Exhibit 10.3
SECURITY AGREEMENT

(Equipment/Inventory/Accounts Receivable)

This Security Agreement (Equipment/Inventory/Accounts Receivable) (the
"Agreement"), dated June 8, 2006 for reference purposes only, is executed by and
between ASDS of Orange County, Inc., a Delaware corporation (the "Borrower"),
and First Republic Bank (the "Lender"), with reference to the following facts:

A. Lender and Borrower are entering into an agreement of even date herewith
pursuant to which Bank will provide credit to, or for the benefit of, Borrower
(the "Loan"). The Loan will be evidenced by Borrower's promissory note or notes
(collectively, the "Note"). This Agreement is being provided in connection with
the Loan Agreement to secure Borrower's obligations thereunder.

THEREFORE, for valuable consideration, the receipt and adequacy of which are
acknowledged, Borrower and the Lender agree as follows:

1. Definitions. For purposes of this Agreement, the following terms shall have
the following definitions:

1.1 Account Debtors. "Account Debtors" means all persons who now are or
hereafter become in any way obligated, liable, or responsible for any payment of
any kind in connection with any or all of the Accounts.

1.2 Code. "Code" means the California Uniform Commercial Code, as amended from
time to time.

1.3 Collateral. "Collateral" means all of Borrower's interest in the following
types of property, whether now owned or held or hereafter acquired and wherever
located:

(a)  All accounts, securities accounts, investment property, securities,
contract rights, instruments, documents, chattel paper and all other obligations
now or hereafter owing to Borrower (collectively, the "Accounts"); all right,
title and interest of Borrower in, and all of Borrower's rights and remedies
with respect to, all goods, the sale or other disposition of which gives rise to
any Account, including all returned, rejected, rerouted, reclaimed and
repossessed goods and all rights of stoppage in transit, replevin, reclamation,
and all rights as an unpaid vendor; all collections and proceeds of any or all
of the foregoing; all guarantees of, security for, and insurance proceeds
attributable to any or all of the foregoing; all books and records relating to
any or all of the foregoing; and all equipment containing said books and
records.

(b)  All inventory, goods, merchandise, materials, raw materials, goods in
process, finished goods, advertising, packaging and shipping materials,
supplies, and all other tangible personal property which is held for sale or
lease, furnished under contracts of service, or consumed in Borrower's business,
and all replacements, accessions and additions to any or all of the foregoing,
and all of the foregoing which are returned, repossessed, reclaimed or stopped
in transit (collectively, the "Inventory"), whether or not the Inventory is in
the constructive or actual possession or custody of Borrower, the Lender, or any
third person; all negotiable and non-negotiable warehouse receipts and other
documents now or hereafter issued with respect to any or all of the Inventory;
all proceeds, insurance proceeds and products of any or all of the foregoing,
including all now owned and hereafter acquired accounts, instruments, documents,
and chattel paper arising from the sale or other disposition of any or all of
the Inventory; all books and records pertaining to any or all of the foregoing;
and all equipment containing said books and records.

 
-21-

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

 

(c)  All equipment, goods and other tangible personal property (other than
Inventory), machinery, fixtures, trade fixtures, vehicles, furnishings,
furniture, supplies, molds, materials, motors, tools, machine tools, motor
vehicles, office equipment, appliances, apparatus, parts, dyes, jigs, and
chattels, together with all attachments, replacements, substitutions,
accessions, additions and improvements to any or all of the foregoing
(collectively, the "Equipment"), whether or not the same is in the constructive
or actual possession or custody of Borrower, Lender, or any third person; all
products, proceeds and insurance proceeds of any or all of the foregoing,
including all accounts, instruments, documents and chattel paper which may arise
from the sale or disposition of any or all of the Equipment; all books and
records pertaining to any or all of the foregoing; and all equipment containing
said books and records.

(d)  All deposit accounts, money, cash equivalents, and general intangibles
[including, but not limited to, tax refunds, choses in action, causes of action,
goodwill, names, inventions, designs, drawings, plans, specifications,
blueprints, trade names, trade secrets, trade marks and the goodwill of the
business symbolized thereby, service marks, compilations, reports, appraisals,
studies, customer lists, telephone numbers, advertising rights, negatives,
prints, brochures, pamphlets, computer programs, patents, patent applications,
copyrights, security and other deposits, prepaid items, refunds, loan commitment
fees, royalties, registrations, licenses, permits, processes, franchises, rights
in all litigation presently or hereafter pending for any cause of action
(whether in contract, tort or otherwise) and all judgments now or hereafter
arising therefrom, all claims of Borrower against Lender, rights to purchase or
sell real or personal property, rights as a licensor or licensee of any kind,
purchase orders, and all insurance policies and insurance claims (including life
insurance, key man insurance, credit insurance, liability insurance, property
insurance, and other insurance), claims under guaranties, and all rights to
indemnification and all other intangible property of every kind and nature]; all
proceeds, insurance proceeds and products of, and additions and accessions to,
any or all of the foregoing; all guarantees of and security for any or all of
the foregoing; all books and records relating to any or all of the foregoing;
and the equipment containing said books and records.

1.4Event of Default. "Event of Default" shall have the meaning given to such
term in Section 6 of this Agreement.

1.5Loan Agreement. "Loan Agreement" means the loan agreement dated the same date
as this agreement executed by Borrower in connection with the Loan.

1.6Obligations. "Obligations" means all debts, obligations, and liabilities of
Borrower to the Lender currently existing or hereafter made, incurred or
created, whether voluntary or involuntary, and however arising or evidenced,
whether direct or acquired by the Lender by assignment or succession, whether
due or not due, absolute or continent, liquidated or unliquidated, determined or
undetermined, whether under this Agreement, the Note, any of the other Loan
Documents, or otherwise, and whether Borrower may be liable individually or
jointly, or whether recovery upon such debt may be or become barred by any
statute of limitations or otherwise unenforceable, including all attorneys' fees
and costs now or hereafter payable by Borrower to the Lender under the Loan
Documents or in connection with the collection and enforcement of such debts,
obligations and liabilities. Notwithstanding anything to the contrary contained
in this Agreement, this Agreement shall not secure and the term "Obligations
shall not include any debts that are or may hereafter constitute "consumer
credit" which is subject to the disclosure requirements of the federal Truth-In
Lending Act (15 U.S.C. Section 1601, et seq.) or any similar state law in effect
from time to time, unless the Lender and Borrower shall otherwise agree in a
separate written agreement.
 1.7 Other Terms. All terms with an initial capital letter that are used but not
defined in this Agreement shall have the respective meanings given to such terms
in the Loan Agreement and in Divisions 8 and 9 of the Code, respectively, as
applicable.

 
-22-

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

 

2.  Grant of Security Interest. To secure the Obligations, Borrower grants and
assigns to the Lender a security interest in the Collateral.

3.  Equipment, Inventory and Accounts Receivable.

3.1 Sale or Transfer of Equipment. Borrower shall not exchange, trade, sell,
lease, or otherwise dispose of the Equipment without the Lender's prior written
consent, except for obsolete equipment which is sold for fair market value and
is immediately replaced with equipment of equal or greater value in which the
Lender has a perfected first priority security interest.

3.2 Condition of Equipment. Borrower shall at all times maintain the Equipment
in good operating condition and repair.

3.3 Use of Equipment. Borrower shall take all reasonable actions to not permit
or cause the Equipment to be misused, used for any purpose other than that for
which the Equipment was designed, or utilized in any illegal or negligent
manner. Borrower shall use the Equipment only in the ordinary course of its
business as conducted prior to the date of this Agreement and in a manner
consistent with the terms of all insurance policies relating to the Equipment.

3.4 Equipment Records and Schedules. Without limiting the generality of Section
4.5 below, Borrower shall maintain complete and accurate books and records
regarding the Equipment, including records describing the dates of acquisition,
acquisition costs, and serial numbers of the Equipment. Upon the Lender's
request, Borrower shall provide the Lender with complete and accurate schedules
containing (a) a description of each item of Equipment; (b) the serial number,
if any, of each item of Equipment, and (c) such other information regarding the
Equipment as the Lender may reasonably require. Borrower shall notify the Lender
in writing within five (5) business days of all material pieces of Equipment
which Borrower purchases, leases or otherwise acquires after the date of this
Agreement.

3.5 Certificates of Ownership. Upon Borrower's execution of this Agreement,
Borrower shall deliver to the Lender the originals of all certificates of title,
certificates of ownership, evidences of ownership, and all other similar
documents and instruments (collectively, the "Certificates of Ownership")
relating to all Equipment in which Borrower now has an interest. Upon Borrower's
acquisition of an interest in any item of Equipment following the date of this
Agreement, Borrower shall deliver within five (5) business days to the Lender
the Certificate of Ownership, if any, relating to such item of Equipment. Each
such Certificate of Ownership delivered to the Lender under this Section shall
be properly endorsed to the Lender.

3.6 No Fixtures.

(a)  Borrower shall not permit or cause any or all of the Collateral to become
affixed to any real property in such a manner, or with such intent, so as to
result in such Collateral becoming a fixture or otherwise becoming part of any
real property.

(b)  Borrower shall not become a lessee under a real property lease pursuant to
which the lessor has obtained or may obtain any rights in or to any or all of
the Collateral, nor shall any such lease prohibit, restrain, or impair
Borrower's right to remove any Collateral from any leased premises, whether such
removal is accomplished prior or subsequent to any default by Borrower under any
such lease or prior or subsequent to any termination, cancellation or forfeiture
of any such lease.

(c)  Prior to causing or permitting any of the Collateral to be located on any
premises in which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lien holder, or otherwise), Borrower shall
cause such third party to execute and deliver to the Lender such

 
-23-

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

 

consents, waivers and subordinations as may be reasonably necessary or
appropriate, in the Lender's discretion, to insure the Lender that its security
interest and rights in and to the Collateral are and shall at all times continue
to be prior and superior to the rights of any such third party.

(d) Borrower shall not cause or permit any event to occur which would result in
an early termination of any real property lease for any premises on which all or
part of the Collateral now is or hereafter may be located.

3.7Possession and Use of Inventory. Borrower shall not sell, lease, transfer or
otherwise dispose of any or all of the Inventory, except for the sale or lease
of finished Inventory in the ordinary course of Borrower's business. Borrower
shall use and deal with the Inventory only in a manner consistent with the terms
of all insurance policies relating to the Inventory. Borrower shall not sell,
lease, transfer, or otherwise dispose of any or all of the Inventory in partial
or complete satisfaction of any debt owed by Borrower. Borrower shall keep all
Inventory separate from Borrower's other property and assets and clearly
identified or marked.

3.8Inventory Records. Without limiting the generality of Section 4.5 below,
Borrower shall maintain complete and accurate books and records containing
entries of all transactions relating to the Inventory, including accurate
records showing (a) the current Inventory stock held by Borrower; (b) the cost
and sales records of the Inventory; (c) the kinds, types, qualities and
quantities of the Inventory; and (d) the daily withdrawals from and additions to
the Inventory.

3.9No Warehousing of Inventory. No Inventory shall be stored with any warehouse
operator or other third person without the Lender's prior written consent.

3.10No Liability by Lender for Inventory. The Lender shall not be directly or
indirectly liable or responsible in any way or under any circumstances to
Borrower or any other party (a) for the safe keeping of the Inventory; (b) any
loss or damage to the Inventory occurring or arising in any manner from any
cause; (c) any decrease in the value of the Inventory; or (d) any act or
omission by any carrier, warehouse operator, bailee, forwarding agent, or other
party dealing with all or part of the Inventory. Borrower shall bear the entire
risk of loss for all damage to and destruction of the Inventory.

3.11Schedule of Accounts. Upon the Lender's request exercised no more often than
three times during any period of twelve (12) consecutive months, Borrower shall
furnish the Lender with copies of all contracts, orders, invoices, shipping
instructions, delivery receipts, bills of lading, and other similar documents
for any goods, the sale or disposition of which gives rise to an Account
(collectively the "Accounts Receivable Documentation"). Upon the Lender's
request, Borrower shall also furnish the Lender with an aged accounts receivable
report in such form as the Lender may specify. The Lender shall have the right
from time to time to verify the validity, amount and any other matters relating
to any or all of the Accounts directly with the respective Account Debtors by
mail, telephone or otherwise, either in the Lender's or Borrower's name. Upon an
Event of Default by Borrower under this Agreement, Borrower shall deliver to the
Lender the originals of all Accounts Receivable Documentation together with the
originals of all instruments, chattel paper, security agreements, guaranties,
and other documents and property evidencing or securing the Accounts in the same
form as received by Borrower, each of which shall be properly endorsed by
Borrower to the Lender, with recourse.

3.12Collection of Accounts. Prior to the occurrence of an Event of Default,
Borrower shall have the privilege of collecting the Accounts, at Borrower's sole
cost and expense. Upon the occurrence of an Event of Default, Borrower's
privilege of collecting the Accounts shall immediately and automatically be
revoked without notice to Borrower. Following such revocation, the Lender shall
have the exclusive right to make all collections on the Accounts.

3.13Notice to Account Borrowers. Upon the Lender's reasonable request, Borrower
shall give notice, in form and substance reasonably acceptable to the Lender, to
the Account Debtors of Borrower's grant of a security interest in the Accounts
to the Lender.

 
-24-

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

 

3.14Additional Notices. From time to time upon the Lender's reasonable request,
Borrower shall give written notice to any Account Borrower designated by the
Lender containing such additional information and instructions concerning the
Lender's rights under this Agreement as may be specified by the Lender. Such
notices shall be satisfactory in form and substance to the Lender. From time to
time and coincident with notice to Borrower, the Lender shall have the right to
give notice to any Account Borrower containing such information and instructions
concerning the Lender's rights under this Agreement as the Lender in its good
faith business judgment determines to be necessary or appropriate.

3.15No Liability by Lender for Accounts. The Lender shall not be directly or
indirectly liable or responsible in any way or under any circumstances to
Borrower or any other party for (a) any shortage or discrepancy in, damage to,
or loss or destruction of, any goods, the sale or other disposition of which
gives rise to an Account; (b) any act, omission, error or delay of any kind by
the Lender in settling, failing to settle, collecting, or failing to collect any
Account, including any act or omission which results in the loss or impairment
of the Borrower's rights against any third person; (c) settling any Account for
less than the full amount thereof; (d) any failure or delay by the Lender in
enforcing or collecting any payment under any Account; or (e) the performance or
observance of any or all of Borrower's duties, obligations, representations, or
warranties under any other agreement or document relating to any or all of the
Collateral, including the Accounts.

3.16Receipt of Account Collections by Borrower. If for any reason Borrower
receives any payment in connection with any of the Accounts following the
occurrence of an Event of Default, Borrower (a) shall immediately pay or deliver
such payment to the Lender in the original form in which received by Borrower;
(b) shall endorse to the Lender, with recourse, all checks, drafts, money
orders, notes, and other instruments or documents representing such payment, (c)
shall not commingle such payment with any of Borrower's other funds or property;
and (d) shall hold such payment separate and apart from Borrower's other funds
and property in an express trust for the Lender until paid or delivered to the
Lender.

3.17Application of Account Proceeds. The Lender shall apply all payments
received by the Lender in connection with the Accounts in the order of priority
described in Section 7.16 below. All checks, drafts, money orders, notes,
instruments, documents, and other noncash proceeds of the Accounts delivered to
the Lender in payment or on account of the Obligations shall not constitute
payment until such items are actually paid in cash or other immediately
available funds to the Lender.

3.18Borrowers Account Obligations. Borrower shall at all times in all material
respects perform and discharge all obligations of Borrower to each Account
Debtor in accordance with the terms of all documents, contracts, invoices, and
other agreements between Borrower and such Account Debtor.

3.19Returned Goods. From and after the occurrence of an Event of Default:

(a)  Any goods which are returned by an Account Debtor or otherwise recovered by
or for the benefit of Borrower shall be physically segregated from Borrower's
other property, posted with written notice that such goods are subject to the
Lender's security interest, and held in trust for the Lender for disposition by
the Lender. Borrower shall promptly notify the Lender of all such returns and
recoveries; and

(b)  Borrower shall not accept the return of any goods and shall not sell any
previously returned goods without the Lender's prior written consent. The Lender
shall have the right to accept the return of any goods directly from an Account
Debtor, without notice to or the consent of Borrower, and neither a delivery by
Borrower of returned or recovered goods to the Lender, nor the acceptance by the
Lender of returns directly from any Account Debtor, shall in any way effect
Borrower's liability to the Lender under this Agreement or on account of the
Obligations.

 
-25-

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

 

3.20Disputed Accounts. Borrower shall promptly notify the Lender of all material
disputes and claims with respect to any of the Accounts. From and after the
occurrence of an Event of Default, (a) the Lender shall have the right to
settle, accept reduced amounts, adjust disputes and claims directly with, and
give releases on behalf of Borrower to Account Debtors, upon such terms as the
Lender, in its good faith business judgment, determines to be appropriate; and
(b) without the Lender's prior written consent, Borrower shall not compromise,
adjust, or grant any discount, credit, allowance, or extension of time for
payment to any Account Debtors.
4. Borrowers Covenants.

4.1 Liens. Borrower shall at all times keep the Collateral free of all liens,
encumbrances and claims of any kind or nature other than the security interest
of the Lender.

4.2 Transfers. Borrower will not sell, transfer, lease or otherwise dispose of
any or all of the Collateral or any interest therein to any Person other than
Lender, except as otherwise expressly permitted in this Agreement.
4.3 Taxes. Borrower will pay when due and prior to delinquency all foreign,
federal, state and local taxes, assessments, and governmental charges now or
hereafter levied on or which are or may become liens against the Collateral.

4.4 Location of Tangible Collateral. Without the Lender's prior written consent,
which consent will not be unreasonably withheld, Borrower shall not remove any
of the existing tangible Collateral from the present locations of such
Collateral, except finished Inventory sold or leased in the ordinary course of
Borrower's business.

4.5 Books and Records. Borrower shall maintain complete and accurate books and
records which contain full and correct entries of all transactions relating to
the Collateral and Borrower's business.

4.6 Inspection of Collateral. The Lender shall have access to the Collateral and
all other property of the Borrower, wherever located, during normal business
hours upon not less than two (2) Business Days prior written notice for the
purposes of examination, inspection, verification, audit, testing, and any other
reasonable purpose. For such purposes, the Lender, at no charge or cost, shall
have the right to enter and remain upon the Borrower's premises as often during
normal business hours and for such periods as the Lender reasonably determines
to be necessary or appropriate.

4.7 Reports. Upon the Lender's request, Borrower shall deliver to the Lender
such reports and information available to Borrower's management concerning the
Collateral and Borrower's business and affairs as the Lender may reasonably
request. Such reports shall be in such form, for such periods, contain such
information, and shall be rendered with such frequency as the Lender may
reasonably designate. All reports and information provided to the Lender by
Borrower shall be complete and accurate in all material respects at the time
provided.
4.8 Further Assurances. Borrower shall take all actions which may be reasonably
necessary or appropriate to maintain, preserve, protect, and defend the
Collateral and the Lender's security interest therein, including all such
actions as may be reasonably requested by the Lender. Upon the Lender's request,
Borrower shall execute and deliver to the Lender such further documents and
agreements, in form and substance satisfactory to the Lender, as the Lender may
reasonably require to effectuate this Agreement or to evidence, perfect,
maintain, preserve or protect the Lender's security interest in the Collateral,
including financing statements, continuation financing statements, financing
statement amendments, security agreements, and assignments.

 
-26-

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

 

4.9 Maintenance of Collateral. Borrower (a) shall maintain the Collateral and
all of Borrower's other assets in good operating and repair condition; (b) shall
not use the Collateral or any of Borrower's other assets in any unlawful
business or for any unlawful purpose; and (c) shall not abandon the Collateral
or any of Borrower's other assets.
5.Warranties and Representations by Borrower.

5.1 Warranties and Representations. Borrower warrants and represents to the
Lender as follows:

(a)  Ownership of Collateral. Borrower is the sole legal and beneficial owner of
the Collateral, free and clear of all liens, encumbrances and security
interests, except for the security interest in favor of the Lender under this
Agreement.

(b)  Compliance With Laws. The Collateral complies with all applicable
Governmental Requirements.

(c)  Equipment. The Equipment is in good operating condition and repair, normal
wear and tear excepted, free from material latent and patent defects, and not
obsolete.

(d)  Inventory. The Inventory is new, in good condition, of merchantable
quality, free from material latent and patent defects, and not obsolete.
Borrower's retail sales of Inventory were less than twenty-five percent (25%) in
dollar volume of Borrower's total sales of all goods during the twelve (12)
months preceding the attachment of the security interest granted under this
Agreement. Borrower's retail sales of Inventory shall be less than twenty-five
percent (25%) in dollar volume of Borrower's total sales of goods during each
consecutive twelve (12) month period during the term of this Agreement.

(e)  Accounts. Each and all of the Accounts shall at all times comply with the
following provisions: (i) each Account represents an undisputed bona fide
existing unconditional obligation of the Account Debtor created by the sale,
delivery, and acceptance of goods or the rendition of services in the ordinary
course of Borrower's business; (ii) the Account Debtor on each Account has not
asserted and to the best of Borrower's knowledge will not assert any defense,
offset, counterclaim, right of return or cancellation, or other right or claim
relating to such Account; (iii) each Account will be paid in full on the
maturity date of the Account; (iv) no petition under the federal bankruptcy laws
or any other applicable federal or state bankruptcy, insolvency, or similar law
has been or will be filed by or against the Account Debtor on any Account, and
no Account Debtor has made or to the best of Borrower's knowledge will make an
assignment for the benefit of creditors, become insolvent, fail or go out of
business, nor does Borrower have notice that any of the foregoing is threatened
or is about to occur with respect to any Account Debtor; (v) no Account is or
will be impaired or reduced in value; (vi) no Account Debtor on any Account is a
shareholder, director, partner or agent of Borrower, or a person controlling,
controlled by, or under common control with Borrower; (vii) no Account is owed
by an Account Debtor to whom Borrower is or may become liable in connection with
goods sold or services rendered by the Account Debtor to Borrower or any other
transaction or dealing between the Account Debtor and Borrower; and (viii) all
documents, instruments and agreements relating to all Accounts are and shall be
legally enforceable in accordance with their respective terms provided, however,
that Borrower shall not be in breach of the representation and warranty of this
Section 5.1(e) if the aggregate amount of all Accounts outstanding at any time
that fail to satisfy any of clauses (i) through (vii) above do not exceed five
percent (5%) of the aggregate amount of all outstanding Accounts. All statements
made and all unpaid balances appearing in all invoices, instruments and other
documents evidencing the Accounts are and shall be at all times true and
correct. All sales and other transactions underlying or giving rise to each
Account shall fully comply in all material respects with all applicable laws,
ordinances, governmental rules and regulations.

 
-27-

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

 

5.2 Borrower's Warranties. Borrower's warranties and representations set forth
in Section 5.1 above shall be true and correct at the time of execution of this
Agreement by Borrower and shall constitute continuing representations and
warranties as long as any of the Obligations remain outstanding.

6.Events of Default. The occurrence of any of the following shall constitute an
Event of Default under this Agreement, at the option of the Lender:

6.1 Default Under Loan Agreement. The occurrence of any "Event of Default" (as
such term is defined in the Loan Agreement) under the terms of the Loan
Agreement;

6.2 Impairment of Collateral. The Lender reasonably and in good faith deems
itself to be insecure because of any or all of the following: (i) any person
fails to perform any of its obligations under the terms of any document that is
part of, or is held by the Lender as, Collateral; or (ii) the validity or
priority of the Lender's security interest in the Collateral is impaired for any
reason;

6.3 Decline in Collateral Value. Any deterioration or impairment of the
Collateral or any decline or depreciation in the value of the Collateral
(whether actual or reasonably anticipated by the Lender) which, in the Lender's
discretion, causes the character or value of the Collateral to become
unsatisfactory to the Lender; or

6.4 Loss of Collateral. The Lender reasonably and in good faith believes that
the Collateral is in danger of misuse, dissipation, commingling, loss, theft,
damage or destruction, or is otherwise impaired or at risk of being impaired.

7. Remedies Upon Default. Upon the occurrence of any Event of Default, the
Lender shall have the following rights and remedies:

7.1 Rights of Secured Party. The Lender shall have all of the rights and
remedies of a secured party under the California Uniform Commercial Code and
under all other applicable laws.

7.2 Acceleration. The Lender may declare any or all of the Obligations to be
immediately due and payable, including the indebtedness evidenced by the Note.

7.3 Extensions of Credit. The Lender may discontinue advancing money or
extending credit to or for the benefit of Borrower in connection with the Loan
or under any other document or agreement between the Lender and Borrower.

7.4 Assembly of Collateral. The Lender may require Borrower to assemble the
Collateral and make it available to the Lender at a place designated by the
Lender.

7.5 Possession of Collateral. The Lender, without a breach of the peace, may
enter any of the premises of Borrower and search for, take possession of,
remove, keep or store any or all of the Collateral. If the Lender seeks to take
possession of any or all of the Collateral by court process, Borrower
irrevocably and unconditionally agrees that a receiver may be appointed by a
court for such purpose without regard to the adequacy of the security for the
Obligations. The Lender shall have the right to remain on Borrower's premises or
cause a custodian to remain thereon in exclusive control of such premises
without charge for as long as the Lender deems necessary in order to complete
the enforcement of its rights under this Agreement. If the Lender seeks
possession of any or all of the Collateral by court process, Borrower
irrevocably waives (a) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident or condition to
such possession; (b) any demand for possession prior to the commencement of any
suit or action to recover possession; and (c) any requirement that the Lender
retain possession of and not dispose of such Collateral until after trial or
final judgment.

 
-28-

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

 

7.6 Preparation of Collateral. The Lender may complete processing, manufacturing
or repair all or any part of the Collateral prior to a disposition and, for such
purpose and for the purpose of removal, the Lender shall have the right to use
Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all other
property without charge. The Lender may sell, ship, reclaim, lease or otherwise
dispose of all or any part of the Collateral in its condition at the time the
Lender obtains possession of such Collateral or after further manufacturing,
processing, or repair.

7.7 Foreclose on Collateral. The Lender may sell or dispose of the Collateral at
public or private sale, in one or more sales, as a unit or in parcels, at
wholesale or retail, and at such time and place and on such terms as the Lender
may determine. The Lender may be the purchaser of any or all of the Collateral
at any public sale and, if permitted under applicable law, any private sale.

7.8Accounts. With respect to the Accounts, and without limiting the Lender's
rights under Section 3 above, the Lender may:

(a)  Direct any or all Account Debtors to make payment directly to the Lender or
to a specified agent of the Lender; and

(b)  (i) Demand, collect, receive and give receipts for any and all money and
other property due or to become due in connection with the Accounts, in the
Lender's or Borrower's name; (ii) take possession of and endorse and collect any
or all notes, checks, drafts, money orders, or other instruments of payment
relating to the Collateral (including payments made under or with respect to any
policy of insurance); and (iii) file any claim and take any other action in any
court of law or equity which the Lender determines to be appropriate for the
purpose of collecting any or all of the Accounts; provided, however, that the
Lender shall not be obligated in any manner to make any demand or to make any
inquiry as to the nature or sufficiency of any payment received by it, or to
present or file any claim or take any action to collect or enforce the payment
of any or all of the Accounts.

7.9Postponement. Any public sale of any or all of the Collateral may be
postponed from time to time by public announcement at the time and place last
scheduled for the sale.

7.10Discharge of Other Claims. The Lender's sale or disposition of any or all of
the Collateral shall transfer to the purchaser all of the Borrower's rights in
such Collateral and discharge all security interests and liens subordinate to
the Lender's security interest in the Collateral, and the purchaser shall
acquire such Collateral free of all such subordinate interests and liens.

7.11Time of Sale. Without limiting the generality of this Section 7.11, the
Lender shall conclusively be deemed to have made a commercially reasonable
disposition of any or all of the Collateral if (a) the Lender holds a public or
private sale of such Collateral at least five (5) days after notice is given to
Borrower of the date fixed for any public sale or the date on or after which any
private sale or other disposition of the Collateral is to be made by the Lender;
(b) with respect to any public sale, the sale is held at least five days after
notice is published in a newspaper of general circulation in the county in which
such Collateral is located; and (c) respect to any public disposition, the sale
is held any time between the hours of 8 a.m. and 5 p.m. in the county in which
such Collateral is located at any place designated by the Lender.

7.12Information. Without limiting the generality of this Section 7.12, it shall
conclusively be deemed to be commercially reasonable for the Lender to direct
any prospective purchaser of any or all of the Collateral to Borrower to
ascertain all information concerning the status of the Collateral.

 7.13 Other Disposition. The Lender's disposition of any or all of the
Collateral in any manner which differs from the procedures specified in Section
7.11 or 7.12 above shall not be deemed to be commercially unreasonable.

 
-29-

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

 

7.14Judicial Action. The Lender may reduce its claims for breach of any of the
Obligations to judgment and foreclose or otherwise enforce its security interest
in any or all of the Collateral by any available judicial procedure. If the
Lender has reduced its claims for breach of any of the obligations to judgment,
the lien of any levy which may be made on any or all of the Collateral by virtue
of any execution based upon such judgment shall relate back to the date of the
Lender's perfection of its security interest in such Collateral. A judicial sale
pursuant to such execution shall constitute a foreclosure of the Lender's
security interest by judicial procedure, and the Lender may purchase at such
sale and thereafter hold the Collateral free of all rights of Borrower therein.

7.15 Discharge Claims. The Lender may discharge claims, demands, liens, security
interests, encumbrances and taxes affecting any or all of the Collateral and
take such other actions as the Lender determines to be necessary or appropriate
to protect the Collateral and the Lender's security interest therein. The
Lender, without releasing Borrower or any other party from any of the
Obligations, may perform any of the Obligations in such manner and to such
extent as the Lender determines to be necessary or appropriate to protect the
Collateral and the Lender's security interest therein.

7.16 Proceeds of Sale. The proceeds of any sale or disposition of the Collateral
by the Lender shall be applied in the following order of priority:

(a)  First, to all liabilities, obligations, costs, and expenses, including
reasonable attorneys' fees and costs, incurred by the Lender in exercising any
of its rights or remedies under this Agreement, including the costs and expenses
of retaking, holding, and selling any or all of the Collateral and the costs and
expenses of enforcing and collecting upon any or all of the Accounts;

(b)  Second, to the payment of the Obligations in such order and amounts as the
Lender may determine in its discretion;

(c)  Third, to (i) the satisfaction of indebtedness secured by any subordinate
security interest in the Collateral if written demand therefor is received by
the Lender before distribution of any such proceeds; and (ii) to the
satisfaction of any subordinate attachment lien or execution lien pursuant to
subdivision (b) of Section 701.040 of the Code of Civil Procedure if notice of
the levy of attachment or execution is received by the Lender before
distribution of any such proceeds. If requested by the Lender, the holder of a
subordinate security interest in the Collateral shall furnish the Lender with
proof of its interest in the Collateral acceptable to the Lender, and unless
such holder does so, the Lender shall have no obligation to comply with such
holder's demand; and

(d)  Fourth, the surplus, if any, shall be paid to Borrower.

8.  Liability for Deficiency. Borrower shall at all times remain liable for any
deficiency remaining on the Obligations for which Borrower is liable after any
disposition of any or all of the Collateral and after the Lender's application
of any proceeds to the Obligations.

9.  Power of Attorney. Borrower irrevocably appoints the Lender, with full power
of substitution, as Borrower's attorney-in-fact, coupled with an interest, with
full power, in the Lender's own name or in the name of Borrower:

9.1 At any time after the occurrence of any Event of Default, to do any or all
of the following:
(a)  Endorse any checks, drafts, money orders, notes, and other instruments or
documents representing or evidencing the Collateral, or proceeds of the
Collateral;

 
-30-

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

 

(b)  Pay or discharge claims, demands, liens, security interests, encumbrances,
or taxes affecting or threatened against any or all of the Collateral;

(c)  Receive payment of all Accounts;

(d)  Execute any invoices relating to any Account, any draft against any Account
Debtor, any notice to any Account Debtor, any proof of claim in bankruptcy, any
notice of lien, claim of mechanic's, materialman's or other lien, or assignment
or satisfaction of mechanic's, materialman's or other lien;
(e)  Grant any extension of time to pay any Account, compromise claims and
settle Accounts for less than face value thereof, and execute all releases and
other documents in connection therewith;

(f)  Commence, prosecute or defend any suit, action or proceeding relating to
any or all of the Collateral;

(g)  Receive and open all mail addressed to Borrower and, in the exercise of
such right, the Lender shall have the right, in Borrower's name, to notify the
Post Office authorities to change the address for the delivery of mail addressed
to Borrower to such other address as the Lender may designate, including the
Lender's own address. The Lender shall promptly turn over to Borrower all of
such mail not relating to the Collateral;

(h)  Direct any financial institution which is a participant with the Lender in
extensions of credit to or for the benefit of Borrower, or which is an
institution with which any deposit account is maintained, to pay to the Lender
all monies on deposit by Borrower with said financial institution which are
payable by said financial institution to Borrower, regardless of any loss of
interest, charge or penalty as a result of payment before maturity;

(i)  Settle and adjust, and give releases of, any insurance claim that relates
to any of the Collateral, obtain payment of claim, and make all determinations
and decisions with respect to any such policy of insurance, and endorse
Borrower's name on any check, draft, instrument or other item of payment or the
proceeds of such policies of insurance;

(j)  Instruct any accountant or other third person having custody or control of
any books or records belonging or relating to the Collateral to give the Lender
full rights of access with respect thereto;

(k)  Execute on behalf of Borrower any document exercising, transferring or
assigning any option to purchase, sell or otherwise dispose of or to lease, as
lessor or lessee, any real or personal property;

(l) Sell, transfer, pledge, make any agreement with respect to, or otherwise
deal with any or all of the Collateral as though the Lender were the owner
thereof for all purposes; and

(m) Execute on behalf of Borrower any and all documents and instruments
(including notices of assignment) required under the Federal Assignment of
Claims Act for the direct payment of Accounts to the Lender.

 
-31-

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

 

9.2 To execute any financing statement, continuation financing statement,
financing statement amendment, security agreement, assignment, notice,
Certificate of Ownership, application for a Certificate of Ownership, and all
other documents which the Lender, in its discretion, determines to be necessary
or appropriate in order to (a) perfect or maintain the Lender's security
interest in the Collateral; (b) exercise any or all of the Lender's rights under
this Agreement; or (c) to consummate or effectuate any of the transactions
contemplated by this Agreement.

10.  Waivers. Borrower hereby waives presentment, demand for payment, protest,
notice of demand, dishonor, protest and nonpayment, and all other notices and
demands in connection with the delivery, acceptance, performance, default under,
and enforcement of the Obligations. Borrower waives the right to assert any
statute of limitations as a defense to the enforcement of any of the Obligations
to the fullest extent permitted by law.

11.  Cumulative Remedies. The Lender's rights and remedies under this Agreement
are cumulative with and in addition to all other rights and remedies which the
Lender may have in connection with the Loan The Lender may exercise any one or
more of its rights and remedies under this Agreement at the Lender's option and
in such order as the Lender may determine in its discretion. The Lender may
exercise its rights under this Agreement from time to time and at such times as
the Lender may determine.

12.  Actions. The Lender shall have the right, but not the obligation, to
commence, appear in, or defend any action or proceeding which affects or which
the Lender determines may affect (a) the Collateral; (b) Borrower's or the
Lender's rights or obligations under the Loan Documents; (c) Borrower's or the
Lender's rights under this Agreement; or (d) the Loan. Whether or not Borrower
is in default under the Loan Documents, the Lender shall at all times have the
right to take any and all actions which the Lender in its good faith business
judgment determines to be necessary or appropriate to protect the Lender's
interest in connection with the Loan.

13.  Attorneys' Fees. Upon the Lender's demand, Borrower shall reimburse the
Lender for all costs and expenses, including attorney's fees and costs, which
are incurred by the Lender, whether before or after the commencement of any
action or proceeding by the Lender following an Event of Default under the Loan
Documents, in connection with any or all of the following: (a) the exercise of
any or all of the Lender's rights and remedies under the Loan Documents based on
an Event of Default, whether or not any legal proceedings are instituted by the
Lender; (b) the protection, preservation, management, operation, or maintenance
of any or all of the Collateral; (c) the sale or disposition of any or all of
the Collateral; (d) the commencement and prosecution of any suit, action, or
proceeding with respect to any or all of the foregoing matters, including an
action for relief from the automatic stay arising under Bankruptcy Code §
362(a), 11 U.S.C. § 362(a); or (e) the defense of any suit, action or proceeding
by Borrower or any other party relating to any or all of the Collateral.
Borrower's obligation to reimburse the Lender under this Section shall include
payment of interest on all amounts expended by the Lender from the date of
expenditure at the rate of interest specified in the Note.

14.  Notices. All notices under this Agreement shall be given in accordance with
the notice provision contained in the Loan Agreement.

15.  Applicable Law. The Loan Documents shall be construed in accordance with
and governed by the laws of the State of California.

16.  Time of Essence. Time is of the essence of each provision of the Loan
Documents.

 
-32-

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

 

17.  Interpretation. The headings to sections of this Agreement are for
convenient reference only, and they do not in any way define limit any of the
terms of this Agreement and shall not be used in interpreting this Agreement.
For purposes of this Agreement, (a) the term "including" means "including
without limitation"; (b) the term "document" shall be deemed to include all
written contracts, commitments, agreements, and instruments; and (c) the term
"discretion" when applied to any determination, consent or approval right by the
Lender, shall be deemed to mean the Lender's sole but good faith business
judgment. Whenever the context of this Agreement reasonably requires, all words
used in the singular shall be deemed to have been used in the plural, and the
neuter gender shall be deemed to include the masculine and feminine gender, and
vice versa. For purposes of this Agreement, (i) all references to the Collateral
shall be deemed to refer to all or any part of the Collateral; and (ii) all
references to the Loan Documents shall be deemed to refer to any or all of the
Loan Documents.

18.  Entire Agreement. The Loan Documents contain the entire agreement between
the Lender and Borrower concerning the subject matter of the Loan Documents and
supersede all prior and contemporaneous agreements, statements, understandings,
terms, conditions, representations and warranties, whether oral or written, made
by the Lender or Borrower concerning the Loan.

19.  Severability. If any provision of the Loan Documents shall be held by any
court of competent jurisdiction to be unlawful, void, voidable, or unenforceable
for any reason, such provision shall be deemed severable from and shall in no
way affect the validity or enforceability of the remaining provisions of the
Loan Documents. Without limiting the generality of the preceding sentence, if
the Lender's security interest in any part of the Collateral is held to be
unlawful, void, voidable or unenforceable for any reason, such defect shall in
no way affect the validity or enforceability of the remaining terms and
conditions of this Agreement.

20.  No Third Party Beneficiaries. The Loan Documents are entered into for the
sole protection and benefit of the Lender, Borrower and Guarantors (if any), as
applicable, and their respective permitted successors and assigns. No other
Person shall have any rights or causes of action under the Loan Documents.

21.  Documents. All documents and instruments which Borrower is required to
deliver to the Lender under this Agreement shall be acceptable in form and
substance to the Lender acting in good faith.

22.  Performance of Covenants. Borrower shall perform all of its covenants under
this Agreement at its sole cost and expense.

23.  No Waiver by Lender. No waiver by the Lender of any of its rights or
remedies in connection with the Loan Documents shall be effective unless such
waiver is in writing and signed by the Lender.

24.  Term. This Agreement shall continue in full force and effect as long as any
of the Obligations are outstanding and until terminated by written agreement of
the Lender.

25.  Amendment. This Agreement may be modified only by a written agreement
signed by Borrower and the Lender.

26.  Successors. This Agreement shall be binding upon and inure to the benefit
of Borrower and the Lender and their respective permitted successors and
assigns.

 
-33-

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

 

Dated:
June 8, 2006
         
Borrower:
   
ASDS of Orange County, Inc.
   
a Delaware corporation
       
By:
/s/ James C. Leslie
   
James C. Leslie, President
       
By:
/s/ David E. Bowe
   
David E. Bowe, Secretary
         
Accepted:
   
First Republic Bank
       
By:
/s/ Carolyn Powell
   
Carolyn Powell
 
Its:
Managing Director
 

 
 
 
 
 
 
 
 -34-

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