Exhibit 10.3

 

FIRST AMENDMENT TO THE PLEDGE AND SECURITY AGREEMENT

 

This FIRST AMENDMENT TO THE PLEDGE AND SECURITY AGREEMENT, dated as of May 7,
2015 (this "First Amendment"), is entered into by and among Ener-Core, Inc., a
Nevada corporation (the "Company"), Ener-Core Power, Inc. ("ECP"), a Delaware
corporation, and each other Subsidiary of the Company and ECP hereafter becoming
party hereto (together with the Company and ECP, each a "Grantor" and,
collectively, the "Grantors"), and Empery Tax Efficient, LP, in its capacity as
collateral agent (in such capacity, the “Collateral Agent”) for (a) the buyers
listed in the Schedule of Buyers (the “April 2015 Investors”) attached to that
certain Securities Purchase Agreement dated April 22, 2015 entered into by and
among the Company and the April 2015 Investors (as the same may be amended,
restated or otherwise modified from time to time, the “April 2015 SPA”), and (b)
the buyers listed in the Schedule of Buyers (the “May 2015 Investors”) attached
to that certain Securities Purchase Agreement, dated as of May 7, 2015 entered
into by and among the Company and the May 2015 Investors (as the same may be
amended, restated or otherwise modified from time to time, the “May 2015 SPA”).
Reference is hereby made to that certain Pledge and Security Agreement dated
April 23, 2015 by and among the Company and the Collateral Agent (the “Security
Agreement”). Capitalized terms used herein and not otherwise defined shall have
the definitions ascribed to such terms in the Security Agreement.

 

W I T N E S S E T H:

 

WHEREAS, the Company had previously entered into the April 2015 SPA with the
April 2015 Investors pursuant to which the Company issued senior secured
promissory notes (the “April 2015 Notes”) and warrants (“April 2015 Warrants”)
to the April 2015 Investors (the financing transaction contemplated under the
April SPA is hereinafter referred as the “April 2015 Financing”).

 

WHEREAS, as required under the terms of the April 2015 SPA, the Company entered
into Security Agreement with the Collateral Agent for the benefit of the April
2015 Investors, pursuant to which the Company granted the Collateral Agent a
security interest in all personal property (with certain exceptions as set forth
the in Security Agreement) for the benefit of the April 2015 Investors in order
to secure all of the Company’s obligations under the April 2015 SPA and the
April 2015 Notes.

 

WHEREAS, pursuant to the terms of the April 2015 SPA, the April 2015 Investors
agreed to allow the Company to issue additional senior secured promissory notes
with the same percentage of warrants as was issuable under the terms of the
April 2015 Warrants (the “Additional Subscription”) on substantially the same
terms as the April 2015 Notes and April 2015 Warrants, but in any event with no
terms more favorable to the investors in the Additional Subscription than those
of the April 2015 Investors in the April 2015 Financing.

 

WHEREAS, it is a condition precedent to the May 2015 Investors consummating the
transactions contemplated by the May 2015 SPA that the Grantors execute and
deliver to the Collateral Agent a Pledge and Security Agreement providing for
their grant to the Collateral Agent, for the benefit of the May 2015 Investors,
of a security interest in all personal property (with certain exceptions
specified below) of the Grantors (the “Security Interest”) to secure all of the
Company's obligations under the May 2015 SPA and the senior secured notes issued
pursuant thereto (as such notes may be amended, restated, replaced or otherwise
modified from time to time in accordance with the terms thereof, collectively,
the "May 2015 Notes") and each of the other agreements entered into by the
parties thereto in connection with the transactions contemplated by the May 2015
SPA.

 

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WHEREAS, the Company and the Collateral Agent desire to enter into this First
Amendment in order amend the Security Agreement to include the May 2015
Investors as secured parties to whom the Company is also granting the Security
Interest such that the May 2015 Notes shall rank pari passu in priority with the
April 2015 Notes, with the holders of both the April 2015 Notes and the May 2015
Notes having a first priority perfected security interest in all of the current
and future assets of the Company and all direct and indirect Subsidiaries of the
Company, except for the “Excluded Assets” (as such term is defined in the
Security Agreement).

 

WHEREAS, each Grantor has determined that the execution, delivery and
performance of this First Amendment directly benefits, and are in the best
interest of the Company and such Grantor.

 

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

 

Section 1. Amendments to the Security Agreement.

 

(a) The definition of the term “Securities Purchase Agreement” in the first
paragraph of the Security Agreement is hereby amended and restated such that it
means, collectively, the April 2015 SPA (as defined below) and the May 2015 SPA
(as defined below).

 

(b) The first recital of the Security Agreement (second paragraph on page 1 of
the Security Agreement) is hereby amended and restated in its entirety as
follows:

 

“WHEREAS, the Company and each party listed as a "Buyer" (each a "April 2015
Buyer", and collectively, the "April 2015 Buyers") on the Schedule of Buyers (as
such schedule may be amended, restated or otherwise modified from time to time)
attached to that certain Securities Purchase Agreement dated April 22, 2015 (as
the same may be amended, restated or otherwise modified from time to time, the
“April 2015 SPA”) by and among the Company and the April 2015 Buyers are parties
to the April 2015 SPA, pursuant to which the Company is required to sell, and
the April 2015 Buyers shall purchase or have the right to purchase, senior
secured notes (the "April 2015 Notes");

 

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(c) The recitals set forth below are hereby added after the first amended and
restated recital described in Section 1(b) above:

 

“WHEREAS, the Company and each party listed as a "Buyer" (each a "May 2015
Buyer", and collectively, the “May 2015 Buyers") on the Schedule of Buyers (as
such schedule may be amended, restated or otherwise modified from time to time)
attached to that certain Securities Purchase Agreement by and among the Company
and the May 2015 Buyers dated May 6, 2015 (as the same may be amended, restated
or otherwise modified from time to time, the “May 2015 SPA”), are parties to the
May 2015 SPA, pursuant to which the Company is required to sell, and the May
2015 Buyers shall purchase or have the right to purchase, senior secured notes
(the “May 2015 Notes”).”

 

“WHEREAS, (a) each of the April 2015 Buyers and the May 2015 Buyers are
hereinafter referred to individually as a “Buyer” and collectively, the
“Buyers”, (b) the April 2015 Notes and the May 2015 Notes are hereinafter
referred to collectively as the “Notes”, and (c) collectively, the (1) April
2015 SPA, the April 2015 Notes and each of the other agreements entered into by
the parties thereto in connection with the transactions contemplated by the
April 2015 SPA, and (2) the May 2015 SPA, the May 2015 Notes and each of the
other agreements entered into by the parties thereto in connection with the
transactions contemplated by the May 2015 SPA, are hereinafter referred to as
the “Combined Transaction Documents”.”

 

(d) All references to the term “Transaction Documents” in the Security Agreement
shall be stricken and replaced by the term “Combined Transaction Documents”.

 

(e) The original second recital of the Security Agreement (third paragraph on
page 1 of the Security Agreement) is hereby amended and restated in its entirety
as follows:

 

“WHEREAS, it is a condition precedent to the Buyers consummating the
transactions contemplated by the Securities Purchase Agreement that the Grantors
execute and deliver to the Collateral Agent this Agreement providing for the
grant to the Collateral Agent for the benefit of the Buyers of a security
interest in all personal property (with certain exceptions specified below) of
the Grantors to secure all of the Company's obligations under the Securities
Purchase Agreement and the Notes issued pursuant thereto (as such Notes may be
amended, restated, replaced or otherwise modified from time to time in
accordance with the terms thereof) and the other Combined Transaction
Documents;”

 

(f) Section 1(c) of the Security Agreement is hereby amended to add the
following term and definition:

 

“Note Required Holders” means the holders of a majority of the outstanding
principal amount of May 2015 Notes and the April 2015 Notes, taken together, and
shall include Empery Asset Master Ltd. (“Empery”) so long as Empery or any of
its affiliates holds any April 2015 Notes.”

 

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(g) Section 2 of the Security Agreement is hereby amended to add the following
language after the last sentence in Section 2:

 

“The parties hereto acknowledge and agree that the Collateral Agent, with the
consent of the Note Required Holders may, and at the direction of the Note
Required Holders shall, exercise remedies under this Agreement in accordance
with such consent or direction, as applicable. The parties hereby further
acknowledge and agree that, to the extent the Collateral Agent is to make any
distribution of any Collateral received by the Collateral Agent pursuant to this
Agreement, that the Collateral Agent shall be permitted to make such
distribution, net of any fees, expenses and costs incurred, or anticipated to be
incurred, by or on behalf of the Collateral Agent, ratably to each Buyer, based
on each such Buyer's share of the outstanding Notes (determined as the
percentage equivalent of a fraction, the numerator of which is the aggregate
principal amount of all Notes held by such Buyer at the time of such
distribution and the denominator is the aggregate principal amount of all Notes
at the time of such distribution.)”

 

Section 2. Effectiveness. This First Amendment shall become effective as of the
date hereof only upon the satisfaction of all of the following conditions
precedent (the date of satisfaction of such conditions being referred to herein
as the “First Amendment Effective Date”):

 

(a) The Collateral Agent shall have received a counterpart signature page of
this First Amendment duly executed by each of the Grantors; and

 

(b) The representations and warranties contained in Section 3 of this First
Amendment are and will be true and correct in all material respects on and as of
the First Amendment Effective Date to the same extent as though made on and as
of that date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case they were true and correct
in all material respects on and as of such earlier date.

 

Section 3. Representations and Warranties. In order to induce the Collateral
Agent to enter into this First Amendment and to amend the Security Agreement in
the manner provided herein, each Grantor represents and warrants to the Agent,
that the following statements are true and correct in all material respects:

 

(a) This First Amendment has been duly executed and delivered by each Grantor
party hereto and each of this First Amendment and the Security Agreement as
amended hereby is the legal, valid and binding obligation of each Grantor, and
is enforceable against each Grantor in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency or similar
laws affecting the enforcement of creditors’ rights generally and by equitable
principles relating to enforceability.

 

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(b) The execution, delivery and performance of this First Amendment and the
Security Agreement as amended hereby, are within each Grantor’s corporate powers
and have been duly authorized by all necessary corporate actions of each
Grantor. The execution, delivery and performance of this First Amendment and the
existing Security Agreement as amended hereby (a) do not require any consent or
approval of, registration or filing with, or any other action by, any
governmental authority or other regulatory body or any other Person, except
(A) such as have been obtained or made and are in full force and effect, (B) for
filings and registrations necessary to perfect Liens created pursuant to the
Notes and the Transaction Documents, or (C) consents or approvals the failure of
which to obtain would not reasonably be expected to result in a Material Adverse
Effect (as defined in the Securities Purchase Agreement), (b) will not violate
any law applicable to any Grantor which would result in a Material Adverse
Effect (as defined in the Securities Purchase Agreement), (c) will not result in
a default under any material indebtedness, and (d) will not result in the
creation or imposition of any Lien on any asset of any Grantor, except Liens
created pursuant to the Notes and the Transaction Documents.

 

Section 4. References to and Effect on the Security Agreement.

 

(a) On and after the First Amendment Effective Date, each reference in the
Security Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words
of like import referring to the Security Agreement, and each reference in the
Transaction Documents to the “Pledge and Security Agreement”, “thereunder”,
“thereof” or words of like import referring to the Security Agreement shall mean
and be a reference to the Security Agreement, as amended by this First
Amendment.

 

(b) Except as specifically amended by this First Amendment, the Security
Agreement and the Transaction Documents shall remain in full force and effect
and are hereby ratified and confirmed.

 

(c) The execution, delivery and performance of this First Amendment shall not
constitute a waiver of any provision of, or operate as a waiver of any right,
power or remedy of any Collateral Agent or Buyer under, the Security Agreement
or any of the other Transaction Documents.

 

Section 5. APPLICABLE LAW. THIS FIRST AMENDMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY
MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY AND
PERFECTION OR THE PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF
THE SECURITY INTEREST CREATED HEREBY, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK

 

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Section 6. Counterparts and Facsimile or Electronic Signatures. This First
Amendment may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed an original, but all such counterparts together shall constitute
but one and the same instrument; signature pages may be detached from multiple
separate counterparts and attached to a single counterpart so that all signature
pages are physically attached to the same document. This First Amendment may be
executed by fax or electronic mail, in PDF format, and no party hereto may
contest this First Amendment’s validity solely because a signature was faxed or
otherwise sent electronically.

 

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, each Grantor has caused this First Amendment to be executed
and delivered by its officer thereunto duly authorized, as of the date first
above written.

 

  ENER-CORE, INC., a Nevada corporation           By:       Name: Alain J.
Castro   Title: Chief Executive Officer                   Address for Notices:  
9400 Toledo Way   Irvine, California 92618   Attention: Mr. Domonic J. Carney  
Facsimile: (949) 616-3399   Email: DJ.Carney@ener-core.com           ENER-CORE
POWER, INC., a Delaware corporation           By:       Name:      Title:       
      Address for Notices:   9400 Toledo Way   Irvine, California 92618  
Attention: Mr. Domonic J. Carney, CFO   Facsimile: (949) 616-3399   Email:
DJ.Carney@ener-core.com

 

Signature Page to

First Amendment To The Pledge and Security Agreement

 

 

 

 

ACCEPTED BY:

 

Empery Tax Efficient, LP,

as Collateral Agent

 

By:Empery Asset Management, LP, its authorized agent By:Empery AM GP, LLC, its
general partner

 

By:       Name: Ryan M. Lane   Title: Managing Member  

 

  Address: c/o Empery Asset Management, LP     1 Rockefeller Plaza, Suite 1205  
  New York, NY 10020

 

Signature Page to

First Amendment To The Pledge and Security Agreement