Document:

EXHIBIT 10.2

PRIVILEGED & CONFIDENTIAL

EXECUTION VERSION

 

SECOND LOAN AND SECURITY AGREEMENT

THIS SECOND LOAN AND
SECURITY AGREEMENT (this “Agreement”) is
entered into as of June 19, 2006, by and among CLARIENT, INC., a Delaware
corporation (“Lender”), TRESTLE
HOLDINGS, INC., a Delaware corporation (“Borrower”) and
the Guarantors (as defined herein) hereto.

RECITALS

WHEREAS, Lender is
engaged in negotiations with Borrower for the purposes of acquiring certain
assets of Borrower and Trestle Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Borrower (“Trestle Sub”),
pursuant to an asset purchase agreement (the “Asset
Purchase Agreement”);

WHEREAS, Lender
previously loaned to Borrower the sum of $250,000 pursuant to a Loan and
Security Agreement dated February 27, 2006 (as amended to date, the “Original Loan and Security Agreement”), in order to provide
Borrower with additional operating capital while Lender and Borrower were
negotiating the Asset Purchase Agreement;

WHEREAS, concurrently
with the execution and delivery of the Asset Purchase Agreement Borrower and
Lender now wish to enter into this Second Loan and Security Agreement, pursuant
to which Lender shall lend to Borrower additional funds from time to time on a
short-term secured basis in the principal amount of up to $500,000;

WHEREAS, each Guarantor
acknowledges and confirms that, as a subsidiary of Borrower, (a) it will
benefit from the advancement of funds under this Agreement, (b) the loans
by Lender constitute valuable consideration to Guarantor, (c) this
Agreement is intended to be an inducement to Lender to extend the loans to
Borrower, and (d) Lender is relying upon the Subsidiary Guarantees (as
defined herein) in making and advancing the loans to Borrower; and

WHEREAS, Lender, Borrower
and each Guarantor desire to enter into this Agreement to set forth the terms
on which Lender will lend to Borrower and Borrower will repay loans to Lender.

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

AGREEMENT

1.      Definitions and Construction

1.1   Definitions. As used
in this Agreement, the following terms shall have the following definitions:

“Affiliate”
means any other Person controlling or controlled by or under common Control
with such specified Person.

 

“Agreement”
means this Second Loan
and Security Agreement, as amended, supplemented, waived or otherwise modified
from time to time pursuant to the terms hereof.

“Asset Purchase Agreement”
shall have the
meanings set forth in the recitals.

“Borrower”
shall have the meaning set forth in the preamble hereto.

“Borrower
Financial Statements” means the consolidated financial statements of
Borrower, including the notes thereto, contained in Borrower’s most recently
filed Annual Report on Form 10-KSB and most recently filed Quarterly
Report on Form 10-QSB.

“Borrower’s
Books” means all of Borrower’s books
and records including: ledgers; records concerning Borrower’s assets or liabilities, the Collateral, business
operations or financial condition; and all computer programs, or tape files,
and the equipment, containing such information.

“Business Day”
means any day that is not a Saturday, Sunday, or other day on which banks in
the State of California
are authorized or required by law to close.

“Collateral” means:

(a)       All
present and future accounts, general intangibles and other rights of the
Grantors to the payment of money no matter how evidenced, all chattel paper,
instruments and other writings evidencing any such right, and all goods
repossessed or returned in connection therewith;

(b)       All
inventory of Grantors, now owned or hereafter acquired, and all raw materials,
work in process, materials used or consumed in Grantors’ businesses and
finished goods, together with all additions and accessions thereto and
replacements therefor, and products thereof;

(c)       All
patents and patent applications of Grantors and all rights corresponding
thereto throughout the world, and all unpatented or unpatentable developments
and inventions and all license fees, royalties and other similar items received
in connection therewith;

(d)       All
trademarks, service marks and logos of Grantors, and all United States, state
and/or foreign applications for registration thereof, all trade names, trade
styles, designs, and the like, all elements of package or trade dress of goods,
the goodwill of Grantors’ businesses connected with the use of, and symbolized
by any of the above, and all property of Grantors necessary to produce any
products sold under any of the above;

(e)       All
copyrights and copyrighted works in which any Grantor has any right, title, or
interest throughout the world, all derivative works thereof, all copyright
registrations and all applications therefor, and United States and/or foreign
applications for registration and registrations thereof, and all accounts,
accounts receivable and contracts receivable generated by such copyrights;

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(f)       
All computer software programs developed or to be developed by any Grantor or
in which any Grantor asserts or could assert a proprietary interest; all
personal property, including but not limited to source codes, object codes or
similar information, which is necessary to the practical utilization of such
programs; and all tangible property of Grantors embodying or incorporating any
such programs;

(g)      All
trade secrets, proprietary information, customer lists, instructional
materials, working drawings, manufacturing techniques, process technology
documentation, and product formulations of Grantors and all property and assets
of Grantors, whether tangible or intangible, which are or a Person may deem to
be Intellectual Property of Grantors;

(h)      All
rights under any agreement granting any right to use any patent, trademark,
copyright, computer software program or any other property or right to property
specified in paragraphs (c) through (g) above, whether a Grantor is
the grantor or the grantee under such agreement;

(i)       All
renewals, modifications, amendments, re-issues, divisions, continuations in
whole or part, and extensions of any property identified in paragraphs (c) through
(g) above;

(j)       All
now existing and hereafter acquired books and records relating to the foregoing
property identified in paragraphs (a) through (i) above and all
equipment containing such books and records;

(k)      All
Proceeds of the foregoing property identified in paragraphs (a) through (j) above;
and

(l)       Any
and all claims, rights and interests in any of the foregoing of the above and
all substitutions for, additions and accessions to and proceeds thereof.

“Commitment”
means Lender’s obligations to make loans to Borrower, subject to and in
accordance with the terms of this Agreement.

“Control”
(including, with correlative meaning, the terms “controlling”,
“controlled by,” “under common
Control with” and similar phrases) means with respect to
any Person, the possession, directly or indirectly, of the power to direct, or
cause the direction of, the management or policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.

“Copyright
Office” means the United States Copyright Office.

“Default” means any event, act or condition which with the passing of
time or the giving of notice or both would become an Event of Default hereunder.

“Default Rate”
means the per annum rate of interest equal to 10%
per annum, but such rate shall in no event be more than the highest rate
permitted by applicable law.

“Event of
Default” shall have the
meaning set forth in Section 9.

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“Exchange Act”
means the Securities Exchange Act of 1934, as amended, or any successor or
similar statute and the rules and regulations of the SEC promulgated
thereunder as in effect from time to time.

“Extraordinary
Corporate Transaction” means (a) the sale, lease, license,
exchange, disposition of, moving, relocation, or transfer or similar transaction involving Borrower’s
or any of its Subsidiaries’ assets or of a greater than 10% equity interest in
Borrower or any of its Subsidiaries, or the declaration or payment by Borrower
or any of its Subsidiaries of any dividend, any change in the capital structure
of Borrower or any of its Subsidiaries; (b) any recapitalization,
reorganization, merger, consolidation or other transaction or transactions
(whether by sale, gift or other transfer or disposition), which transaction or
transactions individually or in the aggregate result in the transfer of a 10%
or greater beneficial interest in Borrower or any of its Subsidiaries; (c) any
transaction involving the transfer or licensing of any of Borrower’s or its
Subsidiaries’ Intellectual Property to any other Person; or (d) the
execution by Borrower or any of its Subsidiaries of an agreement, term sheet,
letter of intent, exclusive negotiating agreement or other agreement in
principle (whether or not binding upon Borrower or the other party or parties
thereto) relating to any of the transactions described in clauses (a) through
(c) above. Notwithstanding the foregoing, the following shall not
constitute an Extraordinary Corporate Transaction: (i) transactions
expressly contemplated or permitted by any written agreements between Borrower
and Lender; (ii) sales of inventory and the grant of non-exclusive,
limited licenses for software that is embedded in or regularly accompanies such
inventory, all as in the ordinary and usual course of Borrower’s business as
presently conducted; (iii) sales or other dispositions in the ordinary
course of business of assets that have become worn out or obsolete or that are
promptly being replaced; (iv) the sale of accounts and/or receivables to a
factor in the ordinary course of business consistent with past practice; (v) Borrower’s
repurchase of stock from former contractors or employees of Borrower or its
Subsidiaries in accordance with the terms of stock option, stock purchase,
profit sharing or similar plans in effect as of the date of this Agreement and
approved by Borrower’s Board of Directors, at a price not greater than the
actual, cash price that such employee paid to acquire such securities; (vi) Borrower’s
entry into capital leases or Indebtedness incurred solely to purchase equipment
that is secured in accordance with clause (e) of the definition of
Permitted Liens and is not in excess of the lesser of the purchase price of
such equipment or the fair market value of such equipment on the date of
acquisition; (vii) Borrower’s incurrence of Indebtedness, the proceeds of
which are used to satisfy all outstanding Obligations under this Agreement; and
(viii) Borrower’s issuance of securities under any employee compensatory
stock option plan of Borrower that has
been approved by Borrower’s Board of Directors.

“Funding Date”
means any date on which a
Loan is made to or for the account of Borrower under this Agreement.

“GAAP” means
generally accepted accounting principles in the United States of America in
effect from time to time.

“Governmental
Authority” means (a) any
federal, state, county, municipal or foreign government, or political
subdivision thereof, (b) any governmental or quasi-governmental agency,
authority, board, bureau, commission, department, instrumentality or public
body, (c) any court or administrative tribunal or (d) with respect to any Person, any 

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arbitration tribunal or other non-Governmental
Authority to whose jurisdiction that Person has consented.

“Grantors”
means Borrower and each Guarantor.

“Guarantor”
means Trestle Acquisition Corp., a Delaware corporation, and any other Person
that executes a counterpart signature page to this Agreement pursuant to Section 4.10 of this Agreement for the purposes of
providing a Subsidiary Guarantee.

 “Indebtedness”
means (without double counting), at any time and with respect to any Person, (a) indebtedness
of such Person for borrowed money (whether by loan or the issuance and sale of
debt securities) or for
the deferred purchase price of property or services purchased (other than
amounts constituting trade payables arising in the ordinary course of
business); (b) obligations of such Person in respect of letters of credit,
acceptance facilities, or drafts or similar instruments issued or accepted by
banks and other financial institutions for the account of such Person; (c) obligations
of such Person under capital leases and any financing lease involving
substantially the same economic effect; (d) deferred payment obligations
of such Person resulting from the adjudication or settlement of any litigation
or claim to the extent not already reflected as a current liability on the
balance sheet of such Person; or (e) indebtedness of others of the type
described in clauses (a) through (d) which such Person has (i) directly
or indirectly assumed, guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business), co-made or discounted or sold with
recourse, or (ii) secured by a Lien on any of the assets of such Person
whether or not such Person has directly or indirectly assumed or guaranteed
such indebtedness.

“Intellectual
Property” means licenses, permits, franchises,
authorizations, patents, copyrights, trademarks, trade secrets, trade names,
inventions, discoveries, designs, patentable technology and art, methodologies,
trade secrets, know how, service marks, Internet domain names and any other
tangible, intangible or intellectual property rights.

“Intellectual
Property Security Agreements” means the Intellectual Property
Security Agreements by
and between Lender and each of Grantors, in substantially the form attached
hereto as Exhibit A.

“Lender”
shall have the meaning
set forth in the preamble hereto.

“Lender’s
Expenses” means all
reasonable costs or expenses (including reasonable attorneys’ fees and
expenses) incurred by Lender in connection with enforcing or defending the Loan
Documents, including in the exercise of any rights or remedies afforded
hereunder or under applicable law, whether or not suit is brought.

“Lien” means any pledge, bailment, lease, mortgage, deed of trust,
pledge, security interest, hypothecation, assignment, encroachment, lien
(statutory or otherwise), claim, option, reservation, priority, preferential arrangement, easement or other encumbrance
of any kind.

“Loans”
shall have the meaning given such term in Section 2.1
and “Loan” shall mean any one of the Loans.

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“Loan
Documents” means, collectively, this Agreement, the Note, the
Intellectual Property Security Agreements and any and all other agreements, certificates, instruments or documents
made, given or delivered in connection with the consummation of the transactions
contemplated by this Agreement.

“Maturity
Date” means, with respect to each
Loan, the first to occur of (a) an Extraordinary Corporate
Transaction, (b) the date of acceleration of the Loan by Lender following
an Event of Default, (c) the
Outside Date (as such term is defined in the Asset Purchase Agreement) or (d) following
termination of the Asset Purchase Agreement under circumstances resulting in
any accelerated repayment of the “Bridge Notes” pursuant to Section 10.4
of the Asset Purchase Agreement, the date such accelerated repayment is to be
made pursuant to Section 10.4 of the Asset Purchase Agreement.

“Minimum
Funding Amount” means $125,000.

“Note”
means the secured
promissory note in the form attached hereto as Exhibit B
issued pursuant to this Agreement.

“Notice of
Borrowing” means a Notice
of Borrowing in substantially the form of Exhibit C
hereto.

“Obligations” means all Indebtedness, fees, charges, expenses and
attorneys’ fees and costs and other amounts, obligations, covenants, and duties
owing by Borrower to Lender pursuant to or evidenced by the Loan Documents
(whether or not for the payment of money), whether direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter arising,
including the principal and interest and any other amounts due with respect to
any Loan, and all Lender’s Expenses that Borrower is required to pay or
reimburse by the Loan Documents, by law, or otherwise.

“Obligee
Guarantee” shall have the meaning set forth in Section 4.7.

“Original Loan and Security
Agreement”
shall have the meaning set
forth in the recitals.

“Permitted
Liens” means the following:

(a)     The Liens created by this Agreement;

(b)     The liens created by the Original Loan and
Security Agreement;

(c)     Any Liens existing as of the date hereof and
disclosed in Schedule 1.1(a);

(d)     Liens for Taxes, fees, assessments or other
charges or levies of a Governmental Authority, either not delinquent or being
contested in good faith by appropriate proceedings, provided the
same have no superior priority over Lender’s Lien in the Collateral and have
been reserved for on Borrower’s Books;

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(e)     Liens to secure payment of worker’s
compensation, employment insurance, or other social security obligations of
Borrower in the ordinary course of Borrower’s business;

(f)      Liens (i) upon or in any equipment
(other than inventory) acquired or held by Borrower, to secure the purchase
price of such equipment or Indebtedness incurred solely for the purpose of
financing the acquisition of such equipment, or (ii) existing on such
equipment at the time of its acquisition from a Person that is not an Affiliate
of Borrower, provided that the Lien is
confined solely to the equipment so acquired, and the Proceeds of such
equipment;

(g)     Liens on equipment leased by Borrower
pursuant to an operating lease in the ordinary course of business (including
Proceeds thereof and accessions thereto) incurred solely for the purpose of
financing the lease of such equipment;

(h)     Leases or subleases and licenses or
sublicenses granted in the ordinary course of Borrower’s business and any
interest or title of lessor or licensor under any lease or license if the
leases, subleases, licenses or sublicenses do not prohibit granting Lender a
security interest;

(i)      Easements, reservations, rights-of-way,
restrictions, minor defects or irregularities in title and other similar
charges or encumbrances affecting real property that could not reasonably be
expected to have a material adverse effect on the financial condition,
operations or business of Borrower;

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

(k)    Liens of materialmen, mechanics,
warehousemen, carriers, or other similar Liens arising in the ordinary course
of business or by operation of law or regulation and securing obligations not
yet due;

(l)      Liens incurred in connection with the
extension, renewal or refinancing of Borrower’s Indebtedness secured by Liens
of the type described in clause (b) above, provided that
any extension, renewal or replacement Lien shall be limited to the Property
encumbered by the existing Lien and the principal amount of the Indebtedness
being extended, renewed or refinanced does not increase; and

(m)    Liens on present and future accounts and
receivables which are sold or factored in the ordinary course of business
consistent with past practice and general intangibles relating thereto.

“Person” means and includes any individual, any partnership, any
corporation, any business trust, any joint stock company, any limited liability
company, any unincorporated association or any other entity and any
Governmental Authority.

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“Proceeds”
means whatever is received when Collateral, proceeds or equipment are sold,
exchanged, collected or otherwise disposed of, both cash and non-cash,
including the proceeds of insurance payable by reason of loss of or damage to
Collateral or proceeds and any license fees, royalties and other similar items
received in connection with Collateral.

“Property” means any interest in any kind of property or asset,
whether real, personal or mixed, whether tangible or intangible.

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

“Responsible
Officer” means each of the President and the Chief Financial Officer
of Borrower.

“SEC”
means the United States Securities and Exchange Commission.

“Securities Act”
means the Securities Act of 1933, as amended, or any successor or similar
statute and the rules and regulations of the SEC promulgated thereunder as
in effect from time to time.

“Subsidiary” means any corporation, partnership or other legal entity of
which 50% or more of the outstanding capital stock or other equity interests
entitled to vote for the election of directors or other governing body of such
corporation or other legal entity (otherwise than as the result of a default)
is owned directly or indirectly by Borrower or any Subsidiary of Borrower.

“Subsidiary
Guarantee” means the guarantee by each Guarantor of the Obligations
under this Agreement and the Note, as provided by this Agreement.

“Tax” or “Taxes” means (a) any and all taxes (whether federal,
state and local, domestic or foreign) including income, gross receipts,
profits, property, sales, use, capital stock, net worth, occupation, value added, ad valorem,
transfer, franchise, recapture, excise, windfall, withholding, payroll, social
security, workers’ compensation, unemployment compensation or employment taxes,
tariffs, imposts, duties, levies, fees or governmental charges of any nature
whatsoever, together with any interest, penalties or additions to tax imposed
with respect to any of the foregoing, and (b) any obligations under any
agreements or arrangements with respect to any tax or taxes described in clause
(a) above.

“Tax Return”
means any return, declaration, report, claim for refund, information return or
statement, estimated return or statement or other document (including any
related or supporting estimates, elections, schedules, statements or
information) filed or required to be filed in connection with the
determination, assessment or collection of any Tax or the administration of any
laws, statutes,
treaties, regulations or administrative requirements relating to any Tax.

“Trestle Sub” shall have the
meaning set forth in the recitals.

“UCC” means the
Uniform Commercial Code of the State of California as in effect on the date
hereof and as amended from time to time hereafter or, when used in relation to 

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a specific filing or termination, the Uniform
Commercial Code of the State wherein such filing or termination statement is
made.

1.2
   Other Interpretive Provisions. References in this Agreement to “Articles,”
“Sections,” “Exhibits,” “Schedules” and “Annexes” are to recitals, articles,
sections, exhibits, schedules and annexes herein and hereto unless otherwise
indicated. References in this Agreement and each of the other Loan Documents to
any document, instrument or agreement shall include (a) all exhibits,
schedules, annexes and other attachments thereto, (b) all documents,
instruments or agreements issued or executed in replacement thereof, and (c) such
document, instrument or agreement, or replacement or predecessor thereto, as
amended, modified and supplemented from time to time and in effect at any given
time. The words “hereof,” “herein” and “hereunder” and words of similar import
when used in this Agreement or any other Loan Document shall refer to this
Agreement or such other Loan Document, as the case may be, as a whole and not to any particular
provision of this Agreement or such other Loan Document, as the case may be. The
words “include” and “including” and words of similar import when used in this
Agreement or any other Loan Document shall not be construed to be limiting or
exclusive. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms. Unless
otherwise indicated in this Agreement or any other Loan Document, all
accounting terms used in this Agreement or any other Loan Document shall be
construed, and all accounting and financial computations hereunder or thereunder
shall be computed, in accordance with GAAP.

2.      Loan And Terms Of Payment

2.1    Commitment. Subject
to the terms and conditions of this Agreement and relying upon the
representations and warranties herein set forth as and when made or deemed to
be made, Lender agrees to make loans to Borrower upon the Borrower’s request in
accordance with Section 2.2 hereof, from time to time prior to the
Maturity Date (the “Loans”); provided that the amount of the initial Loan shall be
$250,000 and that the aggregate principal amount of the Loans requested shall
not exceed $500,000 and, except with the prior consent of Lender in Lender’s
sole discretion, the amount of each requested Loan for any Loan other than the
initial Loan shall not be less than the Minimum Funding Amount. If prepaid, the
principal of the Loans may not be re-borrowed.

2.2       Procedure
for Requesting a Loan

(a)       Notice.   Whenever Borrower desires that Lender make a Loan
(other than the initial Loan), Borrower shall so notify Lender by telephone at
least five Business Days in advance of the desired Funding Date, which notice
shall be irrevocable. Each such telephone notification shall be promptly
confirmed by a Notice of Borrowing.

(b)       Disbursement.   Subject to the satisfaction of the conditions set
forth in Sections 3.1 and 3.2 with respect to the initial Loan and the
satisfaction of the conditions set forth in Section 3.2 with
respect to each subsequent Loan, Lender shall disburse the requested Loan; provided that the initial Loan shall be deemed to have been
requested by Borrower and shall be disbursed by Lender as soon as practicable
but no later than the next succeeding Business Day following execution of this
Agreement and the satisfaction 

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of the
conditions under Sections 3.1 and 3.2 or such other date as the parties hereto
shall agree.

2.3       Loan
Interest Rate.   Borrower shall pay interest on the unpaid principal
amount of each Loan from the Funding Date of such Loan until such Loan has been
paid in full, at a per
annum rate of 8%. All computations
of interest on each Loan shall be based on a year of 360 days for actual days
elapsed  provided, however, that per diem interest shall be calculated on the
basis of the actual number of days elapsed over a year of 365 days. Notwithstanding
any other provision hereof, the amount of interest payable hereunder shall not
in any event exceed the maximum amount permitted by applicable law.

2.4       Termination
of Commitment.   Notwithstanding anything in the Loan Documents,
Lender’s Commitment shall terminate on the earlier of (i) at Lender’s sole
election, the occurrence and continuance of any Default or Event of Default
hereunder, (ii) the Maturity Date, and (iii) termination of the Asset
Purchase Agreement for any reason.

2.5       Use
of Proceeds.   The proceeds of the Loans shall be
used solely for working capital purposes.

2.6       Maturity.   All
unpaid principal and accrued interest with respect to each Loan, together with
all other Obligations, shall be due and payable in full on the Maturity Date. Borrower
shall not be obligated to make any principal or interest payments on the Loans
other than upon the Maturity Date. Lender may, and is hereby authorized by
Borrower to, endorse in Borrower’s Books appropriate notations regarding Lender’s
interest in the Loans; provided, however,
that the failure to make, or an error in making, any such notation shall not
limit or otherwise affect the Obligations of Borrower hereunder.

2.7       Repayments.

(a)       Mandatory Payment. Upon the Maturity Date,
all Obligations shall become immediately due and payable and Borrower shall immediately pay to Lender the
outstanding principal amount of each Loan, all accrued interest on such Loans
and all other sums, if any, that shall have become due and payable hereunder
with respect to the Obligations.

(b)       Optional Prepayment; No Prepayment Penalty. In addition to the provisions of Section 2.7(a), Borrower may prepay any Loan without penalty,
premium or other charge. Prepayments shall be applied first to Obligations
other than accrued interest and principal, then to accrued and unpaid interest
through and including the date of payment and then to principal.

2.8       Other
Payment Terms.

(a)       Place and Manner. Borrower shall make all payments due to Lender by
payment to Lender at the address specified in Section 11, in lawful
money of the United States and in same day or immediately available funds.

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(b)       Default Rate.   If either (i) any amounts required to be paid
by Borrower under this Agreement or the other Loan Documents (including
principal, interest, or any fees or other amounts) remain unpaid after such
amounts are due, or (ii) an Event of Default has occurred and is
continuing, Borrower shall pay interest on the aggregate, outstanding
Obligations hereunder from the date due or from the date of the Event of
Default, as applicable, until such past due amounts are paid in full or until
all Events of Defaults are cured, as applicable, at a per annum rate equal to
the Default Rate. All computations of such interest shall be based on a year of
360 days for actual days elapsed; provided, however, that per diem interest shall be calculated on the
basis of the actual number of days elapsed over a year of 365 days.

2.9       Crediting Payments.   The receipt by Lender of any wire transfer of funds, check, or
other item of payment shall be immediately applied conditionally to reduce
Obligations, but shall not be considered a payment on account unless such wire
transfer is of immediately available federal funds and is made to the
appropriate deposit account of Lender or unless and until such check or other
item of payment is honored when presented for payment. Notwithstanding anything
to the contrary contained herein, any wire transfer or payment received by
Lender after 3:00 p.m. California time shall be deemed to have been
received by Lender as of the opening of business on the immediately following
Business Day.

3.      Conditions of Loans

3.1       Conditions
Precedent to Initial Loan.   The obligation of
Lender to make the initial Loan is subject to the conditions precedent that:

(a)       Lender
shall have received this Agreement duly executed by Grantors.

(b)       Lender
shall have received a copy of the resolutions of Borrower’s Board of Directors,
in form and substance reasonably satisfactory to Lender, authorizing (1) the
execution, delivery and performance of this Agreement and the other Loan
Documents, (2) the Loans contemplated hereunder, and (3) the
transactions contemplated thereunder, certified by the Secretary of the
Borrower as of the Funding Date of the initial Loan, which certificate shall be
in form and substance satisfactory to Lender and shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded and are in full force and effect.

(c)       A
Responsible Officer of Borrower shall have executed and delivered to Lender the
Note in the amount of $500,000.

(d)       Lender
shall have received such documents, instruments and agreements, including UCC
financing statements or amendments to UCC financing statements and documents or
filings with the PTO, the Copyright Office or any applicable state office, as
Lender shall reasonably request to evidence the perfection and first priority
(subject to Permitted Liens) of the security interests in the Collateral
granted to Lender pursuant to Section 5,
including an Intellectual Property Security Agreement for each Grantor, in each
case executed and delivered by duly authorized officers of Grantors, together
with completed schedules thereto in form and substance satisfactory to the
Lender.

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(e)       Lender
shall have received a certificate of each Grantor, dated the Funding Date of
the initial Loan, as to the incumbency and signature of the officers of such
Grantor executing any Loan Document, in form and substance satisfactory to
Lender, duly executed by the Secretary of each Grantor.

(f)       Lender
shall have received copies of the articles of incorporation and bylaws of each
Grantor, certified as of the Funding Date of the initial Loan as true, complete
and correct copies thereof by the Secretary of each Grantor.

(g)      Lender
shall have received a good standing certificate from each Grantor’s state of
incorporation and the states in which Grantor’s principal place of business is
located, together with certificates of the applicable Governmental Authorities
stating that such Grantor is in compliance with the franchise tax laws of each
such state, each dated as of a recent date.

3.2       Conditions Precedent to
each Loan.   The
obligation of Lender to make each Loan, including the initial Loan, except as
specifically noted, is further subject to the following conditions:

(a)       Other
than with respect to the initial Loan, Borrower and Lender shall have executed
a Notice of Borrowing with respect to the proposed Loan.

(b)       Each
of the representations and warranties made by Grantors pursuant to this
Agreement or any other Loan Document and each of the representations and
warranties contained in any certificate or statement furnished at any time by
or on behalf of each Grantor pursuant to this Agreement or any other Loan
Document or certificate or other document delivered herewith or therewith,
shall, except to the extent that they relate to a particular date, be true,
complete and correct in all respects on and as of the date it was made and on
and as of such date as if made on and as of such date. Each Grantor shall have
complied with each and every covenant and agreement contained herein, no
Default or Event of Default shall have occurred and be continuing on such date
or after giving effect to the Loan. With respect to the initial Loan, Lender
shall have received a certificate, in form and substance satisfactory to
Lender, duly executed by a Responsible Officer and dated as of the Funding Date
of the initial Loan, to the foregoing effect.

3.3       Covenant to Deliver.   Borrower agrees to deliver each item required to be delivered
to Lender as a condition to the Loan, if such Loan is made. Borrower expressly
agrees that the extension of such Loan prior to the receipt by Lender of any
such item shall not constitute a waiver by Lender of Borrower’s obligation to
deliver such item.

4.      Subsidiary Guarantees

4.1       Guarantee.   Subject to this Article 3, each of the Guarantors
hereby, jointly and severally, unconditionally guarantees to Lender and its
successors and assigns, irrespective of the validity and enforceability of any
of the Loan Documents or the Obligations of Borrower hereunder or thereunder,
that:

 12
 

 

(a)       the
principal of and interest on the Note shall be promptly paid in full when due,
whether at maturity, by acceleration or otherwise, and interest on the overdue
principal of and interest on the Note at the Default Rate, if applicable, and
all other Obligations of Borrower to Lender, shall be promptly paid in full or
performed, all in accordance with the terms hereof and thereof; and

(b)       in
case of any extension of time of payment or renewal of the Note or any of such
other Obligations, that the same shall be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration or otherwise.

Failing payment when due
of any amount so guaranteed or any performance so guaranteed for whatever
reason, the Guarantors shall be jointly and severally obligated to pay the same
immediately. Each Guarantor agrees that this is a guarantee of payment and not
a guarantee of collection.

4.2       Guarantee Absolute and Unconditional.   The Guarantors hereby agree that their obligations hereunder are
unconditional, irrespective of the validity, regularity or enforceability of
this Agreement, the Note or any other Loan Document, the absence of any action
to enforce the same, any waiver or consent by Lender or its successors or
assigns with respect to any provisions hereof or thereof, the recovery of any
judgment against Borrower, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a guarantor.

4.3       Amendments, etc. with respect to the
Borrower Obligations.   Each Guarantor
shall remain obligated hereunder and under each other Loan Document
notwithstanding that, without any reservation of rights against any Guarantor
and without notice to or further assent by any Guarantor, any demand for
payment of any of the Obligations made by Lender may be rescinded by Lender and
any of the Obligations continued, and the Obligations, or the liability of any
other Person upon or for any part thereof, or any collateral security or guarantee
therefor or right of offset with respect thereto, may, from time to time, in
whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by Lender, and the other Loan
Documents and any other documents executed and delivered in connection
therewith may be amended, modified, supplemented or terminated, in whole or in
part, as Lender may deem advisable from time to time, and any collateral
security, guarantee or right of offset at any time held by Lender for the
payment of the Obligations may be sold, exchanged, waived, surrendered or
released. Lender shall have no obligation to protect, secure, perfect or insure
any Lien at any time held by it as security for the Obligations or for the
guarantee contained in this Article 3
or any property subject thereto.

4.4       Waivers.   Each Guarantor
hereby waives, for the benefit of Lender and its successors, indorsees,
transferees and assigns:

(a)       any right to require any Person, as a condition of payment or performance
by such Guarantor, to (i) proceed against Borrower, any other guarantor
(including any other Guarantor) of the Obligations or any other Person, (ii) proceed
against or exhaust any security held from Borrower, any such other guarantor or
any other Person, 

 13
 

 

(iii) proceed
against or have resort to any balance of any deposit account or credit on the
books of Lender and its successors, indorsees, transferees and assigns in favor
of Borrower or any other Person, or (iv) pursue any other remedy in the
power of Lender and its respective successors, indorsees, transferees and
assigns whatsoever;

(b)       any defense arising by reason of the incapacity, lack of authority or
any disability or other defense of Borrower or any other Guarantor including
any defense based on or arising out of the lack of validity or the
unenforceability of the Obligations or any agreement or instrument relating
thereto or by reason of the cessation of the liability of Borrower or any other
Guarantor from any cause other than payment in full of the Obligations;

(c)       any defense based upon any statute or rule of law which provides
that the obligation of a surety must be neither larger in amount nor in other
respects more burdensome than that of the principal;

(d)       any defense based upon any  errors
or omissions in the administration of the Obligations by any agent, Lender and
their respective successors, indorsees, transferees and assigns, except
behavior which amounts to bad faith;

(e)       (i) any principles or provisions of law, statutory or otherwise,
which are or might be in conflict with the terms hereof and any legal or
equitable discharge of such Guarantor’s obligations hereunder, (ii) the
benefit of any statute of limitations affecting such Guarantor’s liability
hereunder or the enforcement hereof, (iii) any rights to set-offs,
recoupments and counterclaims, and (iv) promptness, diligence and any
requirement that any agent, Lender, and their respective successors, indorsees,
transferees and assigns protect, secure, perfect or insure any security
interest or lien or any property subject thereto;

(f)       notices, demands, presentments, protests, notices of protest, notices
of dishonor and notices of any action or inaction, including acceptance hereof,
notices of default hereunder, or any agreement or instrument related thereto,
notices of any renewal, extension or modification of the Obligations or any
agreement related thereto, notices of any extension of credit to Borrower and
notices of any of the matters referred to in Section 2
and any right to consent to any thereof; and

(g)      any defenses or benefits that may be derived from or afforded by law
which limit the liability of or exonerate guarantors or sureties, or which may
conflict with the terms hereof. Each Guarantor hereby waives and relinquishes
any duty on the part of Lender (should any such duty exist) to disclose to any
Guarantor any matter of fact or other information related to the business,
operations or condition (financial or otherwise) of Borrower or its properties
or to any Loan Document or the transactions undertaken pursuant to, or
contemplated by, any such Loan Document, whether now or in the future known by
Lender.

4.5       Authority
of Guarantors or Borrower.   It is not necessary for Lender and its respective successors,
indorsees, transferees and assigns to inquire into the capacity or powers of 

 14
 

 

any
Guarantor or Borrower or the officers, directors or any agents acting or
purporting to act on behalf of any of them.

4.6       Bankruptcy.

(a)       The guarantee contained in this Article 3
shall continue to be effective, or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any of the Obligations is rescinded or
recovered directly or indirectly from Lender or its respective successors,
indorsees, transferees, and assignees as a preference, fraudulent transfer or
otherwise, or must otherwise be restored or returned by Lender upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of Borrower
or any Guarantor, or upon or as a result of the appointment of a receiver,
intervenor or conservator of, or trustee or similar officer for, Borrower or
any Guarantor or any substantial part of its property, or otherwise, all as
though such payments had not been made.

(b)       So long as any Obligations remain outstanding, no Guarantor shall,
without the prior written consent of Lender, commence or join with any other
Person in commencing any bankruptcy, reorganization or insolvency case or
proceeding of or against Borrower or any other Guarantor. The obligations of
Guarantors hereunder shall not be reduced, limited, impaired, discharged,
deferred, suspended or terminated by any case or proceeding, voluntary or
involuntary, involving the bankruptcy, insolvency, receivership,
reorganization, liquidation or arrangement of Borrower or any other Guarantor
or by any defense which Borrower or any other Guarantor may have by reason of
the order, decree or decision of any court or administrative body resulting
from any such proceeding.

4.7       Subordination of Other Obligations.   Any Indebtedness of Borrower or any Guarantor now or hereafter held by
any Guarantor (the “Obligee Guarantor”)
is hereby subordinated in right of payment to the Obligations, and any such
indebtedness collected or received by the Obligee Guarantor after an Event of
Default has occurred and is continuing shall be held in trust and shall
forthwith be paid over for the benefit of Lender and its respective successors,
indorsees, transferees and assigns to be credited and applied against the
Obligations but without affecting, impairing or limiting in any manner the
liability of the Obligee Guarantor under any other provision hereof.

4.8       Subrogation.   Each Guarantor agrees that it shall not be entitled to any
right of subrogation in relation to Lender in respect of any of the Obligations
until payment in full of all Obligations guaranteed hereby. Each Guarantor
further agrees that, as between the Guarantors, on the one hand, and Lender, on
the other hand, (a) the maturity of the Obligations guaranteed hereby may
be accelerated as provided in Article 9
hereof for the purposes of the Subsidiary Guarantees, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (b) in the event of any declaration of
acceleration of such obligations, such obligations (whether or not due and
payable) shall forthwith become due and payable by the Guarantors for the
purpose of the Subsidiary Guarantees.

 15
 

 

4.9       Limitation
on Guarantor Liability.   Each Guarantor,
and by its acceptance of the Note, Lender, hereby confirms that it is the
intention of all such parties that the Subsidiary Guarantee of such Guarantor
not constitute a fraudulent transfer or conveyance for purposes of any law or
statute relating to bankruptcy, the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar federal or state law to the
extent applicable to any Subsidiary Guarantee. To effectuate the foregoing
intention, Lender and the Guarantors hereby irrevocably agree that the
obligations of such Guarantor shall be limited to the maximum amount that
shall, after giving effect to such maximum amount and all other contingent and
fixed liabilities of such Guarantor that are relevant under such laws, and
after giving effect to any collections from, rights to receive contribution
from or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under this Article 3, result in the obligations of such Guarantor
under its Subsidiary Guarantee not constituting a fraudulent transfer or
conveyance.

4.10     Additional Subsidiary Guarantees.   In the event that Borrower creates or acquires any Subsidiary after the
date of this Agreement, then that newly acquired or created Subsidiary shall
become a Guarantor, and execute a counterpart signature page to this
Agreement to secure the Subsidiary Guarantee. Such newly acquired or created
Subsidiary shall also execute all security agreements (including an
Intellectual Property Security Agreement) reasonably requested by Lender to
secure its interest in the Collateral, and such documents and filings as
reasonably requested by Lender to evidence the perfection
and first priority of the security interests in the Collateral subject to
Permitted Liens. Borrower shall cause such Subsidiary to
comply with the provisions of this Section 4.10
and this Article 4, to the
extent applicable.

5.      Creation Of Security Interest

5.1       Creation of Security
Interest.   This
Agreement constitutes a “security agreement” within the meaning of the UCC. In
order to secure the payment and performance of the Obligations, each Grantor
hereby grants, assigns, transfers, pledges, and sets over to Lender, subject to
the Permitted Liens, a first-priority security interest in and Lien on all of
that Grantor’s right, title and interest in and to the Collateral, in each case
whether now owned or hereafter at any time acquired by the Grantor and wherever
located.

5.2       Perfection
of Security Interests.

(a)       Filing of Financing Statements.   Without limiting any rights of
Lender under the UCC, each Grantor hereby
authorizes Lender to file one or more financing or continuation statements, and
amendments thereto, including one or more financing statements indicating that
such financing statements cover all assets or all personal property (or words
of similar effect) of such Grantor, in
each case without the signature of such Grantor, and regardless of whether any particular asset
described in such financing statements falls within the scope of the UCC or the
granting clause of this Agreement.

(b)       PTO Filings.   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, including any documents for filing with the PTO, the 

 16
 

 

Copyright
Office or any applicable state office as Lender may reasonably request. Lender
may record this Agreement, an abstract thereof, or any other document
describing Lender’s interest in the Collateral with the PTO or the Copyright
Office at the expense of Lender.

5.3       Duration of Security
Interest.   Each
Grantor agrees that this Agreement shall create a continuing security interest
in the Collateral which shall remain in effect until the payment in full and
the satisfaction of all Obligations, whereupon such security interest shall
terminate. Notwithstanding anything to the contrary herein, the security
interest created by this Agreement (including all representations, warranties
and covenants contained herein) shall continue to be effective or be
reinstated, as the case may be, if at any time any amount received by Lender in
respect of the Obligations is rescinded or must otherwise be restored or
returned by Lender or its respective successors, indorsees, transferees and
assignees as a preference, fraudulent transfer or otherwise, or must be restored
or redeemed by Lender upon or as a result of, the appointment of a receiver,
intervenor or conservator of, or trustee or similar officer for any Grantor or
any substantial part of its property, or otherwise, all as though such payments
had not been made. Upon termination of the security interest, Lender shall, at
the Grantors’ sole cost and expense, execute such further documents and take
such further actions as may be necessary to effect the release contemplated by
this Section 5.3, including
duly executing and delivering termination statements for filing in all relevant
jurisdictions under the UCC. Notwithstanding anything to the contrary herein,
upon the factoring of any of the Grantor’s accounts and receivables in the
ordinary course of business and consistent with past practices, Lender’s
security interest in such accounts and receivables will be automatically
released and of no further force and effect.

5.4       Possession of Collateral.   So long as no Event of Default has occurred and is continuing,
each Grantor shall remain in full possession, enjoyment and control of its
Collateral (except only as may be otherwise required by Lender for perfection
of its security interest therein) and shall be entitled to manage, operate and
use the same and each part thereof with the rights and franchises appertaining
thereto; provided, however, that
the possession, enjoyment, control and use of the Collateral shall at all times
be subject to the observance and performance of the terms of this Agreement.

5.5       Delivery of Additional
Documentation Required.   Each
Grantor shall from time to time execute and deliver to Lender, all documents
Lender may reasonably request, in form satisfactory to Lender, to perfect and
continue Lender’s first priority, perfected security interests in the
Collateral (subject to Permitted Liens) and in order to consummate fully all of
the transactions contemplated under the Loan Documents.

5.6       Right to Inspect.   Lender (through any of its officers, employees, or agents)
shall have the right, upon reasonable prior notice, from time to time during
any Grantor’s usual business hours, to inspect such Grantor’s Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify such Grantor’s financial condition or the amount, condition of, or any
other matter relating to, the Collateral.

5.7       Authorization to
Supplement.   If any
Grantor shall obtain rights to any new Intellectual Property, including any
patentable inventions or become entitled to the benefit of any patent
application or patent for any reissue, division, or continuation, of any
patent, the 

 17
 

 

provisions
of this Agreement shall automatically apply thereto. Such Grantor(s) shall
give prompt notice in writing to Lender with respect to any such new
Intellectual Property rights. Without limiting the Grantors’ obligations under
this Section 5.7, each Grantor authorizes
Lender unilaterally to modify this Agreement by amending Schedule
6.8 to include any such new patent rights. Notwithstanding the
foregoing, no failure to so modify this Agreement or amend Schedule
6.8 shall in any way affect, invalidate or detract from Lender’s
continuing security interest in all Collateral, whether or not listed on Schedule 6.8.

6.      Representations And Warranties

Each Grantor, jointly and
severally, represents and warrants as follows:

6.1       Due Organization and
Qualification.   Each
Grantor (a) is duly organized and validly existing under the laws of the
State of Delaware and (b) is duly qualified to do business and is in good
standing in all other jurisdictions in which the nature of its business or the
ownership or leasing of its properties makes such authorization or
qualification necessary except for such jurisdictions where the failure to be
so authorized or qualified could not materially adversely effect such Grantor’s
ability to satisfy its obligations under this Agreement and the Loan.

6.2       Authority.   Each Grantor has all necessary power and authority to execute,
deliver, and perform in accordance with the terms thereof, the Loan Documents
to which it is a party. Each Grantor has the power and authority, and the legal
right, to own and operate its property, to lease the property it operates as
lessee or lessor and to conduct the business in which it is presently engaged
and presently proposes to engage.

6.3       Subsidiaries. No Grantor has any Subsidiaries, except those listed in Schedule 6.3 hereto.

6.4       Conflict with Other
Instruments, etc.   Neither
the execution and delivery of any Loan Document to which any Grantor is a party
nor the consummation of the transactions therein contemplated nor compliance
with the terms, conditions and provisions thereof will conflict with or result
in a breach of (a) any of the terms, conditions or provisions of the
articles of incorporation and the by-laws, or other organizational documents of
such Grantor or (b) any law or any regulation, order, writ, injunction or
decree of any court or Governmental Authority or (c) any material
agreement or instrument to which such Grantor is a party or by which it or any
of its properties is bound or to which it or any of its properties is subject,
or constitute a default thereunder, except to the extent that such conflict,
breach or default could not reasonably be expected to have a material adverse
effect on the ability of such Grantor to perform its obligations under this
Agreement, or result in the creation or imposition of any Lien, other than
Permitted Liens.

6.5       Authorization;
Enforceability.   Each
Grantor has the power and authority, and the legal right, to make, execute,
deliver and perform the Loan Documents, borrow or guaranty each Loan hereunder,
as the case may be, and to consummate the transactions contemplated hereby and
thereby, and such Grantor has taken all necessary action to authorize the
execution, delivery and performance of the Loan Documents, the borrowing of
each Loan on the terms and conditions of this Agreement, and the consummation
of the transactions

 18
 

 

contemplated
hereby and thereby. No consent or authorization of, filing with, notice to or
other similar act by or in respect of, any Governmental Authority or any other
Person is required to be obtained or made by or on behalf of such Grantor in
connection with the execution, delivery, performance, validity or
enforceability of the Loan Documents to which it is a party, the borrowing or
the guaranty of such Loan hereunder, as the case may be, or the consummation of
the transactions contemplated hereby and thereby. Each of the Loan Documents
has been duly executed and delivered by such Grantor. Each of the Loan
Documents constitutes a legal, valid and binding obligation of such Grantor
enforceable against such Grantor in accordance with its respective terms.

6.6       No Prior Encumbrances.   Each Grantor has good and indefeasible title to the Collateral
consisting of Intellectual Property held by it, free and clear of all Liens
except for the first priority lien held by the Lender and Permitted Liens of
the type described in clauses (a), (b), (d) and (e) of the definition
of Permitted Liens contained herein. Each Grantor has good and indefeasible
title to all other Collateral held by it, free and clear of all Liens except
for the first priority lien held by the Lender and Permitted Liens.

6.7       Name; Location of Chief
Executive Office, Principal Place of Business and Collateral.   No Grantor has done business under any name other than that
specified on the signature page hereof. The chief executive office,
principal place of business, and the place where each Grantor maintains its
records concerning the Collateral are presently located at the addresses set
forth on Schedule 6.7.
All of the tangible Collateral, including the books and records related
thereto, is presently located at the addresses set forth on Schedule 6.7.

6.8       Intellectual Property.   A true, correct and complete list of all of the existing
Collateral consisting of patents and patent applications or registrations,
registered trademarks and registered copyrights owned by each Grantor, in whole
or in part, is set forth in Schedule 6.8. No claim of infringement has been made or
threatened in writing or otherwise with respect to any of Borrower’s
Intellectual Property.

6.9       Litigation.   To Grantors’ knowledge, there are no actions or proceedings
pending by or against Borrower before any court or administrative agency in
which an adverse decision could have a material adverse effect on the Grantors,
taken as a whole, or the aggregate value of the Collateral. No Grantor has
knowledge of any such threatened actions or proceedings. Borrower will promptly
notify Lender in writing if any action, proceeding or governmental
investigation involving a Grantor is commenced that may result in damages or
costs to the Grantors, taken as a whole, of $50,000 or more in the aggregate.

6.10     Liabilities.   Other than with respect to the Loan, Grantors do not have any
Indebtedness except as described on Schedule 6.10.

6.11     Financial Statements.   The Borrower Financial Statements present fairly in all
material respects Borrower’s consolidated financial condition as of the dates
thereof and Borrower’s consolidated results of operations at the dates and
during the periods indicated therein in accordance with GAAP (subject, in the
case of unaudited statements, to normal, recurring year-end adjustments). The
Borrower Financial Statements complied as to form in all material respects with
applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto as of their respective dates, and
have been prepared 

 19
 

 

in
accordance with GAAP applied on a basis consistent throughout the periods
indicated and consistent with each other (except as may be expressly indicated
in the notes thereto or, in the case of unaudited statements included in
Quarterly Reports on Forms 10-QSB, as permitted by Form 10-QSB
of the SEC).

6.12     Solvency.   Borrower and each of its Subsidiaries is solvent and able to
pay its debts (including trade debts) as they mature.

6.13     Taxes.   Borrower has filed all federal, state and local, domestic or
foreign Tax Returns and all other Tax Returns that are required to be filed by
it and it has paid all Taxes due pursuant to such returns or pursuant to any
deficiency, notice of proposed assessment, audit, assessment or other similar
notice received by it in writing other than those being contested in good faith
in appropriate proceedings and for which reserves have been established in the
Borrower Financial Statements and any other financial statements of Borrower
delivered to Lender prior to the date hereof. There are no audits, assessments
or claim for assessments, and no basis upon which such a claim can be made to
the best knowledge of Borrower after reasonable review and due inquiry. The
charges, accrual and reserves on Borrower’s books and records in respect of
Taxes are adequate. Borrower has not given or been requested to give a waiver
of the statute of limitations relating to the payment of federal or other Taxes
or the audit of any Tax period.

6.14     Full Disclosure.   No Grantor has knowledge of any fact that could materially
adversely affect the ability of any Grantor to perform its obligations under
this Agreement, the Note or the other Loan Documents or which could result in
an Event of Default.

7.      Affirmative Covenants

Each Grantor covenants
and agrees that, until the full and complete payment of the Obligations, such
Grantor shall do all of the following:

7.1       Payment of Obligations.   Pay, discharge or otherwise satisfy at or before maturity or
before they become delinquent, as the case may be, all of its obligations of
whatever nature, except where the amount or validity thereof is currently being
contested in good faith by appropriate proceedings diligently conducted and
which are reserved against on Borrower’s Books and except for those obligations
communicated by Borrower to Lender in writing to the extent Borrower has
reached an agreement with the obligee of such obligations to extend the
maturity date thereof.

7.2       Good Standing.   Maintain its corporate existence and its good standing in the
State of Delaware and maintain qualification in each jurisdiction in which the
failure to so qualify could reasonably be expected to have a material adverse
effect on the financial condition, operations or business of the Grantors,
taken as a whole.

7.3       Maintenance of
Agreements.   Maintain
in force all licenses, approvals and agreements, the loss of which would
reasonably be likely to have a material adverse effect on such Grantor’s
ability to perform its obligations under this Agreement.

7.4       Notice of Defaults.   As soon as possible, and in any event within five days after
the discovery of a Default or an Event of Default provide Lender with a
certificate signed 

 20
 

 

by
a Responsible Officer setting forth the facts relating to or giving rise to
such Default or Event of Default and the action which Borrower proposes to take
with respect thereto.

7.5       Taxes.   Make due and timely payment or deposit of all federal, state,
and local Taxes required of it by law or imposed upon any properties belonging
to it, and each Grantor will make timely payment or deposit of all Tax payments
and withholding Taxes required of it by applicable laws, including those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income Taxes, and will, upon request, furnish Lender with proof reasonably
satisfactory to Lender indicating that such Grantor has made such payments or
deposits; provided that such
Grantor need not make any payment if the amount or validity of such payment is
contested in good faith by appropriate proceedings and is adequately reserved
against by such Grantor.

7.6       Use; Maintenance.   At its expense, maintain the Collateral in good condition,
reasonable wear and tear excepted, and comply in all material respects with all
laws, rules and regulations to which the use and operation of the
Collateral may be or become subject. So long as no Event of Default has
occurred and is continuing, Grantors shall have the right to quietly possess
and use the Collateral as provided herein without interference by Lender.

7.7       Loss; Damage;
Destruction and Seizure.   Each
Grantor shall bear the risk of the Collateral held by it being lost, stolen,
destroyed, damaged beyond repair, rendered permanently unfit for use, or seized
by a Governmental Authority for any reason whatsoever at any time until the
expiration or termination of this Agreement.

7.8       Further Assurances.   At any time and from time to time Borrower shall, at its
expense, execute and deliver such further instruments and take such further
action as may reasonably be requested by Lender (including obtaining any bailee
acknowledgments required by Lender), in order to perfect and protect the
security interests granted or purported to be granted hereby and to enable
Lender to exercise and enforce its rights and remedies hereunder with respect
to any Collateral.

8.      Negative Covenants

Each Grantor covenants
and agrees that until the full and complete payment of the Obligations, such
Grantor will not do any of the following:

8.1       Chief Executive Office;
Location of Collateral.   During
the continuance of this Agreement, change the chief executive office or
principal place of business or remove or cause to be removed the Collateral or
the records concerning the Collateral from the premises listed on Schedule 6.7 without
10 days prior written notice to Lender.

8.2       Change of Name or State
of Incorporation.   Change
such Grantor’s name or state of incorporation.

8.3       Limitation on Indebtedness.   Create, incur, assume or suffer to exist any Indebtedness,
except:

(a)       Indebtedness
of each Grantor under this Agreement and the Original Loan and Security Agreement;

 

 21

 

 

(b)       other
Indebtedness (including accrued interest thereon) outstanding on the original
Funding Date and listed on Schedule
6.10 and any refinancing thereof, provided
that such refinancing does not increase the principal amount of the
Indebtedness being refinanced or the interest rate applicable thereto; and

(c)       Indebtedness
not to exceed $100,000 in the aggregate at any time outstanding.

8.4       Liens.   Create, incur, assume or suffer to exist any Lien or any other
encumbrance of any kind with respect to any of its Property, whether now owned
or hereafter acquired, except for Permitted Liens.

9.      Events Of Default

Any one or more of the
following events shall constitute an Event of Default under this Agreement:

9.1       Payment Default.   If Borrower fails to pay when due and payable or when declared
due and payable in accordance with the Loan Documents, any portion of the
Obligations.

9.2       Certain Covenant Defaults.   If any Grantor fails to perform any obligation under Section 7.6,
or violates any of the covenants contained in Article 8
of this Agreement.

9.3       Other Covenant Defaults.   If any Grantor fails or neglects to perform, keep, or observe any other
term, provision, condition, covenant, or agreement contained in this Agreement,
in any of the other Loan Documents, or in any other present or future agreement
between any Grantor and Lender that does not provide for a specific exception
from this Section 9.3, and as
to any default under such other term, provision, condition, covenant or
agreement that can be cured, has failed to cure such default within 15 Business
Days after Borrower’s knowledge of the occurrence of such default.

9.4       Material Adverse Effect.   If following the date hereof there occurs an event, act,
condition or change which had, has or could reasonably be expected to (a) materially
impair the prospects of repayment of any portion of the Obligations owing to
Lender or a material impairment of the value or priority of Lender’s security
interests in the Collateral or (b) materially impair any right or remedy
of the Lender under any Loan Document.

9.5       Other Agreements.   Default shall be made with respect to any payment of any
Indebtedness of Borrower under the Original Loan and Security Agreement or
other Indebtedness in excess of $50,000 when due or the performance of any
covenant, agreement or other obligation incurred in connection with any such
Indebtedness, if the effect of such default is to permit the acceleration of
the maturity of such Indebtedness and such default shall not be remedied,
cured, waived or consented to by the holder of such Indebtedness within the
applicable grace period, or any other circumstances arise (other than the mere passage
of time) by reason of which Borrower is required to repurchase or offer to
holders of Indebtedness of any such Person, the opportunity to have purchased,
any such Indebtedness.

 22
 

 

9.6       Judgments.   Final judgment for the payment of money shall be rendered by a
court of competent jurisdiction against a Grantor and such Grantor shall not
discharge the same or provide for its discharge in accordance with its terms,
or procure a stay of execution thereof within 10 days from the date of entry
thereof and within a period of 30 days, or such longer period during which
execution of such judgment shall have been stayed, appeal therefrom and cause
the execution thereof to be stayed during such appeal, and such judgment
together with all other such judgments of the Borrower or its Subsidiaries
shall exceed in the aggregate $50,000.

9.7       Misrepresentations.   If any warranty, representation, statement, or report made to
Lender by any Grantor or any officer, employee, agent, or director of a Grantor
is untrue in any material respect when made.

9.8       Enforceability.   If any Loan Document shall in any material respect cease to be,
or any Grantor shall assert that any Loan Document is not, a legal, valid and
binding obligation of such Grantor enforceable against it in accordance with
its terms. If the Loan Documents shall, for any reason, not give or shall cease
to give Lender a perfected Lien in all of the Collateral with the priority
contemplated by such Loan Documents and subject to no other Liens (except for
Permitted Liens), other than by actions of the Lender.

9.9       Bankruptcy or
Insolvency.

(a)       A
Grantor shall commence any case, proceeding or other action (i) under any
existing or future law or statute of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors,
seeking to have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other relief
with respect to it or its debts, or (ii) seeking appointment of a
receiver, trustee, custodian, conservator or other similar official for it or
for all or any substantial part of its Property, or a Grantor shall make a
general assignment for the benefit of its creditors;

(b)       There
shall be commenced against a Grantor any case, proceeding or other action of a
nature referred to in clause (a) above which (i) results in the entry
of an order for relief or any such adjudication or appointment or (ii) remains
undismissed, undischarged, unstayed or unbonded for a period of 30 days;

(c)       There
shall be commenced against a Grantor any case, proceeding or other action
seeking issuance of a warrant or writ of attachment, execution, distraint or
similar process against all or any substantial part of its Property which
results in the entry of an order for such relief which shall not have been
vacated, discharged, stayed or bonded pending appeal within 30 days from the
entry thereof;

(d)       A
Grantor shall take any corporate action in furtherance of, or indicating its
consent to, approval of or acquiescence in, any of the acts set forth in clause
(a), (b), or (c) above; or

(e)       a
Grantor shall be generally unable to, or shall admit its general inability to,
pay its debts (except for those debts communicated by Borrower to Lender in
writing to the extent Borrower has reached an agreement with the obligee of
such debts to extend the maturity date thereof) as they become due.

 23
 

 

 

9.10     Extraordinary Corporate
Transaction.   If there
shall occur any Extraordinary Corporate Transaction.

10.    Lender’s Rights And
Remedies

10.1     Rights and Remedies.   Upon the occurrence and during the continuance of an Event of Default,
Lender may terminate or suspend its Comm itment. In addition, upon the
occurrence and during the continuance of an Event of Default, Lender shall have
the rights, options, duties and remedies of a secured party as permitted by law
and, in addition to and without limitation of the foregoing, Lender may, at its
election, without notice of election and without demand, do any one or more of
the following, all of which are authorized by the Grantors:

(a)       Declare
all Obligations, whether evidenced by this Agreement, by any of the other Loan
Documents, or otherwise, including the outstanding principal amount of each
Loan, immediately due and payable (provided that upon the occurrence of an
Event of Default described in Section 9.9
all Obligations shall become immediately due and payable without any action by
Lender);

(b)       Without
notice to or demand upon any Grantor, make such payments and do such acts as
Lender considers necessary or reasonable to protect its security interest in
the Collateral. Each Grantor agrees to assemble the Collateral if Lender so
requires, and to make the Collateral available to Lender as Lender may
designate. Each Grantor authorizes Lender to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or
any part of it, and to pay, purchase, contest, or compromise any Lien which in
Lender’s determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect to any
of the Grantors’ owned premises, such Grantor hereby grants Lender a license to
enter into possession of such premises and to occupy the same, without charge,
for up to 120 days in order to exercise any of Lender’s rights or remedies
provided herein, at law, in equity, or otherwise;

(c)       Without
notice to any Grantor, set off and apply to the Obligations any and all
Indebtedness at any time owing to or for the credit or the account of a
Grantor;

(d)       Ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell (in the manner provided for herein) the Collateral. Lender
is hereby granted a license or other right, solely pursuant to the provisions
of this Section 10.1, to use,
without charge, Grantors’ labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any Property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any Collateral
and, in connection with Lender’s exercise of its rights under this Section 10.1, Grantors’ rights under
all licenses and all franchise agreements shall inure to Lender’s benefit;

 24
 

 

(e)       Sell
the Collateral at either a public or private sale, or both, by way of one or
more contracts or transactions, for cash or on terms, in such manner and at
such places (including Grantors’ premises) as Lender determines are
commercially reasonable;

(f)       Lender
may credit bid and purchase at any public sale; and

(g)      Any
deficiency that exists after disposition of the Collateral as provided above
will be paid immediately by the Grantors.

10.2     Waiver by Grantors.   Upon the occurrence and during the continuance of an Event of Default,
to the extent permitted by law, each Grantor covenants that it will not at any
time insist upon or plead, or in any manner whatever claim or take any benefit
or advantage of, any stay or extension law now or at any time hereafter in
force, nor claim, take nor insist upon any benefit or advantage of or from any
law now or hereafter in force providing for the valuation or appraisement of
the Collateral or any part thereof prior to any sale or sales thereof to be
made pursuant to any provision herein contained, or to the decree, judgment or
order of any court of competent jurisdiction; nor, after such sale or sales, claim
or exercise any right under any statute now or hereafter made or enacted by any
state or otherwise to redeem the Property so sold or any part thereof, and, to
the full extent legally permitted, except as to rights expressly provided
herein, hereby expressly waives for itself and on behalf of each and every
Person, except decree or judgment creditors of such Grantor acquiring any
interest in or title to the Collateral or any part thereof subsequent to the
date of this Agreement, all benefit and advantage of any such law or laws, and
covenants that it will not invoke or utilize any such law or laws or otherwise
hinder, delay or impede the execution of any power herein granted and delegated
to Lender, but will suffer and permit the execution of every such power as
though no such power, law or laws had been made or enacted.

10.3     Lender to Hold in Trust.   Upon the occurrence and during the continuance of an Event of
Default, each Grantor will, upon receipt by it of any revenue, income, profits
or other sums in which a security interest is granted hereunder, payable
pursuant to any agreement or otherwise, or of any check, draft, note, trade
acceptance or other instrument evidencing an obligation to pay any such sum,
hold the sum or instrument in trust for Lender, segregate such sum or
instrument from its own assets and forthwith, without any notice, demand or
other action whatsoever (all notices, demands, or other actions on the part of
the Lender being expressly waived), endorse, transfer and deliver any such sums
or instruments or both, to Lender to be applied to the repayment of the Loans
in accordance with the provisions of this Agreement.

10.4     Effect of Sale.   Any sale, whether under any power of sale hereby given or by
virtue of judicial proceedings, shall operate to divest all right, title,
interest, claim and demand whatsoever, either at law or in equity, of Grantors
in and to the Property sold, and shall be a perpetual bar, both at law and in
equity, against Grantors, their successors and assigns, and against any and all
Persons claiming the Property sold or any part thereof under, by or through
Grantors, their successors or assigns.

10.5     Power of Attorney in
Respect of the Collateral.   Each Grantor does hereby irrevocably appoint Lender (which appointment
is coupled with an interest) on the occurrence and continuance of an Event of
Default, the true and lawful attorney in fact of such Grantor with full power
of substitution, for it and in its name: (a) to ask, demand, collect,
receive, receipt for,

 25
 

 

sue
for, compound and give acquittance for any and all rents, issues, profits,
avails, distributions, income, payment draws and other sums in which a security
interest is granted under Section 5 with
full power to settle, adjust or compromise any claim thereunder as fully as if
Lender were a “Grantor” itself, (b) to receive payment of and to endorse
the name of a Grantor to any items of Collateral (including checks, drafts and
other orders for the payment of money) that come into Lender’s possession or
under Lender’s control, (c) to make all demands, consents and waivers, or
take any other action with respect to, the Collateral, (d) in Lender’s
discretion to file any claim or take any other action or proceedings, either in
its own name or in the name of such Grantor or otherwise, which Lender may
reasonably deem necessary or appropriate to protect and preserve the right,
title and interest of Lender in and to the Collateral, or (e) to otherwise
act with respect thereto as though Lender were the outright owner of the
Collateral.

10.6     Remedies Cumulative    Lender’s rights and remedies under this Agreement, the Loan
Documents, and all other agreements shall be cumulative. Lender shall have all
other rights and remedies not inconsistent herewith as provided under the UCC,
by law, or in equity. No exercise by Lender of one right or remedy shall be
deemed an election, and no waiver by Lender of any Event of Default on Borrower’s
part shall be deemed a continuing waiver. No delay by Lender shall constitute a
waiver, election, or acquiescence by it.

10.7     Application of Collateral
Proceeds.   The Proceeds of
the Collateral, or any part thereof, and the proceeds and the avails of any
remedy hereunder (as well as any other amounts of any kind held by Lender at
the time of or received by Lender after, the occurrence of an Event of Default
hereunder) shall be paid to and applied as follows:

(a)       First, to the payment of
any Lender’s Expenses;

(b)       Second, to the payment to
Lender of the amount then owing or unpaid on the Loans and all other
Obligations with respect to each Loan, and if such proceeds shall be
insufficient to pay in full the whole amount so due, owing or unpaid upon the
Loans, then to the unpaid interest thereon, then to the unpaid principal amount
of the Loans, and then to the payment of other amounts then payable to Lender
under any of the Loan Documents; and

(c)       Third, to the payment of
the surplus, if any, to the applicable Grantor, its successors and assigns, or
to whomsoever may be lawfully entitled to receive the same.

10.8     Reinstatement of Rights.   If Lender shall have proceeded to enforce any right under this
Agreement or any other Loan Document by foreclosure, sale, entry or otherwise,
and such proceedings shall have been discontinued or abandoned for any reason
or shall have been determined adversely, then and in every such case (unless
otherwise ordered by a court of competent jurisdiction), Lender shall be
restored to its former position and rights hereunder with respect to the
Property subject to the security interest created under this Agreement.

10.9     Lender’s Liability for Collateral.   So long as Lender complies with its obligations, if any, under Section 9207
of the UCC, Lender shall not in any way or manner be liable or responsible for:
(a) the safekeeping of the Collateral; (b) any loss or damage thereto
occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or 

 26
 

 

other
Person whomsoever. All risk of loss, damage or destruction of the Collateral shall
be borne by Grantors.

10.10  Demand; Protest.   Borrower waives demand, protest, notice of protest, notice of default
or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Lender on which Borrower may in any way be liable.

11.    Notices

Unless
otherwise provided in this Agreement, all notices or demands by any party
relating to this Agreement or any other agreement entered into in connection
herewith shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by certified mail, postage prepaid,
return receipt requested, or by prepaid facsimile to Borrower and/or Guarantors
or to Lender, as the case may be, at their respective addresses set forth
below:

	
  If to Borrower:

  	
   

  	
  Trestle Holdings, Inc.

  
	
  or to any Guarantor:

  	
   

  	
  199 Technology Drive, Suite 105

  
	
   

  	
   

  	
  Irvine, California 92618

  
	
   

  	
   

  	
  Attention: Mr. Barry Hall

  
	
   

  	
   

  	
  FAX: (949) 673-1058

  
	
   

  	
   

  	
   

  
	
  If to Lender:

  	
   

  	
  Clarient, Inc.

  
	
   

  	
   

  	
  31 Columbia

  
	
   

  	
   

  	
  Aliso Viejo, California 92656

  
	
   

  	
   

  	
  Attention: Mr. Jim Cureton

  
	
   

  	
   

  	
  FAX: (949) 425-5701

  

 

The
parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.

12.    General Provisions

12.1     Successors and Assigns.   This Agreement shall bind and inure to the benefit of the respective
successors and permitted assigns of each of the parties; provided, however,
that neither this Agreement nor any rights hereunder may be assigned by
Grantors without Lender’s prior written consent, which consent may be granted
or withheld in Lender’s sole discretion. Lender shall have the right without
the consent of or notice to any Grantor to sell, transfer, negotiate, or grant
participations in all or any part of, or any interest in such Lender’s rights
and benefits hereunder.

12.2     Time of Essence.   Time is of the essence for the performance of all obligations set forth
in this Agreement.

12.3     Severability of
Provisions.   In case any
provision of this Agreement shall be held to be invalid, illegal or
unenforceable, it shall, to the extent possible, be modified in such manner as
to be valid, legal and enforceable but so as to most nearly retain the intent
of the 

 27
 

 

parties,
and if such modification is not possible, such provision shall be severed from
this Agreement, and in either case the validity, legality and enforceability of
the remaining provisions of this Agreement and the future application of such
provision shall not in any way be affected or impaired thereby.

12.4     Entire Agreement; Construction;
Amendments and Waivers.   

(a)       This
Agreement and each of the other Loan Documents dated as of the date hereof,
taken together, constitute and contain the entire agreement between the
Grantors and Lender and supersede any and all prior agreements, negotiations,
correspondence, understandings and communications between the parties, whether
written or oral, respecting the subject matter hereof.

(b)       This
Agreement is the result of negotiations between and has been reviewed by the
Grantors and Lender executing this Agreement as of the date hereof and their
respective counsel; accordingly, this
Agreement shall be deemed to be the product of the parties hereto, and no
ambiguity shall be construed in favor of or against Grantors or Lender.

(c)       Any
and all amendments, modifications, discharges or waivers of, or consents to any
departures from any provision of this Agreement or of any of the other Loan
Documents shall not be effective without the written consent of Lender. Any
waiver or consent with respect to any provision of the Loan Documents shall be
effective only in the specific instance and for the specific purpose for which
it was given. No notice to or demand on any Grantor in any case shall any
Grantor to any other or further notice or demand in similar or other
circumstances. No delay or omission of Lender to exercise any right, whether
before or after a default hereunder, shall impair any such right or shall be
construed to be a waiver of any right or default, and the acceptance at any
time by Lender of any past-due amount shall not be deemed to be a waiver of the
right to require prompt payment when due of any other amounts then or
thereafter due and payable.

(d)       Any
amendment, modification, waiver or consent effected in accordance with this Section 12.4 shall be binding upon Lender
and on the Grantors.

12.5     Reliance by Lender.   All covenants, agreements, representations and warranties made herein
by the Grantors, notwithstanding any investigation by Lender, be deemed to be
material to and to have been relied upon by Lender.

12.6     No Set-Offs by Grantors.   All sums payable by the Grantors pursuant to this Agreement or any of
the other Loan Documents shall be payable without notice or demand and shall be
payable in United States Dollars without set-off or reduction of any manner whatsoever.

12.7     Counterparts.   This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be-an original, and all of which, when taken
together, shall constitute but one and the same Agreement.

 28
 

 

12.8     Survival.   All covenants, representations and warranties made in this Agreement
shall continue in full force and effect so long as any Obligations remain
outstanding.

12.9     Relationship of Parties.   The Grantors and Lender acknowledge, understand and agree that the
relationship between the Grantors and Lender is and at all time shall remain
solely that of a borrower and lender or a guarantor and lender, as the case may
be. Lender shall not under any circumstances be construed to be a partner or
joint venturer of any Grantor or any of its Affiliates; nor shall Lender under
any circumstances be deemed to be in a relationship of confidence or trust or a
fiduciary relationship with any Grantor or any of its Affiliates, or to owe any
fiduciary duty to any Grantor or any of its Affiliates. Lender does not
undertake or assume any responsibility or duty to any Grantor or any of its
Affiliates to select, review, inspect, supervise, pass judgment upon or
otherwise inform any Grantor or any of its Affiliates of any matter in
connection with its or their Property, any Collateral held by Lender or the
operations of any Grantor or any of its Affiliates. Grantors and each of their
Affiliates shall rely entirely on their own judgment with respect to such
matters, and any review, inspection, supervision, exercise of judgment or
supply of information undertaken or assumed by Lender in connection with such
matters is solely for the protection of Lender, and neither any Grantor nor any
of its Affiliates is entitled to rely thereon.

12.10  Public Announcements.   Grantors shall consult with and obtain the prior written consent of
Lender before issuing any press release or otherwise making any public
announcement, statement or acknowledgment of the existence of, or reveal
publicly the terms, conditions and status of, the transactions provided for
herein and shall not issue any such press release or make any such public
statement prior to such consultation and consent; provided, however, that (1) following execution of this
Agreement, Borrower shall be permitted to file a Current Report on Form 8-K
with the U.S. Securities & Exchange Commission in the form agreed to
by Borrower and Lender, and (2) in the event any material development or
change related to or affecting this Agreement has occurred and Borrower in good
faith determines that it is required by applicable law to make a press release
or public announcement, such press release or public announcement shall not
constitute a breach of this Agreement if Borrower shall have (a) given, to
the extent reasonably possible, a copy of the proposed release or statement to
Lender not less than two Business Days prior to its first use or publication, (b) attempted,
to the extent reasonably possible, to clear such announcement, statement,
acknowledgment or revelation with Lender and (c) considered in good faith
any comments or changes Lender has offered to the proposed announcement or
statement.

12.11  Choice of Law and Venue;
Jury Trial Waiver.   THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL
LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW. EACH OF THE GRANTORS AND LENDER HEREBY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF ORANGE,
STATE OF CALIFORNIA. GRANTORS HEREBY WAIVE PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE
BY CERTIFIED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THEIR ADDRESS SET
FORTH HEREIN AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE DAYS
AFTER THE SAME SHALL HAVE BEEN SO 

 29
 

 

DEPOSITED
IN THE U.S. MAILS, OR, AT LENDER’S OPTION, BY SERVICE UPON THE GRANTORS IN ANY
OTHER MANNER PROVIDED UNDER THE RULES OF ANY SUCH COURTS. GRANTORS AND LENDER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.

12.12  No Obligation to Enter into
Further Agreements.   Each party acknowledges and agrees that this Agreement is not intended
to create any legally binding obligations on the parties with respect to any
transaction other than the transactions contemplated by this Agreement, and
does not create any such legally binding obligations of any kind whatsoever
with respect to entering into any potential strategic transaction between the
parties. Neither the discussions or negotiations between the parties hereto nor
this Agreement is intended to, and they do not, create any fiduciary or other
special duties or other obligations between the parties hereto in any respect,
including any implied covenant of good faith or fair dealing.

[Signature page follows]

 

 30

 

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

 

	
  BORROWER:

  	
  LENDER:

  
	
  TRESTLE HOLDINGS, INC.

  	
  CLARIENT, INC.

  

 

	
  By:

  	
   /s/ Maurizio
  Vecchione

  	
   

  	
  By:

  	
  /s/ Ron Andrews

  
	
  Name:

  	
  Maurizio Vecchione

  	
   

  	
  Name:

  	
  Ron Andrews

  
	
  Title:

  	
  CEO

  	
   

  	
  Title:

  	
  CEO

  

 

	
  GUARANTORS

  
	
  By its signature, each
  of the undersigned consents to becoming a Guarantor under this Agreement and
  affirms its obligation to be bound hereby

  
	
  TRESTLE ACQUISITION CORP.

  	
  __________________________

  
	
   

  	
   

  	
   

  	
   

  
				

 

	
  By:

  	
  /s/ Maurizio Vecchione

  	
   

  	
  By:

  	
   

  
	
  Name: 

  	
  Maurizio Vecchione

  	
   

  	
  Name:

  	
   

  
	
  Title:

  	
  CEO

  	
   

  	
  Title:

  	
   

  

 

 

 

	
  Exhibits

  	
   

  	
   

  	
   

  
	
  A

  	
   

  	
   

  	
   

  	
  Form of
  Intellectual Property Security Agreement

  
	
  B

  	
   

  	
   

  	
   

  	
  Form of Note

  
	
  C

  	
   

  	
   

  	
   

  	
  Form of Notice of Borrowing

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedules:

  	
   

  	
   

  
	
  1.1

  	
  (a)

  	
   

  	
   

  	
  Existing Liens

  
	
  6.3

  	
   

  	
   

  	
   

  	
  Subsidiaries

  
	
  6.7

  	
   

  	
   

  	
   

  	
  Location of Records and Collateral

  
	
  6.8

  	
   

  	
   

  	
   

  	
  Patents and Patent Applications, Trademarks, Copyrights

  
	
  6.10

  	
   

  	
   

  	
   

  	
  Existing Indebtedness

  
						

 

 

EXHIBIT A

INTELLECTUAL PROPERTY SECURITY
AGREEMENT

INTELLECTUAL PROPERTY SECURITY AGREEMENT (this “Agreement”)
is entered into as of June 19, 2006 by and between by and between
CLARIENT, INC., a Delaware corporation (“Lender”), and TRESTLE HOLDINGS,
INC., a Delaware corporation (“Borrower”).

RECITALS

A.            Lender has agreed to make certain
advances of money from time to time and to extend certain financial
accommodations to Borrower (the “Loan”) in the amount and manner set
forth in that certain Second Loan and Security Agreement dated as of June 19,
2006 by and between Lender, Borrower and Guarantors (as the same may be
amended, modified or supplemented from time to time, the “Loan Agreement”).
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to such terms in the Loan Agreement. Lender is willing to make the Loan to
Borrower, but only upon the condition, among others, that Borrower shall grant
to Lender a security interest in all of its copyrights, trademarks and patents
to secure the obligations of Borrower under the Loan Agreement.

B.            Pursuant to the terms of the Loan
Agreement, Borrower has granted to Lender a security interest in all of
Borrower’s right, title and interest, whether presently existing or hereafter
acquired, in, to and under all of the Collateral, including, without
limitation, all of its copyrights, trademarks and patents.

NOW, THEREFORE, for good
and valuable consideration, receipt of which is hereby acknowledged, and
intending to be legally bound, as collateral security for the prompt and
complete payment when due of its obligations under the Loan Agreement and the
other Loan Documents, Borrower hereby represents, warrants, covenants and
agrees as follows:

AGREEMENT

To secure its obligations
under the Loan Documents and under all other agreements now existing or
hereafter arising between Borrower and Lender, Borrower assigns to Lender for
security purposes, and grants and pledges to Lender, a security interest in all
of Borrower’s right, title and interest in, to and under its Intellectual
Property Collateral (including, without limitation, those copyrights, patents
and trademarks listed on Schedules A, B and C hereto), together with the
goodwill of the businesses associated with the trademarks, and including, without
limitation, all proceeds thereof (such as, by way of example but not by way of
limitation, license royalties and proceeds of infringement suits), the right to
sue for past, present and future infringements, all rights corresponding
thereto throughout the world and all re-issues, re-examinations, divisions
continuations, renewals, termination rights, extensions and
continuations-in-part thereof.

This security interest is
granted in conjunction with the security interest granted to Lender under the
Loan Agreement. The rights and remedies of Lender with respect to the security
interest granted hereby are in addition to those set forth in the Loan
Agreement and the 

 A-1
 

 

other Loan Documents, and those which are now or
hereafter available to Lender as a matter of law or equity. Each right, power
and remedy of Lender provided for herein or in the Loan Agreement or any of the
Loan Documents, or now or hereafter existing at law or in equity shall be
cumulative and concurrent and shall be in a addition to every right, power or
remedy provided for herein and the exercise by Lender of any one or more of the
rights, powers or remedies provided for in this Agreement, the Loan Agreement
or any of the other Loan Documents, or now or hereafter existing at law or in
equity, shall not preclude the simultaneous or later exercise by any person or
entity, including Lender, of any or all other rights, powers or remedies.

Borrower represents and
warrants that Schedules A, B, and C attached hereto set forth any and all
intellectual property rights in connection to which Borrower has registered or
filed an application with either the United States Patent and Trademark Office
or the United States Copyright Office, as applicable.

This Agreement may be
executed in any number of counterparts, each of which when so executed shall be
deemed to be an original and all of which counterparts together shall
constitute one and the same instrument.

THIS AGREEMENT AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PROVISIONS,
EXCEPT TO THE EXTENT GOVERNED BY FEDERAL LAW, IN WHICH CASE FEDERAL LAW SHALL
APPLY.

This Agreement may not be
amended, supplemented or modified, nor may the obligations of the parties
hereto be waived, except pursuant to a writing signed by both Lender and
Borrower.

Borrower may not assign
its rights or obligations under this Agreement or otherwise encumber or
hypothecate its Intellectual Property Collateral without the consent of Lender.
This Agreement shall be binding upon and inure to the benefit of Lender and
Borrower and their respective successors and permitted assigns.

[Signatures on Next Page]

 A-2
 

 

IN WITNESS WHEREOF, the parties have caused this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly
authorized as of the first date written above.

 

	
  BORROWER:

  	
   

  	
  LENDER:

  
	
  TRESTLE HOLDINGS, INC.

  	
   

  	
  CLARIENT, INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  

 

 

 

	
  Trestle
  Holdings, Inc.

  199 Technology Drive, Suite 105

  Irvine, California 92618

  FAX:  (949) 673-1058

  	
  Clarient, Inc.

  31 Columbia

  Aliso Viejo, California 92656

  FAX:  (949) 425-5701

  

 

 A-3
 

 

SCHEDULE A

Registered Copyrights

 A-4
 

 

SCHEDULE B

Patents

 A-5
 

 

SCHEDULE C

Trademarks

 

 A-6

 

 

EXHIBIT B

FORM OF
NOTE

SECURED
PROMISSORY NOTE

$500,000                                                                                                                                                                  Dated:  June 19, 2006

FOR VALUE RECEIVED, the
undersigned, TRESTLE HOLDINGS, INC., a Delaware corporation (“Borrower”),
hereby promises to pay to the order of CLARIENT, INC., a Delaware
corporation  (“Lender”) the
principal sum of Five Hundred Thousand Dollars ($500,000) or such lesser amount as has been
advanced but not yet repaid under the Second Loan and Security Agreement
referred to below, plus interest in the amount provided below, on the
Maturity Date. Capitalized terms
not defined in this Note shall have the meanings given to such capitalized
terms in the Second Loan and Security Agreement (as defined herein).

Interest on the
unpaid principal amount of each Loan evidenced by this Note from the Funding
Date of such Loan shall accrue at 8% per annum  based on a year of 360 days for actual days elapsed;
provided, however, that per diem interest shall be calculated on the basis of
the actual number of days elapsed over a year of 365 days.

Principal, interest
and all other amounts due with respect to the Loans, are payable in lawful
money of the United States of America to Lender as set forth in the Second Loan
and Security Agreement. The principal amount of each Loan and the interest rate
applicable thereto, and all payments made with respect thereto, shall be
recorded by Lender and, prior to any transfer hereof, endorsed on the grid
attached hereto which is part of this Note.

This Note is the
Note referred to in, and is entitled to the benefits of, the Second Loan and
Security Agreement, dated as of June 19, 2006, to which Borrower and
Lender are parties (the “Second Loan and Security Agreement”). The
Second Loan and Security Agreement, among other things, (a) provides for
the making of secured Loans to Borrower, and (b) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated
events.

This Note and the
obligation of Borrower to repay the unpaid principal amount of the Loans,
interest on the Loans and all other amounts due Lender under the Loan Documents
are secured under the Second Loan and Security Agreement.

Presentment for
payment, demand, notice of protest and all other demands and notices of any
kind in connection with the execution, delivery, performance and enforcement of
this Note are hereby waived.

Borrower shall pay
all reasonable fees and expenses, including, without limitation, reasonable
attorneys’ fees and costs, incurred by Lenders in the enforcement or attempt to
enforce any of Borrower’s obligations hereunder not performed when due. This
Note shall be governed by, and construed and interpreted in accordance with,
the laws of the State of California.

 B-1
 

 

IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed
by one of its officers thereunto duly authorized on the date hereof.

TRESTLE
HOLDINGS, INC.

	
  

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

 B-2

 

 

EXHIBIT C

NOTICE OF BORROWING

Clarient, Inc.

31 Columbia

Aliso Viejo, California 92656

Attention:  Mr. Jim Cureton

Ladies and Gentlemen:Reference is made to the Second Loan and
Security Agreement dated as of June 19, 2006 (as it has been and may be
amended from time to time, the “Loan Agreement,” the capitalized terms used herein as defined therein),
between CLARIENT, INC., TRESTLE HOLDINGS, INC. (the
“Company”) and the GUARANTORS.
Capitalized terms not defined in this Notice of Borrowing shall have the meanings
given to such terms in the Loan Agreement.

The
undersigned is the Chief Financial Officer of the Company, and hereby requests
a Loan under the Loan Agreement, and in that connection certifies as follows:

1.             The amount of the
proposed Loan is $[250,000]. The requested Funding Date of the proposed Loan is
________, 2006.

2.             As of this date, no
Event of Default, or event which with notice or the passage of time would
constitute an Event of Default, has occurred and is continuing, or will result
from the making of the proposed Loan.

3.             All of the
representations and warranties contained in Article 6
of the Loan Agreement and in each of the Loan Documents, and the information set forth in the
schedules thereto, are and will be true
and correct in all material respects, both before and after giving effect to
the proposed Loan and to the application of the proceeds thereof, as though
made on such date, unless stated to relate to a specific earlier date, in which
case such representations and warranties shall be true and correct in all
material respects as of such earlier date; and

4.             No event which
could reasonably be expected to have a material adverse effect on the ability
of Borrower to fulfill its obligations under the Loan Agreement has occurred
since the date of the most recent financial statements submitted to you by the
Company.

The
Company agrees to notify you promptly before the funding of the Loan if any of
the matters to which I have certified above shall not be true and correct on
the requested Funding Date for such Loan.

Very truly yours,

                _________________________

 

 1Exhibit 10.3

June 19, 2006

Clarient, Inc.

31 Columbia

Aliso Viejo, CA 92656

Attention:  Ron Andrews

Re:      Commitment to Purchase Common Stock

Ladies
and Gentlemen:

You have advised us that Clarient, Inc. (the “Clarient”)
may seek financing to assist in its acquisition (the “Acquisition”) of the
assets of Trestle Holdings, Inc. and Trestle Acquisition Corp. (together, “Trestle”),
as more fully described in the Summary of Terms and Conditions (attached as Exhibit A,
the “Term Sheet”). The Term Sheet describes the general terms and conditions
for our purchase of up to $3 million of Clarient common stock (the “Stock
Purchase”) for the purpose of financing the Acquisition.

Based upon and subject to the terms and conditions
set forth in this Commitment Letter (the “Commitment Letter”) and in the Term
Sheet, Safeguard Scientifics, Inc. (“Safeguard”) is pleased to advise you
of its commitment to complete the Stock Purchase, whether itself or via one of
its subsidiaries. As set forth more fully in the Term Sheet, the closing of the
Stock Purchase and the commitments of Safeguard hereunder are based upon the
financial and other information regarding Clarient previously provided to us.

This Commitment Letter and the Term Sheet do not
summarize all of the terms, conditions, covenants, representations, warranties
and other provisions which will be contained in the definitive documentation
for the Stock Purchase and the transactions contemplated thereby. Safeguard
shall have the right to require that such documentation include, in addition to
the provisions outlined herein and in the Term Sheet, provisions consistent
with Clarient’s Securities Purchase Agreement dated November 8, 2005 and
warrants issued in connection therewith (except that all units would be issued
at a single closing unless otherwise required by the rules of the Nasdaq
Capital Market).

Safeguard shall have the right to review and approve
any public announcement or public filing made after the date hereof relating to
any of the transactions contemplated hereby or relating to Safeguard or any of
its affiliates, as the case may be, before any such announcement or filing is
made (such approval not to be unreasonably withheld or delayed).

Safeguard’s commitment with respect to the Stock
Purchase set forth above shall terminate at 5:00 p.m. PDT June 20,
2006, unless this Commitment Letter is accepted by Clarient in writing and
delivered to Safeguard prior to such time. Following acceptance by you, this
Commitment Letter shall expire upon the earliest of (i) the end of the
business day of the closing of the Acquisition, (ii) termination of the
definitive purchase agreement with respect to the Acquisition, and (iii) 5:00 p.m.
PDT on December 31, 2006, if the closing of the Acquisition shall not have
occurred by such time. Consummation of the Stock Purchase will be conditioned
on the simultaneous closing of the Acquisition.

This Commitment Letter, together with the Term
Sheet, embodies the entire agreement and understanding between Safeguard and
Clarient with respect to the specific matters set forth above and 

 

supersedes all prior agreements and understandings
relating to the subject matter hereof. No party has been authorized by
Safeguard to make any oral or written statements inconsistent with this
Commitment Letter.

This Commitment Letter shall be governed by and
construed in accordance with the laws of the State of Delaware without
reference to the conflicts or choice of laws principles thereof. Each of us
hereby irrevocably waives all right to trial by jury in any action, proceeding
or counterclaim (whether based on contract, tort or otherwise) arising out of
or relating to this Commitment Letter, the Term Sheet, the transactions
contemplated hereby and thereby or the actions of Safeguard in the negotiation,
performance or enforcement hereof and thereof.

This Commitment Letter may be executed in any number
of counterparts, each of which shall be an original, and all of which, when
taken together, shall constitute one agreement. Delivery of an executed
signature page of this Commitment Letter by facsimile transmission shall
be effective as delivery of a manually executed counterpart hereof; provided
that such facsimile transmission shall be promptly followed by the original
thereof.

This Commitment Letter may not be amended or any
provision hereof waived or modified except by an instrument in writing signed
by Safeguard and Clarient.

This Commitment Letter may not be assigned by
Clarient without the prior written consent of Safeguard and any purported
assignment without such consent shall be null and void.

Please indicate your acceptance of this Commitment
Letter and the Term Sheet by signing in the space provided and returning the
original copy to us. Safeguard is pleased to have the opportunity to assist you
in connection with this proposed financing transaction.

	
  

  	
   

  	
   

  	
  Very truly yours

  	
   

  
	
   

  	
   

  	
   

  	
  SAFEGUARD
  SCIENTIFICS, INC.

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Christopher
  J. Davis

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Christopher J. Davis

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Executive Vice Pesident
  and Chief 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Administrative &
  Financial Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ACCEPTED AND AGREED TO
  THIS 19th 

  	
   

  	
   

  	
   

  
	
  DAY OF JUNE, 2006:

  	
   

  	
   

  	
   

  
	
  CLARIENT, INC.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ John A. Roberts

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  John A. Roberts

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  Secretary

  	
   

  	
   

  	
   

  	
   

  
								

 

 

 

EXHIBIT A

TERM
SHEET

 

	
  Issuer

  	
   

  	
  Clarient, Inc.

  
	
   

  	
   

  	
   

  
	
  Purchaser

  	
   

  	
  Safeguard
  Scientifics, Inc. (or one of its subsidiaries)

  
	
   

  	
   

  	
   

  
	
  Securities offered

  	
   

  	
  Units, with each unit
  consisting of one share of Clarient common stock, $0.01 par value per share
  (the “Common Stock”) and a warrant to purchase 0.15 shares of Common Stock.

  
	
   

  	
   

  	
   

  
	
  Pricing

  	
   

  	
  The purchase price for
  Units will be a 85% of the Market Price of the Common Stock, but not to
  exceed $1.50 (prior to giving effect to the 15% discount); “Market Price”
  shall mean the average closing price for the Common Stock reported by the
  Nasdaq Capital Market for the ten trading days preceding the closing date.
  The warrant will have an exercise price of 115% of the Market Price and a
  four-year term.

  
	
   

  	
   

  	
   

  
	
  Aggregate amount to be
  purchased

  	
   

  	
  $3.0 million of Units
  (but not less than $3.0 million)

  
	
   

  	
   

  	
   

  
	
  Use of proceeds

  	
   

  	
  To finance the
  Acquisition and to replenish funds used to pay Clarient’s costs in related to
  the Acquisition.

  
	
   

  	
   

  	
   

  
	
  Facility fee

  	
   

  	
  $15,000 in cash, plus a
  warrant to purchase 50,000 shares of Common Stock at the Market Price on the
  date the Commitment Letter is accepted. The Facility fee is due on the date
  the Commitment Letter is accepted.

  
	
   

  	
   

  	
   

  
	
  Procedure

  	
   

  	
  After Clarient pays the
  Facility fee, Safeguard and Clarient shall prepare documentation and warrants
  comparable to those used in Clarient’s November 8, 2005 Common Stock
  offering (except that
  all Units will be issued at a single closing unless otherwise required by the
  rules of the Nasdaq Capital Market and the registration rights granted
  to Safeguard shall be as described below). As soon as practicable
  after a closing date for the Acquisition is set, Clarient shall notify
  Safeguard of the closing date and whether Clarient will commit to sell
  Safeguard the Units. If Clarient elects to sell Safeguard the Units, the
  Units shall be sold simultaneously with the closing of the Acquisition.

  
	
   

  	
   

  	
   

  
	
  Registration Rights

  	
   

  	
  Clarient will grant Safeguard demand registration
  rights to cover resales of shares of Common Stock purchased, as well as the
  Common Stock underlying the warrants, consistent with the terms of the
  registration rights agreement between Clarient and Safeguard entered into in
  February 2004.

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