Unassociated Document


    

      


      Security
        Agreement

      


      This
        Security Agreement (“Agreement”)
        is
        made this 29th day of January 2007 (the “Effective
        Date”),
        by
        and between AuraSound, Inc., a California corporation (“Debtor”)
        whose
        address is 11839 East Smith Ave, Santa Fe Springs, CA 90670, and Westrec
        Properties Inc. & Affiliated Companies 401(k) Plan (“Secured
        Party”).

      


      This
        Agreement is entered into in connection with: (i) Secured Party’s loan to Debtor
        of $500,000 (the “Loan”)
        pursuant to that certain Secured Promissory Note dated the Effective Date,
        made
        by Debtor in favor of Secured Party (the “Note”);
        (ii)
        that certain Loan Agreement dated the Effective Date between Debtor and Secured
        Party (the “Loan
        Agreement”);
        and
        (iii) that certain Intercreditor Agreement dated the Effective Date between
        Secured Party and Mapleridge Insurance Services (the “Intercreditor
        Agreement”).

      


      Secured
        Party and Debtor agree as follows:

      


      
        	
                A.

              	
                Definitions.

              


      

      


      
        	 	
                1.

              	
                “Collateral.”
                  The Collateral shall consist of all of the personal property of
                  Debtor,
                  wherever located, and now owned or hereafter acquired,
                  including:

              


        	 	 	 


      

      
        	 	
                (i)

              	
                Accounts;

              


        	 	 	 


      

      
        	 	
                (ii)

              	
                Chattel
                  paper;

              


        	 	 	 


      

      
        	 	
                (iii)

              	
                Inventory;

              


        	 	 	 


      

      
        	 	
                (iv)

              	
                Equipment;

              


        	 	 	 


      

      
        	 	
                (v)

              	
                Instruments,
                  including promissory notes;

              


        	 	 	 


      

      
        	 	
                (vi)

              	
                Investment
                  property;

              


        	 	 	 


      

      
        	 	
                (vii)

              	
                Documents;

              


        	 	 	 


      

      
        	 	
                (viii)

              	
                Deposit
                  Accounts;

              


        	 	 	 


      

      
        	 	
                (ix)

              	
                Commercial
                  Tort Claims; 

              


        	 	 	 


      

      
        	 	
                (x)

              	
                Letter-of-credit
                  right;

              


        	 	 	 


      

      
        	 	
                (xi)

              	
                General
                  intangibles (including without limitation all Intellectual
                  Property);

              


        	 	 	 


      

      
        	 	
                (xii)

              	
                Supporting
                  obligations; and

              


        	 	 	 


      

      
        	 	
                (xiii)

              	
                To
                  the extent not listed above as original collateral, proceeds and
                  products
                  of the foregoing. 

              


        	 	 	 


      

      
        	 	
                2.

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

              


        	 	 	 


      

      
      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        	 	
                3.

              	
                “Intellectual
                  Property.”
                  Intellectual Property is all of Debtor’s:

              


        	 	 	 


      

      
        	 	
                (i)

              	
                Intellectual
                  property rights including Copyrights, Trademarks, and Patents,
                  including
                  amendments, renewals, extensions, and all licenses or other rights
                  to use
                  and all license fees and royalties from the
                  use;

              


        	 	 	 


      

      
        	 	
                (ii)

              	
                Trade
                  secrets or know-how;

              


        	 	 	 


      

      
        	 	
                (iii)

              	
                Design
                  rights which may be available to Debtor;
                  and

              


        	 	 	 


      

      
        	 	
                (iv)

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

              


        	 	 	 


      

      
        	 	
                4.

              	
                “Obligations.”
                  This Agreement secures the following:

              


        	 	 	 


      

      
        	 	
                (i)

              	
                Debtor’s
                  obligations under the Note and Loan
                  Agreement;

              


        	 	 	 


      

      
        	 	
                (ii)

              	
                all
                  of Debtor’s other present and future obligations to Secured
                  Party;

              


        	 	 	 


      

      
        	 	
                (iii)

              	
                the
                  repayment of (a) any amounts that Secured Party may advance or
                  spend for
                  the maintenance or preservation of the Collateral, and (b) any
                  other
                  expenditures that Secured Party may make under the provisions of
                  this
                  Agreement or for the benefit of Debtor;

              


        	 	 	 


      

      
        	 	
                (iv)

              	
                all
                  amounts owed under any modifications, renewals or extensions of
                  any of the
                  foregoing obligations; and

              


        	 	 	 


      

      
        	 	
                (v)

              	
                any
                  of the foregoing that arises after the filing of a petition by
                  or against
                  Debtor under the United States Bankruptcy Code (the “Bankruptcy
                  Code”),
                  even if the obligations do not accrue because of the automatic
                  stay under
                  Bankruptcy Code § 362 or otherwise.

              


        	 	 	 


      

      
        	 	
                5.

              	
                “Mapleridge
                  Security Agreement.”
                  The Mapleridge Security Agreement is the December 29, 2006 Security
                  Agreement between Debtor and Mapleridge Insurance
                  Services.

              


        	 	 	 


      

      
        	 	
                6.

              	
                “Patents.”
                  Patents are patents, patent applications and like protections,
                  including
                  improvements, divisions, continuations, renewals, reissues,
                  reexaminations, extensions and continuations-in-part of the
                  same.

              


        	 	 	 


      

      
        	 	
                7.

              	
                “Trademarks.”
                  Trademarks are trademark and servicemark rights, registered or
                  not,
                  applications to register and registrations and like protections,
                  and the
                  entire goodwill of the business of Debtor connected with the trademarks
                  or
                  servicemarks.

              


        	 	 	 


      

      
        	 	
                8.

              	
                “UCC.”
                  Any term used in the Uniform Commercial Code (“UCC”)
                  and not defined in this Agreement has the meaning given to the
                  term in the
                  UCC.

              


      

      


      
        	
                B.

              	
                Grant
                  of Security Interest.

              


      

      


      Debtor
        grants a security interest in the Collateral to Secured Party to secure the
        payment or performance of the Obligations.

      


      
        
          
          

        

        
          -2-

          
            

          

        

        
          
          

        

      

      


      
        	
                C.

              	
                Perfection
                  of Security Interests.

              


      

      


      
        	 	
                1.

              	
                Filing
                  of financing statement.

              


        	 	 	 


      

      
        	 	
                (i)

              	
                Debtor
                  authorizes Secured Party to file a financing statement (the “Financing
                  Statement”)
                  describing the Collateral. 

              


        	 	 	 


      

      
        	 	
                (ii)

              	
                Secured
                  Party shall receive prior to the Closing an official report from
                  the
                  Secretary of State of each Collateral State, Chief Executive Office
                  State,
                  and the Debtor State (each as defined below) (the “SOS
                  Reports”)
                  indicating that Secured Party’s security interest is prior to all other
                  security interests or other interests reflected in the report,
                  other than
                  as provided in the Intercreditor Agreement, which shall provide
                  that
                  Secured Party’s security interest shall be pari
                  passu
                  to
                  the security interest granted by Debtor to Mapleridge Insurance
                  Services.
                  

              


        	 	 	 


      

      
        	 	
                2.

              	
                Possession.

              


        	 	 	 


      

      
        	 	
                (i)

              	
                Debtor
                  shall have possession of the Collateral, except where expressly
                  otherwise
                  provided in this Agreement or where Secured Party chooses to perfect
                  its
                  security interest by possession in addition to the filing of the
                  Financing
                  Statement.

              


        	 	 	 


      

      
        	 	
                (ii)

              	
                Where
                  Collateral is in the possession of a third party, Debtor will join
                  with
                  Secured Party in notifying the third party of Secured Party’s security
                  interest and obtaining an acknowledgment from the third party that
                  it is
                  holding the Collateral for the benefit of Secured
                  Party.

              


        	 	 	 


      

      
        	 	
                3.

              	
                Control.
                  Debtor will cooperate with Secured Party in obtaining control with
                  respect
                  to Collateral consisting of:

              


        	 	 	 


      

      
        	 	
                (i)

              	
                Deposit
                  Accounts; 

              


        	 	 	 


      

      
        	 	
                (ii)

              	
                Investment
                  Property;

              


        	 	 	 


      

      
        	 	
                (iii)

              	
                Letter-of-credit
                  rights; and

              


        	 	 	 


      

      
        	 	
                (iv)

              	
                Electronic
                  chattel paper.

              


        	 	 	 


      

      
        	 	
                4.

              	
                Intellectual
                  Property. Debtor
                  authorizes Secured Party to record any documents with the United
                  States
                  Patent and Trademark Office and United States Copyright Office
                  necessary
                  to perfect or protect Secured Party’s security interest in Debtor’s
                  Intellectual Property.

              


        	 	 	 


      

      
        	 	
                5.

              	
                Marking
                  of Chattel Paper.
                  Debtor will not create any Chattel Paper without placing a legend
                  on the
                  Chattel Paper acceptable to Secured Party indicating that Secured
                  Party
                  has a security interest in the Chattel
                  Paper.

              


      

      


      
        	
                D.

              	
                Post-Closing
                  Covenants and Rights Concerning the
                  Collateral.

              


      

      


      
        	 	
                1.

              	
                Inspection.
                  The parties to this Security Agreement may inspect any Collateral
                  in the
                  other party’s possession, at any time upon reasonable
                  notice.

              


      

      
      

       

      
        
          
          

        

        
          -3-

          
            

          

        

        
          
          

        

      

       

      
        	 	
                2.

              	
                Personal
                  Property. The
                  Collateral shall remain personal property at all times. Debtor
                  shall not
                  affix any of the Collateral to any real property in any manner
                  that would
                  change its nature from that of personal property to real property
                  or to a
                  fixture.

              


        	 	 	 


      

      
        	 	
                3.

              	
                Secured
                  Party’s Collection Rights. Secured
                  Party shall have the right at any time to enforce Debtor’s rights against
                  the account debtors and obligors.

              


        	 	 	 


      

      
        	 	
                4.

              	
                Limitations
                  on Obligations Concerning Maintenance of
                  Collateral.

              


        	 	 	 


      

      
        	 	
                (i)

              	
                Risk
                  of Loss.
                  Debtor has the risk of loss of the
                  Collateral.

              


        	 	 	 


      

      
        	 	
                (ii)

              	
                No
                  Collection Obligation.
                  Secured Party has no duty to collect any income accruing on the
                  Collateral
                  or to preserve any rights relating to the
                  Collateral.

              


        	 	 	 


      

      
        	 	
                5.

              	
                No
                  Disposition of Collateral.
                  Secured Party does not authorize, and Debtor agrees not
                  to:

              


        	 	 	 


      

      
        	 	
                (i)

              	
                make
                  any sales or leases of any of the Collateral, other than sales
                  of
                  Inventory in the ordinary course of
                  business;

              


        	 	 	 


      

      
        	 	
                (ii)

              	
                license
                  any of the Collateral, other than licenses or sublicenses in the
                  ordinary
                  course of business; or

              


        	 	 	 


      

      
        	 	
                (iii)

              	
                grant
                  any other security interest in any of the
                  Collateral.

              


        	 	 	 


      

      
        	 	
                6.

              	
                Purchase
                  Money Security Interests. To
                  the extent Debtor uses the Loan to purchase Collateral, Debtor’s repayment
                  of the Loan shall apply on a “first-in-first-out” basis so that the
                  portion of the Loan used to purchase a particular item of Collateral
                  shall
                  be paid in the chronological order the Debtor purchased the
                  Collateral.

              


      

      


      
        	
                E.

              	
                Debtor’s Representations
                  and Warranties.

              


      

      


      Debtor
        warrants and represents that:

      


      
        	 	
                1.

              	
                Title
                  to and transfer of Collateral.
                  It
                  has rights in or the power to transfer the Collateral and its title
                  to the
                  Collateral is free of all adverse claims, liens, security interests
                  and
                  restrictions on transfer or pledge except as created by this Agreement,
                  other than as set forth in the Mapleridge Security
                  Agreement.

              


        	 	 	 


      

      
        	 	
                2.

              	
                Location
                  of Collateral.
                  All collateral consisting of goods is located solely in the State
                  of
                  California (the “Collateral
                  State”).
                  

              


        	 	 	 


      

      
        	 	
                3.

              	
                Copyrights.
                  Set forth on Exhibit
                  A
                  is
                  a true and complete list of Debtor’s Copyrights (including copyrights of
                  software), setting forth the name of the copyright and application
                  or
                  registration number, which are registered with the United States
                  Copyright
                  Office and any foreign copyright office.


              


      

       

      
        
          
          

        

        
          -4-

          
            

          

        

        
          
          

        

      

      
      

       

      
        	 	
                4.

              	
                Patents.
                  Set
                  forth on Exhibit
                  B
                  is
                  a true and compete list
                  of all of Debtor’s Patents, setting forth the name of the patent and
                  application or registration number, which are pending or registered
                  with
                  the United States Patent and Trademark Office and any foreign patent
                  office. 

              


        	 	 	 


      

      
        	 	
                5.

              	
                Trademarks.
                  Set
                  forth on Exhibit
                  C
                  is
                  a true and compete list
                  of all of Debtor’s Trademarks, setting forth the name of the trademark and
                  application or registration number, which are pending or registered
                  with
                  the United States Patent and Trademark Office and any foreign trademark
                  office.

              


        	 	 	 


      

      
        	 	
                6.

              	
                Intellectual
                  Property.
                  Debtor
                  is
                  the sole owner of the Intellectual Property, except for those licenses
                  or
                  sublicenses granted in the ordinary course of Debtor’s business and any
                  interest or title of a licensor or under any license or sublicense,
                  if
                  the licenses and sublicenses permit granting Secured Party a security
                  interest in the licenses. No part of the Intellectual Property
                  has been
                  judged invalid or unenforceable, in whole or in part, and no claim
                  has
                  been made that any part of the Intellectual Property violates the
                  rights
                  of any third party. 

              


        	 	 	 


      

      
        	 	
                7.

              	
                Location,
                  State of Organization, and Name of Debtor. Debtor’s:

              


        	 	 	 


      

      
        	 	
                (i)

              	
                chief
                  executive office is located in the State of California (the “Chief
                  Executive Office State”);

              


        	 	 	 


      

      
        	 	
                (ii)

              	
                state
                  of organization is the State of California (the “Debtor State”);
                  and

              


        	 	 	 


      

      
        	 	
                (iii)

              	
                exact
                  legal name is as set forth in the first paragraph of this
                  Agreement.

              


      

      


      
        	
                F.

              	
                Debtor’s Covenants.

              


      

      


      Until
        the
        Obligations are paid in full, Debtor agrees that it will:

      


      
        	 	
                1.

              	
                Preserve
                  its corporate existence and not, in one transaction or a series
                  of related
                  transactions, merge into or consolidate with any other entity,
                  or sell all
                  or substantially all of its assets;

              


        	 	 	 


      

      
        	 	
                2.

              	
                Not
                  change the state where it is located; 

              


        	 	 	 


      

      
        	 	
                3.

              	
                Not
                  change its corporate name without providing Secured Party with
                  thirty
                  days’ prior written notice;

              


        	 	 	 


      

      
        	 	
                4.

              	
                (i) Use
                  its best efforts to protect, defend and maintain the validity and
                  enforceability of the Intellectual Property, (ii) promptly advise
                  Secured
                  Party in writing of any material infringements of the Intellectual
                  Property by a third party as it becomes known to Debtor, and
                  (iii) use its best efforts to prevent any Intellectual Property from
                  being abandoned, forfeited or dedicated to the public without Secured
                  Party’s written consent;

              


        	 	 	 


      

      
        	 	
                5.

              	
                Give
                  prompt notice of any material change in the composition of the
                  Intellectual Property, including any subsequent ownership right
                  of Debtor
                  in or to any Copyright, Patent or Trademark or knowledge of an
                  event that
                  materially adversely affects the value of the Intellectual Property;
                  and

              


      

       

      
        
          
          

        

        
          -5-

          
            

          

        

        
          
          

        

      

       

      
        	 	
                6.

              	
                Not
                  register any of its Copyrights with the United States Copyright
                  Office
                  without first executing and simultaneously registering an intellectual
                  property security agreement, with the United States Copyright Office,
                  listing such Copyrights in order to protect and perfect Secured
                  Party’s
                  security interest in such Copyrights. Promptly after such registration,
                  Debtor shall forward to Secured Party, at the address set forth
                  above, a
                  copy of, and the original Intellectual Property Security Agreement
                  as
                  filed with the United States Copyright Office.


              


      

      


      
        	
                G.

              	
                Events
                  of Default.

              


      

      


      The
        occurrence of any of the following shall, at the option of Secured Party,
        be an
        Event of Default:

      


      
        	 	
                1.

              	
                Any
                  default or Event of Default by Debtor under this Agreement, the
                  Note, the
                  Loan Agreement or any of the other
                  Obligations;

              


        	 	 	 


      

      
        	 	
                2.

              	
                Debtor’s
                  failure to comply with any of the provisions of,
                  or the incorrectness of any representation or warranty contained
                  in, this
                  Agreement, the Note, the Loan Agreement or in any of the other
                  Obligations;

              


        	 	 	 


      

      
        	 	
                3.

              	
                Transfer
                  or disposition of any of the Collateral, except as expressly permitted
                  by
                  this Agreement;

              


        	 	 	 


      

      
        	 	
                4.

              	
                Attachment,
                  execution, or levy on any of the Collateral;


              


        	 	 	 


      

      
        	 	
                5.

              	
                The
                  (a) application for the appointment of a receiver or custodian
                  for Debtor
                  or the property of Debtor, (b) the entry of an order for relief
                  or the
                  filing of a petition for relief by or against Debtor under the
                  Bankruptcy
                  Code or other insolvency law, (c) any assignment for the benefit
                  of
                  creditors by or against Debtor, or (d) Debtor becomes
                  insolvent;

              


        	 	 	 


      

      
        	 	
                6.

              	
                Debtor
                  shall fail to comply with any federal, state or local (a) hazardous
                  waste
                  or environmental law, (b) asset forfeiture or similar law which
                  can result
                  in the forfeiture of property, or
                  (c) other law, where noncompliance may have any significant effect
                  on the
                  Collateral; 

              


        	 	 	 


      

      
        	 	
                7.

              	
                Debtor
                  shall become subject to any administrative or judicial proceeding
                  under
                  any federal, state or local (a) hazardous waste or environmental
                  law, (b)
                  asset forfeiture or similar law which can result in the forfeiture
                  of
                  property, or
                  (c) other law, where such proceeding may have any significant effect
                  on
                  the Collateral; or

              


        	 	 	 


      

      
        	 	
                8.

              	
                Secured
                  Party shall receive at any time following the Closing an SOS Report
                  indicating that Secured Party’s security interest is not prior to all
                  other security interests or other interests reflected in the report,
                  other
                  than the existing security interests as provided under the Mapleridge
                  Security Agreement.

              


      

       

      
        
          
          

        

        
          -6-

          
            

          

        

        
          
          

        

      

      
 

      
        	
                H.

              	
                Default
                  Costs.

              


      

      


      Should
        an
        Event of Default occur, Debtor will pay to Secured Party all costs reasonably
        incurred by the Secured Party for the purpose of enforcing its rights hereunder,
        including:

      


      
        	 	
                1.

              	
                Costs
                  of foreclosure;

              


        	 	 	 


      

      
        	 	
                2.

              	
                Costs
                  of obtaining money damages; and

              


        	 	 	 


      

      
        	 	
                3.

              	
                A
                  reasonable fee for the services of an attorney employed by Secured
                  Party
                  for any purpose related to this Agreement or the Obligations, including
                  consultation, drafting documents, sending notices or instituting,
                  prosecuting or defending litigation or
                  arbitration.

              


      

      


      
        	
                I.

              	
                Remedies Upon
                  Default.

              


      

      


      
        	 	
                1.

              	
                General.
                  Upon any Event of Default, Secured Party may pursue any remedy
                  available
                  at law (including those available under the provisions of the UCC),
                  or in
                  equity to collect, enforce, or satisfy any Obligations then owing,
                  whether
                  by acceleration or otherwise.

              


        	 	 	 


      

      
        	 	
                2.

              	
                Concurrent
                  Remedies.
                  Upon an Event of Default, Secured Party shall have the right to
                  pursue any
                  of the following remedies separately, successively, or
                  simultaneously:

              


        	 	 	 


      

      
        	 	
                (i)

              	
                File
                  suit and obtain judgment, and, in conjunction with any action,
                  Secured
                  Party may seek any ancillary remedies provided by law, including
                  levy of
                  attachment and garnishment.

              


        	 	 	 


      

      
        	 	
                (ii)

              	
                Take
                  possession of any Collateral if not already in its possession without
                  demand and without legal process. Upon Secured Party’s demand, Debtor will
                  assemble and make the Collateral available to the Secured Party
                  as
                  directed. Debtor grants to Secured Party the right, for this purpose,
                  to
                  enter into or on any premises where any Collateral may be
                  located.

              


        	 	 	 


      

      
        	 	
                (iii)

              	
                Without
                  taking possession, sell, lease or otherwise dispose of the Collateral
                  at
                  public or private sale in accordance with the
                  UCC.

              


      

      


      
        	
                J.

              	
                Foreclosure
                  Procedures.

              


      

      


      
        	 	
                1.

              	
                No
                  Waiver.
                  No delay or omission by the Secured Party to exercise any right
                  or remedy
                  accruing upon any Event of Default shall (a) impair any right or
                  remedy,
                  (b) waive any default or operate as an acquiescence to the Event
                  of
                  Default, or (c) affect any subsequent default of the same or of
                  a
                  different nature.

              


        	 	 	 


      

      
        	 	
                2.

              	
                Notices.
                  Secured Party shall give Debtor such notice of any private or public
                  sale
                  as may be required by the UCC.

              


        	 	 	 


      

      
        	 	
                3.

              	
                Condition
                  of Collateral.
                  Secured Party has no obligation to clean-up or otherwise prepare
                  the
                  Collateral for sale.

              


      

       

      
        
          
          

        

        
          -7-

          
            

          

        

        
          
          

        

      

       

      
      

       

      
        	 	
                4.

              	
                No
                  Obligation to Pursue Others.
                  Secured Party has no obligation to attempt to satisfy the Obligations
                  by
                  collecting them from any other person liable for them and Secured
                  Party
                  may release, modify or waive any collateral provided by any other
                  person
                  to secure any of the Obligations, all without affecting Secured
                  Party’s
                  rights against Debtor. Debtor
                  waives any right it may have to require Secured Party to pursue
                  any third
                  person for any of the Obligations.

              


        	 	 	 


      

      
        	 	
                5.

              	
                Compliance
                  With Laws.
                  Secured Party may comply with any applicable state or federal law
                  requirements in connection with a disposition of the Collateral
                  and
                  compliance will not be considered to adversely affect the commercial
                  reasonableness of any sale of the
                  Collateral.

              


        	 	 	 


      

      
        	 	
                6.

              	
                Warranties.
                  Secured
                  Party may sell the Collateral without giving any warranties as
                  to the
                  Collateral. Secured Party may specifically disclaim any warranties
                  of
                  title or the like. This procedure will not be considered adversely
                  to
                  affect the commercial reasonableness of any sale of the
                  Collateral.

              


        	 	 	 


      

      
        	 	
                7.

              	
                Intellectual
                  Property.
                  Secured Party is granted a non-exclusive, royalty-free license
                  or other
                  right to use, without charge, Debtor’s labels, Patents, Copyrights, rights
                  of use of any name, trade secrets, trade names, Trademarks, service
                  marks,
                  and advertising matter, or any similar property as it pertains
                  to the
                  Collateral, solely in completing production of, advertising for
                  sale, and
                  selling any Collateral and, in connection with Secured Party’s exercise of
                  its rights under this Section, Debtor’s rights under all licenses and all
                  franchise agreements inure to Secured Party’s
                  benefit;

              


        	 	 	 


      

      
        	 	
                8.

              	
                Sales
                  on Credit.
                  If Secured Party sells any of the Collateral upon credit, Debtor
                  will be
                  credited only with payments actually made by the purchaser, received
                  by
                  Secured Party and applied to the indebtedness of the Purchaser.
                  In the
                  event the purchaser fails to pay for the Collateral, Secured Party may
                  resell the Collateral and Debtor shall be credited with the proceeds
                  of
                  the sale.

              


        	 	 	 


      

      
        	 	
                9.

              	
                Purchases
                  by Secured Party.
                  In the event Secured Party purchases any of the Collateral being
                  sold,
                  Secured Party may pay for the Collateral
                  by
                  crediting some or all of the Obligations of the
                  Debtor.

              


        	 	 	 


      

      
        	 	
                10.

              	
                No
                  Marshaling. Secured
                  Party has no obligation to marshal any assets in favor of Debtor,
                  or
                  against or in payment of:

              


        	 	 	 


      

      
        	 	
                (i)

              	
                the
                  Note,

              


        	 	 	 


      

      
        	 	
                (ii)

              	
                any
                  of the other Obligations, or

              


        	 	 	 


      

      
        	 	
                (iii)

              	
                any
                  other obligation owed to Secured Party by Debtor or any other
                  person.

              


      

      


      
        	
                K.

              	
                Miscellaneous.

              


      

      


      
        	 	
                1.

              	
                Assignment.

              


        	 	 	 


      

      
        	 	
                (i)

              	
                Binds
                  Assignees.
                  This Agreement shall bind and shall inure to the benefit of the
                  heirs,
                  legatees, executors, administrators, successors, and assigns of
                  Secured
                  Party and
                  shall bind all persons who become bound as a debtor to this
                  Agreement.

              


      

      
      

       

      
        
          
          

        

        
          -8-

          
            

          

        

        
          
          

        

      

       

      
        	 	
                (ii)

              	
                No
                  Assignments by Debtor.
                  Secured Party does not consent to any assignment by Debtor except
                  as
                  expressly provided in this Agreement.

              


        	 	 	 


      

      
        	 	
                (iii)

              	
                Secured
                  Party Assignments. Secured
                  Party may assign its right or interest under this Agreement. If
                  an
                  assignment is made, Debtor shall render performance under this
                  Agreement
                  to the assignee. Debtor waives and will not assert against any
                  assignee
                  any claims, defenses, or setoffs which Debtor could assert against
                  Secured
                  Party except defenses which cannot be
                  waived.

              


        	 	 	 


      

      
        	 	
                2.

              	
                Severability.
                  Should any provision of this Agreement be found to be void, invalid
                  or
                  unenforceable by a court or panel of arbitrators of competent
                  jurisdiction, that finding shall only affect the provisions found
                  to be
                  void, invalid or unenforceable and shall not affect the remaining
                  provisions of this Agreement.

              


        	 	 	 


      

      
        	 	
                3.

              	
                Notices.
                  Any notice, request or other communication required or permitted
                  hereunder
                  shall be in writing and shall be delivered personally or by facsimile
                  (receipt confirmed electronically) or shall be sent by a reputable
                  express
                  delivery service or by certified mail, postage prepaid with return
                  receipt
                  requested, addressed as follows:

              


      

       

      
        	 	
                if
                  to Debtor, to:

                Arthur
                  Liu

                AuraSound,
                  Inc.

                11839
                  East Smith Ave

                Santa
                  Fe Springs, CA 90670

                Fax:
                  (562) 447-1788

                 

              
	 	
                with
                  a copy to:

                Kevin
                  Friedmann

                Richardson
                  & Patel, LLP

                The
                  Chrysler Building 

                405
                  Lexington Avenue, 26th Floor 

                New
                  York, NY 10174

                Fax:
                  212-907-6687

                 

              
	 	
                if
                  to Secured Party, to:

                Westrec
                  Properties Inc. & Affiliated Companies 401(k) Plan

                Att:
                  Michael Sachs

                16633
                  Ventura Blvd., 6th Floor

                Encino,
                  CA  91436

                Fax:
                  (818) 907-1104

              


      

       

      
        
          
          

        

        
          -9-

          
            

          

        

        
          
          

        

      

       

      
        	 	
                with
                  a copy to:

                Heller
                  Ehrman LLP

                333
                  Hope Street, 39th
                  Floor

                Los
                  Angeles, CA 90071

                Att:
                  Steven O. Weise, Esq.

                Fax:
                  (213) 614-1868

              


      

       

      Either
        party hereto may change the above specified recipient or mailing address
        by
        notice to the other party given in the manner herein prescribed. All notices
        shall be deemed given on the day when actually delivered as provided above
        (if
        delivered personally or by facsimile, provided that any such facsimile is
        received during regular business hours at the recipient’s location) or on the
        day shown on the return receipt (if delivered by mail or delivery
        service).

      


      
        	 	
                4.

              	
                Headings.
                  Section headings used in this Agreement are for convenience only.
                  They are
                  not a part of this Agreement and shall not be used in construing
                  it.

              


        	 	 	 


      

      
        	 	
                5.

              	
                Governing
                  Law.
                  This Agreement is being executed and delivered and is intended
                  to be
                  performed in the State of California and shall be construed and
                  enforced
                  in accordance with the laws of the State of
                  California.

              


        	 	 	 


      

      
        	 	
                6.

              	
                Rules
                  of Construction.

              


        	 	 	 


      

      
        	 	
                a.

              	
                No
                  reference to “proceeds” in this Agreement authorizes any sale, transfer,
                  or other disposition of the Collateral by the
                  Debtor.

              


        	 	 	 


      

      
        	 	
                b.

              	
                “Includes”
                  and “including” are not limiting.

              


        	 	 	 


      

      
        	 	
                c.

              	
                “Or”
                  is not exclusive.

              


        	 	 	 


      

      
        	 	
                d.

              	
                “All”
                  includes “any” and “any” includes “all.”

              


        	 	 	 


      

      
        	 	
                7.

              	
                Integration
                  and Modifications.

              


        	 	 	 


      

      
        	 	
                (i)

              	
                This
                  Agreement is the entire agreement of the Debtor and Secured Party
                  concerning its subject matter.

              


        	 	 	 


      

      
        	 	
                (ii)

              	
                Any
                  modification to this Agreement must be made in writing and signed
                  by the
                  party adversely affected.

              


        	 	 	 


      

      
        	 	
                8.

              	
                Waiver.
                  Any
                  party to this Agreement may waive the enforcement of any provision
                  to the
                  extent the provision is for its benefit.

              


        	 	 	 


      

      
        	 	
                9.

              	
                Further
                  Assurances. Debtor
                  agrees to execute any further documents, and to take any further
                  actions,
                  reasonably requested by Secured Party to evidence or perfect the
                  security
                  interest granted herein, to maintain the first priority of the
                  security
                  interests, or to effectuate the rights granted to Secured Party
                  herein.

              


      

      


      


      [Signature
        follows]

      


      
        
          
          

        

        
          -10-

          
            

          

        

        
          
          

        

      

      
 

      The
        parties have signed this Agreement as of the day and year first above written.
        

      


      


      
        	
                DEBTOR:

                 

                AURASOUND,
                  INC.

                 

                 

                 

                By:/s/
                  Arthur Liu_________________

                Arthur
                  Liu, its President

                 

              	
                SECURED
                  PARTY:

                 

                WESTREC
                  PROPERTIES INC. & AFFILIATED COMPANIES 401(K)
                  PLAN

                 

                 

                By:/s/
                  Michael M. Sachs_____________

                Michael
                  M. Sachs, its Trustee

              


      

      


      


      


      
        
          
          

        

        
          -11-

          
            

          

        

        
          
          

        

      

      


      


      EXHIBIT
        A

      


      COPYRIGHTS

      


      NONE.

      


      


      


      
        
          
          

        

        
          A

          
            

          

        

        
          
          

        

      

      


      EXHIBIT
        B

      


      PATENTS

      

      


      
        
          
          

        

        
          B