Exhibit 10.2


 


PLEDGE AND SECURITY AGREEMENT


 


PLEDGE AND SECURITY AGREEMENT,
dated as of April 23, 2015 (this "Agreement"), made by 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"),
in favor of Empery Tax Efficient, LP, in its capacity as collateral agent (in such capacity, the "Collateral Agent")
for the Buyers (as defined below) party to the Securities Purchase Agreement, dated as of April 22, 2015 (as amended, restated
or otherwise modified from time to time, the "Securities Purchase Agreement").


 


W I T N E
S S E T H:


 


WHEREAS, the Company and
each party listed as a "Buyer" on the Schedule of Buyers (as such schedule may be amended, restated or otherwise modified
from time to time) attached thereto, each a "Buyer", and collectively, the "Buyers") are parties
to the Securities Purchase Agreement, pursuant to which the Company shall be required to sell, and the Buyers shall purchase or
have the right to purchase, the "Notes" (as defined in the Securities Purchase Agreement);


 


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" (as defined therein) 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 "Notes") and the other Transaction Documents (as defined in the Securities Purchase Agreement);


 


WHEREAS, the Grantors (i)
are mutually dependent on each other in the conduct of their respective businesses as an integrated operation, with the credit
needed from time to time by one often being provided through financing obtained by the other Grantors and the ability to obtain
such financing being dependent on the successful operations of the Grantors and (ii) will receive a mutual benefit from the proceeds
received by the Company in respect of the issuance of the Notes; and


 


WHEREAS, each Grantor has
determined that the execution, delivery and performance of this Agreement 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 in order to induce the Buyers to perform under the Securities Purchase Agreement,
each Grantor agrees with the Collateral Agent, for the benefit of the Buyers, as follows:


 


Section
1.Definitions.


 


(a) Reference is hereby
made to the Securities Purchase Agreement and the Notes for a statement of the terms thereof. All terms used in this Agreement
and the recitals hereto which are defined in the Securities Purchase Agreement, the Notes or in Articles 8 or 9 of the Uniform
Commercial Code (the "Code") as in effect from time to time in the State of New York, and which are not otherwise
defined herein shall have the same meanings herein as set forth therein; provided that terms used herein which are defined
in the Code as in effect in the State of New York on the date hereof shall continue to have the same meaning notwithstanding any
replacement or amendment of such statute except as the Collateral Agent may otherwise determine.


 


(b)The following terms
shall have the respective meanings provided for in the Code: "Accounts", "Cash Proceeds", "Chattel Paper",
"Commercial Tort Claim", "Commodity Account", "Commodity Contracts", "Deposit Account",
"Documents", "Equipment", "Fixtures", "General Intangibles", "Goods", "Instruments",
"Inventory", "Investment Property", "Letter-of-Credit Rights", "Noncash Proceeds", "Payment
Intangibles", "Proceeds", "Promissory Notes", "Security", "Record", "Security
Account", "Software", and "Supporting Obligations".


 


(c)As used in this Agreement,
the following terms shall have the respective meanings indicated below, such meanings to be applicable equally to both the singular
and plural forms of such terms:


 


"Collateral"
shall have the meaning set forth in Section 2 hereof.


 


"Copyright Licenses"
means all licenses, contracts or other agreements, whether written or oral, naming any Grantor as licensee or licensor and providing
for the grant of any right to use or sell any works covered by any copyright (including, without limitation, all Copyright Licenses
set forth in Schedule II hereto).


 


"Copyrights"
means all domestic and foreign copyrights, whether registered or not, including, without limitation, all copyright rights throughout
the universe (whether now or hereafter arising) in any and all media (whether now or hereafter developed), in and to all original
works of authorship fixed in any tangible medium of expression, acquired or used by any Grantor, all applications, registrations
and recordings thereof (including, without limitation, applications, registrations and recordings in the United States Copyright
Office or in any similar office or agency of the United States or any other country or any political subdivision thereof), and
all reissues, divisions, continuations, continuations in part and extensions or renewals thereof.


 


"Event of Default"
means (i) any defined event of default under any one or more of the Transaction Documents, in each instance, after giving effect
to any notice, grace, or cure periods provided for in the applicable Transaction Document, (ii) the failure by the Company to pay
any amounts when due under the Notes or any other Transaction Document, or (iii) the breach of any representation, warranty or
covenant by any Grantor under this Agreement.


 






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“Excluded Assets”
shall mean collectively: (i) all Patents, (ii) any and all licenses or other rights granted by the Grantor to Dresser-Rand Company
pursuant to that certain Commercial License Agreement entered into by and between Dresser-Rand Company and Ener-Core Power, Inc.
dated November 14, 2014 (the “Dresser-Rand License Agreement”) and (iii) any and all Intellectual Property that
is developed or which shall be developed under the Dresser-Rand License Agreement; provided, however, notwithstanding
the foregoing, if and when the Dresser-Rand License Agreement terminates, each of (i), (ii) and (iii), to the extent that one or
more of the Grantors retains, is granted, or has rights to (i), (ii) and/or (iii), shall no longer be included in the definition
of Excluded Assets.


 


"Existing Issuer"
has the meaning specified therefor in the definition of the term "Pledged Shares".


 


"Guaranty"
means the Guaranty, dated as of the date hereof, by ECP in favor of the Buyers and the Collateral Agent.


 


"Insolvency Proceeding"
means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code (Chapter 11 of Title 11
of the United States Code) or under any other bankruptcy or insolvency law, assignments for the benefit of creditors, formal or
informal moratoria, compositions, or extensions generally with creditors, or proceedings seeking reorganization, arrangement, or
other similar relief.


 


"Intellectual Property"
means the Copyrights, Trademarks and Patents.


 


"Licenses"
means the Copyright Licenses, the Trademark Licenses and the Patent Licenses.


 


"Lien"
means any mortgage, deed of trust, pledge, lien (statutory or otherwise), security interest, charge or other encumbrance or security
or preferential arrangement of any nature, including, without limitation, any conditional sale or title retention arrangement,
any capitalized lease and any assignment, deposit arrangement or financing lease intended as, or having the effect of, security.


 


"Obligations"
shall have the meaning set forth in Section 3 hereof.


 


"Patent Licenses"
means all licenses, contracts or other agreements, whether written or oral, naming any Grantor as licensee or licensor and providing
for the grant of any right to manufacture, use or sell any invention covered by any Patent (including, without limitation, all
Patent Licenses set forth in Schedule II hereto).


 


"Patents"
means all domestic and foreign letters patent, design patents, utility patents, industrial designs, inventions, trade secrets,
ideas, concepts, methods, techniques, processes, proprietary information, technology, know-how, formulae, rights of publicity and
other general intangibles of like nature, of any Grantor, now existing or hereafter acquired, all applications, registrations and
recordings thereof (including, without limitation, applications, registrations and recordings in the United States Patent and Trademark
Office, or in any similar office or agency of the United States or any other country or any political subdivision thereof), and
all reissues, divisions, continuations, continuations in part and extensions or renewals thereof.


 






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"Permitted Liens"
shall have the meaning set forth in the Notes.


 


"Pledged Debt"
means the indebtedness described in Schedule VII hereto and all indebtedness from time to time owned or acquired by a Grantor,
the promissory notes and other Instruments evidencing any or all of such indebtedness, and all interest, cash, Instruments, Investment
Property, financial assets, securities, capital stock, other equity interests, stock options and commodity contracts, notes, debentures,
bonds, promissory notes or other evidences of indebtedness and all other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such indebtedness.


 


"Pledged Interests"
means, collectively, (a) the Pledged Debt, (b) the Pledged Shares and (c) all security entitlements in any and all of the foregoing.


 


"Pledged Issuer"
has the meaning specified therefor in the definition of the term "Pledged Shares".


 


"Pledged Shares"
means (a) the shares of capital stock or other equity interests described in Schedule VIII hereto, whether or not evidenced or
represented by any stock certificate, certificated security or other Instrument, issued by the Persons described in such Schedule
VIII (the "Existing Issuers"), (b) the shares of capital stock or other equity interests at any time and from
time to time acquired by a Grantor of any and all Persons now or hereafter existing (such Persons, together with the Existing Issuers,
being hereinafter referred to collectively as the "Pledged Issuers" and each individually as a "Pledged
Issuer"), whether or not evidenced or represented by any stock certificate, certificated security or other Instrument,
and (c) the certificates representing such shares of capital stock, all options and other rights, contractual or otherwise, in
respect thereof and all dividends, distributions, cash, Instruments, Investment Property, financial assets, securities, capital
stock, other equity interests, stock options and commodity contracts, notes, debentures, bonds, promissory notes or other evidences
of indebtedness and all other property (including, without limitation, any stock dividend and any distribution in connection with
a stock split) from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such
capital stock.


 


"Trademark Licenses"
means all licenses, contracts or other agreements, whether written or oral, naming any Grantor as licensor or licensee and providing
for the grant of any right concerning any Trademark, together with any goodwill connected with and symbolized by any such trademark
licenses, contracts or agreements and the right to prepare for sale or lease and sell or lease any and all Inventory now or hereafter
owned by any Grantor and now or hereafter covered by such licenses (including, without limitation, all Trademark Licenses described
in Schedule II hereto).


 


"Trademarks"
means all domestic and foreign trademarks, service marks, collective marks, certification marks, trade names, business names, d/b/a's,
Internet domain names, trade styles, designs, logos and other source or business identifiers and all general intangibles of like
nature, now or hereafter owned, adopted, acquired or used by any Grantor, all applications, registrations and recordings thereof
(including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office or
in any similar office or agency of the United States, any state thereof or any other country or any political subdivision thereof),
and all reissues, extensions or renewals thereof, together with all goodwill of the business symbolized by such marks and all customer
lists, formulae and other Records of any Grantor relating to the distribution of products and services in connection with which
any of such marks are used.


 






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Section
2.Grant of Security Interest. As collateral security for all of the Obligations, each Grantor hereby pledges
and assigns to the Collateral Agent for the benefit of the Buyers, and grants to the Collateral Agent for the benefit of the Buyers
a continuing security interest in, all personal property of such Grantor, wherever located and whether now or hereafter existing
and whether now owned or hereafter acquired, of every kind and description, tangible or intangible (collectively, the "Collateral"),
including, without limitation, the following:


 


(a)all Accounts;


 


(b)all Chattel Paper
(whether tangible or electronic);


 


(c)the Commercial Tort
Claims specified on Schedule VI hereto;


 


(d)all Deposit Accounts
(including, without limitation, all cash, and all other property from time to time deposited therein and the monies and property
in the possession or under the control of the Collateral Agent or a Buyer or any affiliate, representative, agent or correspondent
of the Collateral Agent or a Buyer;


 


(e)all Documents;


 


(f)all Equipment;


 


(g)all Fixtures;


 


(h)all General Intangibles
(including, without limitation, all Payment Intangibles);


 


(i)all Goods;


 


(j)all Instruments (including,
without limitation, Promissory Notes and each certificated Security);


 


(k)all Inventory;


 


(l)all Investment Property;


 


(m)all
Copyrights, Patents and Trademarks, and all Licenses;


 


(n)all
Letter-of-Credit Rights;


 


(o)all Supporting Obligations;


 






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(p)all Pledged Interests;


 


(q)all other tangible
and intangible personal property of such Grantor (whether or not subject to the Code), including, without limitation, all bank
and other accounts and all cash and all investments therein, all proceeds, products, offspring, accessions, rents, profits, income,
benefits, substitutions and replacements of and to any of the property of such Grantor described in the preceding clauses of this
Section 2 (including, without limitation, any proceeds of insurance thereon and all causes of action, claims and warranties
now or hereafter held by such Grantor in respect of any of the items listed above), and all books, correspondence, files and other
Records, including, without limitation, all tapes, desks, cards, Software, data and computer programs in the possession or under
the control of such Grantor or any other Person from time to time acting for such Grantor that at any time evidence or contain
information relating to any of the property described in the preceding clauses of this Section 2 or are otherwise necessary
or helpful in the collection or realization thereof; and


 


(r)all Proceeds, including
all Cash Proceeds and Noncash Proceeds, and products of any and all of the foregoing Collateral;


 


in each case, howsoever such
Grantor's interest therein may arise or appear (whether by ownership, security interest, claim or otherwise). Notwithstanding anything
to contrary herein and for avoidance of doubt, the term "Collateral" shall not include, and no Grantor is pledging, nor
granting a security interest hereunder, in the Excluded Assets; provided, that (i) the foregoing exclusion shall in no way
be construed so as to limit, impair or otherwise affect the Collateral Agent's unconditional continuing security interest in and
liens upon any rights or interests of a Grantor in or to the proceeds of, or any monies due or to become due under or in respect
of, all or any portion of such Excluded Assets and (ii) immediately upon the termination of the Dresser-Rand Agreement, all assets
that are no longer included in the definition of Excluded Assets shall constitute Collateral and each Grantor shall be deemed to
have granted a security interest therein.


 


Section
3.Security for Obligations. The security interest created hereby in the Collateral constitutes continuing collateral
security for all of the following obligations, whether now existing or hereafter incurred (collectively, the "Obligations"):


 


(a)the prompt payment
by each Grantor, as and when due and payable (by scheduled maturity, required prepayment, acceleration, demand or otherwise), of
all amounts from time to time owing by it in respect of the Securities Purchase Agreement, the Notes, the Guaranty and the other
Transaction Documents, including, without limitation, (A) all principal of and interest on the Notes (including, without limitation,
all interest that accrues after the commencement of any Insolvency Proceeding of any Grantor, whether or not the payment of such
interest is unenforceable or is not allowable due to the existence of such Insolvency Proceeding), (B) all amounts from time to
time owing by such Grantor under the Guaranty, and (C) all fees, commissions, expense reimbursements, indemnifications and all
other amounts due or to become due under any of the Transaction Documents; and


 


(b)the due performance
and observance by each Grantor of all of its other obligations from time to time existing in respect of any of the Transaction
Documents for so long as the Notes are outstanding.


 






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Section
4.Representations and Warranties. Each Grantor represents and warrants as follows:


 


(a)Schedule I
hereto sets forth (i) the exact legal name of such Grantor, and (ii) the organizational identification number of such Grantor or
states that no such organizational identification number exists.


 


(b)There is no pending
or written notice threatening any action, suit, proceeding or claim affecting such Grantor before any governmental authority or
any arbitrator, or any order, judgment or award by any governmental authority or arbitrator, that may adversely affect the grant
by such Grantor, or the perfection, of the security interest purported to be created hereby in the Collateral, or the exercise
by the Collateral Agent of any of its rights or remedies hereunder.


 


(c)All Federal, state
and local tax returns and other reports required by applicable law to be filed by such Grantor have been filed, or extensions have
been obtained, and all taxes, assessments and other governmental charges imposed upon such Grantor or any property of such Grantor
(including, without limitation, all federal income and social security taxes on employees' wages) and which have become due and
payable on or prior to the date hereof have been paid, except to the extent contested in good faith by proper proceedings which
stay the imposition of any penalty, fine or Lien resulting from the non-payment thereof and with respect to which adequate reserves
have been set aside for the payment thereof in accordance with United States generally accepted accounting principles consistently
applied ("GAAP").


 


(d)All Equipment, Fixtures,
Goods and Inventory of such Grantor now existing are, and all Equipment, Fixtures, Goods and Inventory of such Grantor hereafter
existing will be, located and/or based at the addresses specified therefor in Schedule III hereto, except that such Grantor
will give the Collateral Agent not less than 30 days' prior written notice of any change of the location of any such Collateral,
other than to locations set forth on Schedule III and with respect to which the Collateral Agent has filed financing statements
and otherwise fully perfected its Liens thereon. Such Grantor's chief place of business and chief executive office, the place where
such Grantor keeps its Records concerning Accounts and all originals of all Chattel Paper are located at the addresses specified
therefor in Schedule III hereto. None of the Accounts is evidenced by Promissory Notes or other Instruments. Set forth in
Schedule IV hereto is a complete and accurate list, as of the date of this Agreement, of (i) each Promissory Note, Security
and other Instrument owned by each Grantor and (ii) each Deposit Account, Securities Account and Commodities Account of each Grantor,
together with the name and address of each institution at which each such Account is maintained, the account number for each such
Account and a description of the purpose of each such Account.


 


(e)Such Grantor has
delivered or made available to the Collateral Agent complete and correct copies of each License described in Schedule II
hereto, including all schedules and exhibits thereto, which represents all of the Licenses existing on the date of this Agreement
other than the Excluded Assets. Each such License sets forth the entire agreement and understanding of the parties thereto relating
to the subject matter thereof, and there are no other agreements, arrangements or understandings, written or oral, relating to
the matters covered thereby or the rights of such Grantor or any of its affiliates in respect thereof. Each material License now
existing is, and any material License entered into in the future will be, the legal, valid and binding obligation of the parties
thereto, enforceable against such parties in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, suretyship or other similar laws and equitable principles (regardless of whether
enforcement is sought in equity or in law). No default under any material License by any such party has occurred, nor does any
defense, offset, deduction or counterclaim exist thereunder in favor of any such party.


 






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(f)Schedule II
hereto sets forth a true and complete list of Licenses owned or used by such Grantor as of the date hereof other than the Excluded
Assets.


 


(g)Such Grantor is and
will be at all times the sole and exclusive owner of, or otherwise has and will have adequate rights in, the Collateral free and
clear of any Liens, except for Permitted Liens on any Collateral. No effective financing statement or other instrument similar
in effect covering all or any part of the Collateral is on file in any recording or filing office except (A) such as may have
been filed in favor of the Collateral Agent relating to this Agreement, and (B) such as may have been filed to perfect any
Permitted Liens.


 


(h)The exercise by the
Collateral Agent of any of its rights and remedies hereunder will not contravene any law or any contractual restriction binding
on or otherwise affecting such Grantor or any of its properties and will not result in or require the creation of any Lien, upon
or with respect to any of its properties.


 


(i)No authorization
or approval or other action by, and no notice to or filing with, any governmental authority or other regulatory body, or any other
Person, is required for (i) the grant by such Grantor, or the perfection, of the security interest purported to be created
hereby in the Collateral, or (ii) the exercise by the Collateral Agent of any of its rights and remedies hereunder, except for
the filing under the Uniform Commercial Code as in effect in the applicable jurisdiction of the financing statements, all of which
financing statements, have been duly filed and are in full force and effect.


 


(j)This Agreement creates
in favor of the Collateral Agent a legal, valid and enforceable security interest in the Collateral, as security for the Obligations.
The Collateral Agent's having possession of all Instruments and cash constituting Collateral from time to time, and the filing
of the financing statements and the other filings and recordings, as applicable, described in Schedule V hereto of appropriate
instruments of assignment, result in the perfection of such security interests. Such security interests are, or in the case of
Collateral in which such Grantor obtains rights after the date hereof, will be, perfected, first priority security interests, subject
only to Permitted Liens and the recording of such instruments of assignment. Such recordings and filings and all other action necessary
or desirable to perfect and protect such security interest have been duly taken, except for the Collateral Agent's having possession
of Instruments and cash constituting Collateral after the date hereof and the other filings and recordations described in Section
4(l) hereof.


 


(k)As of the date hereof,
such Grantor does not hold any Commercial Tort Claims nor is such Grantor aware of any such pending claims, except for such claims
described in Schedule VI.


 






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(l)Each of the Grantors
(other than the Company) is a wholly-owned Subsidiary of the Company and are the only Subsidiaries of the Company, as of the date
hereof.


 


Section
5.Covenants as to the Collateral. So long as any of the Obligations shall remain outstanding, unless the Collateral
Agent shall otherwise consent in writing:


 


(a)Further Assurances.
Each Grantor will at its expense, at any time and from time to time, promptly execute and deliver all further instruments and documents
and take all further action that the Collateral Agent may reasonably request in order to: (i) perfect and protect the security
interest purported to be created hereby; (ii) enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder in respect of the Collateral; or (iii) otherwise effect the purposes of this Agreement, including, without limitation:
(A) marking conspicuously all Chattel Paper and each License and, at the request of the Collateral Agent, each of its Records
pertaining to the Collateral with a legend, in form and substance satisfactory to the Collateral Agent, indicating that such Chattel
Paper, License or Collateral is subject to the security interest created hereby, (B)  delivering and pledging to the Collateral
Agent hereunder each Promissory Note, Security, Chattel Paper or other Instrument, now or hereafter owned by such Grantor, duly
endorsed and accompanied by executed instruments of transfer or assignment, all in form and substance satisfactory to the Collateral
Agent, (C) executing and filing (to the extent, if any, that such Grantor's signature is required thereon) or authenticating
the filing of, such financing or continuation statements, or amendments thereto, as may be necessary or desirable or that the Collateral
Agent may request in order to perfect and preserve the security interest purported to be created hereby, (D) furnishing to
the Collateral Agent from time to time statements and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral in each case as the Collateral Agent may reasonably request, all in reasonable detail,
(E) if any Collateral shall be in the possession of a third party, notifying such Person of the Collateral Agent's security
interest created hereby and obtaining a written acknowledgment from such Person that such Person holds possession of the Collateral
for the benefit of the Collateral Agent, which such written acknowledgement shall be in form and substance satisfactory
to the Collateral Agent, (F) if at any time after the date hereof, such Grantor acquires or holds any Commercial Tort Claim,
promptly notifying the Collateral Agent in a writing signed by such Grantor setting forth a brief description of such Commercial
Tort Claim and granting to the Collateral Agent a security interest therein and in the proceeds thereof, which writing shall incorporate
the provisions hereof and shall be in form and substance satisfactory to the Collateral Agent, (G)  upon the acquisition after
the date hereof by such Grantor of any motor vehicle or other Equipment subject to a certificate of title or ownership (other than
a Motor Vehicle or Equipment that is subject to a purchase money security interest), causing the Collateral Agent to be listed
as the lienholder on such certificate of title or ownership and delivering evidence of the same to the Collateral Agent in accordance
with the Securities Purchase Agreement; and (H) taking all actions required by any earlier versions of the Uniform Commercial
Code or by other law, as applicable, in any relevant Uniform Commercial Code jurisdiction, or by other law as applicable in any
foreign jurisdiction.


 


(b)Location of Equipment
and Inventory. Each Grantor will keep the Equipment and Inventory at the locations specified therefor in Section 4(g)
hereof or, upon not less than thirty (30) days' prior written notice to the Collateral Agent accompanied by a new Schedule III
hereto indicating each new location of the Equipment and Inventory, at such other locations in the United States.


 






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(c)Condition of Equipment.
Each Grantor will maintain or cause the Equipment (necessary or useful to its business) to be maintained and preserved in good
condition, repair and working order, ordinary wear and tear excepted, and will forthwith, or in the case of any loss or damage
to any material Equipment of such Grantor within a commercially reasonable time after the occurrence thereof, make or cause to
be made all repairs, replacements and other improvements in connection therewith which are necessary or desirable, consistent with
past practice, or which the Collateral Agent may reasonably request to such end. Such Grantor will promptly furnish to the Collateral
Agent a statement describing in reasonable detail any such loss or damage to any such Equipment.


 


(d)Taxes, Etc.
Each Grantor agrees to pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed
upon, and all claims (including claims for labor, materials and supplies) against, the Equipment and Inventory, except to the extent
the validity thereof is being contested in good faith by proper proceedings which stay the imposition of any penalty, fine or Lien
resulting from the non-payment thereof and with respect to which adequate reserves in accordance with GAAP have been set aside
for the payment thereof.


 


(e)Insurance.


 


(i)Each
Grantor will, at its own expense, maintain insurance (including, without limitation, commercial general liability and property
insurance) with respect to the Equipment and Inventory in such amounts, against such risks, in such form and with responsible and
reputable insurance companies or associations as is required by any governmental authority having jurisdiction with respect thereto
or as is carried by such Grantor as of the date hereof and in any event, in amount, adequacy and scope reasonably satisfactory
to the Collateral Agent. Unless otherwise agreed to by the Collateral Agent, each such policy for liability insurance shall provide
for all losses to be paid on behalf of the Collateral Agent and such Grantor as their respective interests may appear, and each
policy for property damage insurance shall provide for all losses to be adjusted with, and paid directly to, the Collateral Agent.
Unless otherwise agreed to by the Collateral Agent, each such policy shall in addition (A) name the Collateral Agent as an additional
insured party thereunder (without any representation or warranty by or obligation upon the Collateral Agent) as their interests
may appear, (B) contain an agreement by the insurer that any loss thereunder shall be payable to the Collateral Agent on its own
account notwithstanding any action, inaction or breach of representation or warranty by such Grantor, (C) provide that there shall
be no recourse against the Collateral Agent for payment of premiums or other amounts with respect thereto, and (D) provide that
at least 30 days' prior written notice of cancellation, lapse, expiration or other adverse change shall be given to the Collateral
Agent by the insurer. Such Grantor will, if so requested by the Collateral Agent, deliver to the Collateral Agent original or duplicate
policies of such insurance and, as often as the Collateral Agent may reasonably request, a report of a reputable insurance broker
with respect to such insurance. Such Grantor will also, at the request of the Collateral Agent, execute and deliver instruments
of assignment of such insurance policies and cause the respective insurers to acknowledge notice of such assignment.


 






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(ii)Reimbursement under
any liability insurance maintained by a Grantor pursuant to this Section 5(e) may be paid directly to the Person who shall
have incurred liability covered by such insurance. In the case of any loss involving damage to Equipment or Inventory, any proceeds
of insurance maintained by a Grantor pursuant to this Section 5(e) shall be paid to the Collateral Agent (except as to which
paragraph (iii) of this Section 5(e) is not applicable), such Grantor will make or cause to be made the necessary repairs
to or replacements of such Equipment or Inventory, and any proceeds of insurance maintained by such Grantor pursuant to this Section
5(e) shall be paid by the Collateral Agent to such Grantor as reimbursement for the costs of such repairs or replacements.


 


(iii)All insurance
payments in respect of such Equipment or Inventory shall be paid to the Collateral Agent and applied as specified in Section
7(b) hereof.


 


(f)Provisions Concerning
the Accounts and the Licenses.


 


(i)Each
Grantor will (A) give the Collateral Agent at least 30 days' prior written notice of any change in such Grantor's name, identity
or organizational structure, (B) maintain its jurisdiction of incorporation as set forth in Section 4(b) hereto, (C) immediately
notify the Collateral Agent upon obtaining an organizational identification number, if on the date hereof such Grantor did not
have such identification number, and (D) keep adequate records concerning the Accounts and Chattel Paper and permit representatives
of the Collateral Agent during normal business hours on reasonable notice to such Grantor, to inspect and make abstracts from such
Records and Chattel Paper.


 


(ii)Each Grantor will,
except as otherwise provided in this subsection (f), continue to collect, at its own expense, all amounts due or to become
due under the Accounts. In connection with such collections, such Grantor may (and, at the Collateral Agent's direction, will)
take such action as such Grantor or the Collateral Agent may deem necessary or advisable to enforce collection or performance of
the Accounts; provided, however, that the Collateral Agent shall have the right at any time, upon the occurrence
and during the continuance of an Event of Default, to notify the account debtors or obligors under any Accounts of the assignment
of such Accounts to the Collateral Agent and to direct such account debtors or obligors to make payment of all amounts due or to
become due to such Grantor thereunder directly to the Collateral Agent or its designated agent and, upon such notification and
at the expense of such Grantor and to the extent permitted by law, to enforce collection of any such Accounts and to adjust, settle
or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done. After receipt
by a Grantor of a notice from the Collateral Agent that the Collateral Agent has notified, intends to notify, or has enforced or
intends to enforce a Grantor's rights against the account debtors or obligors under any Accounts as referred to in the proviso
to the immediately preceding sentence, (A) all amounts and proceeds (including Instruments) received by such Grantor in respect
of the Accounts shall be received in trust for the benefit of the Collateral Agent hereunder, shall be segregated from other funds
of such Grantor and shall be forthwith paid over to the Collateral Agent in the same form as so received (with any necessary endorsement)
to be held as cash collateral and applied as specified in Section 7(b) hereof, and (B) such Grantor will not adjust, settle
or compromise the amount or payment of any Account or release wholly or partly any account debtor or obligor thereof or allow any
credit or discount thereon. In addition, upon the occurrence and during the continuance of an Event of Default, the Collateral
Agent may (in its sole and absolute discretion) direct any or all of the banks and financial institutions with which such Grantor
either maintains a Deposit Account or a lockbox or deposits the proceeds of any Accounts to send immediately to the Collateral
Agent by wire transfer (to such account as the Collateral Agent shall specify, or in such other manner as the Collateral Agent
shall direct) all or a portion of such securities, cash, investments and other items held by such institution. Any such securities,
cash, investments and other items so received by the Collateral Agent shall (in the sole and absolute discretion of the Collateral
Agent) be held as additional Collateral for the Obligations or distributed in accordance with Section 7 hereof.


 






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(iii)Upon
the occurrence and during the continuance of any breach or default under any material License referred to in Schedule II
hereto by any party thereto other than a Grantor, the Grantor party thereto will, promptly after obtaining knowledge thereof, give
the Collateral Agent written notice of the nature and duration thereof, specifying what action, if any, it has taken and proposes
to take with respect thereto and thereafter will take reasonable steps to protect and preserve its rights and remedies in respect
of such breach or default, or will obtain or acquire an appropriate substitute License.


 


(iv)Each Grantor will,
at its expense, promptly deliver to the Collateral Agent a copy of each notice or other communication received by it by which any
other party to any material License referred to in Schedule II hereto purports to exercise any of its rights or affect any
of its obligations thereunder, together with a copy of any reply by such Grantor thereto.


 


(v)Each Grantor will
exercise promptly and diligently each and every right which it may have under each material License (other than any right of termination)
and will duly perform and observe in all respects all of its obligations under each material License and will take all action reasonably
necessary to maintain such Licenses in full force and effect. No Grantor will, without the prior written consent of the Collateral
Agent, cancel, terminate, amend or otherwise modify in any material respect, or waive any material provision of, any material License
referred to in Schedule II hereto, which consent shall not be unreasonably withheld.


 


(g)Transfers and Other
Liens.


 


(i)No
Grantor will sell, assign (by operation of law or otherwise), lease, license, exchange or otherwise transfer or dispose of any
of the Collateral, except (A) Inventory in the ordinary course of business and (B) worn-out or obsolete assets not necessary to
the business.


 






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(ii)No Grantor will
create, suffer to exist or grant any Lien upon or with respect to any Collateral other than a Permitted Lien.


 


(h)[Intentionally omitted]


 


(i)Deposit, Commodities
and Securities Accounts. Upon the Collateral Agent's request and unless otherwise agreed by Agent, each Grantor shall cause
each bank and other financial institution with an account referred to in Schedule IV hereto to execute and deliver to the
Collateral Agent a control agreement, in form and substance reasonably satisfactory to the Collateral Agent, duly executed by such
Grantor and such bank or financial institution, or enter into other arrangements in form and substance satisfactory to the Collateral
Agent, pursuant to which such institution shall irrevocably agree, inter alia, that (i) it will comply at any
time with the instructions originated by the Collateral Agent to such bank or financial institution directing the disposition of
cash, Commodity Contracts, securities, Investment Property and other items from time to time credited to such account, without
further consent of such Grantor, which instructions the Collateral Agent will not give to such bank or other financial institution
in the absence of a continuing Event of Default, (ii) all cash, Commodity Contracts, securities, Investment Property and other
items of such Grantor deposited with such institution shall be subject to a perfected, first priority security interest in favor
of the Collateral Agent, (iii) any right of set off, banker's Lien or other similar Lien, security interest or encumbrance
shall be fully waived as against the Collateral Agent, and (iv) upon receipt of written notice from the Collateral Agent during
the continuance of an Event of Default, such bank or financial institution shall immediately send to the Collateral Agent by wire
transfer (to such account as the Collateral Agent shall specify, or in such other manner as the Collateral Agent shall direct)
all such cash, the value of any Commodity Contracts, securities, Investment Property and other items held by it. Without the prior
written consent of the Collateral Agent, such Grantor shall not make or maintain any Deposit Account, Commodity Account or Securities
Account except for the accounts set forth in Schedule IV hereto. The provisions of this paragraph 5(i) shall not apply to
(i) Deposit Accounts for which the Collateral Agent is the depositary and (ii) Deposit Accounts specially and exclusively used
for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of a Grantor's salaried employees.


 


(j)Motor Vehicles.


 


(i)Each Grantor shall
deliver to the Collateral Agent originals of the certificates of title or ownership for all motor vehicles owned by it with the
Collateral Agent listed as lienholder, for the benefit of the Buyers.


 


(ii)Each Grantor hereby
appoints the Collateral Agent as its attorney-in-fact, effective the date hereof and terminating upon the termination of this Agreement,
for the purpose of (A) executing on behalf of such Grantor title or ownership applications for filing with appropriate state agencies
to enable motor vehicles now owned or hereafter acquired by such Grantor to be retitled and the Collateral Agent listed as lienholder
thereof, (B) filing such applications with such state agencies, and (C) executing such other documents and instruments on behalf
of, and taking such other action in the name of, such Grantor as the Collateral Agent may deem necessary or advisable to accomplish
the purposes hereof (including, without limitation, for the purpose of creating in favor of the Collateral Agent a perfected Lien
on the motor vehicles and exercising the rights and remedies of the Collateral Agent hereunder). This appointment as attorney-in-fact
is coupled with an interest and is irrevocable until the complete conversion of all of the Company's obligations under the Notes
to equity securities of the Company and/or indefeasible payment in full in cash of all obligations under the Notes (together with
any matured indemnification obligations as of the date of such conversion and/or payment, but excluding any inchoate or unmatured
contingent indemnification obligations).


 






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(iii)Any certificates
of title or ownership delivered pursuant to the terms hereof shall be accompanied by odometer statements for each motor vehicle
covered thereby.


 


(iv)So long as no Event
of Default shall have occurred and be continuing, upon the request of such Grantor, the Collateral Agent shall execute and deliver
to such Grantor such instruments as such Grantor shall reasonably request to remove the notation of the Collateral Agent as lienholder
on any certificate of title for any motor vehicle; provided, however, that any such instruments shall be delivered,
and the release effective, only upon receipt by the Collateral Agent of a certificate from such Grantor stating that such motor
vehicle is to be sold or has suffered a casualty loss (with title thereto passing to the casualty insurance company therefor in
settlement of the claim for such loss) and the amount that such Grantor will receive as sale proceeds or insurance proceeds. Any
proceeds of such sale or casualty loss shall be paid to the Collateral Agent hereunder immediately upon receipt, to be applied
to the Obligations then outstanding.


 


(k)Control. Each
Grantor hereby agrees to take any or all action that may be necessary or desirable or that the Collateral Agent may request in
order for the Collateral Agent to obtain control in accordance with Sections 9-105 – 9-107 of the Code with respect to the
following Collateral: (i) Electronic Chattel Paper, (ii) Investment Property, (iii) Pledged Interests and (iv) Letter-of-Credit
Rights.


 


(l)Inspection and
Reporting. Each Grantor shall permit the Collateral Agent, or any agent or representatives thereof or such professionals or
other Persons as the Collateral Agent may designate, not more than once a year in the absence of an Event of Default, (i) to
examine and make copies of and abstracts from such Grantor's records and books of account, (ii) to visit and inspect its properties,
(iii) to verify materials, leases, Instruments, Accounts, Inventory and other assets of such Grantor from time to time, (iii) to
conduct audits, physical counts, appraisals and/or valuations, examinations at the locations of such Grantor. Each Grantor shall
also permit the Collateral Agent, or any agent or representatives thereof or such professionals or other Persons as the Collateral
Agent may designate to discuss such Grantor's affairs, finances and accounts with any of its officers subject to the execution
by the Collateral Agent or its designee(s) of a mutually agreeable confidentiality agreement.


 


(m)Future Subsidiaries.
If any Grantor shall hereafter create or acquire any Subsidiary, simultaneously with the creation of acquisition of such Subsidiary,
such Grantor shall cause such Subsidiary to become a party to this Agreement as an additional "Grantor" hereunder and
to become a party to the Guaranty as an additional "Guarantor" thereunder, and to duly execute and/or deliver such opinions
of counsel and other documents, in form and substance acceptable to the Collateral Agent, as the Collateral Agent shall reasonably
request with respect thereto.


 






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Section
6.Additional Provisions Concerning the Collateral.


 


(a)Each Grantor hereby
(i) authorizes the Collateral Agent to file one or more Uniform Commercial Code financing or continuation statements, and
amendments thereto, relating to the Collateral (including, without limitation, financing statements describing the Collateral as
"all assets" or "all personal property" or words of similar effect) and (ii) ratifies such authorization
to the extent that the Collateral Agent has filed any such financing or continuation statements, or amendments thereto, prior to
the date hereof. A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any
part thereof shall be sufficient as a financing statement where permitted by law.


 


(b)Each Grantor hereby
irrevocably appoints the Collateral Agent as its attorney-in-fact and proxy, with full authority in the place and stead of such
Grantor and in the name of such Grantor or otherwise, from time to time in the Collateral Agent's discretion, so long as an Event
of Default shall have occurred and is continuing, to take any action and to execute any instrument which the Collateral Agent may
deem necessary or advisable to accomplish the purposes of this Agreement (subject to the rights of such Grantor under Section
5 hereof), including, without limitation, (i) to obtain and adjust insurance required to be paid to the Collateral Agent pursuant
to Section 5(e) hereof, (ii) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts
for moneys due and to become due under or in respect of any Collateral, (iii) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper in connection with clause (i) or (ii) above, (iv) to file any claims or take any action
or institute any proceedings which the Collateral Agent may deem necessary or desirable for the collection of any Collateral or
otherwise to enforce the rights of the Collateral Agent and the Buyers with respect to any Collateral, and (v) to execute assignments,
licenses and other documents to enforce the rights of the Collateral Agent and the Buyers with respect to any Collateral. This
power is coupled with an interest and is irrevocable until the complete conversion of all of the Company's obligations under the
Notes to equity securities of the Company and/or indefeasible payment in full in cash of all obligations under the Notes (together
with any matured indemnification obligations as of the date of such conversion and/or payment, but excluding any inchoate or unmatured
contingent indemnification obligations).


 


(c)[Intentionally omitted]


 


(d)If a Grantor fails
to perform any agreement contained herein, the Collateral Agent may itself perform, or cause performance of, such agreement or
obligation, in the name of such Grantor or the Collateral Agent, and the expenses of the Collateral Agent incurred in connection
therewith shall be payable by such Grantor pursuant to Section 8 hereof and shall be secured by the Collateral.


 


(e)The powers conferred
on the Collateral Agent hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Collateral Agent 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.


 


(f)Anything herein to
the contrary notwithstanding (i) each Grantor shall remain liable under the Licenses and otherwise with respect to any of
the Collateral to the extent set forth therein to perform all of its obligations thereunder to the same extent as if this Agreement
had not been executed, (ii) the exercise by the Collateral Agent of any of its rights hereunder shall not release such Grantor
from any of its obligations under the Licenses or otherwise in respect of the Collateral, and (iii) the Collateral Agent shall
not have any obligation or liability by reason of this Agreement under the Licenses or with respect to any of the other Collateral,
nor shall the Collateral Agent be obligated to perform any of the obligations or duties of such Grantor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.


 






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Section
7.Remedies Upon Event of Default. If any Event of Default shall have occurred and be continuing:


 


(a)The Collateral Agent
may exercise in respect of the Collateral, in addition to any other rights and remedies provided for herein or otherwise available
to it, all of the rights and remedies of a secured party upon default under the Code (whether or not the Code applies to the affected
Collateral), and also may (i) take absolute control of the Collateral, including, without limitation, transfer into the Collateral
Agent's name or into the name of its nominee or nominees (to the extent the Collateral Agent has not theretofore done so) and thereafter
receive, for the benefit of the Collateral Agent, all payments made thereon, give all consents, waivers and ratifications in respect
thereof and otherwise act with respect thereto as though it were the outright owner thereof, (ii) require each Grantor to,
and each Grantor hereby agrees that it will at its expense and upon request of the Collateral Agent forthwith, assemble all or
part of its respective Collateral as directed by the Collateral Agent and make it available to the Collateral Agent at a place
or places to be designated by the Collateral Agent that is reasonably convenient to both parties, and the Collateral Agent may
enter into and occupy any premises owned or leased by such Grantor where the Collateral or any part thereof is located or assembled
for a reasonable period in order to effectuate the Collateral Agent's rights and remedies hereunder or under law, without obligation
to such Grantor in respect of such occupation, and (iii) without notice except as specified below and without any obligation
to prepare or process the Collateral for sale, (A) sell the Collateral or any part thereof in one or more parcels at public
or private sale, at any of the Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, and at such
price or prices and upon such other terms as the Collateral Agent may deem commercially reasonable and/or (B) lease, license
or dispose of the Collateral or any part thereof upon such terms as the Collateral Agent may deem commercially reasonable. Each
Grantor agrees that, to the extent notice of sale or any other disposition of its respective Collateral shall be required by law,
at least ten (10) days' notice to such Grantor of the time and place of any public sale or the time after which any private sale
or other disposition of its respective Collateral is to be made shall constitute reasonable notification. The Collateral Agent
shall not be obligated to make any sale or other disposition of any Collateral regardless of notice of sale having been given.
The Collateral Agent 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. Each Grantor hereby waives
any claims against the Collateral Agent and the Buyers arising by reason of the fact that the price at which its respective Collateral
may have been sold at a private sale was less than the price which might have been obtained at a public sale or was less than the
aggregate amount of the Obligations, even if the Collateral Agent accepts the first offer received and does not offer such Collateral
to more than one offeree, and waives all rights that such Grantor may have to require that all or any part of such Collateral be
marshalled upon any sale (public or private) thereof. Each Grantor hereby acknowledges that (i) any such sale of its respective
Collateral by the Collateral Agent shall be made without warranty, (ii) the Collateral Agent may specifically disclaim any
warranties of title, possession, quiet enjoyment or the like, and (iii) such actions set forth in clauses (i) and (ii)
above shall not adversely affect the commercial reasonableness of any such sale of Collateral.


 






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(b)Any cash held by
the Collateral Agent as Collateral and all Cash Proceeds received by the Collateral Agent in respect of any sale of or collection
from, or other realization upon, all or any part of the Collateral may, in the discretion of the Collateral Agent, be held by the
Collateral Agent as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the
Collateral Agent pursuant to Section 8 hereof) in whole or in part by the Collateral Agent against, all or any part of the
Obligations in such order as the Collateral Agent shall elect, consistent with the provisions of the Securities Purchase Agreement.
Any surplus of such cash or Cash Proceeds held by the Collateral Agent and remaining after the complete conversion of all of the
Company's obligations under the Notes to equity securities of the Company and/or indefeasible payment in full in cash of all obligations
under the Notes (together with any matured indemnification obligations as of the date of such conversion and/or payment, but excluding
any inchoate or unmatured contingent indemnification obligations) shall be paid over to whomsoever shall be lawfully entitled to
receive the same or as a court of competent jurisdiction shall direct.


 


(c)In the event that
the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Collateral Agent and
the Buyers are legally entitled, each Grantor shall be liable for the deficiency, together with interest thereon at the highest
rate specified in any of the applicable Transaction Documents for interest on overdue principal thereof or such other rate as shall
be fixed by applicable law, together with the costs of collection and the reasonable fees, costs, expenses and other client charges
of any attorneys employed by the Collateral Agent to collect such deficiency.


 


(d)Each
Grantor hereby acknowledges that if the Collateral Agent complies with any applicable state, provincial, or federal law requirements
in connection with a disposition of the Collateral, such compliance will not adversely affect the commercial reasonableness of
any sale or other disposition of the Collateral.


 


(e)The
Collateral Agent shall not be required to marshal any present or future collateral security (including, but not limited to, this
Agreement and the Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral
security or other assurances of payment in any particular order, and all of the Collateral Agent's rights hereunder and in respect
of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights, however existing
or arising. To the extent that each Grantor lawfully may, such Grantor hereby agrees that it will not invoke any law relating to
the marshalling of collateral which might cause delay in or impede the enforcement of the Collateral Agent's rights under this
Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is
outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully
may, such Grantor hereby irrevocably waives the benefits of all such laws.


 






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Section
8.Indemnity and Expenses.


 


(a)Each Grantor agrees,
jointly and severally, to defend, protect, indemnify and hold the Collateral Agent and each of the Buyers, jointly and severally,
harmless from and against any and all claims, damages, losses, liabilities, obligations, penalties, fees, costs and expenses (including,
without limitation, reasonable legal fees, costs, expenses, and disbursements of such Person's counsel) to the extent that they
arise out of or otherwise result from this Agreement (including, without limitation, enforcement of this Agreement), except claims,
losses or liabilities resulting solely and directly from such Person's gross negligence or willful misconduct, as determined by
a final judgment of a court of competent jurisdiction.


 


(b)Each Grantor agrees,
jointly and severally, to, upon demand, pay to the Collateral Agent the amount of any and all costs and expenses, including the
reasonable fees, costs, expenses and disbursements of counsel for the Collateral Agent and of any experts and agents (including,
without limitation, any collateral trustee which may act as agent of the Collateral Agent), which the Collateral Agent may incur
in connection with (i) the preparation, negotiation, execution, delivery, recordation, administration, amendment, waiver or
other modification or termination of this Agreement subject to and to the extent under Section 4(h) of the Securities Purchase
Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon,
any Collateral, (iii) the exercise or enforcement of any of the rights of the Collateral Agent hereunder, or (iv) the
failure by any Grantor to perform or observe any of the provisions hereof.


 


Section
9.Notices, Etc. All notices and other communications provided for hereunder shall be in writing and shall be
mailed (by certified mail, postage prepaid and return receipt requested), telecopied, sent via electronic mail, sent via overnight
courier service or delivered, if to a Grantor at its address specified below and if to the Collateral Agent to it, at its address
specified below; or as to any such Person, at such other address as shall be designated by such Person in a written notice to such
other Person complying as to delivery with the terms of this Section 9. All such notices and other communications shall
be effective (a) if sent by certified mail, return receipt requested, when received or five days after deposited in the mails,
whichever occurs first, (b) if telecopied, when transmitted and confirmation is received, provided same is on a Business Day
and, if not, on the next Business Day, (c) if sent via electronic mail, when transmitted (provided that such sent electronic mail
is kept on file (whether electronically or otherwise) by the sending party and the sending party does not immediately receive an
automatically generated message from the recipient’s electronic mail server that such electronic mail could not be delivered
to such recipient), (d) if sent via overnight courier service, one Business Day after deposit with an overnight courier service,
or (e) if delivered, upon delivery.


 


Section
10.Miscellaneous.


 


(a)No amendment of any
provision of this Agreement shall be effective unless it is in writing and signed by each Grantor and the Collateral Agent, and
no waiver of any provision of this Agreement, and no consent to any departure by a Grantor therefrom, shall be effective unless
it is in writing and signed by the Collateral Agent, and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.


 






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(b)No failure on the
part of the Collateral Agent to exercise, and no delay in exercising, any right hereunder or under any of the other Transaction
Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The rights and remedies of the Collateral Agent or any Buyer provided herein
and in the other Transaction Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided
by law. The rights of the Collateral Agent or any Buyer under any of the other Transaction Documents against any party thereto
are not conditional or contingent on any attempt by such Person to exercise any of its rights under any of the other Transaction
Documents against such party or against any other Person, including but not limited to, any Grantor.


 


(c)To the extent permitted
by applicable law, each Grantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to
any of the Obligations and this Agreement and any requirement that the Collateral Agent exhaust any right or take any action against
any other Person or any Collateral. Each Grantor acknowledges that it will receive direct and indirect benefits from the financing
arrangements contemplated herein and that the waiver set forth in this Section 10(c) is knowingly made in contemplation
of such benefits. The Grantors hereby waive any right to revoke this Agreement, and acknowledge that this Agreement is continuing
in nature and applies to all Obligations, whether existing now or in the future.


 


(d)No Grantor may exercise
any rights that it may now or hereafter acquire against any other Grantor that arise from the existence, payment, performance or
enforcement of any Grantor's obligations under this Agreement, including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification and any right to participate in any claim or remedy of the Collateral Agent against
any Grantor or any Collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common
law, including, without limitation, the right to take or receive from any Grantor, directly or indirectly, in cash or other property
or by set-off or in any other manner, payment or security solely on account of such claim, remedy or right, unless and until the
complete conversion of all of the Company's obligations under the Notes to equity securities of the Company and/or indefeasible
payment in full in cash of all obligations under the Notes (together with any matured indemnification obligations as of the date
of such conversion and/or payment, but excluding any inchoate or unmatured contingent indemnification obligations). If any amount
shall be paid to a Grantor in violation of the immediately preceding sentence at any time prior to the complete conversion of all
of the Company's obligations under the Notes to equity securities of the Company and/or indefeasible payment in full in cash of
all obligations under the Notes (together with any matured indemnification obligations as of the date of such conversion and/or
payment, but excluding any inchoate or unmatured contingent indemnification obligations), such amount shall be held in trust for
the benefit of the Collateral Agent and shall forthwith be paid to the Collateral Agent to be credited and applied to the Obligations
and all other amounts payable under the Transaction Documents, whether matured or unmatured, in accordance with the terms of the
Transaction Documents, or to be held as Collateral for any Obligations or other amounts payable under the Transaction Documents
thereafter arising.


 


(e)Any provision of
this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction.


 






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(f)This Agreement shall
create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the complete conversion
of all of the Company's obligations under the Notes to equity securities of the Company and/or indefeasible payment in full in
cash of all obligations under the Notes (together with any matured indemnification obligations as of the date of such conversion
and/or payment, but excluding any inchoate or unmatured contingent indemnification obligations), and (ii) be binding on each Grantor
and all other Persons who become bound as debtor to this Agreement in accordance with Section 9-203(d) of the Code and shall inure,
together with all rights and remedies of the Collateral Agent and the Buyers hereunder, to the benefit of the Collateral Agent
and the Buyers and their respective permitted successors, transferees and assigns. Without limiting the generality of clause (ii)
of the immediately preceding sentence, without notice to any Grantor, the Collateral Agent and the Buyers may assign or otherwise
transfer their rights and obligations under this Agreement and any of the other Transaction Documents, to any other Person and
such other Person shall thereupon become vested with all of the benefits in respect thereof granted to the Collateral Agent and
the Buyers herein or otherwise. Upon any such assignment or transfer, all references in this Agreement to the Collateral Agent
or any such Buyer shall mean the assignee of the Collateral Agent or such Buyer. None of the rights or obligations of any Grantor
hereunder may be assigned or otherwise transferred without the prior written consent of the Collateral Agent, and any such assignment
or transfer without the consent of the Collateral Agent shall be null and void.


 


(g)Upon the complete
conversion of all of the Company's obligations under the Notes to equity securities of the Company and/or indefeasible payment
in full in cash of all obligations under the Notes (together with any matured indemnification obligations as of the date of such
conversion and/or payment, but excluding any inchoate or unmatured contingent indemnification obligations), (i) this Agreement
and the security interests created hereby shall terminate and all rights to the Collateral shall revert to the respective Grantor
that granted such security interests hereunder, and (ii) the Collateral Agent will, upon such Grantor's request and at such Grantor's
expense, (A) return to such Grantor such of the Collateral as shall not have been sold or otherwise disposed of or applied pursuant
to the terms hereof, and (B) execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence
such termination, all without any representation, warranty or recourse whatsoever.


 


(h)THIS AGREEMENT 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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(i)ANY LEGAL ACTION,
SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY DOCUMENT RELATED THERETO MAY BE BROUGHT IN THE COURTS OF THE STATE OF
NEW YORK IN THE COUNTY OF NEW YORK OR THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS
THEREOF, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH GRANTOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED
ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION,
SUIT OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY THE COURT.


 


(j)EACH GRANTOR AND
(BY ITS ACCEPTANCE OF THE BENEFITS OF THIS AGREEMENT) THE COLLATERAL AGENT WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS,
OR ANY COURSE OF CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE PARTIES HERETO.


 


(k)Nothing contained
herein shall affect the right of the Collateral Agent to serve process in any other manner permitted by law or commence legal proceedings
or otherwise proceed against any Grantor or any property of such Grantor in any other jurisdiction.


 


(l)Each Grantor irrevocably
and unconditionally waives any right it may have to claim or recover in any legal action, suit or proceeding referred to in this
Section any special, exemplary, punitive or consequential damages.


 


(m)Section headings
herein are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.


 


(n)This Agreement may
be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed
to be an original, but all of which taken together constitute one in the same Agreement.


 


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BLANK]


 






    	- 21 -



    	 



    

 


IN WITNESS WHEREOF, each
Grantor has caused this Agreement 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


 





ener-core
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









  


ener-core
Pledge and Security Agreement






    	 



    	 



    

 


SCHEDULE I



LEGAL NAMES; ORGANIZATIONAL IDENTIFICATION NUMBERS; STATES OR JURISDICTION OF ORGANIZATION


 


 


	Legal Name:	State of Organization:	Type of Organization:	Organizational Identification Number:
	Ener-Core, Inc.	Nevada	46-0525350	
        Nevada Entity Number:

         

        E0203082010-9

	Ener-Core Power, Inc.	Delaware	35-2453220	
        Delaware File Number:

         

        5192153



 






    	Sched. I-1



    	 



    

 


SCHEDULE II


 


LICENSES


 


None.


 






    	Sched. II-1



    	 



    

 


SCHEDULE III


 


LOCATIONS


 


	Grantor:	Location:	Description:
	Ener-Core, Inc.	
        9400 Toledo Way

         

        Irvine, CA 92618
	Principal Executive Offices
	Ener-Core Power, Inc.	
        9400 Toledo Way

         

        Irvine, CA 92618
	Principal Executive Offices


  






    	 Sched. III-1



    	 



    

 





SCHEDULE IV



PROMISSORY NOTES, SECURITIES, DEPOSIT ACCOUNTS, SECURITIES ACCOUNTS AND COMMODITIES ACCOUNTS


 


A. Promissory Notes:


 


None


 


B. Securities and Other
Instruments:


 


Ener-Core, Inc. owns 100
shares of common stock of Ener-Core Power, Inc., par value $0.001 per share (the “Shares”)


 


C. Deposit Accounts, Securities Accounts and
Commodities Accounts:

 


	Grantor:	Name and Address of Institution Maintaining Account:	Account Number:	Type of Account:
	Ener-Core, Inc.	None	 	 
	Ener-Core Power, Inc.	Union Bank	 	Secured deposit account related to corporate credit card program
	Ener-Core Power, Inc.	Union Bank	 	Checking
	Ener-Core Power, Inc.	Union Bank	 	Money market


 






    	Sched. IV-1



    	 



    

 


SCHEDULE V


 


UCC-1 FINANCING
STATEMENTS


 


	Name of Grantor:	Secretary of State:
	Ener-Core, Inc.	Nevada
	Ener-Core Power, Inc.	Delaware


 






    	 Sched. V-1



    	 



    







 


SCHEDULE VI


 


COMMERCIAL TORT CLAIMS


 


None


 






    	Sched. VI-1



    	 



    

 


SCHEDULE
VII



PLEDGED DEBT


 


None


 






    	Sched. VII-1



    	 



    

 


SCHEDULE
VIII



PLEDGED SHARES


 





	Grantor:	Name of Pledged Issuer:	Number of Shares/Units:	Percentage of Outstanding Shares/Units:	Class:	Certificate Number:
	Ener-Core, Inc.	Ener-Core Power, Inc.	100	100%	Common	Number 1







 


 


Sched. VIII-1