SECURITY AGREEMENT

(PFI General — Intellectual Property Collateral)

 

THIS SECURITY AGREEMENT (“this Agreement” or “Security Agreement”) is entered
into on November 15, 2017 (“Effective Date”) by and between MagneGas
Corporation, a Delaware corporation (“Debtor”), as borrower and debtor, with and
for the benefit of Point Financial, Inc., an Arizona corporation (“Lessor”), its
transferees, and assigns, as lessor and secured party. (The Lessor and each
subsequent transferee of or of any interest in the Lease Agreement described
below, whether taking by endorsement or otherwise, are herein successively
called “Secured Party.” Debtor and Secured Party are referenced collectively as
the “Parties” and individually as a “Party”.)

 

RECITALS:

 

A.   Secured Party has provided financial accommodations to Debtor in the form
of a lease of personalty evidenced by that Equipment Lease Agreement of even
date herewith (the “Lease Agreement”) by and between Secured Party, as lessor,
and Debtor, as lessee. To secure payment of the Lease Agreement and performance
of all of Debtor’s promises and undertakings in connection therewith, Debtor has
agreed to grant first and prior blanket lien and security interests in favor of
Secured Party on all of Debtor’s personal property, whether now owned or
hereafter acquired.       B.   To secure the Lease Agreement, among other things
Secured Party has required that Debtor enter into this Security Agreement
regarding Collateral in the nature of intellectual property, as more fully
described herein.       C.   Upon the Effective Date of this Agreement, (i)
Debtor will be indebted to Secured Party, (ii) value will have been given to or
for the benefit of Debtor under the Lease Agreement, and (iii) Debtor will have
rights in the Collateral described below.

 

NOW, THEREFORE, in consideration of the following mutual agreements and other
valuable consideration, the receipt and sufficiency of which are acknowledged,
and intending to be legally bound, the Parties agree as follows:

 

AGREEMENTS:

 

1. Certain Defined Terms.

 

1.1 “Collateral” as defined for purposes of this Agreement collectively includes
all items/categories of personal property set forth in paragraph 2 below,
including the items more specifically described in the attached Schedule 1 (if
any).

 

1.2 “Obligations” has the meaning set forth in paragraph 4 below.

 

1.3 References to the “UCC” mean the provisions of the Uniform Commercial Code
in effect in Arizona (the “State”).

 

1.4 Defined or referenced terms which are capitalized and identified by a
following asterisk (e.g., Accounts* as first used in Section 2, below) upon
their first use herein shall have the respective meanings ascribed in the UCC
unless the specific context indicates differently.

 

1.5 Other defined terms have the respective meanings ascribed in this Agreement,
and such terms when defined are indicated by parentheses and bold print (e.g.,
“Collateral” as defined in Section 1.1, above).

 

1.6 As used hereinafter, “Debtor” shall mean, severally and collectively,
MagneGas Corporation, a Delaware corporation, and each of its subsidiaries,
whether now existing or hereafter established, and whether or not that
subsidiary has signed a counterpart of this Agreement, and each of its
affiliates that has signed a counterpart of this Agreement, whether now existing
or hereafter established.

 

 Page 1 of 8  

 

 

2. Collateral Covered by Agreement. This Security Agreement pertains to the
following “COLLATERAL”: (i) Debtor’s interests and rights to (a) all domestic
and foreign patents, patent applications, patent rights, patent licenses
(including any United States Patent and Trademark Office (“PTO”) application or
registration number and file jacket number and assigned date), all related fees,
income and royalties, rights to sue for any infringement thereof, and all
reissues, divisions, continuations, renewals, extensions and
continuations-in-art thereof; (b) all state (common law or otherwise), federal
or foreign trademarks, service marks, collective membership marks, slogans,
trade names, all applications therefor (excluding however any application to
register any such item prior to the filing under applicable law of a verified
statement of use or its equivalent for the same, if the creation of a security
interest therein would void or invalidate the same), all rights thereto and
licenses thereof and all related income and royalties, all whether or not
registered (but including any PTO application or registration number and file
jacket number and assigned date), and all fees, goodwill of any business
associated therewith or symbolized thereby, rights to sue for infringement or
unconsented use thereof, and all reissues, extensions and renewals thereof; (c)
all registered copyrights and copyright registrations or applications
(identified, if possible, by title, author and any United States Copyright
Office (“USCO”) registration number and assigned date), all present and future
copyrights that are not registered but are entitled to be, any derivative works,
all copyrightable or copyrighted materials, works, manuscripts, documents,
tapes, disks or discs, storage media, computer programs and source or object
codes, Software*, computer databases, flow diagrams, all tangible property
evidencing the same; (d) all industrial designs, trade secrets, know-how,
technology, information and processes and all other forms of intellectual and
industrial property; (e) all Collateral described in the attached Schedule 1;
(f) all General Intangibles* in any way related thereto to any of (a), (b) (c);
and (e); (ii) all records, writings, papers, and data kept or relating to any
part or component of the Collateral, in all forms (written, photographic,
microfilm, microfiche, electronic or otherwise, and the computer software and
other media, together with its related hardware and equipment, as may be
required to utilize, create, maintain, process and retrieve the same); (iii) all
accessions, substitutions and additions thereto, and all Supporting
Obligations*, cash and non-cash Proceeds* thereof, or royalties therefrom.
Notwithstanding anything contained in this Agreement to the contrary, the term
“Collateral” shall not include any United States intent-to-use trademark
applications to the extent that the grant of a security interest therein would
impair the validity or enforceability of such intent-to-use trademark
applications under applicable federal law, provided that upon submission and
acceptance by the United States Patent and Trademark Office of an amendment to
allege use pursuant to 15 U.S.C. Section 1060(a) (or any successor provision),
such intent-to-use trademark application shall be considered Collateral. If the
Debtor obtains rights in or to any new or subsequent (a) United States copyright
registrations or applications therefor, (b) patentable inventions or patent
application or patent for any reissue, division or continuation of any patent,
(c) trademarks or trademark renewals or extensions of any trademark
registration, or (d) other “Collateral” as defined and described herein, after
the date of this Agreement, the same shall be included in the Collateral and the
provisions of this Agreement will be applicable to the same as after-acquired
Collateral. Debtor will provide written notice to Secured Party with respect to
any such new or subsequent Collateral within thirty (30) days after Debtor
obtains such rights.

 

3. Grant of Security Interest. For valuable consideration, Debtor grants and
collaterally assigns to Secured Party a security interest in the Collateral to
secure all Obligations.

 

4. Obligations Secured. This Security Agreement and the security interests
granted hereby secure all of the following: (i) payment of all indebtedness,
obligations and liabilities evidenced by or arising under the Lease Agreement
and the other “Transaction Documents” (as defined in the Lease Agreement), (ii)
performance of all provisions, covenants, terms and conditions under this
Agreement or the other Transaction Documents, (iii) all rents, payments, fees,
costs and expenses owed under the Lease Agreement, or the Transaction Documents,
and (iv) all extensions, renewals, modifications, amendments and replacements of
the same (collectively, “Obligations”).

 

5. Performance under Transaction Documents and Perfection of Security
Interest(s).

 

5.1 Debtor agrees to perform timely and fully all of its Obligations and to keep
all promises to and agreements with Secured Party under all of the Transaction
Documents.

 

5.2 Debtor irrevocably authorizes Secured Party to complete, file or record one
or more financing statements or amendments thereto or continuations thereof
pursuant to the UCC covering all Collateral under this Security Agreement.
Debtor also authorizes, and will cooperate with, Secured Party to make any and
all filings or recordings with USCO and PTO that Secured Party deems necessary
or advisable. Debtor will pay or reimburse the cost of filing the same in all
public offices whenever and wherever such filing is deemed necessary by Secured
Party. Debtor will cooperate with and reasonably assist Secured Party in
obtaining acknowledgments from third parties holding Collateral of Secured
Party’s beneficial lien and interest therein. Debtor, upon written request, will
promptly furnish any information pertinent thereto to Secured Party.

 

 Page 2 of 8  

 

 

5.3 Debtor agrees further to take or permits Secured Party to take the following
actions with respect to specific Collateral:

 

5.3.1 Collateral Held by Bailee/Escrow Agents(s). If any Collateral is or comes
into the possession of a bailee or escrow agent in excess of $100,000, Debtor
will use commercially reasonable efforts to promptly obtain an acknowledgment
from the bailee/escrow agent reasonably acceptable to Secured Party that such
bailee/escrow agent holds the Collateral for the benefit of Secured Party
pursuant to this Agreement and will recognize the security interest of and act
upon instructions from Secured Party without further action or consent by
Debtor.

 

5.3.2 Commercial Tort Claim(s). If Debtor now has or at any time acquires or has
arise a Commercial Tort Claim* in excess of $100,000 on account of any
infringement or unauthorized use of any of the Collateral, Debtor will promptly
notify Secured Party of the same, in an authenticated writing reasonably
acceptable to Secured Party, setting out the nature of such Claim in sufficient
detail to identify the same, and grant to Secured Party in that writing a
security interest therein and all Proceeds thereof, incorporating the terms of
this Agreement by reference.

 

5.3.3 Patents and Trademarks. Concurrently herewith Debtor is also executing and
delivering to Secured Party a Patent Assignment and a Trademark Assignment
pursuant to which Debtor is collaterally assigning to Secured Party any
Collateral consisting of patents and patent rights and trademarks, service marks
and trademark and service mark rights, together with the goodwill appurtenant
thereto.

 

5.3.4 Other Actions as to Collateral. Debtor agrees with Secured Party to take
or permit any other action requested by Secured Party in writing to insure the
attachment, perfection and first lien priority status of, and the unhindered
ability of Secured Party to enforce the security interests, rights and remedies
in any of the Collateral pursuant to this Agreement or applicable law
(collectively, “Enforcement”), including (i) completing, executing, delivering
and filing where appropriate, financing statements, amendments thereto and
continuations thereof to the extent deemed necessary or advisable by Secured
Party, (ii) complying in all material respects with any applicable provision of
any law, rule, regulation or any treaty of the United States as to any
Collateral if such compliance is a condition to Enforcement, (iii) obtaining
governmental and other third-party consents and approvals, including that of any
licensor, lessor or other person obligated on the Collateral or on account of
the Loan, (iv) obtaining waivers from landlords or other secured parties in form
reasonably acceptable to Secured Party upon written request from Secured Party,
and (v) taking any and all actions required by earlier version of the Uniform
Commercial Code or by any other applicable law of the State, any other state,
the federal government or any foreign government.

 

6. Relation to Other Transaction Documents. Nothing in those other Transaction
Documents will derogate from or diminish any of the rights and remedies of
Secured Party in this Agreement. Any non-cured “Event of Default” under any
other Transaction Document will, at Secured Party’s election, constitute an
actionable non-cured Event of Default under this Security Agreement.

 

7. Warranties and Covenants of Debtor. Debtor expressly warrants and covenants:

 

7.1 Except for Permitted Liens (as that term is defined on Schedule 2 to the
Security Agreement (PFI General - All-Inclusive Security Interest Covering
Personal Property) executed of even date herewith between Debtor and Secured
Party, (the “General Security Agreement”) and except as set forth on Schedule 1
hereof, Debtor owns, or to the extent that this Security Agreement extends to
Collateral acquired after the Effective Date will own, or has or will have
rights in the Collateral free from any adverse lien, security interest or other
encumbrance. Debtor will defend the Collateral against all claims and demands of
all persons at any time claiming the same or any interest therein.

 

7.2 The Collateral does not include any Consumer Goods*.

 

7.3 Debtor’s full and correct legal name is that used in this Agreement. Debtor
is organized as a corporation under the laws of the State of Delaware, and if
and as a “registered organization*” its registration/identification number is
4074115. Debtor’s current address for notices and principal place of business,
or if Debtor has more than one place of business, its chief executive office, is
that stated below for Notices. Debtor has the organizational power, authority
and legal right to grant all security interests and otherwise enter into and
perform under this Agreement and all other Transaction Documents, and has duly
authorized the same.

 

 Page 3 of 8  

 

 

7.4 Debtor will not change its legal name, its place(s) of business, its chief
executive office location, its address for notice or its registered organization
number without first (i) notifying Secured Party at least fifteen (15) days in
advance of any such proposed change, and (ii) confirming any such change upon
occurrence by notice to Secured Party. Debtor may not change its type of
organization, jurisdiction of organization or organization legal structure
unless (a) Debtor has provided at least five (5) days’ prior written notice to
Secured Party or (b) such change is in connection with Borrower’s initial public
offering of common stock.

 

7.5 [Reserved]

 

7.6 Debtor will notify Secured Party of any changes in location of the
Collateral, outside the ordinary course of business, within ten (10) days of any
such change, and will not sell, lease, license, further encumber, destroy or
remove the Collateral, outside the ordinary course of business, without prior
notice to and the written consent of Secured Party; provided, however, that
Debtor shall be permitted to sell, lease, license, further encumber, destroy
and/or remove the Collateral without prior notice to and without consent of
Secured Party if and to the extent expressly permitted pursuant to the terms of
the Lease Agreement.

 

7.7 Debtor will pay timely all taxes and levies against the Collateral before
delinquency; provided that the failure to make any such payments shall not
constitute a breach of this covenant unless the aggregate amount of such
payments could reasonably be expected to exceed $100,000.

 

7.8 Debtor will not permit or allow any other lien, security interest or
encumbrance whatsoever upon the Collateral, except for Permitted Liens and liens
arising by operation of law to secure obligations not yet due and payable, and
will not permit the Collateral to be garnished, attached or replevied unless the
execution or other enforcement of the liens related to such garnishment,
attachment, or replevin is effectively stayed and claims secured thereby are
actively contested in good faith by appropriate proceedings.

 

7.9 Secured Party may examine and inspect the Collateral at any time during
normal business hours and upon reasonable notice, wherever located.

 

7.10 Debtor will not use the Collateral or let it be used in violation of any
applicable statutes, regulations, rules or ordinances, except to the extent that
any such violation could not reasonably be executed to have a material adverse
effect on the ability of Lessee to fulfill its obligations under the Lease
Agreement.

 

7.11 No third-party financing statement or comparable assignment or memorandum
covering the Collateral is on file in any state or local public office or with
USCO or PTO, except for Permitted Liens.

 

7.12 [Reserved].

 

7.13 Debtor will permit Secured Party to inspect and examine Debtor’s books
regarding the Collateral at any reasonable time during normal business hours and
upon at least five (5) business days prior written notice to ascertain and
verify actions taken or amounts due regarding the Collateral and the
Obligations.

 

7.14 Debtor will refrain from any actions or communications which would impair,
diminish, or threaten to affect the continued and future value of the
Collateral, but excluding any actions or communications that are permitted
pursuant to the Lease Agreement and except to the extent that any such actions
or communications could not reasonably be expected to have a material adverse
effect on the ability of Lessee to fulfill its obligations under the Lease
Agreement.

 

8. Performance by Secured Party. At its option, Secured Party may discharge
taxes, levies, liens or other encumbrances at any time placed on the Collateral,
and pay for the maintenance and preservation of the Collateral should Debtor
fail to do so. Debtor agrees to reimburse Secured Party on demand the
reasonable, actual amount for any payment so made and until such reimbursement
the amount paid by Secured Party will be added to the Obligations and bear
interest at an interest rate of fifteen percent (15%) per annum until paid.

 

 Page 4 of 8  

 

 

9. Default and Remedies.

 

9.1 A non-cured “Event of Default” under this Security Agreement will occur upon
the occurrence and during the continuance of a non-cured Event of Default under
the Lease Agreement which continues for a period of thirty (30) days after the
receipt by Debtor of written notice from Secured Party; provided, that, if such
default is curable and does not involve solely the payment of money, then, so
long as Debtor is diligently pursuing such cure, Debtor shall have an additional
thirty (30) days within which to effect such cure (not to exceed sixty (60)
days, in the aggregate for such cure period). Upon and after any such non-cured
Event of Default, Secured Party may, at its option and sole discretion, do any
one or more, or any combination or all, of the following:

 

9.1.1 Declare the entire amount of the Obligations then outstanding due and
payable at once;

 

9.1.2 Exercise any, all, or any combination of the rights and remedies of a
secured party under the UCC or other applicable law, including the right to
enter any place of business of the Debtor, without legal process, and take
possession of and remove, or store and protect at the place of business, and
thereafter administer, account for, and collect, the Collateral;

 

9.1.3 Require Debtor to assemble and relinquish any Collateral, and to make it
available at the place designated by Secured Party;

 

9.1.4 Commence proceedings for foreclosure of this Security Agreement in the
manner provided by law for the foreclosure of a real property mortgage; and

 

9.1.5 As secured party in possession of the Collateral, carry on the business of
Debtor as a going concern.

 

9.2 Any requirement of reasonable notice of any disposition of the Collateral
will be satisfied if such notice is mailed to the address of the Debtor
designated herein at least thirty (30) days before the time of such disposition.
Secured Party may dispose of Collateral without giving any warranty, express or
implied, and warranties of title or otherwise may be disclaimed in any such
disposition. In any disposition upon credit, Debtor will receive the benefit
only of payments actually made by a purchaser and received by Secured Party.
Secured Party may acquire Collateral by credit bid(s) at any disposition
permitted under the UCC. Secured Party may, but has no duty to, notify and
collect from any Account Debtors or other Obligors.

 

10. Nonexclusive Remedies. The remedies conferred by this Agreement are
nonexclusive and cumulative of any other remedies now available or subsequently
existing at law, in equity or by statute, regulation, rule or otherwise.

 

11. Reservation of Rights. No delay or forbearance by or on behalf of Secured
Party in exercising any right, remedy, power or privilege under this Security
Agreement (“Lender’s Rights”) will operate as a waiver of any such Lender’s
Rights, nor shall any exercise or non-exercise of any particular Lender’s Right
preclude any other or further exercise of Lender’s Rights pertaining to any
current or subsequent default by Debtor. The taking of this Security Agreement
will not waive or impair any other security that Secured Party may have or
hereafter acquire for the payment of the Obligations nor will the taking of any
such additional security waive or impair this Security Agreement. Secured Party
may resort to any security it may have and apply proceeds of the Collateral in
any order it may deem proper.

 

12. Expenses, Fees and Costs. If any Event of Default occurs, or Secured Party
otherwise acts to protect its security interest in the Collateral pursuant to
the terms of this Agreement, Debtor promises to pay all of the following costs
and fees if incurred by or on behalf of Secured Party: (i) all reasonable
expenses of retaking, holding, preparing for sale and selling of the Collateral,
(ii) reasonable attorneys’ fees, (iii) all reasonable costs and expenses of
collection, enforcement, interpretation or any foreclosure, whether or not suit
is filed, and (iv) all costs of suit, each of which are to be determined by a
court and not by a jury. “Suit” includes proceedings in courts of original,
appellate and bankruptcy jurisdiction.

 

 Page 5 of 8  

 

 

13. Waivers. No waiver under this Agreement is valid unless it is in writing and
signed by the Party giving the waiver. A waiver of a particular matter or remedy
does not waive a subsequent or similar matter or remedy. No waiver will excuse a
Party from payment or the performance of its other obligations under this
Agreement.

 

14. Attachment and Choice of Law. The Lease Agreement has been materially
negotiated in the State and has been made and delivered in the State. All
parties irrevocably consent and agree that the law of the State has attached to
the Lease Agreement, this Security Agreement, and all Transaction Documents for
all purposes of interpretation and enforcement thereof and this Security
Agreement is governed by the laws of the State. The parties consent and submit
to the nonexclusive jurisdiction of the courts of the State and the United
States District Court for the District including the State, and to venue in
Maricopa County, Arizona, concerning any action arising under the Loan, the
Note, this Security Agreement, and any other Transaction Document, and the
parties further waive any claim of forum non-conveniens or equivalent to such
venue.

 

15. Construction. Captions and headings are for convenience and reference only
and do not define, limit or affect the contents of this Security Agreement.
References to “paragraphs” or “sections” refer to this Security Agreement unless
stated otherwise. The terms “include” or “including” mean “without limitation by
reason of enumeration.” All grammatical usage will be deemed to refer to the
masculine, feminine, neuter, singular or plural as the context and identity of
any person(s) may require.

 

16. Severability and Interpretation. The invalidity or unenforceability of any
provision of this Security Agreement does not affect the other remaining
provisions. This Security Agreement will be construed as if it excluded any
invalid or unenforceable provision, which will be severed from this Security
Agreement. Whenever possible, this Security Agreement will be interpreted so as
to be valid under applicable law, and will not be construed strictly in favor of
or against any particular party, including any party who drafted or prepared
this Security Agreement, but instead according to its plain meaning to give
effect to its intended purposes.

 

17. Financing Statement. If filed or recorded, this Security Agreement will also
be deemed to be a Financing Statement; a collateral assignment, grant or
conveyance; and notice of assignment, mortgage or hypothecation.

 

18. Notices. Except as otherwise required by law, all notices under this
Agreement will be in writing. Notices are deemed given and received (a) when
personally delivered, (b) when received by facsimile or by overnight courier
service, or (c) on the fourth Business Day after mailing by certified/registered
U.S. Mail, return receipt requested. Notices will be addressed as follows:

 

  To Debtor: MagneGas Corporation     Attn: Chief Financial Officer     11885
44th Street North     Clearwater, Florida 33762         To Secured Party: Point
Financial, Inc.     Attn: President     3318 East Kachina Drive     Phoenix,
AZ  85044

 

(or at any other address designated in a notice given by a Party to change its
address). Rejection or refusal to accept, or the inability to deliver because of
change in address as to which no notification has been given, will be deemed to
constitute receipt if given as provided above.

 

 Page 6 of 8  

 

 

19. Waiver of Jury Trial. Any lawsuit concerning this Agreement will be tried by
the court, AND THE PARTIES EACH IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHTS TO
ANY TRIAL BY A JURY (ADVISORY OR OTHERWISE).

 

20. Modification. This Agreement may be amended only by a written document
signed by all the Parties.

 

21. Time. TIME IS OF THE ESSENCE FOR THE PERFORMANCE OF EACH PROVISION OF THIS
AGREEMENT. If this Agreement requires any action to be performed on a date which
is not a “Business Day” (a Saturday, Sunday or a state or federal legal
holiday), such action will be validly performed on the next succeeding Business
Day.

 

22. Parties Bound. “Debtor” includes the undersigned (individually or
collectively) and all successors, assigns and personal or legal representatives,
jointly and severally. “Secured Party” means such Party and its successors and
assigns. Neither Party may assign this Security Agreement or any other
Transaction Document except in connection with an assignment of the Lease
Agreement, and as provided in the Lease Agreement.

 

23. No Third Party Beneficiary. This Agreement is solely for the benefit of the
Parties (and any successors and permitted assigns) and does not confer any
rights or remedies on any other persons.

 

24. Counterparts. This Agreement may be executed in identical counterparts, each
of which upon execution shall be deemed an original, but all of which together
will constitute one document. Partially executed signature or acknowledgment
pages of any one counterpart may be combined with any other partially executed
counterpart to constitute a fully executed original Agreement. Facsimiles of
executed signature pages are effective as original signatures.

 

25. Incorporation of Recitals and Exhibits. The Recitals and all attached
Exhibits and Schedules are incorporated as part of this Agreement.

 

[The remainder of this page is left intentionally blank]

 

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

 

DEBTOR: SECURED PARTY:     MagneGas Corporation, Point Financial, Inc., a
Delaware corporation an Arizona corporation

 

      Ermanno Santilli, CEO   Michael J. O’Malley, President

 

***Signature Page to IP Security Agreement***

 

 Page 8 of 8  

 

 

SCHEDULE 1 TO INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

COLLATERAL DESCRIBED AS:

 

1. Debtor Intellectual Property