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Exhibit 10.8
 
SECURITY AGREEMENT
 
This SECURITY AGREEMENT (this “Agreement”), dated as of March 7, 2014, among
Grantor(s) listed on the signature pages hereof and those additional entities
that hereafter become parties hereto by executing the form of Supplement
attached hereto as Annex 1 (collectively, jointly and severally, the “Grantors”
and each, individually, a “Grantor”), and BAM Administrative Services LLC, as
agent for the investors party to the Purchase Agreement referred to
below (together with its successors and assigns, “Secured Party”).
 
W I T N E S S E T H:
 
WHEREAS, PEDEVCO Corp. (the “Company”) is party to that certain Note Purchase
Agreement dated as of the date hereof (as amended, amended and restated,
supplemented, or otherwise modified from time to time, the “Purchase Agreement”)
by and between the Company, the investors party thereto (collectively, the
“Investors” and each, individually, an “Investor”) and Secured Party, as agent
for the Investors, pursuant to which the Investors agreed to extend loans to the
Company in the principal amount of up to $50,000,000 (the “Loans”), repayment of
which is evidenced by certain Senior Secured Promissory Notes dated the date
hereof issued to each Investor (the “Notes”), and
 
WHEREAS, in order to induce Secured Party and the Investors to enter into the
Purchase Agreement and other Transaction Documents and to induce the Investors
to extend the Loans pursuant to the Purchase Agreement, each of Grantors (other
than the Company) have agreed to jointly and severally guaranty the obligations
of the Company to Secured Party and the Investors pursuant to that certain
Guaranty dated as of the date hereof (as amended, amended and restated,
supplemented, or otherwise modified from time to time, the “Guaranty”) executed
by Grantors (other than the Company) in favor of Secured Party and the
Investors, and
 
WHEREAS, in order to induce Secured Party and the Investors to enter into the
Purchase Agreement and other Transaction Documents and to induce the Investors
to extend the Loans pursuant to the Purchase Agreement, Grantors have agreed to
execute and deliver to Secured Party this Agreement and other collateral
documents and to grant Secured Party a continuing security interest in and to
the Collateral in order to secure the prompt and complete payment, observance
and performance of, among other things, the Secured Obligations, and
 
WHEREAS, each of the Grantors (other than the Company) are subsidiaries of the
Company and will derive benefit from the extension of the Loans to the Company.
 
NOW, THEREFORE, for and in consideration of the recitals made above and other
good and valuable consideration, the receipt, sufficiency and adequacy of which
are hereby acknowledged, the parties hereto agree as follows:
 
 
 

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1.           Defined Terms. All capitalized terms used herein (including in the
preamble and recitals hereof) without definition shall have the meanings
ascribed thereto in the Notes, or if not expressly defined in the Notes, then in
the Purchase Agreement.  Any terms used in this Agreement that are defined in
the Code (whether or not capitalized) shall be construed and defined as set
forth in the Code unless otherwise defined herein or in the Notes or the
Purchase Agreement; provided, however, that if the Code is used to define any
term used herein and if such term is defined differently in different Articles
of the Code, the definition of such term contained in Article 9 of the Code
shall govern. In addition to those terms defined elsewhere in this Agreement, as
used in this Agreement, the following terms shall have the following meanings:
 
(a)           “Account” means an account (as that term is defined in the Code).
 
(b)           “Account Debtor” means an account debtor (as that term is defined
in the Code).
 
(c)           “Books” means books and records (including each Grantor’s Records
indicating, summarizing, or evidencing such Grantor’s assets (including the
Collateral) or liabilities, each Grantor’s Records relating to such Grantor’s
business operations or financial condition, and each Grantor’s goods or General
Intangibles related to such information).
 
(d)           “Chattel Paper” means chattel paper (as that term is defined in
the Code) and includes tangible chattel paper and electronic chattel paper.
 
(e)           “Code” means the New York Uniform Commercial Code, as in effect
from time to time; provided, however, that in the event that, by reason of
mandatory provisions of law, any or all of the attachment, perfection, priority,
or remedies with respect to Secured Party’s Liens on any Collateral is governed
by the Uniform Commercial Code as enacted and in effect in a jurisdiction other
than the State of New York, the term “Code” shall mean the Uniform Commercial
Code as enacted and in effect in such other jurisdiction solely for purposes of
the provisions thereof relating to such attachment, perfection, priority, or
remedies.
 
(f)           “Collateral” has the meaning specified therefor in Section 2.
 
(g)           “Commercial Tort Claims” means commercial tort claims (as that
term is defined in the Code), and includes those commercial tort claims listed
on Schedule 10 attached hereto.
 
(h)           “Company” has the meaning specified therefor in the recitals to
this Agreement.
 
(i)           “Copyrights” means copyrights and copyright registrations, and
also includes (i) the copyright registrations and applications listed on
Schedule 2 attached hereto (as the same may be amended or modified from time to
time), (ii) all extensions or renewals thereof, (iii) all income, royalties,
damage awards and payments now and hereafter due or payable under and with
respect thereto, including payments under all licenses entered into in
connection therewith and damages and payments for past or future infringements
thereof, (iv) the right to sue for past, present and future infringements
thereof, and (v) all of each Grantor’s rights corresponding thereto throughout
the world.
 
 
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(j)           “Deposit Account” means a deposit account (as that term is defined
in the Code).
 
(k)           “Equipment” means equipment (as that term is defined in the Code).
 
(l)           “General Intangibles” means general intangibles (as that term is
defined in the Code), and, in any event, includes payment intangibles, contract
rights, rights to payment, rights arising under common law, statutes, or
regulations, choses or things in action, goodwill (including the goodwill
associated with any Trademark), Patents, Trademarks, Copyrights, URLs and domain
names, industrial designs and other Intellectual Property or rights therein or
applications therefor, whether under license or otherwise, programs, programming
materials, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, including Intellectual Property
Licenses, infringement claims, computer programs, information contained on
computer disks or tapes, software, literature, reports, catalogs, pension plan
refunds, pension plan refund claims, insurance premium rebates, tax refunds, and
tax refund claims, interests in a partnership or limited liability company which
do not constitute a security under Article 8 of the Code, and any other personal
property other than Commercial Tort Claims, money, Accounts, Chattel Paper,
Deposit Accounts, goods, Investment Related Property, Negotiable Collateral, and
oil, gas, or other minerals before extraction.
 
(m)           “Governmental Authority” means any federal, state, local, or other
governmental or administrative body, instrumentality, board, department, or
agency or any court, tribunal, administrative hearing body, arbitration panel,
commission, or other similar dispute-resolving panel or body.
 
(n)           “Grantor” and “Grantors” have the meanings specified therefor in
the recitals to this Agreement.
 
(o)           “Guaranty” has the meaning specified therefor in the recitals to
this Agreement.
 
(p)           “Insolvency Proceeding” means any proceeding commenced by or
against any Person under any provision of title 11 of the United States Code, as
in effect from time to time, or under any other state or federal bankruptcy or
insolvency law, assignments for the benefit of creditors, formal or informal
moratoria, compositions, extensions generally with creditors, or proceedings
seeking reorganization, arrangement or other similar relief.
 
(q)           “Intellectual Property” means Patents, Copyrights, Trademarks, the
goodwill associated with such Trademarks, trade secrets and confidential and
proprietary customer lists, and Intellectual Property Licenses.
 
(r)           “Intellectual Property Licenses” means rights under or interests
in any patent, trademark, copyright or other intellectual property, including
software license agreements with any other party, whether the applicable Grantor
is a licensee or licensor under any such license agreement, including the
license agreements listed on Schedule 3 attached hereto.
 
 
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(s)           “Inventory” means inventory (as that term is defined in the Code).
 
(t)           “Investment Related Property” means (i) investment property (as
that term is defined in the Code), and (ii) all Pledged Interests and Pledged
Operating Agreements (regardless of whether classified as investment property
under the Code).
 
(u)           “Negotiable Collateral” means letters of credit, letter-of-credit
rights, instruments, promissory notes, drafts, and documents.
 
(v)           “Obligations” means all of the liabilities and obligations
(primary, secondary, direct, contingent, sole, joint or several) due or to
become due, or that are now or may be hereafter contracted or acquired, or
owing, of any Grantor to Secured Party and the Investors under this Agreement,
the Notes, the Purchase Agreement, the Guaranty, the other Transaction
Documents, and any other instruments, agreements or other documents executed
and/or delivered in connection herewith or therewith, in each case, whether now
or hereafter existing, voluntary or involuntary, direct or indirect, absolute or
contingent, liquidated or unliquidated, whether or not jointly owed with others,
and whether or not from time to time decreased or extinguished and later
increased, created or incurred, and all or any portion of such obligations or
liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from Secured Party or any Investor
as a preference, fraudulent transfer or otherwise as such obligations may be
amended, supplemented, converted, extended or modified from time to
time.  Without limiting the generality of the foregoing, the term “Obligations”
shall include, without limitation: (i) principal of, and interest on, the Notes
and the loans extended pursuant thereto (including any interest that accrues
after the commencement of an Insolvency Proceeding regardless of whether allowed
or allowable in whole or in part as a claim in such Insolvency Proceeding); (ii)
any and all other fees, legal fees and other expenses, indemnities, costs,
obligations and liabilities of Grantors from time to time under or in connection
with this Agreement, the Notes, the Purchase Agreement, the Guaranty, the other
Transaction Documents, and any other instruments, agreements or other documents
executed and/or delivered in connection herewith or therewith; (iii) payment of
the Major Transaction Prepayment Price, and (iv) all amounts in respect of the
foregoing that would be payable but for the fact that the obligations to pay
such amounts are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving any Grantor.  Any
reference in this Agreement or in the Transaction Documents to the Obligations
shall include all or any portion thereof and any extensions, modifications,
renewals or alterations thereof, both prior and subsequent to any Insolvency
Proceeding.
 
(w)           “Organizational Documents” means, with respect to each Grantor,
the documents by which such Grantor was organized (such as a certificate of
incorporation, certificate of limited partnership or articles of organization,
and including, without limitation, any certificates of designation for preferred
stock or other forms of preferred equity) and which relate to the internal
governance of such Grantor (such as bylaws, a partnership agreement or an
operating, limited liability or members agreement).
 
 
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(x)           “Patents” means patents and patent applications, and also includes
(i) the patents and patent applications listed on Schedule 4 attached hereto (as
the same may be amended or modified from time to time), (ii) all divisions,
continuations, continuations-in-part, reissues and extensions thereof, (iii) all
income, royalties, damage awards and payments now and hereafter due or payable
under and with respect thereto, including payments under all licenses entered
into in connection therewith and damages and payments for past or future
infringements thereof, (iv) the right to sue for past, present and future
infringements thereof, and (v) all of each Grantor’s rights corresponding
thereto throughout the world.
 
(y)           “Patent Security Agreement” means each Patent Security Agreement
among Grantors, or any of them, and Secured Party in substantially the form of
Exhibit A attached hereto, pursuant to which Grantors have granted to Secured
Party a security interest in all their respective Patents.
 
(z)           “Pledged Companies” means, each Person listed on Schedule 5
attached hereto as a “Pledged Company”, together with each other Person, all or
a portion of whose Stock, is acquired or otherwise owned by a Grantor after the
Closing Date.
 
(aa)           “Pledged Interests” means all of each Grantor’s right, title and
interest in and to all of the Stock now or hereafter owned by such Grantor,
regardless of class or designation, including all substitutions therefor and
replacements thereof, all proceeds thereof and all rights relating thereto, also
including any certificates representing the Stock, the right to receive any
certificates representing any of the Stock, all warrants, options, share
appreciation rights and other rights, contractual or otherwise, in respect
thereof, and the right to receive dividends, distributions of income, profits,
surplus, or other compensation by way of income or liquidating distributions, in
cash or in kind, and cash, instruments, and other property from time to time
received, receivable, or otherwise distributed in respect of or in addition to,
in substitution of, on account of, or in exchange for any or all of the
foregoing.
 
(bb)           “Pledged Interests Addendum” means a Pledged Interests Addendum
substantially in the form of Exhibit B to this Agreement.
 
(cc)           “Pledged Operating Agreements” means all of each Grantor’s
rights, powers, and remedies under the limited liability company operating
agreements of each of the Pledged Companies that are limited liability
companies.
 
(dd)           “Proceeds” has the meaning specified therefor in Section 2.
 
(ee)           “Purchase Agreement” has the meaning specified therefor in the
recitals to this Agreement.
 
(ff)           “Real Property” means any estates or interests in real property,
including Oil and Gas Properties, now owned or hereafter acquired by any Grantor
and the improvements thereto.
 
(gg)           “Records” means information that is inscribed on a tangible
medium or which is stored in an electronic or other medium and is retrievable in
perceivable form.
 
 
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(hh)         “Security Interest” has the meaning specified therefor in Section
2.
 
(ii)           “Secured Obligations” means each and all of the following: (a)
all of the present and future obligations of Grantors arising from this
Agreement, the Notes, the Purchase Agreement, the Guaranty or the other
Transaction Documents, and (b) all Obligations of the Company or any other
Grantor, including, in the case of each of clauses (a) and (b), reasonable
attorneys fees and expenses and any interest, fees, or expenses that accrue
after the filing of an Insolvency Proceeding, regardless of whether allowed or
allowable in whole or in part as a claim in any Insolvency Proceeding.
 
(jj)           “Secured Party’s Liens” means the Liens granted by Grantors to
Secured Party under the Transaction Documents.
 
(kk)          “Securities Account” means a securities account (as that term is
defined in the Code).
 
(ll)            “Stock” means all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
Person, whether voting or nonvoting, including common stock, preferred stock, or
any other “equity security” (as such term is defined in Rule 3a11-1 of the
General Rules and Regulations promulgated by the Commission under the Exchange
Act).
 
(mm)         “Supporting Obligations” means supporting obligations (as such term
is defined in the Code).
 
(nn)           “Trademarks” means trademarks, trade names, trademark
applications, service marks, service mark applications, and also includes (i)
the registered or applied for trade names, trademarks, trademark applications,
service marks, and service mark applications listed on Schedule 6 attached
hereto (as the same may be amended or modified from time to time), and (ii) all
renewals thereof, (iii) all income, royalties, damage awards and payments now
and hereafter due or payable under and with respect thereto, including payments
under all licenses entered into in connection therewith and damages and payments
for past or future (A) infringements and dilutions thereof and (B) injury to the
goodwill associated therewith, (iv) the right to sue for past, present and
future (A) infringements and dilutions thereof and (B) injury to the goodwill
associated therewith, (v) the goodwill of each Grantor’s business symbolized by
the foregoing or connected therewith, and (v) all of each Grantor’s rights
corresponding thereto throughout the world.
 
(oo)           “Transaction Documents” has the meaning specified therefor in the
Purchase Agreement.
 
(pp)           “URL” means “uniform resource locator,” an internet web address.
 
2.           Grant of Security.  Each Grantor hereby unconditionally grants,
assigns, and pledges to Secured Party a continuing security interest (herein
referred to as the “Security Interest”) in all personal property, tangible or
intangible, of such Grantor whether now owned or hereafter acquired or arising
and wherever located, including such Grantor’s right, title, and interest in and
to the following, whether now owned or hereafter acquired or arising and
wherever located (the “Collateral”):
 
 
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(a)           all of such Grantor’s Accounts;
 
(b)           all of such Grantor’s Books;
 
(c)           all of such Grantor’s Chattel Paper;
 
(d)           all of such Grantor’s Deposit Accounts;
 
(e)           all of such Grantor’s Equipment and fixtures;
 
(f)           all of such Grantor’s General Intangibles;
 
(g)           all of such Grantor’s Inventory;
 
(h)           all of such Grantor’s Investment Related Property;
 
(i)           all of such Grantor’s Negotiable Collateral;
 
(j)           all of such Grantor’s rights in respect of Supporting Obligations;
 
(k)           all of such Grantor’s Commercial Tort Claims;
 
(l)           all of such Grantor’s money, cash equivalents, or other assets of
each such Grantor that now or hereafter come into the possession, custody, or
control of Secured Party;
 
(m)           all of the proceeds and products, whether tangible or intangible,
of any of the foregoing, including proceeds of insurance or Commercial Tort
Claims covering or relating to any or all of the foregoing, and any and all
Accounts, Books, Chattel Paper, Deposit Accounts, Equipment, General
Intangibles, Inventory, Investment Related Property, Negotiable Collateral,
Supporting Obligations, money, or other tangible or intangible property
resulting from the sale, lease, license, exchange, collection, or other
disposition of any of the foregoing, the proceeds of any award in condemnation
with respect to any of the foregoing, any rebates or refunds, whether for taxes
or otherwise, and all proceeds of any such proceeds, or any portion thereof or
interest therein, and the proceeds thereof, and all proceeds of any loss of,
damage to, or destruction of the above, whether insured or not insured, and, to
the extent not otherwise included, any indemnity, warranty, or guaranty payable
by reason of loss or damage to, or otherwise with respect to any of the
foregoing (the “Proceeds”).  Without limiting the generality of the foregoing,
the term “Proceeds” includes whatever is receivable or received when Investment
Related Property or proceeds are sold, exchanged, collected, or otherwise
disposed of, whether such disposition is voluntary or involuntary, and includes
proceeds of any indemnity or guaranty payable to any Grantor, Secured Party or
an Investor from time to time with respect to any of the Investment Related
Property.
 
 
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3.           Security for Obligations.  This Agreement and the Security Interest
created hereby secures the payment and performance of the Secured Obligations,
whether now existing or arising hereafter.  Without limiting the generality of
the foregoing, this Agreement secures the payment of all amounts which
constitute part of the Secured Obligations and would be owed by Grantors, or any
of them, to Secured Party or an Investor but for the fact that they are
unenforceable or not allowable due to the existence of an Insolvency Proceeding
involving any Grantor.
 
4.           Grantors Remain Liable.  Anything herein to the contrary
notwithstanding, (a) each of Grantors shall remain liable under the contracts
and agreements included in the Collateral, including the Pledged Operating
Agreements, to perform all of the duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by Secured
Party or any Investor of any of the rights hereunder shall not release any
Grantor from any of its duties or obligations under such contracts and
agreements included in the Collateral, and (c) Secured Party and the Investors
shall not have any obligation or liability under such contracts and agreements
included in the Collateral by reason of this Agreement, nor shall Secured Party
or the Investors be obligated to perform any of the obligations or duties of any
Grantors thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.  Until an Event of Default shall occur and be
continuing, except as otherwise provided in this Agreement, the Notes, the
Purchase Agreement, or other Transaction Documents, Grantors shall have the
right to possession and enjoyment of the Collateral for the purpose of
conducting the ordinary course of their respective businesses, subject to and
upon the terms hereof and of the Notes, the Purchase Agreement and the other
Transaction Documents.  Without limiting the generality of the foregoing, it is
the intention of the parties hereto that record and beneficial ownership of the
Pledged Interests, including all voting, consensual, and dividend rights, shall
remain in the applicable Grantor until Secured Party, after the occurrence and
during the continuance of an Event of Default, shall exercise its voting,
consensual, or dividend rights with respect to the Pledged Interests pursuant to
Section 15.
 
5.           Representations and Warranties.  Each Grantor hereby represents and
warrants as follows:
 
(a)           The exact legal name, jurisdiction of incorporation, organization
or formation, organizational identification number, if any, and chief executive
officer of each of Grantors is set forth on Schedule 1 attached hereto.  No
Grantor has trade names except as set forth on Schedule 1 attached hereto.  No
Grantor has used any name other than that as set forth on Schedule 1 attached
hereto for the preceding five years.  No entity has merged into any Grantor or
been acquired by any Grantor within the past five years except as set forth on
Schedule 1 attached hereto.
 
(b)           Schedule 7 attached hereto sets forth all Real Property owned or
leased by Grantors as of the Closing Date.
 
 
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(c)           As of the Closing Date, no Grantor has any interest in, or title
to, any Patents except as set forth on Schedule 4 attached hereto, or material
Copyrights, Intellectual Property Licenses, or Trademarks except as set forth on
Schedules 2, 3, and 6, respectively, attached hereto.  This Agreement is
effective to create a valid and continuing Lien on such Copyrights, Intellectual
Property Licenses, Patents and Trademarks and, upon filing of the Patent
Security Agreement with the United States Patent and Trademark Office, and the
filing of appropriate financing statements in the jurisdictions listed on
Schedule 8 attached hereto, all action necessary or desirable to protect and
perfect the Security Interest in the United States in and to each Grantor’s
Patents, Trademarks, Copyrights or Intellectual Property Licenses has been taken
and such perfected Security Interest is enforceable as such as against any and
all creditors of and purchasers from any Grantor.  No Grantor has any interest
in any material Copyright that is necessary in connection with the operation of
such Grantor’s business, except for those Copyrights identified on Schedule 2
attached hereto which have been registered with the United States Copyright
Office.
 
(d)           Each Grantor has the requisite corporate, partnership, limited
liability company or other power and authority to enter into this Agreement and
the other Transaction Documents to which it is a party and otherwise to carry
out its obligations hereunder. The execution, delivery and performance by each
Grantor of this Agreement and the filings contemplated herein and the other
Transaction Documents to which it is a party have been duly authorized by all
necessary action on the part of such Grantor and no further action is required
by such Grantor.  This Agreement and the other Transaction Documents to which it
is a party has been duly executed by each Grantor.  This Agreement and the other
Transaction Documents to which it is a party constitutes the legal, valid and
binding obligation of each Grantor, enforceable against such Grantor in
accordance with its terms except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization and similar laws of general
application relating to or affecting the rights and remedies of creditors and by
general principles of equity.
 
(e)           No written claim has been received by any Grantor that any
Collateral or any Grantor’s use of any Collateral violates the rights of any
third party. There has been no adverse decision to any Grantor’s claim of
ownership rights in or exclusive rights to use the Collateral in any
jurisdiction or to such Grantor’s right to keep and maintain such Collateral in
full force and effect, and there is no proceeding involving said rights pending
or, to the best knowledge of such Grantor, threatened before any court, judicial
body, administrative or regulatory agency, arbitrator or other governmental
authority.
 
(f)           Each Grantor shall at all times maintain its books of account and
records relating to the Collateral at its principal place of business (except
when temporarily kept at the offices of its attorneys or accountants) and its
Collateral at the locations set forth on Schedule 7 attached hereto and may not
relocate such books of account and records or tangible Collateral unless it
delivers to Secured Party at least thirty (30) days prior to such relocation (i)
written notice of such relocation and the new location thereof (which must be
within the United States) and (ii) evidence that appropriate financing
statements under the Code and other necessary documents have been filed and
recorded and other steps have been taken to perfect the Security Interests to
create in favor of Secured Party, subject to Permitted Encumbrances, a valid,
perfected and continuing perfected first priority lien in the Collateral.
 
 
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(g)           The execution, delivery and performance of this Agreement and the
other Transaction Documents to which it is a party by each Grantor do not (i)
violate any of the provisions of the Organizational Documents of any Grantor or
any judgment, decree, order or award of any court, governmental body or
arbitrator or any applicable law, rule or regulation applicable to any Grantor
or (ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing such Grantor’s debt or otherwise) or other understanding
to which any Grantor is a party or by which any property or asset of any Grantor
is bound or affected, except, in all cases, for such conflicts, defaults,
terminations, amendments, acceleration, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect. If any,
all required consents (including, without limitation, from stockholders or
creditors of each Grantor) necessary for such Grantor to enter into and perform
its obligations hereunder have been obtained.
 
(h)           This Agreement creates a valid security interest in the Collateral
of each of Grantors, to the extent a security interest therein can be created
under the Code, securing the payment of the Secured Obligations.  Except to the
extent a security interest in the Collateral cannot be perfected by the filing
of a financing statement under the Code, all filings and other actions necessary
or desirable to perfect and protect such security interest have been duly taken
or will have been taken upon the filing of financing statements listing each
applicable Grantor, as a debtor, and Secured Party, as secured party, in the
jurisdictions listed next to such Grantor’s name on Schedule 8 attached
hereto.  Upon the making of such filings, Secured Party shall have, subject to
Permitted Encumbrances, a first priority perfected security interest in the
Collateral of each Grantor to the extent such security interest can be perfected
by the filing of a financing statement.  All action by any Grantor necessary to
protect and perfect such security interest on each item of Collateral has been
duly taken.
 
(i)           (i) Except for the Security Interest created hereby, each Grantor
is and will at all times be the sole holder of record and the legal and
beneficial owner, free and clear of all Liens other than Permitted Encumbrances,
of the Pledged Interests indicated on Schedule 5 attached hereto as being owned
by such Grantor and, when acquired by such Grantor, any Pledged Interests
acquired after the Closing Date; (ii) all of the Pledged Interests are duly
authorized, validly issued, fully paid and nonassessable and the Pledged
Interests constitute or will constitute the percentage of the issued and
outstanding Stock of the Pledged Companies of such Grantor identified on
Schedule 5 attached hereto as supplemented or modified by any Pledged Interests
Addendum or any Supplement to this Agreement; (iii) such Grantor has the right
and requisite authority to pledge the Investment Related Property pledged by
such Grantor to Secured Party as provided herein; (iv) all actions necessary or
desirable to perfect, establish, subject to Permitted Encumbrances, the first
priority of, or otherwise protect, Secured Party’s Liens in the Investment
Related Collateral, and the proceeds thereof, have been duly taken, (A) upon the
execution and delivery of this Agreement, (B) upon the taking of possession by
Secured Party or its representative of any certificates constituting the Pledged
Interests, to the extent such Pledged Interests are represented by certificates,
together with undated powers endorsed in blank by the applicable Grantor; (C)
upon the filing of financing statements in the applicable jurisdiction set forth
on Schedule 8 attached hereto for such Grantor with respect to the Pledged
Interests of such Grantor that are not represented by certificates, and (D) with
respect to any Securities Accounts or Deposit Accounts, upon the delivery of
account control agreements with respect thereto; and (v) each Grantor has
delivered to and deposited with Secured Party (or, with respect to any Pledged
Interests created or obtained after the Closing Date, will deliver and deposit
in accordance with Sections 6(a) and 8) all certificates representing the
Pledged Interests owned by such Grantor to the extent such Pledged Interests are
represented by certificates, and undated powers endorsed in blank with respect
to such certificates. None of the Pledged Interests owned or held by such
Grantor has been issued or transferred in violation of any securities
registration, securities disclosure, or similar laws of any jurisdiction to
which such issuance or transfer may be subject.
 
 
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(j)           No consent, approval, authorization, or other order or other
action by, and no notice to or filing with, any Governmental Authority or any
other Person is required (i) for the grant of a Security Interest by such
Grantor in and to the Collateral pursuant to this Agreement or for the
execution, delivery, or performance of this Agreement and the other Transaction
Documents to which it is a party by such Grantor, or (ii) for the exercise by
Secured Party of the voting or other rights provided for in this Agreement or
any other Transaction Document with respect to the Investment Related Property
or the remedies in respect of the Collateral pursuant to this Agreement or any
other Transaction Document, except as may be required in connection with such
disposition of Investment Related Property by laws affecting the offering and
sale of securities generally.
 
(k)           Schedule 9 attached hereto sets forth all motor vehicles owned by
Grantors as of the Closing Date, by model, model year and vehicle identification
number (“VIN”).
 
6.           Covenants.  Each Grantor, jointly and severally, covenants and
agrees with Secured Party that from and after the date of this Agreement and
until the date of termination of this Agreement in accordance with Section 22:
 
(a)           Possession of Collateral.  In the event that any Collateral,
including Proceeds, is evidenced by or consists of Negotiable Collateral,
Investment Related Property, or Chattel Paper, and if and to the extent that
perfection or priority of Secured Party’s Security Interest is dependent on or
enhanced by possession, the applicable Grantor, promptly (and in any event
within one (1) Business Day) upon the request of Secured Party, shall execute
such other documents and instruments as shall be reasonably requested by Secured
Party or, if applicable, endorse and deliver physical possession of such
Negotiable Collateral, Investment Related Property, or Chattel Paper to Secured
Party or its representative, together with such undated powers endorsed in blank
as shall be reasonably requested by Secured Party;
 
(b)           Chattel Paper.
 
(i)         Each Grantor shall take all steps reasonably necessary to grant
Secured Party control of all electronic Chattel Paper in accordance with the
Code and all “transferable records” as that term is defined in Section 16 of the
Uniform Electronic Transaction Act and Section 201 of the federal Electronic
Signatures in Global and National Commerce Act as in effect in any relevant
jurisdiction;
 
 
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(ii)         If any Grantor retains possession of any Chattel Paper or
instruments (which retention of possession shall be subject to the extent
permitted hereby and by the Purchase Agreement), promptly upon the request of
Secured Party, such Chattel Paper and instruments shall be marked with the
following legend: “This writing and the obligations evidenced or secured hereby
are subject to the Security Interest of BAM Administrative Services LLC”;
 
(c)           Control Agreements.
 
(i)         Except to the extent otherwise permitted by the Purchase Agreement,
each Grantor shall obtain an authenticated account control agreement (or other
similar agreement) from each bank or financial institution maintaining a Deposit
Account or a Securities Account for such Grantor to which the proceeds of any
Collateral are to be received that Secured Party deems necessary or desirable to
perfect Secured Party’s Liens in such Deposit Account or Securities Account, as
applicable;
 
(ii)         Except to the extent otherwise permitted by the Purchase Agreement,
each Grantor shall obtain authenticated control agreements, from each issuer of
uncertificated securities, securities intermediary, or commodities intermediary
issuing or holding any financial assets or commodities to or for any Grantor
that Secured Party deems necessary or desirable to perfect Secured Party’s Liens
in such financial assets or commodities, as applicable;
 
(d)           Letter-of-Credit Rights.  Each Grantor that is or becomes the
beneficiary of a letter of credit shall promptly (and in any event within two
(2) Business Days after becoming a beneficiary), notify Secured Party thereof
and, thereafter, upon the request by Secured Party, except with respect to
documentary letters of credit received by a Grantor from customers in the
ordinary course of business if no Event of Default has occurred and is
continuing, enter into a tri-party agreement with Secured Party and the issuer
or confirmation bank with respect to letter-of-credit rights assigning such
letter-of-credit rights to Secured Party and directing all payments thereunder
to a deposit account designated by Secured Party, all in form and substance
reasonably satisfactory to Secured Party;
 
(e)           Commercial Tort Claims.  Each Grantor shall promptly (and in any
event within two (2) Business Days of receipt thereof), notify Secured Party in
writing upon incurring or otherwise obtaining a Commercial Tort Claim after the
date hereof and, upon request of Secured Party, promptly amend Schedule 10
attached hereto to describe such after-acquired Commercial Tort Claim in a
manner that reasonably identifies such Commercial Tort Claim, and hereby
authorizes the filing of additional financing statements or amendments to
existing financing statements describing such Commercial Tort Claims, and agrees
to do such other acts or things deemed necessary or desirable by Secured Party
to give Secured Party, subject to Permitted Encumbrances, a first priority
perfected security interest in any such Commercial Tort Claim;
 
 
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(f)           Government Contracts.  If any Account or Chattel Paper arises out
of a contract or contracts with the United States of America or any department,
agency, or instrumentality thereof, Grantors shall promptly (and in any event
within two (2) Business Days of the creation thereof) notify Secured Party
thereof in writing and execute any instruments or take any steps reasonably
required by Secured Party in order that all moneys due or to become due under
such contract or contracts shall be assigned to Secured Party, and shall provide
written notice thereof under the Assignment of Claims Act or other applicable
law;
 
(g)           Intellectual Property.
 
(i)         Upon request of Secured Party, in order to facilitate filings with
the United States Patent and Trademark Office, each Grantor shall execute and
deliver to Secured Party one or more Patent Security Agreements to further
evidence Secured Party’s Liens on such Grantor’s Patents, Trademarks, or
Copyrights, and the General Intangibles of such Grantor relating thereto or
represented thereby;
 
(ii)         Each Grantor shall have the duty, to the extent necessary or
economically desirable in the operation of such Grantor’s business, (A) to
promptly sue for, or take such other action with respect to, infringement,
misappropriation, or dilution and to recover any and all awarded damages for
such infringement, misappropriation, or dilution, (B) to prosecute diligently
any trademark application or service mark application that is part of such
Grantor’s Trademarks pending as of the date hereof or hereafter until the
termination of this Agreement, (C) to prosecute diligently any patent
application that is part of such Grantor’s Patents pending as of the date hereof
or hereafter until the termination of this Agreement, and (D) to take all
reasonable and necessary action to preserve and maintain all of such Grantor’s
Trademarks, Patents, Copyrights, Intellectual Property Licenses, and its rights
therein, including the filing of applications for renewal, affidavits of use,
affidavits of noncontestability and opposition and interference and cancellation
proceedings.  Each Grantor shall promptly file an application with the United
States Copyright Office for any Copyright that has not been registered with the
United States Copyright Office if such Copyright is necessary or economically
desirable in the operation of such Grantor’s business. Any expenses incurred in
connection with the foregoing shall be borne by the appropriate Grantor.  Each
Grantor further agrees not to abandon any Trademark, Patent, Copyright, or
Intellectual Property License that is necessary or economically desirable in the
operation of such Grantor’s business;
 
(iii)         Grantors acknowledge and agree that Secured Party and the
Investors shall have no duties with respect to the Trademarks, Patents,
Copyrights, or Intellectual Property Licenses.  Without limiting the generality
of this Section 6(g), Grantors acknowledge and agree that Secured Party and the
Investors shall not be under any obligation to take any steps necessary to
preserve rights in the Trademarks, Patents, Copyrights, or Intellectual Property
Licenses against any other Person, but Secured Party may do so at its option
from and after the occurrence and during the continuance of an Event of Default,
and all expenses incurred in connection therewith (including reasonable fees and
expenses of attorneys and other professionals) shall be for the sole account of
the Company and the other Grantors and shall be chargeable to the Company and
the other Grantors;
 
(iv)         In no event shall any Grantor, either itself or through any agent,
employee, licensee, or designee, file an application for the registration of any
Patent, Trademark, or Copyright with the United States Patent and Trademark
Office, the United States Copyright Office or any similar office or agency
without giving Secured Party prompt (and in any event within ten (10) Business
Days) written notice thereof.  Promptly upon any such filing, each Grantor shall
comply with Section 6(g)(i);
 
 
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(h)           Investment Related Property.
 
(i)         If any Grantor shall receive or become entitled to receive any
Pledged Interests after the Closing Date, it shall promptly (and in any event
within five (5) Business Days of receipt thereof) deliver to Secured Party a
duly executed Pledged Interests Addendum identifying such Pledged Interests;
 
(ii)         Upon the occurrence and during the continuance of an Event of
Default, all sums of money and property paid or distributed in respect of the
Investment Related Property which are received by any Grantor shall be held by
Grantors in trust for the benefit of Secured Party segregated from such
Grantor’s other property, and such Grantor shall deliver it forthwith to Secured
Party in the exact form received;
 
(iii)         Each Grantor shall promptly deliver to Secured Party a copy of
each notice or other communication received by it in respect of any Pledged
Interests;
 
(iv)         No Grantor shall make or consent to any amendment or other
modification or waiver with respect to any Pledged Interests or Pledged
Operating Agreement, or enter into any agreement or permit to exist any
restriction with respect to any Pledged Interests other than pursuant to the
Transaction Documents;
 
(v)         Each Grantor agrees that it will cooperate with Secured Party in
obtaining all necessary approvals and making all necessary filings under
federal, state, local, or foreign law in connection with the Security Interest
on the Investment Related Property or any sale or transfer thereof;
 
(vi)         As to all limited liability company interests issued under any
Pledged Operating Agreement, each Grantor hereby represents, warrants and
covenants that the Pledged Interests issued pursuant to such agreement (A) are
not and shall not be dealt in or traded on securities exchanges or in securities
markets, (B) do not and will not constitute investment company securities, and
(C) are not and will not be held by such Grantor in a securities account.  In
addition, none of the Pledged Operating Agreements or any other agreements
governing any of the Pledged Interests issued under any Pledged Operating
Agreement provide or shall provide that such Pledged Interests are securities
governed by Article 8 of the Uniform Commercial Code as in effect in any
relevant jurisdiction;
 
(i)           Real Property; Fixtures.  Each Grantor covenants and agrees that
upon the acquisition of any fee interest in Real Property it will promptly (and
in any event within two (2) Business Days of acquisition) notify Secured Party
of the acquisition of such Real Property and will grant to Secured Party a first
priority Mortgage on each fee interest in Real Property now or hereafter owned
by such Grantor and shall deliver such other documentation and opinions, in form
and substance satisfactory to Secured Party, in connection with the grant of
such Mortgage as Secured Party shall request in its reasonable credit judgment,
including title insurance policies, financing statements, fixture filings and
environmental audits and such Grantor shall pay all recording costs, intangible
taxes and other fees and costs (including reasonable attorneys fees and
expenses) incurred in connection therewith.  Each Grantor acknowledges and
agrees that, to the extent permitted by applicable law, all of the Collateral
shall remain personal property regardless of the manner of its attachment or
affixation to real property.
 
 
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(j)           Transfers and Other Liens.  Except as otherwise expressly
permitted hereby or by the Purchase Agreement, Grantors shall not (i) sell,
assign (by operation of law or otherwise) or otherwise dispose of, or grant any
option with respect to, any of the Collateral, or (ii) create or permit to exist
any Lien upon or with respect to any of the Collateral of any of Grantors,
except for Permitted Encumbrances.  The inclusion of Proceeds in the Collateral
shall not be deemed to constitute Secured Party’s or any Investor’s consent to
any sale or other disposition of any of the Collateral except as expressly
permitted in this Agreement, the Purchase Agreement or the other Transaction
Documents;
 
(k)           Other Actions as to Any and All Collateral.  Each Grantor shall
promptly (and in any event, within 5 Business Days of acquiring or obtaining
such Collateral) notify Secured Party in writing upon (i) acquiring or otherwise
obtaining any Collateral after the date hereof consisting of Trademarks,
Patents, Copyrights, Intellectual Property Licenses, Investment Related
Property, Chattel Paper (electronic, tangible or otherwise), documents (as
defined in Article 9 of  the Code), promissory notes (as defined in the Code, or
instruments (as defined in the Code) or (ii) any amount payable under or in
connection with any of the Collateral being or becoming evidenced after the date
hereof by any Chattel Paper, documents, promissory notes, or instruments and, in
each such case upon the request of Secured Party, promptly execute such other
documents, or if applicable, deliver such Chattel Paper, other documents or
certificates evidencing any Investment Related Property and do such other acts
or things deemed reasonably necessary or desirable by Secured Party to protect
Secured Party’s Liens therein;
 
(l)           Motor Vehicles.  Upon request of Secured Party, with respect to
all motor vehicles owned by any Grantor, Grantor shall deliver to Secured Party,
a certificate of title for all such motor vehicles and shall cause those title
certificates to be filed (with Secured Party’s Liens noted thereon) in the
appropriate state motor vehicle filing office; and
 
(m)           Insurance.  Grantors shall maintain with financially sound and
reputable insurers, insurance with respect to the Collateral, including
Collateral hereafter acquired, against loss or damage of the kinds and in the
amounts customarily insured against by entities of established reputation having
similar properties similarly situated and in such amounts as are customarily
carried under similar circumstances by other such entities and otherwise as is
prudent for entities engaged in similar businesses but in any event sufficient
to cover the full replacement cost thereof.  Grantors shall cause each insurance
policy issued in connection herewith to provide, and the insurer issuing such
policy to certify to Secured Party that (a) Secured Party will be named as
lender loss payee (mortgagee, as applicable) and additional insured under each
such insurance policy; (b) if such insurance be proposed to be cancelled or
materially changed for any reason whatsoever, such insurer will promptly notify
Secured Party and such cancellation or change shall not be effective as to
Secured Party for at least thirty (30) days after receipt by Secured Party of
such notice, unless the effect of such change is to extend or increase coverage
under the policy; and (c) Secured Party will have the right (but no obligation)
at its election to remedy any default in the payment of premiums within thirty
(30) days of notice from the insurer of such default.  If no Event of Default
exists and if the proceeds arising out of any claim or series of related claims
do not exceed $25,000, loss payments in each instance will be available to
Grantors and applied by Grantors to the repair and/or replacement of property
with respect to which the loss was incurred.  If no Event of Default exists and
such proceeds exceed $25,000, and after an Event of Default occurs, all proceeds
then or thereafter in existence shall be paid to Secured Party (for application
to the Obligations) and, if received by any Grantor, shall be held in trust for
Secured Party and promptly paid over to Secured Party (for application to the
Obligations) unless otherwise directed in writing by Secured Party.  Copies of
such policies or the related certificates, in each case, naming Secured Party as
lender loss payee and additional insured shall be delivered to Secured Party at
least annually and at the time any new policy of insurance is issued
 
 
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(n)           Inspection.  Grantors shall permit Secured Party, each Investor
and their respective representatives and agents reasonable access to inspect the
Collateral during normal business hours, upon reasonable prior notice and
without undue interference with Grantors’ business operations, and to make
copies of records pertaining to the Collateral as may be reasonably requested by
Secured Party or any Investor from time to time.
 
7.           Relation to Other Security Documents.  The provisions of this
Agreement shall be read and construed with the other Transaction Documents
referred to below in the manner so indicated.
 
(a)           Purchase Agreement. In the event of any conflict between any
provision in this Agreement and a provision in the Purchase Agreement, such
provision of the Purchase Agreement shall control.
 
(b)           Notes. In the event of any conflict between any provision in this
Agreement and a provision in the Notes, such provision of the Notes shall
control.
 
(c)           Patent Security Agreements.  The provisions of the Patent Security
Agreements are supplemental to the provisions of this Agreement, and nothing
contained in the Patent Security Agreements shall limit any of the rights or
remedies of Secured Party hereunder.
 
8.           Further Assurances.
 
(a)           Each Grantor agrees that from time to time, at its own expense,
such Grantor will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or that Secured
Party may reasonably request, in order to perfect and protect the Security
Interest granted or purported to be granted hereby or to enable Secured Party to
exercise and enforce its rights and remedies hereunder with respect to any of
the Collateral.
 
(b)           Subject to Section 8(c), each Grantor authorizes the filing by
Secured Party of financing or continuation statements, or amendments thereto,
and such Grantor will execute and deliver to Secured Party such other
instruments or notices, as may be necessary or as Secured Party may reasonably
request, in order to perfect and preserve the Security Interest granted or
purported to be granted hereby.
 
 
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(c)           Each Grantor authorizes Secured Party at any time and from time to
time to file, transmit, or communicate, as applicable, financing statements and
amendments (i) describing the Collateral as “all personal property of debtor” or
“all assets of debtor” or words of similar effect, (ii) describing the
Collateral as being of equal or lesser scope or with greater detail, or (iii)
that contain any information required by part 5 of Article 9 of the Code for the
sufficiency or filing office acceptance.  Each Grantor also hereby ratifies any
and all financing statements or amendments previously filed by Secured Party in
any jurisdiction.
 
(d)           Each Grantor acknowledges that it is not authorized to file any
financing statement or amendment or termination statement with respect to any
financing statement filed in connection with this Agreement without the prior
written consent of Secured Party, subject to such Grantor’s rights under Section
9-509(d)(2) of the Code.
 
9.           Secured Party’s Right to Perform Contracts, Exercise Rights,
etc.  Upon the occurrence and during the continuance of an Event of Default,
Secured Party (or its designee) (a) may proceed to perform any and all of the
obligations of any Grantor contained in any contract, lease, or other agreement
and exercise any and all rights of any Grantor therein contained as fully as
such Grantor itself could, (b) shall have the right to use any of Grantor’s
rights under Intellectual Property Licenses in connection with the enforcement
of Secured Party’s rights hereunder, including the right to prepare for sale and
sell any and all Inventory and Equipment now or hereafter owned by any Grantor
and now or hereafter covered by such licenses, but only to the extent permitted
by such licenses or the licensors thereunder or applicable law, and (c) shall
have the right to request that any Stock that is pledged hereunder be registered
in the name of Secured Party or any of its nominees.
 
10.           Secured Party Appointed Attorney-in-Fact.  Each Grantor hereby
irrevocably appoints Secured Party its attorney-in-fact, with full authority in
the place and stead of such Grantor and in the name of such Grantor or
otherwise, at such time as an Event of Default has occurred and is continuing
under the Notes, to take any action and to execute any instrument which Secured
Party may reasonably deem necessary or advisable to accomplish the purposes of
this Agreement, including:
 
(a)           to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
connection with the Accounts or any Supporting Obligations in connection
therewith or any other Collateral of such Grantor;
 
(b)           to receive and open all mail addressed to such Grantor and to
notify postal authorities to change the address for the delivery of mail to such
Grantor to that of Secured Party;
 
(c)           to receive, indorse, and collect any drafts or other instruments,
documents, Negotiable Collateral or Chattel Paper;
 
 
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(d)           to file any claims or take any action or institute any proceedings
which Secured Party may deem necessary or desirable for the collection of any of
the Collateral of such Grantor or otherwise to enforce the rights of Secured
Party with respect to any of the Collateral;
 
(e)           to repair, alter, or supply goods, if any, necessary to fulfill in
whole or in part the purchase order of any Person obligated to such Grantor in
respect of any Account of such Grantor;
 
(f)           to use any labels, Patents, Trademarks, trade names, URLs, domain
names, industrial designs, Copyrights, advertising matter or other industrial or
intellectual property rights, in advertising for sale and selling Inventory and
other Collateral and to collect any amounts due under Accounts, contracts or
Negotiable Collateral of such Grantor; and
 
(g)           Secured Party shall have the right, but shall not be obligated, to
bring suit in its own name to enforce the Trademarks, Patents, Copyrights and
Intellectual Property Licenses and, if Secured Party shall commence any such
suit, the appropriate Grantor shall, at the request of Secured Party, do any and
all lawful acts and execute any and all proper documents reasonably required by
Secured Party in aid of such enforcement.
 
To the extent permitted by law, each Grantor hereby ratifies all that such
attorney-in-fact shall lawfully do or cause to be done by virtue hereof.  This
power of attorney is coupled with an interest and shall be irrevocable until
this Agreement is terminated.
 
11.           Secured Party May Perform.  If any of Grantors fails to perform
any agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the reasonable expenses of Secured Party
incurred in connection therewith shall be payable, jointly and severally, by
Grantors.
 
12.           Secured Party’s Duties.  The powers conferred on Secured Party
hereunder are solely to protect Secured Party’s interest in the Collateral, and
shall not impose any duty upon Secured Party to exercise any such
powers.  Except for the safe custody of any Collateral in its actual possession
and the accounting for moneys actually received by it hereunder, Secured Party
shall have no duty as to any Collateral or as to the taking of any necessary
steps to preserve rights against prior parties or any other rights pertaining to
any Collateral.  Secured Party shall be deemed to have exercised reasonable care
in the custody and preservation of any Collateral in its actual possession if
such Collateral is accorded treatment substantially equal to that which Secured
Party accords its own property.
 
13.           Collection of Accounts, General Intangibles and Negotiable
Collateral.  At any time upon the occurrence and during the continuance of an
Event of Default, Secured Party or Secured Party’s designee may (a) notify
Account Debtors of any Grantor that the Accounts, General Intangibles, Chattel
Paper or Negotiable Collateral have been assigned to Secured Party or that
Secured Party has a security interest therein, and (b) collect the Accounts,
General Intangibles and Negotiable Collateral directly, and any collection costs
and expenses shall constitute part of such Grantor’s Secured Obligations under
the Transaction Documents.
 
 
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14.           Disposition of Pledged Interests by Secured Party.  None of the
Pledged Interests existing as of the date of this Agreement are, and none of the
Pledged Interests hereafter acquired on the date of acquisition thereof will be,
registered or qualified under the various federal or state securities laws of
the United States and disposition thereof after an Event of Default may be
restricted to one or more private (instead of public) sales in view of the lack
of such registration.  Each Grantor understands that in connection with such
disposition, Secured Party may approach only a restricted number of potential
purchasers and further understands that a sale under such circumstances may
yield a lower price for the Pledged Interests than if the Pledged Interests were
registered and qualified pursuant to federal and state securities laws and sold
on the open market.  Each Grantor, therefore, agrees that:  (a) if Secured Party
shall, pursuant to the terms of this Agreement, sell or cause the Pledged
Interests or any portion thereof to be sold at a private sale, Secured Party
shall have the right to rely upon the advice and opinion of any nationally
recognized brokerage or investment firm (but shall not be obligated to seek such
advice and the failure to do so shall not be considered in determining the
commercial reasonableness of such action) as to the best manner in which to
offer the Pledged Interest or any portion thereof for sale and as to the best
price reasonably obtainable at the private sale thereof; and (b) such reliance
shall be conclusive evidence that Secured Party has handled the disposition in a
commercially reasonable manner.
 
15.           Voting Rights.
 
(a)           Upon the occurrence and during the continuation of an Event of
Default, (i) Secured Party may, at its option, and with no prior notice to any
Grantor, and in addition to all rights and remedies available to Secured Party
under any other agreement, at law, in equity, or otherwise, exercise all voting
rights, and all other ownership or consensual rights in respect of the Pledged
Interests owned by such Grantor, but under no circumstances is Secured Party
obligated by the terms of this Agreement to exercise such rights, and (ii) if
Secured Party duly exercises its right to vote any of such Pledged Interests,
each Grantor hereby appoints Secured Party, such Grantor’s true and lawful
attorney-in-fact and irrevocable proxy to vote such Pledged Interests in any
manner Secured Party deems advisable for or against all matters submitted or
which may be submitted to a vote of shareholders, partners or members, as the
case may be.  The power-of-attorney granted hereby is coupled with an interest
and shall be irrevocable.
 
(b)           For so long as any Grantor shall have the right to vote the
Pledged Interests owned by it, such Grantor covenants and agrees that it will
not, without the prior written consent of Secured Party, vote or take any
consensual action with respect to such Pledged Interests which would materially
adversely affect the rights of Secured Party or the value of the Pledged
Interests.
 
(c)           If any of the Collateral subject to this Agreement consists of
nonvoting equity or ownership interests (regardless of class, designation,
preference or rights) that may be converted into voting equity or ownership
interests upon the occurrence of certain events (including, without limitation,
upon the transfer of all or any of the other stock or assets of the issuer), it
is agreed that the pledge of such equity or ownership interests pursuant to this
Agreement or the enforcement of any of Secured Party’s rights hereunder shall
not be deemed to be the type of event which would trigger such conversion rights
notwithstanding any provisions in the Organizational Documents or agreements to
which any Grantor is subject or to which any Grantor is party.
 
 
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16.           Remedies.  Upon the occurrence and during the continuance of an
Event of Default:
 
(a)           Secured Party may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein, in the other
Transaction Documents, or otherwise available to it, all the rights and remedies
of a Secured Party on default under the Code or any other applicable
law.  Without limiting the generality of the foregoing, each Grantor expressly
agrees that, in any such event, Secured Party without demand of performance or
other demand, advertisement or notice of any kind (except a notice specified
below of time and place of public or private sale) to or upon any of Grantors or
any other Person (all and each of which demands, advertisements and notices are
hereby expressly waived to the maximum extent permitted by the Code or any other
applicable law), may take immediate possession of all or any portion of the
Collateral and (i) require Grantors to, and each Grantor hereby agrees that it
will at its own expense and upon request of Secured Party forthwith, assemble
all or part of the Collateral as directed by Secured Party and make it available
to Secured Party at one or more locations where such Grantor regularly maintains
Inventory, and (ii) without notice except as specified below, sell or otherwise
dispose of the Collateral or any part thereof in one or more parcels at public
or private sale or other disposition, at any of Secured Party’s offices or
elsewhere, for cash, on credit, and upon such other terms as Secured Party may
deem commercially reasonable. Without limiting the generality of the foregoing,
Secured Party may disclaim any and all representations and warranties in
connection with any such sale or other disposition.  Each Grantor agrees that,
to the extent notice of sale shall be required by law, at least ten (10) days
notice to any of Grantors of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification and specifically such notice shall constitute a reasonable
“authenticated notification of disposition” within the meaning of Section 9-611
of the Code.  Secured Party shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given.  Secured Party may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned.
 
(b)           Secured Party is hereby granted a license or other right to use,
without liability for royalties or any other charge, each Grantor’s labels,
Patents, Copyrights, rights of use of any name, trade secrets, trade names,
Trademarks, service marks and advertising matter, URLs, domain names, industrial
designs, other industrial or intellectual property or any property of a similar
nature, whether owned by any of Grantors or with respect to which any of
Grantors have rights under license, sublicense, or other agreements, as it
pertains to the Collateral, in preparing for sale, advertising for sale and
selling any Collateral, and each Grantor’s rights under all licenses and all
franchise agreements shall inure to the benefit of Secured Party.
 
(c)           Any cash held by Secured Party as Collateral and all cash proceeds
received by Secured Party in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral shall be applied against the
Secured Obligations in the order set forth in the Purchase Agreement.   In the
event the proceeds of Collateral are insufficient to satisfy all of the Secured
Obligations in full, each Grantor shall remain jointly and severally liable for
any such deficiency.
 
 
20

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(d)           Each Grantor hereby acknowledges that the Secured Obligations
arose out of a commercial transaction, and agrees that if an Event of Default
shall occur and be continuing Secured Party shall have the right to an immediate
writ of possession without notice of a hearing.  Secured Party shall have the
right to the appointment of a receiver for the properties and assets of each of
Grantors, and each Grantor hereby consents to such rights and such appointment
and hereby waives any objection such Grantors may have thereto or the right to
have a bond or other security posted by Secured Party.
 
17.           Remedies Cumulative.  Each right, power, and remedy of Secured
Party as provided for in this Agreement or in the other Transaction Documents or
now or hereafter existing at law or in equity or by statute or otherwise shall
be cumulative and concurrent and shall be in addition to every other right,
power, or remedy provided for in this Agreement or in the other Transaction
Documents or now or hereafter existing at law or in equity or by statute or
otherwise, and the exercise or beginning of the exercise by Secured Party, of
any one or more of such rights, powers, or remedies shall not preclude the
simultaneous or later exercise by Secured Party of any or all such other rights,
powers, or remedies.
 
18.           Marshaling. Secured Party  shall not be required to marshal any
present or future collateral security (including but not limited to the
Collateral) for, or other assurances of payment of, the Secured Obligations or
any of them or to resort to such collateral security or other assurances of
payment in any particular order, and all of its rights and remedies hereunder
and in respect of such collateral security and other assurances of payment shall
be cumulative and in addition to all other rights and remedies, however existing
or arising.  To the extent that it lawfully may, each Grantor hereby agrees that
it will not invoke any law relating to the marshaling of collateral which might
cause delay in or impede the enforcement of Secured Party’s rights and remedies
under this Agreement or under any other instrument creating or evidencing any of
the Secured Obligations or under which any of the Secured Obligations is
outstanding or by which any of the Secured Obligations is secured or payment
thereof is otherwise assured, and, to the extent that it lawfully may, each
Grantor hereby irrevocably waives the benefits of all such laws.
 
19.           Indemnity and Expenses.
 
(a)           Each Grantor agrees to indemnify Secured Party, the Investors and
their respective directors, officers, members, partners, affiliates, agents,
successors and assigns from and against all claims, lawsuits and liabilities
(including reasonable attorneys fees) growing out of or resulting from this
Agreement (including enforcement of this Agreement) or any other Transaction
Document to which such Grantor is a party, except claims, losses or liabilities
resulting from the gross negligence or willful misconduct of the party seeking
indemnification as determined by a final non-appealable order of a court of
competent jurisdiction.  This provision shall survive the termination of this
Agreement and the repayment of the Secured Obligations.
 
 
21

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(b)           Grantors, jointly and severally, shall, upon demand, pay to
Secured Party all the fees, costs, charges and expenses which Secured Party may
incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or, upon an Event of Default, the
sale of, collection from, or other realization upon, any of the Collateral in
accordance with this Agreement and the other Transaction Documents, (iii) the
exercise or enforcement of any of the rights of Secured Party hereunder or (iv)
the failure by any of Grantors to perform or observe any of the provisions
hereof.
 
20.           Merger, Amendments; Etc.  THIS AGREEMENT, TOGETHER WITH THE OTHER
TRANSACTION DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE
PARTIES.  No waiver of any provision of this Agreement, and no consent to any
departure by any of Grantors herefrom, shall in any event be effective unless
the same shall be in writing and signed by Secured Party, and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.  No amendment of any provision of this Agreement shall
be effective unless the same shall be in writing and signed by Secured Party and
each of Grantors to which such amendment applies.
 
21.           Addresses for Notices.  All notices and other communications
provided for hereunder shall be given in the form and manner and delivered to
Secured Party at its address specified in the Purchase Agreement, and to any of
Grantors at their respective addresses specified in the Purchase Agreement or
Guaranty, as applicable, or, as to any party, at such other address as shall be
designated by such party in a written notice to the other party.
 
22.           Continuing Security Interest: Assignments under Credit
Agreement.  This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the Obligations
have been indefeasibly paid in full in cash in accordance with the provisions of
the Notes and the Purchase Agreement, (b) be binding upon each of Grantors, and
their respective successors and assigns, and (c) inure to the benefit of, and be
enforceable by, Secured Party, the Investors, and their respective successors,
transferees and assigns.  Without limiting the generality of the foregoing
clause (c), the Investors may, in accordance with the provisions of the Notes
and the Purchase Agreement, assign or otherwise transfer all or any portion of
their respective rights and obligations under the Notes and the Purchase
Agreement to any other Person, and such other Person shall thereupon become
vested with all the benefits in respect thereof granted to the Investors herein
or otherwise.  Upon indefeasible payment in full in cash of the Obligations in
accordance with the provisions of the Notes and the Purchase Agreement, the
Security Interest granted hereby shall terminate and all rights to the
Collateral shall revert to Grantors or any other Person entitled thereto.  At
such time, Secured Party shall authorize the filing of appropriate termination
statements to terminate such Security Interests.  No transfer or renewal,
extension, assignment, or termination of this Agreement or of the Notes, the
Purchase Agreement, any other Transaction Document, or any other instrument or
document executed and delivered by any Grantor to Secured Party nor any
additional loans made by any Investor to the Company, nor the taking of further
security, nor the retaking or re-delivery of the Collateral to Grantors, or any
of them, by Secured Party, shall release any of Grantors from any obligation,
except a release or discharge executed in writing by Secured Party in accordance
with the provisions of the Notes and the Purchase Agreement.  Secured Party
shall not by any act, delay, omission or otherwise, be deemed to have waived any
of its rights or remedies hereunder, unless such waiver is in writing and signed
by Secured Party and then only to the extent therein set forth.  A waiver by
Secured Party or any Investor of any right or remedy on any occasion shall not
be construed as a bar to the exercise of any such right or remedy which Secured
Party or an Investor would otherwise have had on any other occasion.
 
 
22

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23.           Governing Law.
 
(a)           THE VALIDITY OF THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER TRANSACTION DOCUMENT IN
RESPECT OF SUCH OTHER TRANSACTION DOCUMENT), THE CONSTRUCTION, INTERPRETATION,
AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND
THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED
HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
 
(b)           THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS SHALL BE
TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK;
PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
OTHER PROPERTY MAY BE BROUGHT, AT SECURED PARTY’S OPTION, IN THE COURTS OF ANY
JURISDICTION WHERE SECURED PARTY ELECTS TO BRING SUCH ACTION OR WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  SECURED PARTY AND EACH GRANTOR
WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO
ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT
ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 23(B).
 
(c)           TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, SECURED PARTY
AND EACH GRANTOR HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF
THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  SECURED
PARTY AND EACH GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
 
 
23

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24.           New Subsidiaries.  Without impairing the limitations and
restrictions of Section 3.20 of the Purchase Agreement, any new direct or
indirect Subsidiary (whether by acquisition or creation) of Grantor is required
to enter into this Agreement by executing and delivering in favor of Secured
Party a supplement to this Agreement in the form of Annex 1 attached
hereto.  Upon the execution and delivery of Annex 1 by such new Subsidiary, such
Subsidiary shall become a Grantor hereunder with the same force and effect as if
originally named as a Grantor herein.  The execution and delivery of any
instrument adding an additional Grantor as a party to this Agreement shall not
require the consent of any Grantor hereunder.  The rights and obligations of
each Grantor hereunder shall remain in full force and effect notwithstanding the
addition of any new Grantor hereunder.
 
25.           Secured Party.  Each reference herein to any right granted to,
benefit conferred upon or power exercisable by the “Secured Party” shall be a
reference to Secured Party, its successors and assigns.
 
26.           Miscellaneous.
 
(a)           This Agreement may be executed in any number of counterparts and
by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement.  Delivery of an
executed counterpart of this Agreement by facsimile or other electronic method
of transmission shall be equally as effective as delivery of an original
executed counterpart of this Agreement.  Any party delivering an executed
counterpart of this Agreement by facsimile or other electronic method of
transmission also shall deliver an original executed counterpart of this
Agreement but the failure to deliver an original executed counterpart shall not
affect the validity, enforceability, and binding effect of this Agreement.  The
foregoing shall apply to each other Transaction Document mutatis mutandis.
 
(b)           Any provision of this Agreement which is prohibited or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof in that
jurisdiction or affecting the validity or enforceability of such provision in
any other jurisdiction.
 
(c)           Headings used in this Agreement are for convenience only and shall
not be used in connection with the interpretation of any provision hereof.
 
(d)           The pronouns used herein shall include, when appropriate, either
gender and both singular and plural, and the grammatical construction of
sentences shall conform thereto.
 
 
24

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

 
(e)           Unless the context of this Agreement or any other Transaction
Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the terms “includes”
and  “including” are not limiting, and the term “or” has, except where otherwise
indicated, the inclusive meaning represented by the phrase “and/or.”  The words
“hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement
or any other Transaction Document refer to this Agreement or such other
Transaction Document, as the case may be, as a whole and not to any particular
provision of this Agreement or such other Transaction Document, as the case may
be.  Section, subsection, clause, schedule, and exhibit references herein are to
this Agreement unless otherwise specified.  Any reference in this Agreement or
in any other Transaction Document to any agreement, instrument, or document
shall include all alterations, amendments, changes, extensions, modifications,
renewals, replacements, substitutions, joinders, and supplements, thereto and
thereof, as applicable (subject to any restrictions on such alterations,
amendments, changes, extensions, modifications, renewals, replacements,
substitutions, joinders, and supplements set forth herein or in the other
Transaction Documents).  Any reference herein or in any other Transaction
Document to the satisfaction or repayment in full of the Obligations shall mean
the repayment in full in cash (or cash collateralization in accordance with the
terms hereof) of all Obligations other than unasserted contingent
indemnification Obligations.  Any reference herein to any Person shall be
construed to include such Person’s successors and assigns.  Any requirement of a
writing contained herein or in any other Transaction Document shall be satisfied
by the transmission of a Record and any Record so transmitted shall constitute a
representation and warranty as to the accuracy and completeness of the
information contained therein.
 
[SIGNATURE PAGE FOLLOWS]
 
 
25

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IN WITNESS WHEREOF, the undersigned parties hereto have executed this Agreement
by and through their duly authorized officers, as of the day and year first
above written.
 
GRANTORS:
PEDEVCO CORP.
 
By:  /s/ Frank C. Ingriselli
Name: Frank C. Ingriselli
Title: President and CEO
 
 
PACIFIC ENERGY DEVELOPMENT CORP.
 
By:  /s/ Frank C. Ingriselli
Name: Frank C. Ingriselli
Title: President and CEO
 
   
WHITE HAWK PETROLEUM, LLC
 
By:  /s/ Frank C. Ingriselli
Name: Frank C. Ingriselli
Title: President and CEO
 
   
PACIFIC ENERGY & RARE EARTH LIMITED
 
By:  /s/ Frank C. Ingriselli
Name: Frank C. Ingriselli
Title: President and CEO
 
   
BLACKHAWK ENERGY LIMITED
 
By:  /s/ Frank C. Ingriselli
Name: Frank C. Ingriselli
Title: President and CEO
 
   
PACIFIC ENERGY DEVELOPMENT MSL, LLC
 
By:  /s/ Frank C. Ingriselli
Name: Frank C. Ingriselli
Title: President and CEO
 
   
RED HAWK PETROLEUM, LLC
 
By:  /s/ Frank C. Ingriselli
Name: Frank C. Ingriselli
Title: President and CEO
 
 
SECURED PARTY:
BAM ADMINISTRATIVE SERVICES LLC
 
By:  /s/ David Levy
Name: David Levy
Title:

 
 
 

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

 
SCHEDULE 1
 
ORGANIZATIONAL INFORMATION
 
Grantor
Jurisdiction of
Organization
 
Organizational Identification Number
Chief Executive Officer
PEDEVCO Corp.*
 
Texas
0800949748
Frank C. Ingriselli
Blast AFJ, Inc.
 
Delaware
4762456
Frank C. Ingriselli
Pacific Energy Development Corp. (“PEDCO”)**
 
Nevada
E0076052011-2
Frank C. Ingriselli
Red Hawk Petroleum, LLC
 
Nevada
E0029742014-1
Frank C. Ingriselli
White Hawk Petroleum, LLC***
 
Nevada
E0251792012-4
Frank C. Ingriselli
Pacific Energy & Rare Earth Limited
 
Hong Kong
1566315
Frank C. Ingriselli
Blackhawk Energy Limited
 
British Virgin Islands
1667057
Frank C. Ingriselli
Pacific Energy Development MSL LLC (“PED MSL”)
Nevada
E0992802013-5
Frank C. Ingriselli

*PEDEVCO Corp. was previously known as “Blast Energy Services, Inc.,” prior to
the merger with Pacific Energy Development Corp. in July 2012.  PEDEVCO Corp.
does business as “Pacific Energy Development.”
**PEDCO was previously known as “Pacific Energy Development Company LLC,” prior
to its conversion into a C-corporation in June 2011.
***White Hawk Petroleum, LLC was previously known as “Excellong E&P-2, Inc.,”
prior to the acquisition of the entity in March 2012 and conversion of the same
into a limited liability company.

 
 
 
 
 

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

 
SCHEDULE 2
 
COPYRIGHT REGISTRATIONS AND APPLICATIONS
 
None.
 
 
 
 
 
 

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

 
SCHEDULE 3
 
INTELLECTUAL PROPERTY LICENSES
 
Microsoft Windows 7 provided by our desktop service providers NimDesk
Foxit PDF Software license
Microsoft Office 2013 (Desktop licenses)
Microsoft Office 2010 (Laptop licenses)
QuickBooks 2014 Enterprise version
 
 
 
 
 
 

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

 
SCHEDULE 4
 
PATENTS AND PATENT APPLICATIONS
 
United Stated Patent #8,256,537 B2 “Blasting lateral holes from existing well
bores”
 
http://www.google.com/patents/US8256537
 
 
 
 
 
 

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

 
SCHEDULE 5
 
PLEDGED COMPANIES
 
Name of Pledgor
Name of Pledged Company
Number of Shares/Units
 
Class of Interests
Percentage of Class Owned
Certificate Nos.
Blast AFJ, Inc.
PEDEVCO Corp.
 
90,000,000
Common Stock
100%
1
Pacific Energy Development Corp. (“PEDCO”)
 
PEDEVCO Corp.
1
Common Stock
100%
1
Red Hawk Petroleum, LLC
 
PEDEVCO Corp.
N/A
Class A Units
100%
Uncertificated
White Hawk Petroleum, LLC
 
PEDCO
1,000,000
Class A Units
100%
Uncertificated
Pacific Energy & Rare Earth Limited
 
PEDCO
10,000
Ordinary Shares
100%
02
Blackhawk Energy Limited
 
PEDCO
1,000
Ordinary Shares
100%
Uncertificated
Pacific Energy Development MSL, LLC
 
PEDCO
N/A
Class A Units
100%
Uncertificated
Pacific Energy Technical Services, LLC
 
PEDCO
700,000
Class A Units
70%
Uncertificated
Condor Energy Technology, LLC
 
PEDCO
1,000,000
Class A Units
20%
2

 

 
 
 

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

 
SCHEDULE 6
 
TRADE NAMES, TRADEMARKS, TRADEMARK APPLICATIONS, SERVICE MARKS, AND SERVICE MARK
APPLICATIONS
 
None.
 
 
 
 
 
 

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

 
SCHEDULE 7
 
OWNED OR LEASED REAL PROPERTY
 
 
a.
Office lease:  Blackhawk Plaza Circle, Suite 201, Danville, California 94506

 
b.
See schedule of leases with respect to Oil and Gas Properties attached as
Schedule 2.1(m) to the Purchase Agreement

 
 
 
 
 
 
 
 
 
 
 
 
 

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

 
 
SCHEDULE 8
 
LIST OF UNIFORM COMMERCIAL CODE FILING JURISDICTIONS
 
Grantor
 
Jurisdictions
PEDEVCO Corp.
 
Nevada
Blast AFJ, Inc.
 
Delaware
Pacific Energy Development Corp.
 
Nevada
Red Hawk Petroleum, LLC
 
Nevada, Colorado
White Hawk Petroleum, LLC
 
Nevada, Texas
Pacific Energy & Rare Earth Limited
 
Washington D.C.
Blackhawk Energy Limited
 
Washington D.C.
Pacific Energy Development MSL, LLC
 
Nevada, Kansas

 
 
 
 
 

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

 
SCHEDULE 9
 
MOTOR VEHICLES
 
None.
 

 
 
 
 
 

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

 
SCHEDULE 10
 
COMMERCIAL TORT CLAIMS
 
None.
 
 
 
 
 
 
 

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

 
ANNEX 1 TO SECURITY AGREEMENT
FORM OF SUPPLEMENT
 
Supplement No. ____ (this “Supplement”) dated as of _______________, to the
Security Agreement dated as of March 7, 2014 (as amended, restated, supplemented
or otherwise modified from time to time, the “Security Agreement”) by each of
the parties listed on the signature pages thereto and those additional entities
that thereafter become parties thereto (collectively, jointly and severally, the
“Grantors” and each, individually, a “Grantor”), and BAM Administrative Services
LLC (together with its successors and assigns, the “Secured Party”).
 
W I T N E S S E T H:
 
WHEREAS, PEDEVCO Corp. (the “Company”) is party to that certain Note Purchase
Agreement dated as of the date hereof (as amended, amended and restated,
supplemented, or otherwise modified from time to time, the “Purchase Agreement”)
by and between the Company, the investors party thereto  (collectively, the
“Investors” and each, individually, an “Investor”) and Secured Party, as agent
for the Investors, pursuant to which the Investors agreed to extend loans to the
Company in the principal amount of up to $50,000,000 (the “Loans”), repayment of
which is evidenced by certain Senior Secured Promissory Notes dated the date
hereof issued to each Investor (the “Notes”), and
 
WHEREAS, all capitalized terms used herein without definition shall have the
meanings ascribed thereto in the Security Agreement or the Notes, or if not
expressly defined in the Notes, then in the Purchase Agreement; and
 
WHEREAS, Grantors have entered into the Security Agreement in order to induce
the Investors to make the Loans to the Company; and
 
WHEREAS, pursuant to the terms and provisions of the Transaction Documents, new
direct or indirect Subsidiaries of the Company, must execute and deliver certain
Transaction Documents, including the Security Agreement, and the execution of
the Security Agreement by the undersigned new Grantor or Grantors (collectively,
the “New Grantors”) may be accomplished by the execution of this Supplement in
favor of Secured Party, and
 
WHEREAS, each of the New Grantors are subsidiaries of the Company and will
derive benefit from the extension of the Loans to the Company.
 
NOW, THEREFORE, for and in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, each New Grantor hereby agrees as follows:
 
 
1

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

 
1.           In accordance with Section 24 of the Security Agreement, each New
Grantor, by its signature below, becomes a “Grantor” under the Security
Agreement with the same force and effect as if originally named therein as a
“Grantor” and each New Grantor hereby (a) agrees to all of the terms and
provisions of the Security Agreement applicable to it as a “Grantor” thereunder
and (b) represents and warrants that the representations and warranties made by
it as a “Grantor” thereunder are true and correct on and as of the date
hereof.  In furtherance of the foregoing, each New Grantor, as security for the
payment and performance in full of the Secured Obligations, does hereby grant,
assign, and pledge to Secured Party a security interest in and security title to
all assets of such New Grantor including, all property of the type described in
Section 2 of the Security Agreement to secure the full and prompt payment of the
Secured Obligations, including, any interest thereon, plus reasonable attorneys’
fees and expenses if the Secured Obligations represented by the Security
Agreement are collected by law, through an attorney-at-law, or under advice
therefrom.  Schedule 1, “Organizational Information”, Schedule 2, “Copyright
Registrations and Applications”, Schedule 3, “Intellectual Property Licenses”,
Schedule 4, “Patents and Patent Applications”, Schedule 5, “Pledged
Companies”,  Schedule 6, “Trade Names, Trademarks, Trademark Applications,
Service Marks and Service Mark Applications”,  Schedule 7, “Owned Real
Property,”  Schedule 8, “List of Uniform Commercial Code Filing Jurisdictions”,
Schedule 9 “Motor Vehicles”, and Schedule 10 “Commercial Tort Claims” attached
hereto supplement Schedule 1, Schedule 2, Schedule 3, Schedule 4, Schedule 5,
Schedule 6, Schedule 7, Schedule 8, Schedule 9 and Schedule 10, respectively, to
the Security Agreement and shall be deemed a part thereof for all purposes of
the Security Agreement.  Each reference to a “Grantor” in the Security Agreement
shall be deemed to include each New Grantor.  The Security Agreement is
incorporated herein by reference.
 
2.           Each New Grantor represents and warrants to Secured Party that this
Supplement has been duly executed and delivered by such New Grantor and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms, except as enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other
similar laws affecting creditors’ rights generally and general principles of
equity (regardless of whether such enforceability is considered in a proceeding
at law or in equity).
 
3.           This Supplement may be executed in multiple counterparts, each of
which shall be deemed to be an original, but all such separate counterparts
shall together constitute but one and the same instrument.  Delivery of a
counterpart hereof by facsimile transmission or by e-mail transmission shall be
as effective as delivery of a manually executed counterpart hereof.
 
4.           Except as expressly supplemented hereby, the Security Agreement
shall remain in full force and effect.
 
5.           This Supplement shall be construed in accordance with and governed
by the laws of the State of New York, without regard to the conflict of laws
principles thereof.
 
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
 
 
2

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

 
IN WITNESS WHEREOF, each New Grantor and Secured Party have duly executed this
Supplement to the Security Agreement as of the day and year first above written.
 
NEW GRANTORS:                                                             [NAME
OF NEW GRANTOR]
 

By:  ________________________
Name:
Title:

[NAME OF NEW GRANTOR]

By:  ________________________
Name:
Title:

SECURED PARTY:                                                            BAM
ADMINISTRATIVE SERVICES LLC
 

 
By:  ________________________
Name:
Title:

 

 
 
3

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EXHIBIT A
 
PATENT SECURITY AGREEMENT
 
This PATENT SECURITY AGREEMENT (this “Patent Security Agreement”) is made this
__ day of March, 2014, between ___________________ (“Grantor”), and BAM
Administrative Services LLC (together with its successors and assigns, “Secured
Party”).
 
W I T N E S S E T H:
 
WHEREAS, PEDEVCO Corp. (the “Company”) is party to that certain Note Purchase
Agreement dated as of the date hereof (as amended, amended and restated,
supplemented, or otherwise modified from time to time, the “Purchase Agreement”)
by and between the Company, the investors party thereto  (collectively, the
“Investors” and each, individually, an “Investor”) and Secured Party, as agent
for the Investors, pursuant to which the Investors agreed to extend loans to the
Company in the principal amount of up to $50,000,000 (the “Loans”), repayment of
which is evidenced by certain Senior Secured Promissory Notes dated the date
hereof issued to each Investor (the “Notes”), and
 
WHEREAS, in order to induce Secured Party and the Investors to enter into the
Purchase Agreement and the other Transaction Documents and to induce the
Investors to extend the Loans pursuant to the Purchase Agreement, Grantor,
together with affiliates of Grantor, has executed and delivered to Secured Party
that certain Security Agreement dated as of the date hereof (including all
annexes, exhibits or schedules thereto, as from time to time amended, restated,
supplemented or otherwise modified, the “Security Agreement”); and
 
WHEREAS, pursuant to the Security Agreement, Grantor is required to execute and
deliver to Secured Party this Patent Security Agreement.
 
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor hereby agrees as follows:
 
1.           DEFINED TERMS.  All capitalized terms used but not otherwise
defined herein have the meanings given to them in the Security Agreement or the
Notes or the Purchase Agreement.
 
2.           GRANT OF SECURITY INTEREST IN PATENT COLLATERAL.  Grantor hereby
unconditionally grants, assigns and pledges to Secured Party a Security Interest
in all of Grantor’s right, title and interest in and to the following, whether
now owned or hereafter acquired or arising and wherever located (collectively,
the “Patent Collateral”):
 
(a)           all of its Patents including those referred to on Schedule I
attached hereto; and
 
(b)           all Proceeds of the foregoing.
 
 
1

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3.           SECURITY FOR OBLIGATIONS.  This Patent Security Agreement and the
Security Interest created hereby secures the payment and performance of the
Secured Obligations, whether now existing or arising hereafter.  Without
limiting the generality of the foregoing, this Patent Security Agreement secures
the payment of all amounts which constitute part of the Secured Obligations and
would be owed by Grantor to Secured Party whether or not they are unenforceable
or not allowable due to the existence of an Insolvency Proceeding involving
Grantor.
 
4.           SECURITY AGREEMENT.  The Security Interest granted pursuant to this
Patent Security Agreement is granted in conjunction with the Security Interest
granted to Secured Party pursuant to the Security Agreement.  Grantor hereby
acknowledges and affirms that the rights and remedies of Secured Party with
respect to the Security Interest in the Patent Collateral made and granted
hereby are more fully set forth in the Security Agreement, the terms and
provisions of which are incorporated by reference herein as if fully set forth
herein.  To the extent there is any inconsistency between this Patent Security
Agreement and the Security Agreement, the Security Agreement shall control.
 
5.           AUTHORIZATION TO SUPPLEMENT.  If Grantor shall obtain rights to any
new patentable inventions or become entitled to the benefit of any patent
application or patent for any reissue, division, or continuation, of any patent,
the provisions of this Patent Security Agreement shall automatically apply
thereto. Grantor shall give prompt (and in any event within fifteen (15)
Business Days) notice in writing to Secured Party with respect to any such new
patent rights.  Without limiting Grantor’s obligations under this Section 5,
Grantor hereby authorizes Secured Party unilaterally to modify this Agreement by
amending Schedule I attached hereto to include any such new patent rights of
Grantor.  Notwithstanding the foregoing, no failure to so modify this Patent
Security Agreement or amend Schedule I attached hereto shall in any way affect,
invalidate or detract from Secured Party’s continuing Security Interest in all
Collateral, whether or not listed on Schedule I attached hereto.
 
6.           TERMINATION AND RELEASE.  Upon indefeasible payment in full in cash
of the Obligations in accordance with the provisions of the Notes and the
Purchase Agreement, the Security Interest granted hereby shall terminate and all
rights to the Patent Collateral shall revert to Grantor or any other Person
entitled thereto.  At such time, Secured Party shall execute and deliver, and
authorize the filing of, appropriate termination and release statements or other
documents to terminate and release such Security Interests.
 
7.           COUNTERPARTS.  This Patent Security Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original, but
all such separate counterparts shall together constitute but one and the same
instrument.  In proving this Patent Security Agreement or any other Transaction
Document in any judicial proceedings, it shall not be necessary to produce or
account for more than one such counterpart signed by the party against whom such
enforcement is sought.  Any signatures delivered by a party by facsimile
transmission or by e-mail transmission shall be deemed an original signature
hereto.
 
 
2

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8.           CONSTRUCTION.  Unless the context of this Patent Security Agreement
or any other Transaction Document clearly requires otherwise, references to the
plural include the singular, references to the singular include the plural, the
terms “includes” and  “including” are not limiting, and the term “or” has,
except where otherwise indicated, the inclusive meaning represented by the
phrase “and/or.”  The words “hereof,” “herein,” “hereby,” “hereunder,” and
similar terms in this Patent Security Agreement or any other Transaction
Document refer to this Patent Security Agreement or such other Transaction
Document, as the case may be, as a whole and not to any particular provision of
this Patent Security Agreement or such other Transaction Document, as the case
may be.  Section, subsection, clause, schedule, and exhibit references herein
are to this Patent Security Agreement unless otherwise specified.  Any reference
in this Patent Security Agreement or in any other Transaction Document to any
agreement, instrument, or document shall include all alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements, thereto and thereof, as applicable (subject to any
restrictions on such alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements
set forth herein or in the other Transaction Documents).  Any reference herein
or in any other Transaction Document to the satisfaction or repayment in full of
the Obligations shall mean the repayment in full in cash (or cash
collateralization in accordance with the terms hereof) of all Obligations other
than unasserted contingent indemnification Obligations.  Any reference herein to
any Person shall be construed to include such Person’s successors and
assigns.  Any requirement of a writing contained herein or in any other
Transaction Document shall be satisfied by the transmission of a Record and any
Record so transmitted shall constitute a representation and warranty as to the
accuracy and completeness of the information contained therein.
 
9.           GOVERNING LAW.  THE VALIDITY OF THIS PATENT SECURITY AGREEMENT AND
THE OTHER TRANSACTION DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN
ANOTHER TRANSACTION DOCUMENT IN RESPECT OF SUCH OTHER TRANSACTION DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
 

 
[signature page follows]
 
 
 
 
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IN WITNESS WHEREOF, each Grantor has caused this Patent Security Agreement to be
executed and delivered by its duly authorized officer as of the date first set
forth above.
 

 
[NAME OF GRANTOR]
 
 
 
By:  ____________________________
Name:
Title:
 
 
 
 
ACCEPTED AND ACKNOWLEDGED BY:
 
 
BAM ADMINISTRATIVE SERVICES LLC
 
     
By:  ____________________________
Name:
Title:
   

 
 
 
 
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SCHEDULE I
to
PATENT SECURITY AGREEMENT
 
U.S. Patent Registrations and Applications
 
Grantor
Title
Registration / Application No.
Registration / Application Date

 
PEDEVCO Corp.
Blasting lateral holes from existing well bores
US 8256537 B2
September 4, 2012

 
 
 
 

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EXHIBIT B

Annex 1 to Pledge and Security Agreement

PLEDGED INTERESTS ADDENDUM

 
This Pledged Interests Addendum, dated as of _________ ___, 20___, is delivered
pursuant to Section 6(h)(i) of the Security Agreement referred to below.  The
undersigned hereby agrees that this Pledged Interests Addendum may be attached
to that certain Security Agreement, dated as of March __, 2014 (as amended,
restated, supplemented or otherwise modified from time to time, the “Security
Agreement”), made by the undersigned, together with the other Grantors named
therein, to BAM Administrative Services LLC, as Secured Party.  Initially
capitalized terms used but not defined herein shall have the meaning ascribed to
such terms in the Security Agreement or the Notes or the Purchase
Agreement.  The undersigned hereby agrees that the additional interests listed
on this Pledged Interests Addendum as set forth below shall be and become part
of the Pledged Interests pledged by the undersigned to Secured Party in the
Security Agreement and any pledged company set forth on this Pledged Interests
Addendum as set forth below shall be and become a “Pledged Company” under the
Security Agreement, each with the same force and effect as if originally named
therein.
 
The undersigned hereby certifies that the representations and warranties set
forth in Section 5 of the Security Agreement of the undersigned are true and
correct as to the Pledged Interests listed herein on and as of the date hereof.
 
[___________________]
 

 
By:                                                      
 
Name:                                                                
 
Title:                                                      
 

 

 
 

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Name of Pledgor
Name of Pledged Company
Number of Shares/Units
 
Class of Interests
Percentage of Class Owned
Certificate Nos.
Blast AFJ, Inc.
 
PEDEVCO Corp.
90,000,000
Common Stock
100%
1
Pacific Energy Development Corp. (“PEDCO”)
 
PEDEVCO Corp.
1
Common Stock
100%
1
Red Hawk Petroleum, LLC
 
PEDEVCO Corp.
N/A
Class A Units
100%
Uncertificated
White Hawk Petroleum, LLC
 
PEDCO
1,000,000
Class A Units
100%
Uncertificated
Pacific Energy & Rare Earth Limited
 
PEDCO
10,000
Ordinary Shares
100%
02
Blackhawk Energy Limited
 
PEDCO
1,000
Ordinary Shares
100%
Uncertificated
Pacific Energy Development MSL, LLC
 
PEDCO
N/A
Class A Units
100%
Uncertificated
Pacific Energy Technical Services, LLC
 
PEDCO
700,000
Class A Units
70%
Uncertificated
Condor Energy Technology, LLC
 
PEDCO
1,000,000
Class A Units
20%
2

 
 
 

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