Exhibit 10.23


 


COMMERCIAL
SECURITY AGREEMENT


 


	Principal
    	Loan
    Date	Maturity	Loan
    No	Call
    / Coll	Account	Officer	Initials
	$650,000.00	04-02-2012	04-01-2022	 	 	 	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.



 


	Grantor:  	Superior
                                  Drilling Products of California, LLC

        2221 North 3250 West

        Vernal, UT 84078
	 	Lender:	US
                           Employment Development Lending Center, LLC

        1 World Trade Center,
        Suite 1870

        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, PAGE 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 UNDIVlDED 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 Lenders 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 hold 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 falls 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
Lenders 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 hot 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.


 


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.


 




    	 



    	 



    

 


	 	COMMERCIAL
    SECURITY AGREEMENT	 
	 	(Continued)	Page 5
	 	 	 


 


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.


 




    	 



    	 



    

 


	 	COMMERCIAL
    SECURITY AGREEMENT	 
	 	(Continued)	Page 6
	 	 	 


 


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.


 


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
$650,000.00 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 of 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