereon and hold such income as additional
Collateral or apply it to the Obligations. Whether or not any Obligations are due, the Purchasers
may following and during the continuance of an Event of Default demand, sue for, collect, or make
any settlement or compromise which it deems desirable with respect to the Collateral. Regardless
of the adequacy of Collateral or any other security for the Obligations, any deposits or other sums
at any time credited by or due from the Purchasers to the Grantors may at any time be applied to or
set off against any of the Obligations then due and owing.

     14. Notification to Account Debtors and Other Persons Obligated on Collateral. If an
Event of Default shall have occurred and be continuing, the Grantors shall, at the request of the
Purchasers, notify account debtors and other persons obligated on any of the Collateral of the
security interest of the Purchasers in any account, chattel paper, general intangible, instrument
or other Collateral and that payment thereof is to be made directly to the Purchasers or to any
financial institution designated by the Purchasers as their agent therefor, and the Purchasers may
themselves, if an Event of Default shall have occurred and be continuing, without notice to or
demand upon the Grantor, so notify account debtors and other persons obligated on Collateral. After
the making of such a request or the giving of any such notification, the Grantors shall hold any
proceeds of collection of accounts, chattel paper, general intangibles, instruments and other
Collateral received by the Grantor as trustee for the Purchasers without commingling the same with
other funds of the Grantor and shall turn the same over to the Purchasers in the identical form
received, together with any necessary endorsements or assignments. The Purchasers shall apply the
proceeds of collection of accounts, chattel paper, general intangibles, instruments and other
Collateral received by the Purchasers to the Obligations, such proceeds to be immediately entered
after final payment in cash or other immediately available funds of the items giving rise to them.

     15. Investment Property. (i) The Grantors, at their cost and expense (including the
cost and expense of any of the following referenced consents, approvals etc.) will promptly execute
and deliver or cause the execution and delivery of all applications, certificates, instruments,
registration statements, and all other documents and papers the Purchasers may request during the
continuance of an Event of Default in connection with the obtaining of any consent, approval,
registration, qualification, permit, license, accreditation, or authorization of any other official
body or other Person necessary or appropriate for the effective exercise of any rights hereunder or
under the other Transaction Documents. Without limiting the generality of the foregoing, the
Grantors agree that in the event the Purchasers shall exercise their rights hereunder or pursuant
to the other Transaction Documents during the continuance of an Event of Default, to sell,
transfer, or otherwise dispose of, or vote, consent, operate, or take any other action in
connection with any of the Collateral, the Grantors shall execute and deliver (or cause to be
executed and delivered) all applications, certificates, assignments and other documents that the
Purchasers request to facilitate such actions and shall otherwise promptly, fully, and diligently
cooperate with the Purchasers and any other

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Persons in making any application for the prior consent or approval of any official body or
any other Person to the exercise by the Purchasers of any such rights relating to all or any of the
Collateral.

     (ii) The Grantors agree promptly upon the occurrence and continuance of an Event of Default and
without any request therefor by the Purchasers, so long as such Event of Default shall continue,
(i) to deliver (properly endorsed where required hereby or requested by Purchasers) to the
Purchasers all Dividends and Distributions with respect to Investment Property and all proceeds of
the Collateral, in each case thereafter received by the Grantor, all of which shall be held by
Purchasers as additional Collateral; and (ii) with respect to Collateral consisting of general
partner interests or limited liability company interests, to make modifications to all necessary
documents to admit the Purchasers as general partners or members, respectively.

     (iii) Except when an Event of Default has occurred and is continuing, the Grantors may continue
to vote all Investment Property included in the Collateral except in a manner which is inconsistent
or in violation of the Transaction Documents. The Grantors agree promptly upon the occurrence and
during the continuance of an Event of Default, (i) that Purchasers may exercise (to the exclusion
of the Grantor) the voting power and all other incidental rights of ownership with respect to any
Collateral constituting Investment Property of the Grantor and the Grantor hereby grants Purchasers
an irrevocable proxy, exercisable under such circumstances, to vote such Investment Property; and
(ii) that it shall promptly deliver to the Purchasers such additional proxies and other documents
as may be necessary to allow the Purchasers to exercise such voting power.

     (iv) All Dividends, Distributions, interest, principal, cash payments, payment intangibles
and proceeds which may at any time and from time to time be held by any Grantor but which the
Grantor is then obligated to deliver to the Purchasers, shall, until delivery to the Purchasers, be
held by the Grantor separate and apart from its other property in trust for the Purchasers. The
Purchasers agree that unless an Event of Default shall have occurred and be continuing, the
Grantors will have the exclusive voting power with respect to any Investment Property constituting
the Grantor’s Collateral and the Purchasers will, upon the written request of any Grantor, promptly
deliver such proxies and other documents, if any, as shall be reasonably requested by the Grantor
which are necessary to allow the Grantor to exercise that voting power; provided that no vote shall
be cast, or consent, waiver, or ratification given, or action taken by the Grantor that would
violate any provision of any Transaction Document.

     The Grantors hereby acknowledge that the sale by Purchasers of any Investment Property
pursuant to the terms hereof in compliance with the Securities Act, as well as applicable “Blue
Sky” or other state securities laws may require strict limitations as to the manner in which
Purchasers or any subsequent transferee of the Investment Property may dispose thereof. The
Grantors acknowledge and agree that, to protect Purchasers’ interests, it may be necessary to sell
the Investment Property at a price less than the maximum price attainable if a sale were delayed or
made in another manner, such as a

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public offering under the Securities Act. The Grantors do not have an objection to a sale in
such manner and the Grantors agree that Purchasers do not have an obligation to obtain the maximum
possible price for all or any part of the Investment Property. Without limiting the generality of
the foregoing, the Grantors agree that Purchasers may, pursuant to the terms hereof and subject to
applicable law, from time to time attempt to sell all or any part of the Investment Property by a
private placement, restricting the bidders and prospective purchasers to those Persons who will
represent and agree that they are purchasing for investment only and not for distribution. In so
doing, Purchasers may solicit offers to buy the Investment Property or any part thereof for cash
from a limited number of investors deemed by Purchasers, in their reasonable judgment, to be
institutional investors or other responsible Persons who might be interested in purchasing the
Investment Property. If Purchasers shall solicit such offers, then acceptance by Purchasers of one
of the offers shall be deemed to be a commercially reasonable method of disposition of the
Collateral.

     16. Power of Attorney.

     16.1. Appointment and Powers of Purchasers. The Grantors hereby irrevocably
constitute and appoint the Purchasers and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable power and
authority in the place and stead of the Grantors or in the Purchasers’ own name, for the
purpose of carrying out the terms of this Agreement, to take any and all appropriate action
and to execute any and all documents and instruments that may be necessary or desirable to
accomplish the purposes of this Agreement and, without limiting the generality of the
foregoing, hereby gives said attorney the power and right, on behalf of the Grantors,
without notice to or assent by the Grantors, to do the following:

     (a) upon the occurrence and during the continuance of an Event of Default,
generally to sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral in such manner as is consistent with the
Uniform Commercial Code of the State and as fully and completely as though the
Purchasers were the absolute owners thereof for all purposes, and to do at the
Grantors’ expense, at any time, or from time to time, all acts and things which the
Purchasers deem necessary to protect, preserve or realize upon the Collateral and
the Purchasers’ security interest therein, in order to effect the intent of this
Agreement, all as fully and effectively as the Grantor might do, including, without
limitation, (i) the filing and prosecuting of registration and transfer
applications with the appropriate federal or local agencies or authorities with
respect to trademarks, copyrights and patentable inventions and processes, (ii)
upon written notice to the Grantors, the exercise of voting rights with respect to
voting securities, which rights may be exercised, if the Purchasers so elect, with
a view to causing the liquidation in a commercially reasonable manner of assets of
the issuer of any such securities and (iii) the execution, delivery and recording,
in connection

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with any sale or other disposition of any Collateral, of the endorsements,
assignments or other instruments of conveyance or transfer with respect to such
Collateral; and

     (b) to the extent that the Grantors’ authorization given in §3 is not
sufficient, to file such financing statements with respect hereto, with or without
the Grantor’ signature, as the Purchasers may deem appropriate and to execute in
the Grantor’s name such financing statements and amendments thereto and
continuation statements which may require the Grantor’s signature.

     16.2. Ratification by Grantors. To the extent permitted by law, the Grantors
hereby ratify all that said attorney shall lawfully do or cause to be done by virtue
hereof. This power of attorney is a power coupled with an interest and shall be
irrevocable.

     16.3. No Duty on Purchasers. The powers conferred on the Purchasers hereunder
are solely to protect its interests in the Collateral and shall not impose any duty upon it
to exercise any such powers. The Purchasers shall be accountable only for the amounts that
they actually receive as a result of the exercise of such powers and neither any Purchaser
nor any of its officers, directors, employees or agents shall be responsible to the Grantor
for any act or failure to act, except for such Purchaser’s own gross negligence or willful
misconduct.

     17. Remedies. If an Event of Default shall have occurred and be continuing, the
Purchasers may, without notice to or demand upon the Grantors, declare this Agreement to be in
default, and the Purchasers shall thereafter have in any jurisdiction in which enforcement hereof
is sought, in addition to all other rights and remedies, the rights and remedies of a purchaser
under the Uniform Commercial Code of the State or of any jurisdiction in which Collateral is
located, including, without limitation, the right to take possession of the Collateral, and for
that purpose the Purchasers may, so far as the Grantors can give authority therefor, enter upon any
premises on which the Collateral may be situated and remove the same therefrom. The Purchasers may
in their discretion require the Grantors to assemble all or any part of the Collateral at such
location or locations within the jurisdiction(s) of the Grantors’ principal office(s) or at such
other locations as the Purchasers may reasonably designate. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a recognized market, the
Purchasers shall give to the Grantors at least ten Business Days prior written notice of the time
and place of any public sale of Collateral or of the time after which any private sale or any other
intended disposition is to be made. The Grantors hereby acknowledge that ten Business Days prior
written notice of such sale or sales shall be reasonable notice. In addition, the Grantors waive
any and all rights that it may have to a judicial hearing in advance of the enforcement of any of
the Purchasers’ rights hereunder, including, without limitation, its right following an Event of
Default to take immediate possession of the Collateral and to exercise its rights with respect
thereto.

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     18. Standards for Exercising Remedies. To the extent that applicable law imposes
duties on the Purchasers to exercise remedies in a commercially reasonable manner, the Grantors
acknowledge and agree that it is not commercially unreasonable for the Purchasers (a) to fail to
incur expenses reasonably deemed significant by the Purchasers to prepare Collateral for
disposition or otherwise to complete raw material or work in process into finished goods or other
finished products for disposition, (b) to fail to obtain third party consents for access to
Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain
governmental or third party consents for the collection or disposition of Collateral to be
collected or disposed of, (c) to fail to exercise collection remedies against account debtors or
other persons obligated on Collateral or to remove liens or encumbrances on or any adverse claims
against Collateral, (d) to exercise collection remedies against account debtors and other persons
obligated on Collateral directly or through the use of collection agencies and other collection
specialists, (e) to advertise dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (f) to contact other
persons, whether or not in the same business as the Grantor, for expressions of interest in
acquiring all or any portion of the Collateral, (g) to hire one or more professional auctioneers to
assist in the disposition of Collateral, whether or not the collateral is of a specialized nature,
(h) to dispose of Collateral by utilizing Internet sites that provide for the auction of assets of
the types included in the Collateral or that have the reasonable capability of doing so, or that
match buyers and sellers of assets, (i) to dispose of assets in wholesale rather than retail
markets, (j) to disclaim disposition warranties, (k) to purchase insurance or credit enhancements
to insure the Purchasers against risks of loss, collection or disposition of Collateral or to
provide to the Purchasers a guaranteed return from the collection or disposition of Collateral, or
(1) to the extent deemed appropriate by the Purchasers, to obtain the services of other brokers,
investment bankers, consultants and other professionals to assist the Purchasers in the collection
or disposition of any of the Collateral. The Grantors acknowledge that the purpose of this §18 is
to provide non-exhaustive indications of what actions or omissions by the Purchasers would not be
commercially unreasonable in the Purchasers’ exercise of remedies against the Collateral and that
other actions or omissions by the Purchasers shall not be deemed commercially unreasonable solely
on account of not being indicated in this §18. Without limitation upon the foregoing, nothing
contained in this §18 shall be construed to grant any rights to the Grantors or to impose any
duties on the Purchasers that would not have been granted or imposed by this Agreement or by
applicable law in the absence of this §18.

     19. No Oral Change; Amendments; Security Agreement Supplements for Additional
Grantors. No amendment of any provision of this Agreement shall be effective unless it is in
writing and signed by the Grantors and the Purchasers, and no waiver of any provision of this
Agreement, and no consent to any departure by the Grantors therefrom, shall be effective unless it
is in writing and signed by the Purchasers, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given. Notwithstanding the
foregoing, additional Persons may become Grantors under this Agreement without consent of any other
Grantor through execution and delivery to the Purchasers of an Assumption Agreement in the form of
Annex 1 hereto or any other form of supplement acceptable to the Purchasers. Nothing in

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this Section 19 shall be construed to permit any Grantor to form a Subsidiary unless expressly
permitted to do so under the Note.

     20. Suretyship Waivers by Grantors. Each Grantor waives demand, notice, protest,
notice of acceptance of this Agreement, notice of loans made, credit extended, Collateral received
or delivered or other action taken in reliance hereon and all other demands and notices of any
description. With respect to both the Obligations and the Collateral, the Grantors assent to any
extension or postponement of the time of payment or any other indulgence, to any substitution,
exchange or release of or failure to perfect any security interest in any Collateral, to the
addition or release of any party or person primarily or secondarily liable, to the acceptance of
partial payment thereon and the settlement, compromising or adjusting of any thereof, all in such
manner and at such time or times as the Purchasers may deem advisable. The Purchasers shall have no
duty as to the collection or protection of the Collateral or any income thereon, nor as to the
preservation of rights against prior parties, nor as to the preservation of any rights pertaining
thereto beyond the safe custody thereof as set forth in §11.2. The Grantors further waive any and
all other suretyship defenses.

     21. Marshalling. The Purchasers shall not be required to marshal any present or
future collateral security (including but not limited to this Agreement and the Collateral) for, or
other assurances of payment of, the Obligations or any of them or to resort to such collateral
security or other assurances of payment in any particular order, and all of its rights hereunder
and in respect of such collateral security and other assurances of payment shall be cumulative and
in addition to all other rights, however existing or arising. To the extent that it lawfully may,
each Grantors hereby agrees that it will not invoke any law relating to the marshalling of
collateral which might cause delay in or impede the enforcement of the Purchasers’ rights under
this Agreement or under any other instrument creating or evidencing any of the Obligations or under
which any of the Obligations is outstanding or by which any of the Obligations is secured or
payment thereof is otherwise assured, and, to the extent that it lawfully may, each Grantor hereby
irrevocably waives the benefits of all such laws.

     22. Proceeds of Dispositions; Expenses. The Grantors shall pay to the Purchasers on
demand any and all expenses, including reasonable attorneys’ fees and disbursements, incurred or
paid by the Purchasers in protecting, preserving or enforcing the Purchasers’ rights under or in
respect of any of the Obligations or any of the Collateral. After deducting all of said expenses,
the residue of any proceeds of collection or sale of the Obligations or Collateral shall, to the
extent actually received in cash, be applied to the payment of the Obligations in such order or
preference as the Purchasers may determine, proper allowance and provision being made for any
Obligations not then due. Upon the final payment and satisfaction in full of all of the
Obligations and after making any payments required by Sections 9-608(a)(1)(C) or 9615(a)(3) of the
Uniform Commercial Code of the State, any excess shall be returned to the Grantors, and the
Grantors shall remain liable for any deficiency in the payment of the Obligations.

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     23. Overdue Amounts. Until paid, all amounts due and payable by the Grantors
hereunder shall be a debt secured by the Collateral and shall bear, whether before or after
judgment, interest at the rate of interest set forth in the Note.

     24. Governing Law; Consent to Jurisdiction.

     (a) Governing Law. This Agreement shall be governed by, and construed
in accordance with, the law of the State (other than those conflict of law rules
that would defer to the substantive laws of another jurisdiction). Without in any
way limiting the preceding choice of law, the parties elect to be governed by the
law of the State in accordance with, and are relying (at least in part) on, Section
5-1401 of the General Obligations Law of the State, as amended, or any
corresponding or succeeding provisions thereof.

     (b) Submission to Jurisdiction. The Grantors hereby submit to the
exclusive personal jurisdiction of the United States District Court for the
Southern District of New York and of the Supreme Court of the State of New York
sitting in New York County (including its Appellate Division), and of any other
appellate court in the State of New York, for the purposes of all legal proceedings
arising out of or relating to this Agreement or the transactions contemplated
hereby.

     (c) Waiver of Venue. The Grantors hereby irrevocably waive, to the
fullest extent permitted by applicable law, any objection that it may now or
hereafter have to the laying of the venue of any such proceeding brought in such a
court and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum. Without in any way limiting the preceding
consents to personal jurisdiction and venue, the parties agree to submit to the
jurisdiction of the courts of the State of New York in accordance with Section
5-1402 of the General Obligations Law of the State, as amended, or any
corresponding or succeeding provisions thereof.

     (d) Service of Process. Each party to this Agreement irrevocably
consents to service of process in the manner provided for notices in the Purchase
Agreement. Nothing in this Agreement will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.

     25. Waiver of Jury Trial. THE GRANTORS AND THE PURCHASERS HEREBY IRREVOCABLY WAIVE,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

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     26. Miscellaneous; Agreement to be Bound by Provisions of Transaction Documents Applicable
to Grantor. The headings of each section of this Agreement are for convenience only and shall
not define or limit the provisions thereof. This Agreement and all rights and obligations hereunder
shall be binding upon the Grantors and their respective successors and assigns, and shall inure to
the benefit of the Purchasers and their respective successors and assigns. If any term of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity of all other terms
hereof shall in no way be affected thereby, and this Agreement shall be construed and be
enforceable as if such invalid, illegal or unenforceable term had not been included herein. The
Grantors acknowledge receipt of a copy of this Agreement. Each Grantor agrees to be bound by each
provision of every other Transaction Document which purports to be applicable to it as if such
provision were set forth herein.

     27. Action by Majority of Purchasers. All actions authorized to be taken or to not
taken by the Purchasers hereunder shall be taken or not taken by the written consent of the holders
of a majority in principal amount of the Notes then outstanding.

     28. Subsidiaries. Borrower shall cause each existing and future Subsidiary that has
assets of $10,000 or more to complete, execute and deliver to the Purchasers, the form of
Assumption Agreement attached as Annex 1 and such other documents as the Purchasers shall
reasonably request, including, without limitation, evidence of good standing of such Affiliate and
lien searches, all in form and substance acceptable to the Purchasers.

     29. Limited Recourse Guaranty. Each Subsidiary that becomes a Grantor other than
Visual Networks, Inc. (each a “Subsidiary Grantor”) hereby unconditionally guarantees the
payment when due of all Obligations, provided, however, that recourse under this provision is
limited to the assets of the Subsidiary Grantor that are, or will be, included as part of the
Collateral. This guaranty is irrevocable and will not be affected by any release of any Grantor or
surrender, exchange, compromise or release any Collateral, by any failure to perfect any liens, by
any irregularity, enforceability or invalidity of any Obligations or any part thereof or any
security or guaranty thereof. Each Subsidiary Grantor waives all defenses based on suretyship or
on impairment of Collateral. Without notice to, or the consent of, any Subsidiary Grantor, the
terms of the Obligations and any related documents may be changed, extended, renewed or
compromised.

[The remainder of this page has been intentionally left blank.]

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     IN WITNESS WHEREOF, intending to be legally bound, the Grantors and Purchasers have caused
this Agreement to be duly executed as of the date first above written.

	 	 	 	 	 
	 	GRANTOR:

VISUAL NETWORKS, INC.

 	 
	 	By:  	/s/
Lawrence S. Barker
 	 
	 	 	Name:  	Lawrence S. Barker	 
	 	 	Title:  	CEO	 
	 

PURCHASERS:

SPECIAL SITUATIONS FUND III, L.P.

SPECIAL SITUATIONS CAYMAN FUND, L.P.

SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.

SPECIAL SITUATIONS TECHNOLOGY FUND, L.P.

SPECIAL SITUATIONS TECHNOLOGY FUND II, L.P.

	 	 	 	 	 
	By:  	 	 	 
	 	Name:  	Austin W. Marxe 	 	 
	 	Title:  	General Partner 	 	 

[Signature Page to Pledge and Security Agreement]

 

 

Schedule A

Capital Stock

Pledged Stock

	 	 	 	 	 	 	 
	Pledgor	 	Issuer	 	Shares Pledged	 	Certificate Number(s)
	 
	 	 	 	 	 	 

 

 

Exhibit I

Copyright Security Agreement

     COPYRIGHT SECURITY AGREEMENT, dated as of                     , 2005 (this “Agreement”), is
by and among the parties identified as “Grantors” on the signature pages hereto and such other
parties as may become Grantors hereunder after the date hereof (individually a “Grantor”,
and collectively the “Grantors”) and the Purchasers named on the signature pages hereto
(the “Purchasers”).

     Grantor and Purchasers hereby agree as follows:

SECTION 1.

Definitions; Interpretation.

     (a) Defined Terms. All capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings assigned to them in the Purchase Agreement, dated as of
                    , 2005, by and between Visual Networks, Inc. (the “Borrower”) and the
Purchasers (the “Purchase Agreement”) and the Notes.

     (b) Certain Defined Terms. As used in this Agreement, the following terms shall have
the following meanings:

     “Collateral” has the meaning set forth in Section 2.

     “Copyright Office” means the United States Copyright Office.

     “Notes” means $10,000,000 in aggregate principal amount of the Borrower’s 5% Senior
Secured Convertible Notes issued by the Borrower to the Purchasers.

     “UCC” means the Uniform Commercial Code as in effect in the State of New York.

     (c) Terms Defined in UCC. Where applicable in the context of this Agreement and except
as otherwise defined herein, terms used in this Agreement shall have the meanings assigned to them
in the UCC.

     (d) Construction. In this Agreement, the following rules of construction and
interpretation shall be applicable: (i) no reference to “proceeds” in this Agreement authorizes any
sale, transfer, or other disposition of any Collateral by Grantor; (ii) “includes” and “including”
are not limiting; (iii) “or” is not exclusive; and (iv) “all” includes “any” and “any” includes
“all.” To the extent not inconsistent with the foregoing, the rules of construction and
interpretation applicable to the Security Agreement shall also be applicable to this Agreement and
are incorporated herein by this reference.

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SECTION 2.

Security Interest.

     (a) Grant of Security Interest. As security for the payment and performance of the
Obligations, each Grantor hereby assigns, transfers and conveys to the Purchasers, and grants a
security interest in and mortgage to the Purchasers of, all such Grantor’s right, title and
interest in, to and under the following property, in each case whether now or hereafter existing or
arising or in which such Grantor now has or hereafter owns, acquires or develops an interest and
wherever located (collectively, the “Collateral”):

     (i) All of such Grantor’s present and future United States registered copyrights and
copyright registrations, including such Grantor’s United States registered copyrights and
copyright registrations listed in Schedule A to this Agreement, all of such
Grantor’s present and future United States applications for copyright registrations,
including such Grantor’s United States applications for copyright registrations listed in
Schedule B to this Agreement, and all of such Grantor’s present and future
copyrights that are not registered in the Copyright Office including, without limitation,
derivative works (collectively, the “Copyrights”), and any and all royalties,
payments, and other amounts payable to Grantor in connection with the Copyrights, together
with all renewals and extensions of the Copyrights, the right to recover for all past,
present, and future infringements of the Copyrights, and all manuscripts, documents,
writings, tapes, disks, storage media, computer programs, computer databases, computer
program flow diagrams, source codes, object codes and all tangible property embodying or
incorporating the Copyrights, and all other rights of every kind whatsoever accruing
thereunder or pertaining thereto;

     (ii) All of such Grantor’s right, title and interest in and to any and all present and
future license agreements with respect to the Copyrights;

     (iii) All present and future accounts and other rights to payment arising from, in
connection with or relating to the Copyrights; and

     (iv) All cash and non-cash proceeds of any and all of the foregoing.

     (b) Continuing Security Interest. Each Grantor agrees that this Agreement shall create
a continuing security interest in the Collateral which shall remain in effect until terminated in
accordance with Section 11.

SECTION 3.

Supplement to Security Agreement.

     This Agreement has been entered into in conjunction with the security interests granted to
Purchasers under the Security Agreement, and other security documents referred to therein. The
rights and remedies of the Purchasers with respect to the security

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interests granted herein are without prejudice to, and are in addition to those set forth in the
Security Agreement or any other security documents referred to therein, all terms and provisions of
which are incorporated herein by reference.

SECTION 4.

Representations and Warranties.

     Each Grantor represents and warrants to Purchasers that:

     (a) Copyright Registrations. A true and correct list of all of such Grantor’s United
States registered copyrights and copyright registrations is set forth in Schedule A.

     (b) Applications for Copyright Registration. A true and correct list of all of such
Grantor’s United States applications for copyright registrations is set forth in Schedule
B.

SECTION 5.

Further Acts.

     On a continuing basis, each Grantor shall make, execute, acknowledge and deliver, and file and
record in the proper filing and recording places, all such instruments and documents, and take all
such action as may be necessary or advisable or may be requested by Purchasers to carry out the
intent and purposes of this Agreement, or for assuring, confirming or protecting the grant or
perfection of the security interest granted or purported to be granted hereby, to ensure such
Grantor’s compliance with this Agreement or to enable Purchasers to exercise and enforce their
rights and remedies hereunder with respect to the Collateral, including any documents for filing
with the Copyright Office or any applicable state office. Purchasers may record this Agreement, an
abstract thereof, or any other document describing Purchasers’ interest in the Copyrights with the
Copyright Office, at the expense of such Grantor. In addition, each Grantor authorizes Purchasers
to file financing statements describing the Collateral in any UCC filing office deemed appropriate
by Purchasers. If any Grantor shall at any time hold or acquire a commercial tort claim arising
with respect to the Collateral, such Grantor shall immediately notify Purchasers in a writing
signed by such Grantor of the brief details thereof and grant to the Purchasers in such writing a
security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with
such writing to be in form and substance satisfactory to the Purchasers.

SECTION 6.

Authorization to Supplement.

     Each Grantor shall give the Purchasers prompt notice of any additional United States copyright
registrations or applications therefor after the date hereof. Each Grantor authorizes the
Purchasers unilaterally to modify this Agreement by amending Schedule A

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or B to include any future United States registered copyrights or applications therefor of
such Grantor. Notwithstanding the foregoing, no failure to so modify this Agreement or amend
Schedules A or B shall in any way affect, invalidate or detract from Purchasers’
continuing security interest in all Collateral, whether or not listed on Schedule A or
B.

SECTION 7.

Binding Effect.

     This Agreement shall be binding upon, inure to the benefit of and be enforceable by each
Grantor, Purchasers and their respective successors and assigns. No Grantor may assign, transfer,
hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder except as
specifically permitted by the Notes.

SECTION 8.

Governing Law.

     This Agreement shall be governed by, and construed in accordance with, the law of the State of
New York, except as required by mandatory provisions of law or to the extent the perfection or
priority of the security interests hereunder, or the remedies hereunder, in respect of any
Collateral are governed by the law of a jurisdiction other than the State of New York.

SECTION 9.

Entire Agreement; Amendment.

     No amendment of any provision of this Agreement shall be effective unless it is in writing and
signed by the Grantors and the Purchasers, and no waiver of any provision of this Agreement, and no
consent to any departure by the Grantors therefrom, shall be effective unless it is in writing and
signed by the Purchasers, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. Notwithstanding the foregoing, (i)
additional Persons may become Grantors under this Agreement without consent of any other Grantor
through execution and delivery to the Purchasers of an Assumption Agreement in the form of Annex 1
hereto or any other form of supplement acceptable to the Purchasers, and (ii) Purchasers
unilaterally may re-execute this Agreement or modify, amend or supplement the Schedules hereto as
provided in Section 6 hereof. To the extent that any provision of this Agreement conflicts with any
provision of the Notes, the provision giving Purchasers greater rights or remedies shall govern, it
being understood that the purpose of this Agreement is to add to, and not detract from, the rights
granted to Purchasers under the Notes. Nothing in this Section 9 shall be construed to permit any
Grantor to form a Subsidiary unless expressly permitted to do so under the Notes.

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SECTION 10.

Counterparts.

     This Agreement may be executed in any number of counterparts and by different parties hereto
in separate counterparts, each of which when so executed shall be deemed to be an original and all
of which taken together shall constitute but one and the same agreement. Delivery of an executed
counterpart of this Agreement by facsimile shall be equally as effective as delivery of a manually
executed counterpart. Any party hereto delivering a counterpart of this Agreement by facsimile
shall also deliver a manually executed counterpart, but the failure to so deliver a manually
executed counterpart shall not affect the validity, enforceability, or binding effect hereof.

SECTION 11.

Termination.

     Upon the indefeasible payment and performance in full of all Obligations, the security
interests created by this Agreement shall terminate and the Purchasers (at the Grantors’ expense)
shall promptly execute and deliver to the Grantors such documents and instruments reasonably
requested by the Grantors as shall be necessary to evidence termination of all such security
interests given by the Grantors to Purchasers hereunder, including cancellation of this Agreement
by written notice from Purchasers to the Copyright Office.

SECTION 12.

No Inconsistent Requirements.

     Each Grantor acknowledges that this Agreement and the other documents, agreements and
instruments entered into or executed in connection herewith may contain covenants and other terms
and provisions variously stated regarding the same or similar matters, and each Grantor agrees that
all such covenants, terms and provisions are cumulative and all shall be performed and satisfied in
accordance with their respective terms.

SECTION 13.

Severability.

     If one or more provisions contained in this Agreement shall be invalid, illegal or
unenforceable in any respect in any jurisdiction or with respect to any party, such invalidity,
illegality or unenforceability in such jurisdiction or with respect to such party shall, to the
fullest extent permitted by applicable law, not invalidate or render illegal or unenforceable any
such provision in any other jurisdiction or with respect to any other party, or any other
provisions of this Agreement.

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SECTION 14.

Notices.

     All notices and other communications hereunder shall be in writing and shall be mailed, sent
or delivered in accordance with the Purchase Agreement.

[Signature Page Follows]

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

	 	 	 	 	 
	 	GRANTORS:

VISUAL NETWORKS, INC.

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

PURCHASERS:

SPECIAL SITUATIONS FUND III, L.P.

SPECIAL SITUATIONS CAYMAN FUND, L.P.

SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.

SPECIAL SITUATIONS TECHNOLOGY FUND, L.P.

SPECIAL SITUATIONS TECHNOLOGY FUND II, L.P.

	 	 	 	 	 
	By:  	
 	 	 
	 	Name:  	Austin W. Marxe 	 	 
	 	Title:  	General Partner 	 	 

[other investors]

[Signature Page to Copyright Security Agreement]

 

 

SCHEDULE A

to the Copyright Security Agreement

Grantor: [                    ]

Registered Copyrights

	 	 	 	 	 
	Title of Work	 	Registration Number	 	Date of Registration
	 
	 	 	 	 

 

 

SCHEDULE B

to the Copyright Security Agreement

Grantor: [                    ]

Copyright Applications

	 	 	 
	Title of Work	 	Application Number
	 
	 	 

 

 

Annex 1 to

Copyright Security Agreement

          ASSUMPTION AGREEMENT, dated as of                     , 200  , made by
                                         (the “Additional Grantor”), in favor of the Purchasers named
on the signature pages to the Copyright Security Agreement (as defined below) (the
“Purchasers”) of $10,000,000 in aggregate principal amount of the 5% Senior Secured
Convertible Notes (collectively, the “Notes”) issued by Visual Networks, Inc. (the
“Borrower”) to the Purchasers pursuant to the terms of a Purchase Agreement, dated
                    , 2005 (the “Purchase Agreement”), by and between the Borrower and the
Purchasers. All capitalized terms not defined herein shall have the meaning ascribed to them in
the Purchase Agreement and the Notes.

W I T N E S S E T H:

          WHEREAS, the Grantors have entered into the Copyright Security Agreement dated as of
                    , 2005 (as it may be amended, supplemented or otherwise modified from time to time,
the “Copyright Security Agreement”) in favor of the Purchasers; and

          WHEREAS, the Additional Grantor has agreed to execute and deliver this Assumption Agreement in
order to become a party to the Copyright Security Agreement;

          NOW, THEREFORE, IT IS AGREED:

          1. Copyright Security Agreement. By executing and delivering this Assumption
Agreement, the Additional Grantor, as provided in Section 9 of the Copyright Security Agreement,
hereby becomes a party to the Copyright Security Agreement as a Grantor thereunder with the same
force and effect as if originally named therein as a Grantor and, without limiting the generality
of the foregoing, hereby expressly assumes all obligations and liabilities of a Grantor thereunder.

          2. Representations and Warranties Concerning Grantor’s Legal Status. The Additional
Grantor has previously delivered to the Purchasers a certificate signed by the Additional Grantor
and entitled “Perfection Certificate” (the “Perfection Certificate”). The Additional
Grantor represents and warrants to the Purchasers as follows: (a) the Additional Grantor’s exact
legal name is that indicated on the Perfection Certificate and on the signature page hereof, (b)
the Additional Grantor is an organization of the type and organized in the jurisdiction set forth
in the Perfection Certificate, (c) the Perfection Certificate accurately sets forth the Additional
Grantor’s organizational identification number or accurately states that the Additional Grantor has
none, (d) the Perfection Certificate accurately sets forth the Additional Grantor’s place of
business or, if more than one, its chief executive office as well as the Additional Grantor’s
mailing address if different, (e) all other information set forth on the Perfection Certificate
pertaining to the Grantor is accurate and complete including but not limited to

 

 

information pertaining to copyrights and (f) each of the representations and warranties
contained in the Transaction Documents relating to it are true and correct on and as the date
hereof (after giving effect to this Assumption Agreement) as if made on and as of such date.

          3. Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. WITHOUT IN ANY WAY LIMITING THE
PRECEDING CHOICE OF LAW, THE UNDERSIGNED (AND BY THEIR ACCEPTANCE HEREOF, THE PURCHASERS) ELECTS TO
BE GOVERNED BY NEW YORK LAW IN ACCORDANCE WITH, AND ARE RELYING (AT LEAST IN PART) ON SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AS AMENDED, OR ANY CORRESPONDING OR
SUCCEEDING PROVISIONS THEREOF

          IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed
and delivered as of the date first above written.

	 	 	 	 	 
	 	[ADDITIONAL GRANTOR]

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

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Exhibit II

Trademark Security Agreement

          TRADEMARK SECURITY AGREEMENT, dated as of August 8, 2005 (this “Agreement”), is by and
among the parties identified as “Grantors” on the signature pages hereto and such other parties as
may become Grantors hereunder after the date hereof (individually a “Grantor”, and
collectively the “Grantors”) and the Purchasers named on the signature pages hereto (the
“Purchasers”).

     Grantors and Purchasers hereby agree as follows:

SECTION 1.

Definitions; Interpretation.

     (a) Defined Terms. All capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings assigned to them in the Purchase Agreement, dated as of
August 5, 2005, by and between Visual Networks, Inc. (the “Borrower”) and the Purchasers
(the “Purchase Agreement”) and the Notes.

     (b) Certain Defined Terms. As used in this Agreement, the following terms shall have
the following meanings:

     “Collateral” has the meaning set forth in Section 2.

     “Notes” means $10,000,000 in aggregate principal amount of the Borrower’s 5% Senior
Secured Convertible Notes issued by the Borrower to the Purchasers.

     “Trademark Office” means the United States Patent & Trademark Office.

SECTION 2.

Security Interest

     To secure the complete and timely payment and satisfaction of the Obligations, each Grantor
hereby grants to Purchasers, and hereby reaffirms its prior grant pursuant to the Security
Agreement of, a continuing security interest in such Grantor’s entire right, title and interest in
and to the following (all of the following items or types of property being herein collectively
referred to as the “Collateral”), whether now owned or existing or hereafter created or acquired:

     (a) Each trademark listed on Schedule 1 annexed hereto, together with any reissues,
continuations or extensions thereof (each a “Trademark”), and all of the goodwill of the business
connected with the use of, and symbolized by, each Trademark; and

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     (b) All products and proceeds of the forgoing, including without limitation, any claim by
Grantor against third parties for past, present or future (a) infringement or dilution of any
Trademark, or (b) injury to the goodwill associated with any Trademark.

SECTION 3

Supplement to Security Agreement

     This Agreement has been entered into in conjunction with the security interests granted to
Purchasers under the Security Agreement, and other security documents referred to therein. The
rights and remedies of the Purchasers with respect to the security interests granted herein are
without prejudice to, and are in addition to those set forth in the Security Agreement or any other
security documents referred to therein, all terms and provisions of which are incorporated herein
by reference.

SECTION 4

Representations and Warranties

     Each Grantor represents and warrants to Purchasers that:

     (a) Grantor is the sole and exclusive owner of the entire and unencumbered right, title and
interest in and to each Trademark, free and clear of any liens, charges and encumbrances, including
without limitation licenses and covenants by Grantor not to sue third persons, except for Permitted
Liens.

     (b) Grantor has no notice of any suits or actions commenced or threatened with reference to
any Trademark; and

     (c) Grantor has the unqualified right to execute and deliver this Agreement and perform its
terms.

SECTION 5

Further Acts

     Grantor agrees that until Grantor’s Obligations shall have been satisfied in full, Grantor
shall not, without the prior written consent of Purchasers, sell or assign its interest in, or
grant any license under, any Trademark or enter into any other agreement with respect to any
Trademark (except as permitted under the Transaction Documents), and Grantor further agrees that it
shall not take any action or permit any action to be taken by others subject to its control,
including licensees, or fail to take any action which would affect the validity or enforcement of
the rights transferred to Purchasers under this Agreement.

SECTION 6

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Purchasers’ Right to Sue

     After an Event of Default occurs and while it continues, Purchasers shall have the right, but
shall in no way be obligated, to bring suit in its own name to enforce the Trademarks and, if
Purchasers shall commence any such suit, Grantor shall, at the request of Purchasers, do any and
all lawful acts and execute any and all proper documents reasonably required by Purchasers in aid
of such enforcement and Grantor shall promptly, upon demand, reimburse and indemnify Purchasers for
all reasonable costs and expenses incurred by Purchasers in the exercise of its rights under this
Section 7.

SECTION 7

Cumulative Remedies; Power of Attorney

     Purchasers hereby acknowledges and affirms that the rights and remedies with respect to the
Trademarks, whether established hereby or by the Security Agreement, or by any other agreements or
by law shall be cumulative and may be exercised singularly or concurrently. Grantor hereby
authorizes Purchasers upon the occurrence and during the continuance of an Event of Default, to
make, constitute and appoint any officer or agent of Purchasers as Purchasers may select, in their
sole discretion, as Grantor’s true and lawful attorney-in-fact, with power to (a) endorse Grantor’s
name on all applications, documents, papers and instruments necessary or desirable for Purchasers
in the use of the Trademarks or (b) take any other actions with respect to the Trademarks as
Purchasers deem to be in the best interest of Purchasers, or (c) grant or issue any exclusive or
non-exclusive license under the Trademarks to anyone, or (d) assign, pledge, convey or otherwise
transfer title in or dispose of the Trademarks to anyone. Grantor hereby ratifies all that such
attorneys shall lawfully do or cause to be done after the occurrence and during the continuance of
an Event of Default by virtue hereof. This power of attorney shall be irrevocable until Grantor’s
Obligations shall have been paid in full. Grantor hereby further acknowledges and agrees that the
use by Purchasers of the Trademarks after the occurrence and during the continuance of an Event of
Default shall be worldwide, except as limited by their terms, and without any liability for
royalties or related charges from Purchasers to Grantor.

SECTION 8

Binding Effect

     This Agreement shall be binding upon, inure to the benefit of and be enforceable by each
Grantor, Purchasers and their respective successors and assigns. No Grantor may assign, transfer,
hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder except as
specifically permitted by the Notes.

SECTION 9

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Governing Law

     This Agreement shall be governed by, and construed in accordance with, the law of the State of
New York, except as required by mandatory provisions of law or to the extent the perfection or
priority of the security interests hereunder, or the remedies hereunder, in respect of any
Collateral are governed by the law of a jurisdiction other than the State of New York.

SECTION 10

Entire Agreement; Amendment

     No amendment of any provision of this Agreement shall be effective unless it is in writing and
signed by the Grantors and the Purchasers, and no waiver of any provision of this Agreement, and no
consent to any departure by the Grantors therefrom, shall be effective unless it is in writing and
signed by the Purchasers, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. Notwithstanding the foregoing, (a)
additional Persons may become Grantors under this Agreement without consent of any other Grantor
through execution and delivery to the Purchasers of an Assumption Agreement in the form of Annex 1
hereto or any other form of supplement acceptable to the Purchasers, and (b) Purchasers
unilaterally may modify, amend or supplement the Schedules hereto, and such modified, amended or
supplemented Schedules shall be deemed to be accurate absent manifest error. To the extent that any
provision of this Agreement conflicts with any provision of the Notes, the provision giving
Purchasers greater rights or remedies shall govern, it being understood that the purpose of this
Agreement is to add to, and not detract from, the rights granted to Purchasers under the Notes.
Nothing in this Section 10 shall be construed to permit any Grantor to form a Subsidiary unless
expressly permitted to do so under the Notes.

SECTION 11

Counterparts

     This Agreement may be executed in any number of counterparts and by different parties hereto
in separate counterparts, each of which when so executed shall be deemed to be an original and all
of which taken together shall constitute but one and the same agreement. Delivery of an executed
counterpart of this Agreement by facsimile shall be equally as effective as delivery of a manually
executed counterpart. Any party hereto delivering a counterpart of this Agreement by facsimile
shall also deliver a manually executed counterpart, but the failure to so deliver a manually
executed counterpart shall not affect the validity, enforceability, or binding effect hereof.

SECTION 12.

Termination

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     Upon the indefeasible payment and performance in full of all Obligations, the security
interests created by this Agreement shall terminate and the Purchasers (at the Grantors’ expense)
shall promptly execute and deliver to the Grantors such documents and instruments reasonably
requested by the Grantors as shall be necessary to evidence termination of all such security
interests given by the Grantors to Purchasers hereunder, including cancellation of this Agreement
by written notice from Purchasers to the Trademark Office.

SECTION 13

No Inconsistent Requirements

     Each Grantor acknowledges that this Agreement and the other documents, agreements and
instruments entered into or executed in connection herewith may contain covenants and other terms
and provisions variously stated regarding the same or similar matters, and each Grantor agrees that
all such covenants, terms and provisions are cumulative and all shall be performed and satisfied in
accordance with their respective terms.

SECTION 14

Severability

     If one or more provisions contained in this Agreement shall be invalid, illegal or
unenforceable in any respect in any jurisdiction or with respect to any party, such invalidity,
illegality or unenforceability in such jurisdiction or with respect to such party shall, to the
fullest extent permitted by applicable law, not invalidate or render illegal or unenforceable any
such provision in any other jurisdiction or with respect to any other party, or any other
provisions of this Agreement.

SECTION 15

Notices

     All notices and other communications hereunder shall be in writing and shall be mailed, sent
or delivered in accordance with the Purchase Agreement.

[Signature Page Follows]

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

	 	 	 	 	 
	 	GRANTORS:

VISUAL NETWORKS, INC.

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	VISUAL NETWORKS OPERATIONS, INC.

VISUAL NETWORKS INTERNATIONAL OPERATIONS, INC.

VISUAL NETWORKS TECHNOLOGIES, INC.

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

PURCHASERS:

SPECIAL SITUATIONS FUND III, L.P.

SPECIAL SITUATIONS CAYMAN FUND, L.P.

SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.

SPECIAL SITUATIONS TECHNOLOGY FUND, L.P.

SPECIAL SITUATIONS TECHNOLOGY FUND II, L.P.

	 	 	 	 	 
	By:  	
 	 	 
	 	Name:  	Austin W. Marxe 	 	 
	 	Title:  	General Partner 	 	 

[Signature Page to Trademark Security Agreement]

 

SCHEDULE A

to the Trademark Security Agreement

Grantor: [                    ]

TRADEMARK REGISTRATIONS

Trademarks owned by Grantors:

	 	 	 	 	 
	Trademark Description	 	U.S. Registration No.	 	Date Registered
	 
	 	 	 	 

 

 

SCHEDULE B

to the Trademark Security Agreement

Grantor: [                    ]

TRADEMARK APPLICATIONS

	 	 	 	 	 
	Trademark Application Description	 	U.S. Application No.	 	Date Applied
	 
	 	 	 	 

 

 

Annex 1 to

Trademark Security Agreement

          ASSUMPTION AGREEMENT, dated as of August 8, 2005, made by Visual Networks Operations, Inc.,
Visual Networks International Operations, Inc. and Visual Networks Technologies, Inc. (each, an
“Additional Grantor”), in favor of the Purchasers named on the signature pages to the
Trademark Security Agreement (as defined below) (the “Purchasers”) of $10,000,000 in
aggregate principal amount of the 5% Senior Secured Convertible Notes (collectively, the
“Notes”) issued by Visual Networks, Inc. (the “Borrower”) to the Purchasers
pursuant to the terms of a Purchase Agreement, dated August 5, 2005 (the “Purchase
Agreement”), by and between the Borrower and the Purchasers. All capitalized terms not defined
herein shall have the meaning ascribed to them in the Purchase Agreement and the Notes.

W I T N E S S E T H:

          WHEREAS, the Grantors have entered into the Trademark Security Agreement dated as of August 8,
2005 (as it may be amended, supplemented or otherwise modified from time to time, the
“Trademark Security Agreement”) in favor of the Purchasers; and

          WHEREAS, the Additional Grantor has agreed to execute and deliver this Assumption Agreement in
order to become a party to the Trademark Security Agreement;

          NOW, THEREFORE, IT IS AGREED:

          1. Trademark Security Agreement. By executing and delivering this Assumption
Agreement, the Additional Grantor, as provided in Section 10 of the Trademark Security Agreement,
hereby becomes a party to the Trademark Security Agreement as a Grantor thereunder with the same
force and effect as if originally named therein as a Grantor and, without limiting the generality
of the foregoing, hereby expressly assumes all obligations and liabilities of a Grantor thereunder.

          2. Representations and Warranties Concerning Grantor’s Legal Status. The Additional
Grantor has previously delivered to the Purchasers a certificate signed by the Additional Grantor
and entitled “Perfection Certificate” (the “Perfection Certificate”). The Additional
Grantor represents and warrants to the Purchasers as follows: (a) the Additional Grantor’s exact
legal name is that indicated on the Perfection Certificate and on the signature page hereof, (b)
the Additional Grantor is an organization of the type and organized in the jurisdiction set forth
in the Perfection Certificate, (c) the Perfection Certificate accurately sets forth the Additional
Grantor’s organizational identification number or accurately states that the Additional Grantor has
none, (d) the Perfection Certificate accurately sets forth the Additional Grantor’s place of
business or, if more than one, its chief executive office as well as the Additional Grantor’s
mailing address if different (e) all other information set forth on the Perfection Certificate
pertaining to the Grantor is accurate and complete including but not limited to information
pertaining to trademarks and (f) each of the representations and warranties

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contained in the Transaction Documents relating to the Additional Grantor are true and correct
on and as the date hereof (after giving effect to this Assumption Agreement) as if made on and as
of such date.

          3. Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. WITHOUT IN ANY WAY LIMITING THE
PRECEDING CHOICE OF LAW, THE UNDERSIGNED (AND BY THEIR ACCEPTANCE HEREOF, THE PURCHASERS) ELECTS TO
BE GOVERNED BY NEW YORK LAW IN ACCORDANCE WITH, AND ARE RELYING (AT LEAST IN PART) ON SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AS AMENDED, OR ANY CORRESPONDING OR
SUCCEEDING PROVISIONS THEREOF

          IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed
and delivered as of the date first above written.

	 	 	 	 	 
	 	VISUAL NETWORKS OPERATIONS, INC.

VISUAL NETWORKS INTERNATIONAL OPERATIONS, INC.

VISUAL NETWORKS TECHNOLOGIES, INC.

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

2

 

Exhibit III

Patent Security Agreement

     PATENT SECURITY AGREEMENT, dated as of August 8, 2005 (this “Agreement”), is by and
among the parties identified as “Grantors” on the signature pages hereto and such other parties as
may become Grantors hereunder after the date hereof (individually a “Grantor”, and
collectively the “Grantors”) and the Purchasers named on the signature pages hereto (the
“Purchasers”).

W I T N E S S E T H:

     WHEREAS, pursuant to a Security Agreement dated as of the date hereof (as such agreement may
be amended, amended and restated, supplemented or otherwise modified from time to time, the
“Security Agreement”), between the Grantors and the Purchasers and in order to obtain the
benefits referred to therein, the Grantors have granted to the Purchasers a security interest in
substantially all of the Grantor’s property, including, without limitation, the Collateral referred
to in Section 2 below; and

     WHEREAS, pursuant to the Security Agreement, the Grantor has agreed to execute this Agreement
in respect of its Collateral for recording with the Patent Office and any other office in which a
security interest in the Collateral may be recorded under the laws of any other applicable
jurisdiction;

     NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements
hereinafter set forth, the Grantor and the Purchasers agree as follows:

SECTION 1.

Definitions; Interpretation.

     (a) Defined Terms. All capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings assigned to them in the Purchase Agreement, dated as of
August 5, 2005, by and between Visual Networks, Inc. (the “Borrower”) and the Purchasers
(the “Purchase Agreement”) and the Notes.

     (b) Certain Defined Terms. As used in this Agreement, the following terms shall have
the following meanings:

     “Collateral” has the meaning set forth in Section 2.

     “Notes” means $10,000,000 in aggregate principal amount of the Borrower’s 5% Senior
Secured Convertible Notes issued by the Borrower to the Purchasers.

     “Patent Office” means the United States Patent and Trademark Office.

1

 

     “UCC” means the Uniform Commercial Code as in effect in the State of New York.

     (c) Terms Defined in UCC. Where applicable in the context of this Agreement and except
as otherwise defined herein, terms used in this Agreement shall have the meanings assigned to them
in the UCC.

     (d) Construction. In this Agreement, the following rules of construction and
interpretation shall be applicable: (i) no reference to “proceeds” in this Agreement authorizes any
sale, transfer, or other disposition of any Collateral by Grantor; (ii) “includes” and “including”
are not limiting; (iii) “or” is not exclusive; and (iv) “all” includes “any” and “any” includes
“all.” To the extent not inconsistent with the foregoing, the rules of construction and
interpretation applicable to the Security Agreement shall also be applicable to this Agreement and
are incorporated herein by this reference.

SECTION 2

Grant of Security

     (a) The Grantor hereby grants to the Purchasers a security interest in and to all of the
Grantor’s right, title and interest in and to the following (the “Collateral”):

     (i) the United States, international, and foreign patents, patent applications and
patent licenses set forth on Schedule A and B hereto, as Schedule A
and B may be supplemented from time to time by supplements to the Security Agreement
and this Agreement which may be executed and delivered by the Grantor to the Purchasers,
from time to time, together with all reissues, divisions, continuations,
continuations-in-part, extensions and reexaminations thereof, and all rights therein
provided by international treaties or conventions (the “Patents”);

     (ii) any and all claims for damages for past, present and future infringement,
misappropriation or breach with respect to the Patents, with the right, but not the
obligation, to sue for and collect, or otherwise recover, such damages; and

     (iii) any and all proceeds of the foregoing.

     (b) The pledge and collateral assignment of, and the grant of a security interest in, the
Collateral by the Grantor under this Agreement secures the payment of all Obligations of the
Grantor now or hereafter existing, whether direct or indirect, absolute or contingent, and whether
for principal, reimbursement obligations, interest, premiums, penalties, fees, indemnifications,
contract causes of action, costs, expenses or otherwise.

     (c) The Grantor authorizes and requests that the Commissioner of Patents and Trademarks and
any other applicable government officer record this Agreement.

SECTION 3.

Supplement to Security Agreement.

2

 

          This Agreement has been entered into in conjunction with the security interests granted to
Purchasers under the Security Agreement, and other security documents referred to therein. The
rights and remedies of the Purchasers with respect to the security interests granted herein are
without prejudice to, and are in addition to those set forth in the Security Agreement or any other
security documents referred to therein, all terms and provisions of which are incorporated herein
by reference.

SECTION 4.

Representations and Warranties.

     Each Grantor represents and warrants to Purchasers that:

          (a) Patent Registrations. A true and correct list of all of such Grantor’s Patents is
set forth on Schedule A.

          (b) Applications for Patents. A true and correct list of all of such Grantor’s
applications for Patents is set forth on Schedule B.

SECTION 5.

Further Acts.

     On a continuing basis, each Grantor shall make, execute, acknowledge and deliver, and file and
record in the proper filing and recording places, all such instruments and documents, and take all
such action as may be reasonably necessary or advisable or may be reasonably requested by
Purchasers to carry out the intent and purposes of this Agreement, or for assuring, confirming or
protecting the grant or perfection of the security interest granted or purported to be granted
hereby, to ensure such Grantor’s compliance with this Agreement or to enable Purchasers to exercise
and enforce their rights and remedies hereunder with respect to the Collateral, including any
documents for filing with the Patent Office or any applicable state office. Purchasers may record
this Agreement, an abstract thereof, or any other document describing Purchasers’ interest in the
Patents with the Patent Office, at the expense of such Grantor. In addition, each Grantor
authorizes Purchasers to file financing statements describing the Collateral in any UCC filing
office deemed appropriate by Purchasers. If any Grantor shall at any time hold or acquire a
commercial tort claim arising with respect to the Collateral, such Grantor shall immediately notify
Purchasers in a writing signed by such Grantor of the brief details thereof and grant to the
Purchasers in such writing a security interest therein and in the proceeds thereof, all upon the
terms of this Agreement, with such writing to be in form and substance satisfactory to the
Purchasers.

SECTION 6.

Authorization to Supplement.

     Each Grantor shall give the Purchasers prompt notice of any additional United States Patent
registrations or applications therefor after the date hereof. Each Grantor authorizes the
Purchasers unilaterally to modify this Agreement by amending Schedule A or B to
include any

3

 

future United States registered Patents or applications therefor of such Grantor. Notwithstanding
the foregoing, no failure to so modify this Agreement or amend Schedules A or B
shall in any way affect, invalidate or detract from Purchasers’ continuing security interest in all
Collateral, whether or not listed on Schedule A or B.

SECTION 7.

Binding Effect.

     This Agreement shall be binding upon, inure to the benefit of and be enforceable by each
Grantor, Purchasers and their respective successors and assigns. No party may assign, transfer,
hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder except as
specifically permitted by the Notes.

SECTION 8.

Governing Law.

     This Agreement shall be governed by, and construed in accordance with, the law of the State of
New York, except as required by mandatory provisions of law or to the extent the perfection or
priority of the security interests hereunder, or the remedies hereunder, in respect of any
Collateral are governed by the law of a jurisdiction other than the State of New York.

SECTION 9.

Entire Agreement; Amendment.

     No amendment of any provision of this Agreement shall be effective unless it is in writing and
signed by the Grantors and the Purchasers, and no waiver of any provision of this Agreement, and no
consent to any departure by the Grantors therefrom, shall be effective unless it is in writing and
signed by the Purchasers, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. Notwithstanding the foregoing, (i)
additional Persons may become Grantors under this Agreement without consent of any other Grantor
through execution and delivery to the Purchasers of an Assumption Agreement in the form of Annex 1
hereto or any other form of supplement acceptable to the Purchasers, and (ii) Purchasers
unilaterally may re-execute this Agreement, to the extent necessary, to modify, amend or supplement
Schedules A or B hereto as provided in Section 6 hereof. To the extent that any provision of this
Agreement conflicts with any provision of the Notes, the provision giving Purchasers greater rights
or remedies shall govern, it being understood that the purpose of this Agreement is to add to, and
not detract from, the rights granted to Purchasers under the Notes. Nothing in this Section 9
shall be construed to permit any Grantor to form a Subsidiary unless expressly permitted to do so
under the Note.

SECTION 10.

Counterparts.

4

 

     This Agreement may be executed in any number of counterparts and by different parties hereto
in separate counterparts, each of which when so executed shall be deemed to be an original and all
of which taken together shall constitute but one and the same agreement. Delivery of an executed
counterpart of this Agreement by facsimile shall be equally as effective as delivery of a manually
executed counterpart. Any party hereto delivering a counterpart of this Agreement by facsimile
shall also deliver a manually executed counterpart, but the failure to so deliver a manually
executed counterpart shall not affect the validity, enforceability, or binding effect hereof.

SECTION 11.

Termination.

     Upon the indefeasible payment and performance in full of all Obligations, the security
interests created by this Agreement shall terminate and the Purchasers (at the Grantors’ expense)
shall promptly execute and deliver to the Grantors such documents and instruments reasonably
requested by the Grantors as shall be necessary to evidence termination of all such security
interests given by the Grantors to Purchasers hereunder, including cancellation of this Agreement
by written notice from Purchasers to the Patent Office.

SECTION 12.

No Inconsistent Requirements.

     Each Grantor acknowledges that this Agreement and the other documents, agreements and
instruments entered into or executed in connection herewith may contain covenants and other terms
and provisions variously stated regarding the same or similar matters, and each Grantor agrees that
all such covenants, terms and provisions are cumulative and all shall be performed and satisfied in
accordance with their respective terms.

SECTION 13.

Severability.

     If one or more provisions contained in this Agreement shall be invalid, illegal or
unenforceable in any respect in any jurisdiction or with respect to any party, such invalidity,
illegality or unenforceability in such jurisdiction or with respect to such party shall, to the
fullest extent permitted by applicable law, not invalidate or render illegal or unenforceable any
such provision in any other jurisdiction or with respect to any other party, or any other
provisions of this Agreement.

SECTION 14.

Notices.

     All notices and other communications hereunder shall be in writing and shall be mailed, sent
or delivered in accordance with the Purchase Agreement.

5

 

[Signature Page Follows]

 

 

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

	 	 	 	 	 
	 	GRANTORS:

VISUAL NETWORKS, INC.

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	VISUAL NETWORKS OPERATIONS, INC.

VISUAL NETWORKS INTERNATIONAL OPERATIONS, INC.

VISUAL NETWORKS TECHNOLOGIES, INC.

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

PURCHASERS:

SPECIAL SITUATIONS FUND III, L.P.

SPECIAL SITUATIONS CAYMAN FUND, L.P.

SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.

SPECIAL SITUATIONS TECHNOLOGY FUND, L.P.

SPECIAL SITUATIONS TECHNOLOGY FUND II, L.P.

	 	 	 	 	 
	By:  	
 	 	 
	 	Name:  	Austin W. Marxe 	 	 
	 	Title:  	General Partner 	 	 

[Signature Page to Patent Security Agreement]

 

 

SCHEDULE A

to the Patent Security Agreement

Grantor: [                    ]

Registered Patents:

	 	 	 	 	 
	Patent No.	 	Date of Registration	 	Date of Expiration
	 
	 	 	 	 

 

 

SCHEDULE B

to Patent Security Agreement

Grantor: [                    ]

Applications for Patents:

	 	 	 	 	 
	Patent No.	 	Date of Registration	 	Date of Expiration
	 
	 	 	 	 

 

 

Annex 1 to

Patent Security Agreement

          ASSUMPTION AGREEMENT, dated as of August 8, 2005, made by Visual Networks Operations, Inc.,
Visual Networks International Operations, Inc. and Visual Networks Technologies, Inc. (each, an
“Additional Grantor”), in favor of the Purchasers named on the signature pages to the
Patent Security Agreement (as defined below) (the “Purchasers”) of $10,000,000 in aggregate
principal amount of the 5% Senior Secured Convertible Notes (collectively, the “Notes”)
issued by Visual Networks, Inc. (the “Borrower”) to the Purchasers pursuant to the terms of
a Purchase Agreement, dated August 5, 2005 (the “Purchase Agreement”), by and between the
Borrower and the Purchasers. All capitalized terms not defined herein shall have the meaning
ascribed to them in the Purchase Agreement and the Notes.

W I T N E S S E T H:

          WHEREAS, the Grantors have entered into the Patent Security Agreement dated as of August 8,
2005 (as it may be amended, supplemented or otherwise modified from time to time, the “Patent
Security Agreement”) in favor of the Purchasers; and

          WHEREAS, the Additional Grantor has agreed to execute and deliver this Assumption Agreement in
order to become a party to the Patent Security Agreement;

          NOW, THEREFORE, IT IS AGREED:

          1. Patent Security Agreement. By executing and delivering this Assumption Agreement,
the Additional Grantor, as provided in Section 9 of the Patent Security Agreement, hereby becomes a
party to the Patent Security Agreement as a Grantor thereunder with the same force and effect as if
originally named therein as a Grantor and, without limiting the generality of the foregoing, hereby
expressly assumes all obligations and liabilities of a Grantor thereunder.

          2. Representations and Warranties Concerning Grantor’s Legal Status. The Additional
Grantor has previously delivered to the Purchasers a certificate signed by the Additional Grantor
and entitled “Perfection Certificate” (the “Perfection Certificate”). The Additional
Grantor represents and warrants to the Purchasers as follows: (a) the Additional Grantor’s exact
legal name is that indicated on the Perfection Certificate and on the signature page hereof, (b)
the Additional Grantor is an organization of the type and organized in the jurisdiction set forth
in the Perfection Certificate, (c) the Perfection Certificate accurately sets forth the Additional
Grantor’s organizational identification number or accurately states that the Additional Grantor has
none, (d) the Perfection Certificate accurately sets forth the Additional Grantor’s place of
business or,

 

 

if more than one, its chief executive office as well as the Additional Grantor’s mailing
address if different (e) all other information set forth on the Perfection Certificate pertaining
to the Grantor is accurate and complete including but not limited to information pertaining to
Patents and (f) each of the representations and warranties contained in the Transaction Documents
relating to it are true and correct on and as of the date hereof (after giving effect to this
Assumption Agreement) as if made on and as of such date.

          3. Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. WITHOUT IN ANY WAY LIMITING THE
PRECEDING CHOICE OF LAW, THE UNDERSIGNED (AND BY THEIR ACCEPTANCE HEREOF, THE PURCHASERS) ELECTS TO
BE GOVERNED BY NEW YORK LAW IN ACCORDANCE WITH, AND ARE RELYING (AT LEAST IN PART) ON SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AS AMENDED, OR ANY CORRESPONDING OR
SUCCEEDING PROVISIONS THEREOF.

     IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed
and delivered as of the date first above written.

	 	 	 	 	 
	 	VISUAL NETWORKS OPERATIONS, INC.

VISUAL NETWORKS INTERNATIONAL OPERATIONS, INC.

VISUAL NETWORKS TECHNOLOGIES, INC.

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

2

 

Schedule B

Commercial Tort Claims

1

 

Annex 1 to

Pledge and Security Agreement

          ASSUMPTION AGREEMENT, dated as of August 8, 2005, made by Visual Networks Operations, Inc.,
Visual Networks International Operations, Inc. and Visual Networks Technologies, Inc. (each, an
“Additional Grantor”), in favor of the Purchasers named on the signature pages to the
Security Agreement (as defined below) (the “Purchasers”) of $10,000,000 in aggregate
principal amount of the 5% Senior Secured Convertible Notes (collectively, the “Notes”)
issued by Visual Networks, Inc. (the “Borrower”) to the Purchasers pursuant to the terms of
a Purchase Agreement, dated August 5, 2005 (the “Purchase Agreement”), by and between the
Borrower and the Purchasers. All capitalized terms not defined herein shall have the meaning
ascribed to them in the Purchase Agreement and the Notes.

W I T N E S S E T H:

          WHEREAS, the Grantors have entered into the Pledge and Security Agreement dated as of August
8, 2005 (as it may be amended, supplemented or otherwise modified from time to time, the
“Security Agreement”) in favor of the Purchasers; and

          WHEREAS, the Additional Grantor has agreed to execute and deliver this Assumption Agreement in
order to become a party to the Security Agreement;

          NOW, THEREFORE, IT IS AGREED:

          1. Security Agreement. By executing and delivering this Assumption Agreement, the
Additional Grantor, as provided in Section 19 of the Security Agreement, hereby becomes a party to
the Security Agreement as a Grantor thereunder with the same force and effect as if originally
named therein as a Grantor and, without limiting the generality of the foregoing, hereby expressly
assumes all obligations and liabilities of a Grantor thereunder.

          2. Representations and Warranties Concerning Grantor’s Legal Status. The Additional
Grantor has previously delivered to the Purchasers a certificate signed by the Additional Grantor
and entitled “Perfection Certificate” (the “Perfection Certificate”) (form of Perfection
Certificate to be completed is attached hereto as Schedule 1). The Additional Grantor
represents and warrants to the Purchasers as follows: (a) the Additional Grantor’s exact legal name
is that indicated on the Perfection Certificate and on the signature page hereof, (b) the
Additional Grantor is an organization of the type and organized in the jurisdiction set forth in
the Perfection Certificate, (c) the Perfection Certificate accurately sets forth the Additional
Grantor’s organizational identification number or accurately states that the Additional Grantor has
none, (d) the Perfection Certificate accurately sets forth the Additional Grantor’s place of
business or,

2

 

if more than one, its chief executive office as well as the Additional Grantor’s mailing
address if different (e) all other information set forth on the Perfection Certificate pertaining
to the Grantor is accurate and complete and (f) each of the representations and warranties
contained in the Transaction Documents relating to it are true and correct on and as the date
hereof (after giving effect to this Assumption Agreement) as if made on and as of such date.

          3. Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (OTHER THAN THOSE CONFLICT OF LAW
RULES THAT WOULD DEFER TO THE SUBSTANTIVE LAWS OF ANOTHER JURISDICTION). WITHOUT IN ANY WAY
LIMITING THE PRECEDING CHOICE OF LAW, THE UNDERSIGNED (AND BY THEIR ACCEPTANCE HEREOF, THE
PURCHASERS) ELECTS TO BE GOVERNED BY NEW YORK LAW IN ACCORDANCE WITH, AND ARE RELYING (AT LEAST IN
PART) ON SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AS AMENDED, OR ANY
CORRESPONDING OR SUCCEEDING PROVISIONS THEREOF.

          IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed
and delivered as of the date first above written.

	 	 	 	 	 
	 	VISUAL NETWORKS OPERATIONS, INC.

VISUAL NETWORKS INTERNATIONAL OPERATIONS, INC.

VISUAL NETWORKS TECHNOLOGIES, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

3

 

Schedule 1

to

Assumption Agreement to Pledge and Security Agreement

PERFECTION CERTIFICATE

     The undersigned, the                                          and                                          of [Additional Grantor] a [state of organization] [entity] (the
“Company”), hereby certifies, with reference to a certain Pledge and Security Agreement dated as of
                    , 2005 (terms defined in such Security Agreement having the same meanings herein as
specified therein), between the Grantors and the Purchasers named therein.

     1. Names. (a) The exact corporate name of the Company as that name appears on its
[Certificate of Incorporation] is as follows:

     (b) The following is a list of all other names (including trade names or similar appellations)
used by the Company, or any other business or organization to which the Company became the
successor by merger, consolidation, acquisition, change in form, nature or jurisdiction of
organization or otherwise, now or at any time during the past five years:

     2. Other Identifying Factors. (a) The following is the type of organization of the
Company:

     (b) The following is the jurisdiction of the Company’s organization:

     (c) The following is the Company’s state issued organizational identification number [state
“None” if the state does not issue such a number]:

     (d) The following is the Company’s federal employer identification number:

     (e) Attached hereto as Schedule 2 is the information required above in this §2 for any other
business or organization to which the Company became the successor by merger, consolidation,
acquisition, change in form, nature or jurisdiction of organization or otherwise, now or at any
time during the past five years:

     3. Chief Executive Office.

     (a) The chief executive office of the Company is located at the following address:

1

 

	 	 	 	 	 
	Address
	 	County
	 	State
	 
	 	 
	 	 

     (b) The principal mailing address of the Company is the following address, if different from
the chief executive office address:

	 	 	 	 	 
	Mailing Address
	 	County
	 	State
	 
	 	 
	 	 

     4. Other Current Locations.

     (a) The following are all other locations in the United States of America in which the Company
maintains any books or records relating to any of the Collateral consisting of accounts, contract
rights, chattel paper, general intangibles or mobile goods:

	 	 	 	 	 
	Address
	 	County
	 	State
	 
	 	 
	 	 

     (b) The following are all other places of business of the Company in the United States of
America:

	 	 	 	 	 
	Address
	 	County
	 	State
	 
	 	 
	 	 

     (c) The following are all other locations in the United States of America where any of the
Collateral consisting of inventory or equipment is located:

	 	 	 	 	 
	Address
	 	County
	 	State
	 
	 	 
	 	 

2

 

     (d) The following are the names and addresses of all persons or entities other than the
Company, such as lessees, consignees, warehousemen or purchasers of chattel paper, which have
possession or are intended to have possession of any of the Collateral consisting of chattel paper,
inventory or equipment:

	 	 	 	 	 	 	 
	Name
	 	Mailing Address
	 	County
	 	State
	 
	 	 
	 	 
	 	 

     5. Prior Locations. (a) Set forth below is the information required by §3 and by
subparagraphs (a) and (b) of §4 with respect to each location or place of business previously
maintained by the Company at any time during the past five years in a state in which the Company
has previously maintained a location or place of business at any time during the past four months:

	 	 	 	 	 
	Address
	 	County
	 	State
	 
	 	 
	 	 

     (b) Set forth below is the information required by subparagraphs (c) and (d) of §4 with
respect to each other location at which, or other person or entity with which, any of the
Collateral consisting of inventory or equipment has been previously held at any time during the
past twelve months:

	 	 	 	 	 	 	 
	Name
	 	Address
	 	County
	 	State
	 
	 	 
	 	 
	 	 

3

 

     6. Fixtures. Attached hereto as Schedule 6 is the information required by
UCC §9-402(5) or by Rev. UCC §9-502(b) of each state in which any of the Collateral consisting of
fixtures are or are to be located and the name and address of each real estate recording office
where a mortgage on the real estate on which such fixtures are or are to be located would be
recorded.

     7. Intellectual Property. Attached hereto as Schedule 7 is a complete list
of all United States and foreign patents, copyrights, trademarks, trade names and service marks
registered or for which applications are pending in the name of the Company.

     8. Securities; Instruments. Attached hereto as Schedule 8 is a complete list
of all stocks, bonds, debentures, notes and other securities and investment property owned by the
Company (provide name of issuer, a description of security and value):

     9. Motor Vehicles. The following is a complete list of all motor vehicles owned by
the Company (describe each vehicle by make, model and year and indicate for each the state in which
registered and the state in which based):

	 	 	 	 	 
	Vehicle
	 	State of Registration
	 	State in Which Based
	 
	 	 
	 	 

     10. Other Titled Collateral. The following is a complete list of aircraft and boats
and all other inventory, equipment and other goods of the Company which are subject to any
certificate of title or other registration statute of the United States, any state or any other
jurisdiction (provide description of covered goods and indicate registration system and
jurisdiction):

	 	 	 	 	 
	Goods
	 	Registration System
	 	Jurisdiction
	 
	 	 
	 	 

     11. Bank Accounts. The following is a complete list of all bank accounts (including
securities and commodities accounts) maintained by the Company (provide name and address of
depository bank, type of account and account number):

4

 

	 	 	 	 	 	 	 
	Depository Bank
	 	Bank Address
	 	Type of Account
	 	Acct. No.
	 
	 	 
	 	 
	 	 

     12. Unusual Transactions. Except for those purchases, acquisitions and other
transactions described on Schedule 2 or on Schedule 12 attached hereto, all of the
Collateral has been originated by the Company in the ordinary course of the Company’s business or
consists of goods which have been acquired by the Company in the ordinary course from a person in
the business of selling goods of that kind.

     13. Termination Statements. An authorized termination statement on Form UCC-3 in form
acceptable to Purchasers has been duly filed in each applicable jurisdiction identified in §§2, 3,
4 and 5 or on Schedule 2 and Schedule 12 hereto [or, in the case of Schedule
2 or Schedule 12 a release acceptable to Purchasers from the person from which the
Company purchased or otherwise acquired the Collateral identified on such schedule] and has been
delivered to Purchasers. Attached hereto as Schedule 13 is a true copy of each
such filing duly acknowledged by the filing officer[ and of each such release].

     14. Schedule of Filing. Attached hereto as Schedule 14 is a schedule
setting forth filing information with respect to the filings described in §13 above.

     15. Filing Fees. All filing fees and taxes payable in connection with the filings
described in §13 have been paid.

5

 

     IN WITNESS WHEREOF, we have hereunto signed this Certificate on ___.

	 	 	 	 	 
	 	 	 
	 	 	 
	 	Title: 	 

	 	 	 	 	 
	 	 	 
	 	 	 
	 	Title: 	 
	 	 	 
	 

[Signature Page to Perfection Certificate]

 

 

SCHEDULE 2

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