Exhibit 10.27


 


COMMERCIAL SECURITY AGREEMENT


  


	Principal	Loan
    Date	Maturity	Loan
    No	Call
    / Coll	Account	Officer	Initials
	$461,500.00	04-02-2012	10-01-2012	113	 	 	CB	 
	
        References in the boxes above are for
        Lender’s use only and do not limit the applicability of this document to any particular loan or item. Any item
        above containing “***” has been omitted due to text length limitations.



 


	Borrower:	Superior Drilling Products of California, LLC	 	Lender:	US Employment Development Lending Center, LLC
	 	19479 Creek Blvd.	 	 	1 World Trade Center, Suite 1870
	 	Bakersfield, CA 93314	 	 	Long Beach, CA 90831
	 	 	 	 	 


  


THIS COMMERCIAL SECURITY AGREEMENT
dated April 2, 2012, is made and executed between Superior Drilling Products of California, LLC (“Grantor”) and
US Employment Development Lending Center, LLC (“Lender”).


 


GRANT OF SECURITY INTEREST. For
valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that
Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender
may have by law.


 


COLLATERAL DESCRIPTION. The word
“Collateral” as used in this Agreement means the following described property, whether now owned or hereafter acquired,
whether now existing or hereafter arising, and wherever located, in which Grantor is giving to Lender a security interest for
the payment of the Indebtedness and performance of all other obligations under the Note and this Agreement:


 


All equipment; all furniture;
all fixtures; all attachments, accessions, accessories, fittings, increases, tools, parts, repairs, supplies, and commingled goods
relating to the foregoing property, and all additions, replacements of and substitutions for all or any part of the foregoing
property; all insurance refunds relating to the foregoing property; all good will relating to the foregoing property; all records
and data and embedded software relating to the foregoing property, and all equipment, inventory and software to utilize, create,
maintain and process any such records and data on electronic media; and all supporting obligations relating to the foregoing property;
all whether now existing or hereafter arising, whether now owned or hereafter acquired or whether now or hereafter subject to
any rights in the foregoing property; and all products and proceeds (including but not limited to all insurance payments) of or
relating to the foregoing property.


 


In addition, the word “Collateral”
also includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever
located:


 


(A)  All accessions, attachments,
accessories, tools, parts, supplies, replacements of and additions to any of the collateral described herein, whether added now
or later.


 


(B)  All products and produce
of any of the property described in this Collateral section.


 


(C)  All accounts,
general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, consignment or other
disposition of any of the property described in this Collateral section.


 


(D)  All proceeds (including
insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral
section, and sums due from a third party who has damaged or destroyed the Collateral or from that party’s insurer, whether
due to judgment, settlement or other process.


 


(E)  All records
and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm,
microfiche, or electronic media, together with all of Grantor’s right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or data on electronic media.


 


Some or all of the Collateral may be located
on the following described real estate:


 


PARCEL 2 OF PARCEL MAP NO. 8961
IN THE UNINCORPORATED AREA OF THE COUNTY OF KERN, STATE OF CALIFORNIA. AS PER MAP RECORDED MAY 9, 1991, IN BOOK 42 OF PARCEL MAPS,
PACE 25 IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.


 


EXCEPTING THEREFROM 1/2 OF
ALL OIL, GAS, MINERALS AND OTHER HYDROCARBON SUBSTANCES AS CONVEYED TO GERI BLOEMER COOPER IN DEED RECORDED OCTOBER 11, 1989, IN
BOOK 6301, PAGE 990 OF OFFICIAL RECORDS.


 


ALSO EXCEPEPTING THEREFROM ALL
REMAINING OIL, GAS, MINERALS AND OTHER HYDROCARBON SUBSTANCES WITHIN OR UNDERLYING SAID LAND AS RESERVED BY JACK M. HOOD AND SHARON
B. HOOD. AS TRUSTEES UNDER THE JACK M. HOOD AND SHARON B. HOOD LIVING TRUST DATED DECEMBER 27, 1991, AS TO AN UNDIVIDED 1/3 INTEREST;
ROBERT A. HOOD AND MARY MARTHA HOOD AS CO-TRUSTEES OF THE ROBERT A. AND MARY MARTHA HOOD LIVING TRUST DATED JULY 2, 1992, AS TO
AN UNDIVIDED 1/3 INTEREST AND HAZEL MARY HOBBA HENDERSON, TRUSTEE OF THE HAZEL MARY HOBBA HENDERSON REVOCABLE TRUST DATED SEPTEMBER
18, 1987, AS TO AN UNDIVIDED 1/3 INTEREST IN DEED RECORDED MARCH 7, 2000, AS INSTRUMENT NO. 02-26223 OF OFFICIAL RECORDS


 


GRANTOR’S REPRESENTATIONS AND
WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the Collateral, Grantor represents and promises to Lender that:


 


Perfection of Security Interest.
Grantor agrees to take whatever actions are requested by Lender to perfect and continue Lender’s security Interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the
Collateral, and Grantor will note Lender’s interest upon any and all chattel paper and instruments if not delivered to Lender
for possession by Lender.


 


Notices to Lender. Grantor
will promptly notify Lender in writing at Lender’s address shown above (or such other addresses as Lender may designate
from time to time) prior to any (1) change in Grantor’s name; (2) change in Grantor’s assumed business name(s); (3)
change in the management or in the members or managers of the limited liability company Grantor; (4) change in the authorized
signer(s); (5) change in Grantor’s principal office address; (6) change in Grantor’s state of organization; (7) conversion
of Grantor to a new or different type of business entity; or (8) change in any other aspect of Grantor that directly or indirectly
relates to any agreements between Grantor and Lender. No change in Grantor’s name or state of organization will take effect
until after Lender has received notice.


 


No Violation. The execution
and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its
membership agreement does not prohibit any term or condition of this Agreement.


 




    	 



    	 



    

 


COMMERCIAL SECURITY AGREEMENT 


	 	(Continued)	Page 2
	 	 	 







 


Enforceability of Collateral.
To the extent the Collateral consists of accounts, chattel paper, or general intangibles, as defined by the Uniform Commercial
Code, the Collateral is enforceable in accordance with its terms, is genuine, and fully complies with all applicable laws and
regulations concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the
Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. There shall
be no setoffs or counterclaims against any of the Collateral, and no agreement shall have been made under which any deductions
or discounts may be claimed concerning the Collateral except those disclosed to Lender in writing.  


 


Location of the Collateral.
Except in the ordinary course of Grantor’s business, Grantor agrees to keep the Collateral at Grantor’s address shown
above or at such other locations as are acceptable to Lender. Upon Lender’s request, Grantor will deliver to Lender in form
satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor’s operations, including
without limitation the following: (1) all real property Grantor owns or is purchasing; (2) all real property Grantor is renting
or leasing; (3) all storage facilities Grantor owns, rents, leases, or uses; and (4) all other properties where Collateral is or
may be located.  


 


Removal of the Collateral.
Except in the ordinary course of Grantor’s business, Grantor shall not remove the Collateral from its existing location without
Lender’s prior written consent. To the extent that the Collateral consists of vehicles, or other titled property, Grantor
shall not take or permit any action which would require application for certificates of title for the vehicles outside the State
of California, without Lender’s prior written consent. Grantor shall, whenever requested, advise Lender of the exact location
of the Collateral.  


 


Transactions Involving
Collateral. Except for inventory sold or accounts collected in the ordinary course of Grantor’s business, or as
otherwise provided for in this Agreement, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the
Collateral. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien,
security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior
written consent of Lender. This includes security interests even if junior in right to the security interests granted under
this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be
held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall
not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall Immediately deliver any
such proceeds to Lender.  


 


Title. Grantor represents
and warrants to Lender that Grantor holds good and marketable title to the Collateral, free and clear of all liens and encumbrances
except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other
than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor
shall defend Lender’s rights in the Collateral against the claims and demands of all other persons.  


 


Repairs and Maintenance.
Grantor agrees to keep and maintain, and to cause others to keep and maintain, the Collateral in good order, repair and condition
at all times while this Agreement remains in effect. Grantor further agrees to pay when due all claims for work done on, or services
rendered or material furnished in connection with the Collateral so that no lien or encumbrance may ever attach to or be filed
against the Collateral.  


 


Inspection of Collateral.
Lender and Lender’s designated representatives and agents shall have the right at all reasonable times to examine and
inspect the Collateral wherever located.   


 


Taxes, Assessments and Liens.
Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon
any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any
such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation
to pay and so long as Lender’s interest in the Collateral is not jeopardized in Lender’s sole opinion. If the Collateral
is subjected to a lien which is not discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate
surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest,
costs, attorneys’ fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest
Grantor Shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral.
Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings. Grantor further
agrees to furnish Lender with evidence that such taxes, assessments, and governmental and other charges have been paid in full
and in a timely manner. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting
an appropriate proceeding to contest the obligation to pay and so long as Lender’s interest in the Collateral is not jeopardized.
   


 


Compliance with
Governmental Requirements. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all
governmental authorities, including without limitation all environmental laws, ordinances, rules and regulations, now or
hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral, including all laws or
regulations relating to the undue erosion of highly-erodible land or relating to the conversion of wetlands for the
production of an agricultural product or commodity. Grantor may contest in good faith any such law, ordinance or regulation
and withhold compliance during any proceeding, including appropriate appeals, so long as Lender’s interest in the
Collateral, in Lender’s opinion, is not jeopardized.  


 


Hazardous
Substances. Grantor represents and warrants that the Collateral never has been, and never will be so long as this
Agreement remains a lien on the Collateral, used in violation of any Environmental Laws or for the generation, manufacture,
storage, transportation, treatment, disposal, release or threatened release of any Hazardous Substance. The representations
and warranties contained herein are based on Grantor’s due diligence in investigating the Collateral for Hazardous
Substances. Grantor hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the
event Grantor becomes liable for cleanup or other costs under any Environmental Laws, and (2) agrees to Indemnify, defend,
and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement.
This obligation to indemnify and defend shall survive the payment of the Indebtedness and the satisfaction of this Agreement.
 


 


Maintenance of Casualty Insurance.
Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together
with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably acceptable to Lender. Grantor, upon request of Lender, will
deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations
that coverages will not be cancelled or diminished without at least ten (10) days’ prior written notice to Lender and not
including any disclaimer of the insurer’s liability for failure to give such a notice. Each insurance policy also shall include
an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor
will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain
or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as
Lender deems appropriate, including if Lender so chooses “single interest insurance,” which will cover only Lender’s
interest in the Collateral.  


 


 




    	 



    	 



    

 


COMMERCIAL SECURITY AGREEMENT


	 	(Continued)	Page 3
	 	 	 


 


Application of Insurance
Proceeds. Grantor shall promptly notify Lender of any loss or damage to the Collateral if the estimated cost of repair or
replacement exceeds $25,000.00, whether or not such casualty or loss is covered by insurance. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued
proceeds thereon, shall be held by Lender as part of the Collateral. If Lender consents to repair or replacement of the damaged
or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the
reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral. Lender shall retain
a sufficient amount of the proceeds to pay all of the indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of
the Collateral shall be used to prepay the Indebtedness.


 


Insurance Reserves. Lender
may require Grantor to maintain with Lender reserves for payment of insurance premiums, which reserves shall be created by monthly
payments from Grantor of a sum estimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before payment is due, the reserve funds
are Insufficient, Grantor shall upon demand pay any deficiency to Lender. The reserve funds shall be held by Lender as a general
deposit and shall constitute a non-interest-bearing account which Lender may satisfy by payment of the insurance premiums required
to be paid by Grantor as they become due. Lender does not hold the reserve funds in trust for Grantor, and Lender is not the agent
of Grantor for payment of the insurance premiums required to be paid by Grantor. The responsibility for the payment of premiums
shall remain Grantor’s sole responsibility.


 


Insurance Reports. Grantor,
upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender
may reasonably request including the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy;
(4) the property insured; (5) the then current value on the basis of which insurance has been obtained and the manner of determining
that value; and (6) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often
than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost
of the Collateral.


 


Financing Statements.
Grantor authorizes Lender to file a UCC financing statement, or alternatively, a copy of this Agreement to perfect Lender’s
security interest. At Lender’s request, Grantor additionally agrees to sign all other documents that are necessary to perfect,
protect, and continue Lender’s security interest in the Property. This includes making sure Lender is shown as the first
and only security interest holder on the title covering the Property. Grantor will pay all filing fees, title transfer fees, and
other fees and costs involved unless prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor
irrevocably appoints Lender to execute documents necessary to transfer title if there is a default. Lender may file a copy of
this Agreement as a financing statement. If Grantor changes Grantor’s name or address, or the name or address of any person
granting a security interest under this Agreement changes, Grantor will promptly notify the Lender of such change.


 


GRANTOR’S RIGHT TO POSSESSION.
Until default, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use
it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor’s right to possession
and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect
Lender’s security interest in such Collateral. If Lender at any time has possession of any Collateral, whether before or
after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral
if Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender’s sole discretion, shall deem
appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure
to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral
against prior parties, nor to protect, preserve or maintain any security interest given to secure the Indebtedness.


 


LENDER’S EXPENDITURES.
If any action or proceeding is commenced that would materially affect Lender’s interest in the Collateral or if Grantor fails
to comply with any provision of this Agreement or any Related Documents, Including but not limited to Grantor’s failure to
discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents. Lender
on Grantor’s behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not
limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed
on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred
or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses will become a part of the Indebtedness and, at Lender’s option,
will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment
payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or
(C) be treated as a balloon payment which will be due and payable at the Note’s maturity. The Agreement also will secure
payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon
Default.


 


DEFAULT. Each of the following
shall constitute an Event of Default under this Agreement:


 


Payment Default. Grantor
fails to make any payment when due under the Indebtedness.


 


Environmental Default.
Failure of any party to comply with or perform when due any term, obligation, covenant or condition contained in any environmental
agreement executed in connection with any Indebtedness.


 


Other Defaults. Grantor
fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the
Related Documents, or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement
between Lender and Grantor.


 


False Statements. Any warranty,
representation or statement made or furnished to Lender by Grantor or on Grantor’s behalf under this Agreement or the Related
Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading
at any time thereafter.


 


Defective Collateralization.
This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document
to create a valid and perfected security Interest or lien) at any time and for any reason.


 


Insolvency. The dissolution
of Grantor (regardless of whether election to continue is made), any member withdraws from the limited liability company, or any
other termination of Grantor’s existence as a going business or the death of any member, the insolvency of Grantor, the appointment
of a receiver for any part of Grantor’s property, any assignment for the benefit of creditors, any type of creditor workout,
or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor.


 


Creditor or Forfeiture
Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any governmental agency against any collateral securing
the Indebtedness. This includes a garnishment of any of Grantor’s accounts, including deposit accounts, with Lender.
However, this Event of Default shall not apply if there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor gives Lender written
notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or
forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for
the dispute.


 




    	 



    	 



    

 


COMMERCIAL SECURITY AGREEMENT


	 	(Continued)	Page 4
	 	 	 


 


Events Affecting Guarantor.
Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or Guarantor dies or becomes incompetent
or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.


 


Adverse Change. A material
adverse change occurs in Grantor’s financial condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.


 


Insecurity. Lender in
good faith believes itself insecure.


 


RIGHTS AND REMEDIES ON DEFAULT.
If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party
under the California Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following
rights and remedies:


 


Accelerate Indebtedness.
Lender may declare the entire Indebtedness, including any prepayment penalty which Grantor would be required to pay, immediately
due and payable, without notice of any kind to Grantor.


 


Assemble Collateral.
Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender
at a place to be designated by Lender. Lender also shall have full power to enter upon the property of Grantor to take possession
of and remove the Collateral. If the Collateral contains other goods not covered by this Agreement at the time of repossession,
Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after
repossession.


 


Sell the Collateral.
Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender’s
own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens
to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor, and other persons
as required by law, reasonable notice of the time and place of any public sale, or the time after which any private sale or any
other disposition of the Collateral is to be made. However, no notice need be provided to any person who, after Event of Default
occurs, enters into and authenticates an agreement waiving that person’s right to notification of sale. The requirements
of reasonable notice shall be met if such notice is given at least ten (10) days before the time of the sale or disposition. All
expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring,
preparing for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable
on demand, with interest at the Note rate from date of expenditure until repaid.


 


Appoint Receiver. Lender
shall have the right to have a receiver appointed to take possession of all or any part of the Collateral, with the power to protect
and preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the Rents from the Collateral
and apply the proceeds, over and above the cost of the receivership, against the Indebtedness. The receiver may serve without bond
if permitted by law. Lender’s right to the appointment of a receiver shall exist whether or not the apparent value of the
Collateral exceeds the Indebtedness by a substantial amount. Employment by Lender shall not disqualify a person from serving as
a receiver.


 


Collect Revenues, Apply Accounts.
Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender
may at any time in Lender’s discretion transfer any Collateral into Lender’s own name or that of Lender’s nominee and
receive the payments, rents, income, and revenues therefrom and hold the same as security for the Indebtedness or apply it to payment
of the Indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general
intangibles, insurance policies, instruments, chattel paper, choses in action, or similar property, Lender may demand, collect,
receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open
and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks,
drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral.
To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to
Lender.


 


Obtain Deficiency. If
Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement.
Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel
paper.


 


Other Rights and Remedies.
Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may
be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have
available at law, in equity, or otherwise.


 


Election of Remedies.
Except as may be prohibited by applicable law, all of Lender’s rights and remedies, whether evidenced by this Agreement,
the Related Documents, or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action
to perform an obligation of Grantor under this Agreement, after Grantor’s failure to perform, shall not affect Lender’s
right to declare a default and exercise its remedies.


 


MISCELLANEOUS PROVISIONS. The following
miscellaneous provisions are a part of this Agreement:


 


Amendments. This Agreement,
together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth
in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or amendment.


 


Attorneys’ Fees; Expenses.
Grantor agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s attorneys’ fees and
Lender’s legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else
to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender’s
attorneys’ fees and legal expenses whether or not there is a lawsuit, including attorneys’ fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court.


 


Caption Headings. Caption
headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this
Agreement.


 


Governing Law. This
Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the
State of California without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State
of California.


 


Choice of Venue. If there
is a lawsuit, Grantor agrees upon Lender’s request to submit to the jurisdiction of the courts of Los Angeles County County,
State of California.


 




    	 



    	 



    

 


COMMERCIAL SECURITY AGREEMENT


	 	(Continued)	Page 5
	 	 	 


 


Preference Payments.
Any monies Lender pays because of an asserted preference claim in Grantor’s bankruptcy will become a part of the indebtedness
and, at Lender’s option, shall be payable by Grantor as provided in this Agreement.


 


No Waiver by Lender.
Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other
right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender’s right otherwise
to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course
of dealing between Lender and Grantor, shall constitute a waiver of any of Lender’s rights or of any of Grantor’s obligations
as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by
Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all
cases such consent may be granted or withheld in the sole discretion of Lender.


 


Notices. Any notice
required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually
received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or,
if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to
the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by
giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party’s address.
For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor’s current address. Unless otherwise
provided or required by law, if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice
given to all Grantors.


 


Power of Attorney. Grantor
hereby appoints Lender as Grantor’s irrevocable attorney-in-fact for the purpose of executing any documents necessary to
perfect, amend, or to continue the security interest granted in this Agreement or to demand termination of filings of other secured
parties. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction
of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses
for the perfection and the continuation of the perfection of Lender’s security interest in the Collateral.


 


Waiver of Co-Obligor’s
Rights. If more than one person is obligated for the Indebtedness, Grantor irrevocably waives, disclaims and relinquishes all
claims against such other person which Grantor has or would otherwise have by virtue of payment of the Indebtedness or any part
thereof, specifically including but not limited to all rights of indemnity, contribution or exoneration.


 


Severability. If a court
of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance,
that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible,
the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision
cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity,
or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision
of this Agreement.


 


Successors and Assigns.
Subject to any limitations stated in this Agreement on transfer of Grantor’s interest, this Agreement shall be binding upon
and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person
other than Grantor. Lender, without notice to Grantor, may deal with Grantor’s successors with reference to this Agreement
and the Indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Agreement or liability
under the Indebtedness.


 


Survival of
Representations and Warranties. All representations, warranties, and agreements made by Grantor in this Agreement shall
survive the execution and delivery of this Agreement, shall be continuing in nature, and shall remain in full force and
effect until such time as Grantor’s Indebtedness shall be paid in full.


 


Time is of the Essence.
Time is of the essence in the performance of this Agreement.


 


DEFINITIONS. The following capitalized
words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all
references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular
shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise
defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code:


 


Agreement. The word “Agreement”
means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together
with all exhibits and schedules attached to this Commercial Security Agreement from time to time.


 


Borrower. The word “Borrower”
means Superior Drilling Products of California, LLC and includes all co-signers and co-makers signing the Note and all their successors
and assigns.


 


Collateral. The word
“Collateral” means all of Grantor’s right, title and interest in and to all the Collateral as described in the
Collateral Description section of this Agreement.


 


Default. The word “Default”
means the Default set forth in this Agreement in the section titled “Default”.


 


Environmental Laws.
The words “Environmental Laws” mean any and all state, federal and local statutes, regulations and ordinances
relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. (“CERCLA”), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 (“SARA”), the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., or other
applicable state or federal laws, rules, or regulations adopted pursuant thereto.


 


Event of Default. The
words “Event of Default” mean any of the events of default set forth in this Agreement in the default section of this
Agreement.


 


Grantor. The word “Grantor”
means Superior Drilling Products of California, LLC.


 


Guarantor. The word “Guarantor”
means any guarantor, surety, or accommodation party of any or all of the Indebtedness.


 


Guaranty. The word “Guaranty”
means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.


 


Hazardous Substances.
The words “Hazardous Substances” mean materials that, because of their quantity, concentration or physical, chemical
or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly
used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words “Hazardous Substances”
are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste
as defined by or listed under the Environmental Laws. The term “Hazardous Substances” also includes, without limitation,
petroleum and petroleum by-products or any fraction thereof and asbestos.


 


Indebtedness. The word
“Indebtedness” means the indebtedness evidenced by the Note or Related Documents, including all principal and interest
together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any
of the Related Documents.


 




    	 



    	 



    

 


COMMERCIAL SECURITY AGREEMENT


	 	(Continued)	Page 6
	 	 	 


 


Lender. The word “Lender”
means US Employment Development Lending Center, LLC, its successors and assigns.


 


Note. The word ‘‘Note”
means the Note executed by Superior Drilling Products of California, LLC in the principal amount of $461,500.00 dated April 2,
2012, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for
the note or credit agreement.


 


Property. The word “Property”
means all of Grantor’s right, title and interest in and to all the Property as described in the “Collateral Description”
section of this Agreement.


 


Related Documents. The
words “Related Documents” mean all promissory notes, credit agreements, loan agreements, environmental agreements,
security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection with the Indebtedness.


 


GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED APRIL 2, 2012.


 


GRANTOR:


  


SUPERIOR DRILLING PRODUCTS OF CALIFORNIA, LLC


 


	By:	/s/ Annette D. Meier	 
	 	Annette D. Meier, Manager or superior Drilling	 
	 	Products of California, LLC	 
	 	 	 


 


LASER PRO Lending, Ver. 5.60.00.005 Copr.
Harland Financial Solutions, Inc. 1997, 2012. All Rights Reserved. - CA C:\HARLANDLP\CFI\LPL\G14.FC TR-112 PR-14