**Exhibit10.3**

 

**SECURITYAGREEMENT**

 

THIS SECURITY AGREEMENT(the “Security Agreement”) is entered into as of March 3, 2004, byand between Zaykowski Partners, LP (“Lender”) and TRESTLE HOLDINGS, INC., aDelaware corporation (“Debtor”).

 

**RECITALS**

 

A.                                   Debtorhas issued to Lender a Convertible Promissory Note (such Note, as the same maybe modified, amended, supplemented or restated from time to time, the “Note”)in the aggregate principal amount of $420,000. All terms not otherwise defined herein shall have the meaning set forthin the Note.

 

B.                                     Assecurity for the payment and performance of its obligations to the Lender underthe Note, it is the intent of Debtor to grant to Lender a security interest inall of the Collateral, on the terms and conditions provided herein.

 

**AGREEMENT**

 

NOW, THEREFORE, inconsideration of the above Recitals and for other good and valuableconsideration, the receipt and adequacy of which are hereby acknowledged,Debtor hereby agrees as follows:

 

# 1.               Grant ofSecurity Interest.  Debtor herebypledges and grants to Lender, a security interest in the Collateral (as definedin Section 2) to secure payment and performance of the Obligations (asdefined in Section 3).

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# 2.               Collateral.  The collateral shall consist of all right,title and interest of Debtor as of the date hereof in and to the followingproperties, assets and rights of the Debtor, wherever located (all of the samebeing hereinafter called, the “Collateral”):all personal and fixture property of every kind and nature including, withoutlimitation, all goods (including, without limitation, inventory, equipment(including, without limitation, computer hardware and software, furniture,furnishings and fixtures), instruments (including, without limitation,promissory notes), documents, accounts, chattel paper (whether tangible orelectronic), deposit accounts, letter-of-credit rights, securities and allother investment property, supporting obligations, any other contract rights orrights to the payment of money, insurance claims and proceeds, patents andpatent applications, copyrights and copyrighted works, trademarks, servicemarks and logos, computer software programs, and all general intangibles(including all payment intangibles). For the avoidance of doubt, the Collateral specifically excludes any andall personal property of Debtor acquired after the date hereof.

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# 3.               Obligations.  The obligations of Debtor secured by thisSecurity Agreement shall consist of any and all debts, obligations andliabilities of Debtor to Lender, whether now existing or hereafter arising,voluntary or involuntary, whether or not jointly owed with others, direct orindirect, absolute or contingent, liquidated or unliquidated, and whether ornot from time to time decreased or extinguished and later increased, which arecreated or incurred, arising out of,

 

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# connected with or relatedto the Note, including, without limitation, this Security Agreement and allamendments of the Note (collectively, the “Obligations”).

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# 4.               Representationsand Warranties.  Debtor herebyrepresents and warrants to Lender as of the date hereof, that: (a) exceptfor the liens listed on Schedule A attached to the Note, and theliens granted to Lender hereunder, Debtor is the owner of the Collateral withthe right, power and authority to grant a security interest in its right, titleand interest therein to Lender and no other person has any right, title, claim,license or interest (by way of security interest or other lien, charge orotherwise) in, against or to the Collateral; (b) Debtor has full power andauthority to execute this Security Agreement and perform its obligationshereunder, and to subject the Collateral to the security interest createdhereby; (c) this Security Agreement is effective to create a valid securityinterest and, upon the filing of the appropriate financing statements, aperfected security interest in favor of Lender in the Collateral, and(d) all action by Debtor necessary to protect and perfect such securityinterest has been duly taken.

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# 5.               Covenants of Debtor.  Debtor hereby agrees (a) to do all actsthat may be necessary to maintain, preserve and protect the Collateral and notto fail to renew and not to abandon any Collateral; (b) to pay promptlyprior to delinquency all taxes, assessments, charges, encumbrances and liensnow or hereafter imposed upon or affecting any Collateral; (c) to notifyLender promptly of any change in Debtor’s name or place of business, or, ifDebtor has more than one place of business, its chief executive office; (d) toprocure, execute and deliver from time to time any endorsements, assignments,financing statements and other writings reasonably necessary to perfect,maintain and protect Lender’s security interest hereunder and the prioritythereof; (e) to permit Lender to inspect the Collateral at any reasonabletime, wherever located; (f) not to sell, encumber or otherwise dispose ofor transfer any Collateral or right or interest therein except as hereinafterprovided, and to keep the Collateral free of all security interests (other thanthose security interests set forth on Schedule A attached to theNotes), other liens or charges, except those approved in writing by Lender;(g) to keep the Collateral in good order and repair; (h) to keep theCollateral and the records concerning the Collateral at the location(s) setforth in Section 16 and not to remove the Collateral from such location(s)without fifteen (15) days notice to Lender; and (i) to comply with alllaws, regulations and ordinances relating to the possession and control of theCollateral.

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# 6.               AuthorizedAction by Lender.  In the event anyprincipal of the Note is not paid when due, Debtor hereby designates andappoints Lender as attorney-in-fact of Debtor irrevocably and with power ofsubstitution, with authority to execute and deliver for and on behalf of Debtorany and all instruments, documents, agreements and other writings necessary oradvisable for the exercise on behalf of Debtor of any rights, benefits oroptions created or existing under or pursuant to this Security Agreement; provided,that Lender shall deliver to the Debtor a copy of any such instruments,documents, agreements and other writings. This power of attorney being coupled with an interest is irrevocablewhile any of the Obligations shall remain unpaid.  It is further agreed and understood between the parties heretothat such care as Lender gives to the safekeeping of its own property of likekind shall constitute reasonable care of the Collateral when in Lender’scontrol.

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# 7.               Default andRemedies.  In the event anyprincipal of the Notes is not paid when due, Lender may, at its option, do anyone or more of the following: (a) foreclose or otherwise enforce

 

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# Lender’s securityinterest in any manner permitted by law, or provided for in this SecurityAgreement; (b) sell, lease or otherwise dispose of any Collateral at oneor more public or private sales, whether or not such Collateral is present atthe place of sale, for cash or credit or future delivery, on such terms and insuch manner as Lender may determine; (c) recover from Debtor all costs andexpenses, including, without limitation, reasonable attorneys’ fees, incurredor paid by Lender in exercising any right, power or remedy provided by thisSecurity Agreement or by law; and (d) enter onto property where anyCollateral is located and take possession thereof with or without judicialprocess.  In the event any principal ofthe Note is not paid when due, Debtor agrees to execute any and all documentsreasonably requested by Lender to enable it to exercise its rights hereunder.

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# 8.               CumulativeRights.  The rights, powers andremedies of Lender under this Security Agreement shall be in addition to allrights, powers and remedies given to Lender by virtue of any statute or rule oflaw, the Note or any other agreement, all of which rights, powers and remediesshall be cumulative and may be exercised successively or concurrently withoutimpairing Lender’s security interest in the Collateral.

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# 9.               Waiver.  Any forbearance or failure to delay byLender in exercising any right, power or remedy shall not preclude the furtherexercise thereof, and every right, power or remedy of Lender shall continue infull force and effect until such right, power or remedy is specifically waivedin a writing executed by Lender.

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# 10.         Successors andAssigns; Amendment. This Security Agreement and all rights and obligationshereunder shall be binding upon Debtor and its successors and assigns, andshall inure to the benefit of Lender and its respective successors andassigns.  Neither this SecurityAgreement nor any term hereof may be changed, waived, discharged or terminatedexcept by a written instrument expressly referring to this Security Agreementand to the provisions so modified or limited, and executed by the partieshereto.

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# 11.         Entire Agreement;Severability.  This SecurityAgreement and the Note contain the entire agreement between Lender and Debtorwith regard to the subject matter hereof. If any of the provisions of this Security Agreement shall be heldinvalid or unenforceable, this Security Agreement shall be construed as if notcontaining those provisions and the rights and obligations of the partieshereto shall be construed and enforced accordingly.

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# 12.         Choice of Law.  THIS SECURITY AGREEMENT AND ALL AMENDMENTS,SUPPLEMENTS, WAIVERS AND CONSENTS RELATING HERETO SHALL BE GOVERNED BY ANDCONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE****WITHOUT REGARD TO PRINCIPLES OF CONFLICTSOF LAW.  Where applicable and except asotherwise defined herein, terms used herein shall have the meanings given themin the Delaware Uniform Commercial Code.

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# 13.         Residence; Trade Name;Collateral Location Records.  Debtorrepresents and warrants that its chief executive office is located at theaddress set forth on the signature page to this Security Agreement.

 

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# 14.         Notice.  All notices and other communicationsrequired to be delivered to any party (a) must be in writing, (b) must bepersonally delivered, transmitted by a recognized courier service ortransmitted by facsimile, and (c) must be directed to such party at its addressor facsimile number set forth on the signature pages to this SecurityAgreement.  All notices will be deemedto have been duly given and received on the date of delivery if deliveredpersonally, three (3) days after delivery to the courier if transmitted bycourier, or the date of transmission with confirmation if transmitted byfacsimile, whichever occurs first.  Anyparty may change its address or facsimile number for purposes hereof by noticeto all other parties.

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# 15.         Miscellaneous.  This Security Agreement may be executed intwo or more counterparts, each of which shall be deemed an original but all ofwhich together shall constitute one and the same instrument. This SecurityAgreement may only be amended by a writing duly executed by the partieshereto.  The headings contained hereinare for reference purposes only and shall not affect in any way the meaning orinterpretation of this Security Agreement.

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IN WITNESS WHEREOF, theparties hereto have caused their duly authorized representatives to executethis Security Agreement as of the date first set forth above.

 
| “Debtor”                                                                      | “Lender”     |
|-----------------------------------------------------------------------------------------|------------------------|
| TRESTLE HOLDINGS, INC.,                                                                 | Zaykowski Partners, LP |
| a Delaware corporation                                                                  |                   |
|                                                                                    |                   |
|                                                                                    |                   |
| By:                                                                                     | /s/ GARY FREEMAN       |   | By: | /s/ PAUL Zaykowski |   |
| Name:                                                                                   | Gary Freeman           |   | Name: |   Paul Zaykowski |   |
| Title:                                                                                  | CFO                    |   | Title: |   |   |
|                                                                                    |                   |
|                                                                                    |                   |
| Address:                                                                                | Address:               |
|                                                                                    |                   |
| 11835 W. Olympic Blvd,  Suite 550  Los Angeles, CA 90064  Attn: Chief Executive Officer | Attn:                  |
| Facsimile: (310)                                                                        |                   |   | Facsimile: |
|                                                                                         |                        |  |  |  |  |  |  |  |  |  |  |  |  |

 

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