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  Exhibit
10.2

 

AMENDED AND RESTATED SECURITY AGREEMENT

 

THIS AMENDED AND RESTATED SECURITY
AGREEMENT (this “Agreement”), dated as of
March 28, 2019, by and between Flux Power, Inc., a California
corporation (the “Company”), and Esenjay
Investments, LLC, Cleveland Capital, L.P., and additional parties
that join this Agreement as a secured party pursuant to Section
17(k) (each a “Secured Party,” and
collectively, the “Secured Parties”), and
Esenjay Investments, LLC, in its capacity as the
“Collateral
Agent” (as defined in Section 1 herein
below).

 

WHEREAS, the Company and Esenjay
Investments, LLC (“Esenjay”) executed that
certain Guaranty and Security Agreement dated as of March 22, 2018
(“Original Security
Agreement”);

 

WHEREAS, the Company and the Secured
Parties entered into an Amended and Restated Credit Facility
Agreement dated March 28, 2019 (“Credit Facility
Agreement”) to (i) Cleveland Capital, L.P. as an
additional lender to the original Credit Facility Agreement dated
March 22, 2018, (ii) increase the line of credit
(“LOC”) from Five Million Dollars ($5,000,000) to Seven
Million Dollars ($7,000,000), (iii) extend the maturity date under
the Note (as defined below) from March 31, 2019 to December 31,
2019, and (iv) provide for additional parties to become a
“Lender” under the Credit Facility
Agreement.

 

WHEREAS, in connection with the Credit
Facility Agreement, the Company issued each Secured Party a secured
promissory note (each a “Note” and together
“Notes”) evidencing the
Company’s obligation to repay the Secured Parties certain
funds on the terms and conditions as set forth in the Notes;
and

 

WHEREAS, in order to induce each Secured
Party to provide a loan under the Note, the Company has agreed to
execute and deliver to the Secured Parties this Agreement for the
benefit of the Secured Parties and to grant to it a priority
security interest in certain property of the Company to secure the
prompt payment, performance and discharge in full of all of the
Company’s obligations under the Notes.

 

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

 

1. Certain Definitions. As used in
this Agreement, the following terms shall have the meanings set
forth in this Section 1. Terms used but not otherwise defined in
this Agreement that are defined in Article 9 of the UCC (such as
“proceeds”) shall have the
respective meanings given such terms in Article 9 of the
UCC.

 

(a) “Collateral”
means the collateral in which the Secured Parties are granted a
security interest by this Agreement and which shall include the
following, whether presently owned or existing or hereafter
acquired or coming into existence, and all additions and accessions
thereto and all substitutions and replacements thereof, and all
proceeds, products and accounts thereof, including, without
limitation, all proceeds from the sale or transfer of the
Collateral and of insurance covering the same and of any tort
claims in connection therewith:

 

(i) All
Goods of the Company, including, without limitation, all machinery,
equipment, computers, motor vehicles, trucks, tanks, boats, ships,
appliances, furniture, special and general tools, fixtures, test
and quality control devices and other equipment of every kind and
nature and wherever situated, together with all documents of title
and documents representing the same, all additions and accessions
thereto, replacements therefor, all parts therefor, and all
substitutes for any of the foregoing and all other items used and
useful in connection with the Company’s businesses and all
improvements thereto (collectively, the “Equipment”);
and

 

 

 

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(ii) All
Inventory of the Company; and

 

(iii) All
of the Company’s contract rights and general intangibles,
including, without limitation, all partnership interests, stock or
other securities, licenses, distribution and other agreements,
computer software development rights, leases, franchises, customer
lists, quality control procedures, grants and rights, goodwill,
trademarks, service marks, trade styles, trade names, patents,
patent applications, copyrights, deposit accounts, and income tax
refunds (collectively, the “General Intangibles”);
and

 

(iv) All
Receivables of the Company including all insurance proceeds, and
rights to refunds or indemnification whatsoever owing, together
with all instruments, all documents of title representing any of
the foregoing, all rights in any merchandising, goods, equipment,
motor vehicles and trucks which any of the same may represent, and
all right, title, security and guaranties with respect to each
Receivable, including any right of stoppage in transit;
and

 

(v) All of the
Company’s documents, instruments and chattel paper, files,
records, books of account, business papers, computer programs and
the products and proceeds of all of the foregoing Collateral set
forth in clauses (i)-(iv) above; and

 

(vi) All
intellectual property, including but not limited to the
following:

 

(1) Software Intellectual
Property:

 

a. all software
programs (including all source code, object code and all related
applications and data files), whether now owned, upgraded,
enhanced, licensed or leased or hereafter acquired by the Company,
above;

 

b. all computers and
electronic data processing hardware and firmware associated
therewith;

 

c. all documentation
(including flow charts, logic diagrams, manuals, guides and
specifications) with respect to such software, hardware and
firmware described in the preceding clauses (a) and (b);
and

 

d. all rights with
respect to all of the foregoing, including, without limitation, any
and all upgrades, modifications, copyrights, licenses, options,
warranties, service contracts, program services, test rights,
maintenance rights, support rights, improvement rights, renewal
rights and indemnifications and substitutions, replacements,
additions, or model conversions of any of the
foregoing.

 

(2) Copyrights:

 

a. all copyrights,
registrations and applications for registration, issued or filed, including any
reissues, extensions or renewals thereof, by or with the United
States Copyright Office or any similar office or agency of the
United States, any state thereof, or any other country or political
subdivision thereof, or otherwise, including, all rights in and to
the material constituting the subject matter thereof;

 

 

 

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b. any rights in any
material which is copyrightable or which is protected by common
law, United States copyright laws or similar laws or any law of any
State.

 

(3) Copyright License:

 

a. any agreement,
written or oral, providing for a grant by the Company of any right
in any Copyright.

 

(4) Patents:

 

a. all letters patent
of the United States or any other country or any political
subdivision thereof, and all reissues and extensions
thereof;

 

b. all applications
for letters patent of the United States and all divisions,
continuations and continuations-in-part thereof or any other
country or any political subdivision.

 

(5) Patent License:

 

a. all agreements,
whether written or oral, providing for the grant by the Company of
any right to manufacture, use or sell any invention covered by a
Patent.

 

(6) Trademarks:

 

a. all trademarks,
trade names, corporate names, company names, business names,
fictitious business names, trade styles, service marks, logos and
other source or business identifiers, and the goodwill associated
therewith, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in
connection therewith, whether 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;

 

b. all reissues,
extensions or renewals thereof.

 

(7) Trademark License:

 

a. any agreement,
written or oral, providing for the grant by the Company of any
right to use any Trademark.

 

(8) Trade Secrets:

 

a. common law and
statutory trade secrets and all other confidential or proprietary
or useful information and all know-how obtained by or used in or
contemplated at any time for use in the business of the Company
(all of the foregoing being collectively called a
“Trade
Secret”), whether or not such Trade Secret has been
reduced to a writing or other tangible form, including all
documents and things embodying, incorporating or referring in any
way to such Trade Secret, all Trade Secret licenses, and including
the right to sue for and to enjoin and to collect damages for the
actual or threatened misappropriation of any Trade Secret and for
the breach or enforcement of any such Trade Secret
license.

 

 

 

3

 

 

(b) “Collateral Agent” means
the designated representative of the Secured Parties for purposes
of exercising rights of the Secured Parties hereunder with respect
to the Collateral and otherwise.

 

(c) “Company”
shall mean, Flux Power, Inc., a California
corporation.

 

(d) “Obligations”
means all of the Company’s obligations under this Agreement,
the Credit Facility Agreement, and the respective Notes, in each
case, whether now or hereafter existing, voluntary or involuntary,
direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether
or not from time to time decreased or extinguished and later
decreased, created or incurred, and all or any portion of such
obligations or liabilities that are paid, to the extent all or any
part of such payment is avoided or recovered directly or indirectly
from the Secured Party as a preference, fraudulent transfer or
otherwise as such obligations may be amended, supplemented,
converted, extended or modified from time to time.

 

(e) “Permitted
Liens” shall mean (a) liens for taxes not yet
delinquent or liens for taxes being contested in good faith and by
appropriate proceedings for which adequate reserves have been
established;(b) liens in respect of property or assets imposed by
law which were incurred in the ordinary course of business, such as
carriers’, warehousemen’s, materialmen’s and
mechanics’ liens and other similar liens arising in the
ordinary course of business which are not delinquent or remain
payable without penalty or which are being contested in good faith
and by appropriate proceedings for which adequate reserves have
been established;(c) liens securing obligations under a capital
lease if such liens do not extend to property other than the
property leased under such capital lease; (d) liens upon any
equipment acquired or held by the Company or any of its
subsidiaries to secure the purchase price of such equipment or
indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, so long as such lien extends only to
the equipment financed, and any accessions, replacements,
substitutions and proceeds (including insurance proceeds) thereof
or thereto; (e) leases or subleases and licenses or sublicenses
granted in the ordinary course of the Company’s business; and
(f) asset based line of credit for short term working capital
needs.

 

(f) “UCC”
means the Uniform Commercial Code, as currently in effect in the
State of California.

 

2. Grant of Security Interest. As
an inducement for the Secured Parties to lend under their
respective Notes and to secure the complete and timely payment,
performance and discharge in full, as the case may be, of all of
the Obligations, the Company hereby, unconditionally and
irrevocably, pledges, grants and hypothecates to the Secured
Parties, a continuing security interest in, a continuing first lien
upon, an unqualified right to possession and disposition of and a
right of set-off against, in each case to the fullest extent
permitted by law, all of the Company’s right, title and
interest of whatsoever kind and nature in and to the Collateral
(the “Security
Interest”); provided, however, the Secured Parties
have agreed that the Security Interest granted pursuant to this
Section 2 shall be subordinate to the Permitted Liens.

 

3. Representations, Warranties, Covenants
and Agreements of the Company. The Company represents and
warrants to, and covenants and agrees with, the Secured Parties as
follows:

 

(a) The
Company has the requisite corporate power and authority to enter
into this Agreement and otherwise to carry out its obligations
thereunder. The execution, delivery and performance by the Company
of this Agreement and the filings contemplated therein have been
duly authorized by all necessary action on the part of the Company
and no further action is required by the Company. This Agreement
constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of
creditor’s rights generally.

 

 

 

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(b) The Company
represents and warrants that it has no place of business or offices
where its respective books of account and records are kept (other
than temporarily at the offices of its attorneys or accountants) or
places where Collateral is stored or located other than the
Company’s main facility identified in Section 14 of this
Agreement;

 

(c) The
Company is the sole owner of the Collateral (except for
non-exclusive licenses granted by the Company in the ordinary
course of business), free and clear of any liens, security
interests, encumbrances, rights or claims, and is fully authorized
to grant the Security Interest in and to pledge the Collateral.
Except for the prior security interest granted in connection with
the Original Security Agreement, there is not on file in any
governmental or regulatory authority, agency or recording office an
effective financing statement, security agreement, license or
transfer or any notice of any of the foregoing (other than those
that have been filed in favor of the Secured Party pursuant to this
Agreement) covering or affecting any of the Collateral. So long as
this Agreement shall be in effect, the Company shall not execute
and shall not knowingly permit to be on file in any such office or
agency any such financing statement or other document or instrument
that is senior to the Security Interest granted under this
Agreement.

 

(d) No
part of the Collateral has been judged invalid or unenforceable. No
written claim has been received that any Collateral or the
Company’s use of any Collateral violates the rights of any
third party. There has been no adverse decision to the
Company’s claim of ownership rights in or exclusive rights to
use the Collateral in any jurisdiction or to the Company’s
right to keep and maintain such Collateral in full force and
effect, and there is no proceeding involving said rights pending
or, to the best knowledge of the Company, threatened before any
court, judicial body, administrative or regulatory agency,
arbitrator or other governmental authority.

 

(e) The
Company shall at all times maintain its books of account and
records relating to the Collateral at its principal place of
business and its Collateral at the locations set forth in Section
14 and may not relocate such books of account and records or
tangible Collateral unless it delivers to the Collateral Agent at
least thirty (30) days prior to such relocation (i) written notice
of such relocation and the new location thereof (which must be
within the United States) and (ii) evidence that appropriate
financing statements and other necessary documents have been filed
and recorded and other steps have been taken to perfect the
Security Interest to create in favor of the Secured Parties valid,
perfected and continuing first priority liens in the
Collateral.

 

(f) This
Agreement creates in favor of the Secured Parties a valid security
interest in the Collateral securing the payment and performance of
the Obligations and, upon making the filings described in the
immediately following sentence, a perfected security interest in
such Collateral. Except for the filing of financing statements on
Form-1 under the UCC, no authorization or approval of or filing
with or notice to any governmental authority or regulatory body is
required either (i) for the grant by the Company of, or the
effectiveness of, the Security Interest granted hereby or for the
execution, delivery and performance of this Agreement by the
Company or (ii) for the perfection of or exercise by the Collateral
Agent of its rights and remedies hereunder.

 

(g) Promptly
upon execution of this Agreement, the Company will deliver to the
Collateral Agent one or more executed UCC financing statements on
Form UCC-1 in the jurisdiction of California.

 

 

 

5

 

 

(h) The execution,
delivery and performance of this Agreement does not conflict with
or cause a breach or default, or an event that with or without the
passage of time or notice, shall constitute a breach or default,
under any agreement to which the Company is a party or by which the
Company is bound. No consent (including, without limitation, from
stock holders or creditors of the Company) is required for the
Company to enter into and perform its obligations
hereunder.

 

(i) The
Company shall at all times maintain the liens and Security Interest
provided for hereunder as valid and perfected liens and security
interests in the Collateral in favor of the Secured Parties until
this Agreement and the Security Interest hereunder shall terminate
pursuant to Section 12. The Company hereby agrees to defend the
same against any and all persons. The Company shall safeguard and
protect all Collateral for the account of the Secured Parties. At
the request of the Collateral Agent, the Company will sign and
deliver to the Collateral Agent at any time or from time to time
one or more financing statements pursuant to the UCC (or any other
applicable statute) in form reasonably satisfactory to the
Collateral Agent and will pay the cost of filing the same in all
public offices wherever filing is, or is deemed by the Collateral
Agent to be, necessary or desirable to effect the rights and
obligations provided for herein. Without limiting the generality of
the foregoing, the Company shall pay all fees, taxes and other
amounts necessary to maintain the Collateral and the Security
Interest hereunder, and the Company shall obtain and furnish to the
Collateral Agent from time to time, upon demand, such releases
and/or subordinations of claims and liens which may be required to
maintain the priority of the Security Interest
hereunder.

 

(j) The
Company will not transfer, pledge, hypothecate, encumber, license
(except for any Collateral disposed of in the ordinary course of
business), sell or otherwise dispose of any of the Collateral
without the prior written consent of the Collateral
Agent.

 

(k) The
Company shall keep and preserve its Equipment, Inventory and other
tangible Collateral in good condition, repair and order and shall
not operate or locate any such Collateral (or cause to be operated
or located) in any area excluded from insurance
coverage.

 

(l) The
Company shall, within twenty (20) days of obtaining knowledge
thereof, advise the Collateral Agent promptly, in sufficient
detail, of any substantial change in the Collateral, and of the
occurrence of any event which would have a material adverse effect
on the value of the Collateral or on the Secured Parties’
security interest therein.

 

(m) The
Company shall promptly execute and deliver to the Collateral Agent
such further deeds, mortgages, assignments, security agreements,
financing statements or other instruments, documents, certificates
and assurances and take such further action as the Collateral Agent
may from time to time request and may in its sole discretion deem
necessary to perfect, protect or enforce its security interest in
the Collateral.

 

(n) The
Company shall permit the Collateral Agent and its representatives
and agents to inspect the Collateral at any time and to make copies
of records pertaining to the Collateral as may be requested by the
Collateral Agent from time to time.

 

(o) The
Company will take all steps reasonably necessary to diligently
pursue and seek to preserve, enforce and collect any rights,
claims, causes of action and accounts receivable in respect of the
Collateral.

 

 

 

6

 

 

(p) The Company shall
promptly notify the Collateral Agent in sufficient detail upon
becoming aware of any attachment, garnishment, execution or other
legal process levied against any Collateral and of any other
information received by the Company that may materially affect the
value of the Collateral, the Security Interest or the rights and
remedies of the Secured Parties hereunder.

 

(q) All
information heretofore, herein or hereafter supplied to the Secured
Parties by or on behalf of the Company with respect to the
Collateral is accurate and complete in all material respects as of
the date furnished.

 

4. Collateral Agent.

 

(a) Each
Secured Party hereby appoints Esenjay Investments, LLC as
Collateral Agent for the benefit of the Secured Parties under this
Agreement to serve from the date hereof until the termination of
this Agreement.

 

(b) Each
Secured Party hereby irrevocably authorizes Collateral Agent to
take such action and to exercise such powers hereunder as provided
herein or as requested in writing by the Secured Parties who hold a
majority in interest of outstanding principal and interest under
the Notes (the “Majority Note Holders”)
in accordance with the terms hereof, together with such powers as
are reasonably incidental thereto. Collateral Agent may execute any
of its duties hereunder by or through agents or employees and shall
be entitled to request and act in reliance upon the advise of
counsel concerning all matters pertaining to its duties hereunder
and shall not be liable for any action taken or omitted to be taken
by it in good faith in accordance therewith.

 

(c) Collateral
Agent shall not be liable or responsible to any Secured Party or to
the Company for any action taken or omitted to be taken by
Collateral Agent or any other such person hereunder or under any
related agreement, instrument or document, except in the case of
gross negligence or willful misconduct on the part of Collateral
Agent, nor shall Collateral Agent be liable or responsible for (A)
the validity, effectiveness, sufficiency, enforceability or
enforcement of the Notes, this Agreement or any instrument or
document delivered hereunder or relating hereto; (B) the title of
the Company to any of the Collateral or the freedom of any of the
Collateral from any prior or other liens or security interests; (C)
the determination, verification or enforcement of the
Company’s compliance with any of the terms and conditions of
this Agreement; (D) the failure by the Company to deliver any
instrument or document required to be delivered pursuant to the
terms hereof; or (E) the receipt, disbursement, waiver, extension
or other handling of payments or proceeds made or received with
respect to the Collateral, the servicing of the Collateral or the
enforcement or the collection of any amounts owing with respect to
the Collateral.

 

(d) In
connection with this Agreement and the transactions contemplated
hereby and any related document relating to any of the Collateral,
each of the Secured Parties agrees to pay to Collateral Agent, on
demand, its pro rata share (based on relative Obligations) of all
fees and all expenses incurred in connection with the operation and
enforcement of this Agreement, the Notes or any related agreement
to the extent that such fees or expenses have not been paid by the
Company. In connection with this Agreement and each instrument and
document relating to any of the Collateral, each of the Secured
Parties (on a pro rata basis based upon the outstanding Obligations
owing to the Secured Parties) and the Company hereby agree to hold
Collateral Agent harmless, and to indemnify Collateral Agent from
and against any and all loss, damage, expense or liability which
may be incurred by Collateral Agent under this Agreement and the
transactions contemplated hereby and any related agreement or other
instrument or document, as the case may be, unless such liability
shall be caused by the willful misconduct or gross negligence of
Collateral Agent.

 

 

 

7

 

 

5. Defaults. The following events
shall be “Events of
Default”:

 

(a) The
occurrence of an Event of Default (as defined in the Note) under
the Note;

 

(b) Any
representation or warranty of the Company in this Agreement shall
prove to have been incorrect in any material respect when
made;and

 

(c) The
failure by the Company to observe or perform any of its obligations
hereunder for ten (10) days after receipt by the Company of notice
of such failure from a Secured Party.

 

6. Duty To Hold In Trust. Upon the
occurrence of any Event of Default and at any time thereafter, the
Company shall, upon receipt by it of any revenue, income or other
sums subject to the Security Interest, whether payable pursuant to
the Notes or otherwise, or of any check, draft, note, trade
acceptance or other instrument evidencing an obligation to pay any
such sum, hold the same in trust for the Secured Parties and shall
forthwith endorse and transfer any such sums or instruments, or
both, to the Collateral Agent for application to the satisfaction
of the Obligations.

 

7. Rights and Remedies Upon
Default. Upon occurrence of any Event of Default and at any
time thereafter, the Secured Parties shall have the right to
exercise all of the remedies conferred hereunder and under the
Note, and the Secured Parties shall have all the rights and
remedies of a secured party under the UCC and/or any other
applicable law (including the Uniform Commercial Code of any
jurisdiction in which any Collateral is then located). The Secured
Parties shall have the following rights and powers:

 

(a) The
Collateral Agent shall have the right to take possession of the
Collateral and, for that purpose, enter, with the aid and
assistance of any person, any premises where the Collateral, or any
part thereof, is or may be placed and remove the same, and the
Company shall assemble the Collateral and make it available to the
Collateral Agent at places which the Collateral Agent shall
reasonably select, whether at the Company’s premises or
elsewhere, and make available to the Collateral Agent, without
rent, all of the Company’s respective premises and facilities
for the purpose of the Collateral Agent taking possession of,
removing or putting the Collateral in saleable or disposable
form.

 

(b) The
Collateral Agent shall have the right to operate the business of
the Company using the Collateral and shall have the right to
assign, sell, lease or otherwise dispose of and deliver all or any
part of the Collateral, at public or private sale or otherwise,
either with or without special conditions or stipulations, for cash
or on credit or for future delivery, in such parcel or parcels and
at such time or times and at such place or places, and upon such
terms and conditions as the Secured Party may deem commercially
reasonable, all without (except as shall be required by applicable
statute and cannot be waived) advertisement or demand upon or
notice to the Company or right of redemption of the Company, which
are hereby expressly waived. Upon each such sale, lease, assignment
or other transfer of Collateral, the Secured Parties may, unless
prohibited by applicable law which cannot be waived, purchase all
or any part of the Collateral being sold, free from and discharged
of all trusts, claims, right of redemption and equities of the
Company, which are hereby waived and released.

 

8. Applications of Proceeds. The
proceeds of any such sale, lease or other disposition of the
Collateral hereunder shall be applied first, to the expenses of
retaking, holding, storing, processing and preparing for sale,
selling, and the like (including, without limitation, any taxes,
fees and other costs incurred in connection therewith) of the
Collateral, to the reasonable attorneys’ fees and expenses
incurred by the Collateral Agent and/or the Secured Parties in
enforcing its rights hereunder and in connection with collecting,
storing and disposing of the Collateral, and then to the
satisfaction of the Obligations to each of the Secured Parties pro
rata based on the amount of the unpaid and outstanding Advances
made by and due to each of the Secured Party, and to the payment of
any other amounts required by applicable law, after which the
Secured Parties shall pay to the Company any surplus proceeds. If,
upon the sale, license or other disposition of the Collateral, the
proceeds thereof are insufficient to pay all amounts to which the
Secured Parties are legally entitled, the Company will be liable
for the deficiency, together with interest thereon, at the rate of
fifteen percent (15%) per annum (the “Default Rate”), and the
reasonable fees of any attorneys employed by the Collateral Agent
and/or the Secured Parties to collect such deficiency.

 

 

 

8

 

 

9. Costs and Expenses. The Company
agrees to pay all out-of-pocket fees, costs and expenses incurred
in connection with any filing required hereunder, including without
limitation, any financing statements, continuation statements,
partial releases and/or termination statements related thereto or
any expenses of any searches reasonably required by the Collateral
Agent. The Company shall also pay all other claims and charges
which in the reasonable opinion of the Collateral Agent might
prejudice, imperil or otherwise affect the Collateral or the
Security Interest therein. The Company will also, upon demand, pay
to the Collateral Agent and/or the Secured Parties the amount of
any and all reasonable expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, which the
Collateral Agent and/or the Secured Parties may incur in connection
with (i) the enforcement of
this Agreement, (ii) the
custody or preservation of, or the sale of, collection from, or
other realization upon, any of the Collateral, or (iii) the exercise or enforcement of any
of the rights of the Secured Parties under the Notes. Until so
paid, any fees payable hereunder shall be added to the principal
amount of the Note and shall bear interest at the Default
Rate.

 

10. Responsibility
for Collateral. The Company assumes all liabilities and
responsibility in connection with all Collateral, and the
obligations of the Company hereunder or under the Notes shall in no
way be affected or diminished by reason of the loss, destruction,
damage or theft of any of the Collateral or its unavailability for
any reason.

 

11. Security
Interest Absolute. All rights of the Secured Parties and all
Obligations of the Company hereunder, shall be absolute and
unconditional, irrespective of: (a) any lack of validity or
enforceability of this Agreement, the Note or any agreement entered
into in connection with the foregoing, or any portion hereof or
thereof;(b) any change in the
time, manner or place of payment or performance of, or in any other
term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Notes or any
other agreement entered into in connection with the
foregoing;(c) any exchange,
release or nonperfection of any of the Collateral, or any release
or amendment or waiver of or consent to departure from any other
collateral for, or any guaranty, or any other security, for all or
any of the Obligations;(d)
any action by the Secured Parties to obtain, adjust, settle and
cancel in its sole discretion any insurance claims or matters made
or arising in connection with the Collateral; or (e) any other circumstance which might
otherwise constitute any legal or equitable defense available to
the Company, or a discharge of all or any part of the Security
Interest granted hereby. Until the Obligations shall have been paid
and performed in full, the rights of the Secured Parties shall
continue even if the Obligations are barred for any reason,
including, without limitation, the running of the statute of
limitations or bankruptcy. The Company expressly waives
presentment, protest, notice of protest, demand, notice of
nonpayment and demand for performance. In the event that at any
time any transfer of any Collateral or any payment received by the
Secured Parties hereunder shall be deemed by final order of a court
of competent jurisdiction to have been a voidable preference or
fraudulent conveyance under the bankruptcy or insolvency laws of
the United States, or shall be deemed to be otherwise due to any
party other than the Secured Parties, then, in any such event, the
Company’s obligations hereunder shall survive cancellation of
this Agreement, and shall not be discharged or satisfied by any
prior payment thereof and/or cancellation of this Agreement, but
shall remain a valid and binding obligation enforceable in
accordance with the terms and provisions hereof. The Company waives
all right to require the Secured Parties to proceed against any
other person or to apply any Collateral which the Secured Parties
may hold at any time, or to marshal assets, or to pursue any other
remedy. The Company waives any defense arising by reason of the
application of the statute of limitations to any obligation secured
hereby.

 

12. Term
of Agreement. This Agreement and the Security Interest shall
terminate on the date on which all payments under the Notes have
been made in full and all other Obligations have been paid or
discharged. Upon such termination, the Secured Parties, at the
request and at the expense of the Company, will join in executing
any termination statement with respect to any financing statement
executed and filed pursuant to this Agreement.

 

 

 

9

 

 

13. Power of Attorney; Further
Assurances.

 

(a) The
Company authorizes the Collateral Agent, and does hereby make,
constitute and appoint it, and its respective officers, agents,
successors or assigns with full power of substitution, as the
Company’s true and lawful attorney-in-fact, with power, in
its own name or in the name of the Company, to, after the
occurrence and during the continuance of an Event of Default,
(i) endorse any notes,
checks, drafts, money orders, or other instruments of payment
(including payments payable under or in respect of any policy of
insurance) in respect of the Collateral that may come into
possession of the Collateral Agent;(ii) to sign and endorse any UCC
financing statement or any invoice, freight or express bill, bill
of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with accounts,
and other documents relating to the Collateral;(iii) to pay or discharge taxes, liens,
security interests or other encumbrances at any time levied or
placed on or threatened against the Collateral;(iv) to demand, collect, receipt for,
compromise, settle and sue for monies due in respect of the
Collateral; and (v)
generally, to do, at the option of the Collateral Agent, and at the
Company’s expense, at any time, or from time to time, all
acts and things which the Collateral Agent deems necessary to
protect, preserve and realize upon the Collateral and the Security
Interest granted therein in order to effect the intent of this
Agreement, Credit Facility Agreement, and the Notes, all as fully
and effectually as the Company might or could do; and the Company
hereby ratifies all that said attorney shall lawfully do or cause
to be done by virtue hereof. This power of attorney is coupled with
an interest and shall be irrevocable for the term of this Agreement
and thereafter as long as any of the Obligations shall be
outstanding.

 

(b) On
a continuing basis, the Company will make, execute, acknowledge,
deliver, file and record, as the case may be, in the proper filing
and recording places in any jurisdiction, all such instruments, and
take all such action as may reasonably be deemed necessary or
advisable, or as reasonably requested by the Collateral Agent, to
perfect the Security Interest granted hereunder and otherwise to
carry out the intent and purposes of this Agreement, or for
assuring and confirming to the Collateral Agent the grant or
perfection of a security interest in all of the
Collateral.

 

(c) The
Company hereby irrevocably appoints the Collateral Agent as the
Company’s attorney-in-fact, with full authority in the place
and stead of the Company and in the name of the Company, for the
sole purpose of taking any action and executing any instrument
which the Collateral Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including the filing of
one or more financing or continuation statements, relative to any
of the Collateral without the signature of the Company where
permitted by law.

 

14. Notices.
All notices, requests, demands and other communications hereunder
shall be in writing, with copies to all the other parties hereto,
and shall be deemed to have been duly given when (i) if delivered by hand, upon receipt,
(ii) if sent by email or
other electronic communication, (iii) if sent by facsimile, upon
receipt of proof of sending thereof, (iv) if sent by nationally
recognized overnight delivery service (receipt requested), the next
business day, or (v) if mailed by first-class registered or
certified mail, return receipt requested, postage prepaid, four (4)
days after posting in the U.S. mails, in each case if delivered to
the following addresses:

 

If to the
Company: 

Flux Power,
Inc.

985 Poinsettia
Avenue, Suite A

Vista,
CA 92081 

Telephone:
877-505-3589

rdutt@fluxpwr.com

 

If to
the Secured
Parties:                   
Esenjay Investments, LLC

Attn:
Howard Williams

500 N.
Water, Suite 1100S

Corpus
Christi, TX 78471

Williams@epc-cc.com

 

Cleveland Capital,
L.P.

Attn:
Wade Massad

1250
Linda St. Suite 304

Rocky
River, OH 44116

 

 

 

 

10

 

 

If to
the Collateral
Agent:                 
Esenjay Investments, LLC

Attn:
Howard Williams

500 N.
Water, Suite 1100S

Corpus
Christi, TX 78471

Williams@epc-cc.com

 

 

15. Other Security. To the extent
that the Obligations are now or hereafter secured by property other
than the Collateral or by the guarantee, endorsement or property of
any other person, firm, corporation or other entity, then the
Secured Parties shall have the right, in its sole discretion, to
pursue, relinquish, subordinate, modify or take any other action
with respect thereto, without in any way modifying or affecting any
of the Secured Parties’ rights and remedies
hereunder.

 

16. Consent
to Amendment and Restatement; Effect of Amendment and
Restatement. Esenjay, as the original Secured Party under
the Original Security Agreement, hereby consents to the amendment
and restatement of the Original Security Agreement pursuant to the
terms of this Agreement and the amendment or amendment and
restatement of the other Loan Documents (as that term is defined in
the Credit Facility Agreement). Upon the execution by all parties
to this Agreement, the Original Security Agreement shall be amended
and restated in its entirety by this Agreement, and the Original
Security Agreement shall thereafter be of no further force and
effect and shall be deemed replaced and superseded in all respects
by this Agreement.

 

17. Miscellaneous.

 

(a) No course of
dealing between the Company and the Secured Parties, nor any
failure to exercise, nor any delay in exercising, on the part of
the Secured Parties, any right, power or privilege hereunder or
under the Notes shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege
hereunder or thereunder preclude any other or further exercise
thereof or the exercise of any other right, power or
privilege.

 

(b) All
of the rights and remedies of the Secured Parties with respect to
the Collateral, whether established hereby or by the Note or by any
other agreements, instruments or documents or by law shall be
cumulative and may be exercised singly or
concurrently.

 

(c) This
Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and is intended to supersede
all prior negotiations, understandings and agreements with respect
thereto. Except as specifically set forth in this Agreement, no
provision of this Agreement may be modified or amended except by a
written agreement specifically referring to this Agreement and
signed by the parties hereto.

 

(d) In
the event that any provision of this Agreement is held to be
invalid, prohibited or unenforceable in any jurisdiction for any
reason, unless such provision is narrowed by judicial construction,
this Agreement shall, as to such jurisdiction, be construed as if
such invalid, prohibited or unenforceable provision had been more
narrowly drawn so as not to be invalid, prohibited or
unenforceable. If, notwithstanding the foregoing, any provision of
this Agreement is held to be invalid, prohibited or unenforceable
in any jurisdiction, such provision, as to such jurisdiction, shall
be ineffective to the extent of such invalidity, prohibition or
unenforceability without invalidating the remaining portion of such
provision or the other provisions of this Agreement and without
affecting the validity or enforceability of such provision or the
other provisions of this Agreement in any other
jurisdiction.

 

 

 

11

 

 

(e) No waiver of any
breach or default or any right under this Agreement shall be
considered valid unless in writing and signed by the party giving
such waiver, and no such waiver shall be deemed a waiver of any
subsequent breach or default or right, whether of the same or
similar nature or otherwise.

 

(f) This
Agreement shall be binding upon and inure to the benefit of each
party hereto and its successors and assigns.

 

(g) Each
party shall take such further action and execute and deliver such
further documents as may be necessary or appropriate in order to
carry out the provisions and purposes of this
Agreement.

 

(h) This
Agreement shall be construed in accordance with the laws of
California, except to the extent the validity, perfection or
enforcement of a security interest hereunder in respect of any
particular Collateral which are governed by a jurisdiction other
than the California in which case such law shall govern. Each of
the parties hereto irrevocably submit to the exclusive jurisdiction
of any state or federal court sitting in Los Angeles County,
California over any action or proceeding arising out of or relating
to this Agreement, and the parties hereto hereby irrevocably agree
that all claims in respect of such action or proceeding may be
heard and determined in such state or federal court. The parties
hereto agree that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. The
parties hereto further waive any objection to venue in the State of
California and any objection to an action or proceeding in the
State of California on the basis of forum non
conveniens.

 

(i) THE
COMPANY AND THE SECURED PARTIES (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER
BASED ON CONTRACT, TORT, OR OTHERWISE) BETWEEN THE COMPANY AND THE
SECURED PARTIES ARISING OUT OF OR IN ANY WAY RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. THIS
PROVISION IS A MATERIAL INDUCEMENT TO THE PARTIES TO ENTER INTO
THIS AGREEMENT. To the extent the foregoing waiver of a jury trial
is held to be unenforceable under applicable California law, the
parties hereby agree to refer, for a complete and final
adjudication, any and all issues of fact or law involved in any
litigation or proceeding (including but not limited to all
discovery and law and motion matters, pretrial motions, trial
matters and post-trial motions), brought to resolve any dispute
between the parties hereto (whether based on contract, tort or
otherwise) arising out of or otherwise related to this Agreement to
a judicial referee who shall be appointed under a general reference
pursuant to California Code of Civil Procedure Section 638, which
referee’s decision will stand as the decision of the court.
Such judgment will be entered on the referee’s statement of
judgment in the same manner as if the action had been tried by the
court. The parties shall select a single neutral referee, who shall
be a retired state or federal judge with at least five years of
judicial experience in civil matters; provided that in the event
the parties cannot agree upon a referee, the referee will be
appointed by the court.

 

(j) This
Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and, all
of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as
if such facsimile signature were the original thereof.

 

 

 

12

 

 

(k) Notwithstanding
anything to the contrary contained herein, a party may become a
“Secured Party” under this Agreement by executing and
delivering an additional counterpart signature page to this
Agreement and thereafter shall be deemed an “Secured
Party” for all purposes hereunder.

 

 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

 

IN
WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Security Agreement to be duly executed on the day and year
first above written.

 

	
 

	

COMPANY

 

 

FLUX
POWER, INC.,

a
California corporation

 

By:

        Ronald
Dutt, Chief Executive Officer

 

 

 

SECURED
PARTIES

 

Esenjay
Investments, LLC

 

By:

 

___________________________________

Name

___________________________________

Title

 

 

 

Cleveland
Capital, L.P.

 

By:

 

___________________________________

Name

___________________________________

Title

 

 

 

 

 

Signature
Page to Amended and Restated Security Agreement

 

 

	
 

	

SECURED
PARTY*

 

Date:______________

___________________________________

Name

 

By:

 

___________________________________

Name

___________________________________

Title

  

 

 

 

 

 

 

 

 

 

*Pursuant
to Section 17(k) of the Amended and Restated Security Agreement
dated March 28, 2019.

 

 

Signature
Page to Amended and Restated Security AgreementBlueprint

  Exhibit 10.3

 

AMENDED AND RESTATED SECURED PROMISSORY NOTE

 

	

$7,000,000

	

Vista,
California

	
 

	

March
28, 2019

 

 

FOR
VALUE RECEIVED, Flux Power, Inc., a California corporation
(“Borrower”), hereby
unconditionally promises to pay to Esenjay Investments, LLC
(“Holder”), the principal
amount of Seven Million Dollars ($7,000,000) or such lesser
principal amount (“Principal Amount”) as
Holder may have advanced to Borrower pursuant to the Original Note
(as defined below) and the Amended and Restated Credit Facility
Agreement, dated March 28, 2019, by and between Borrower and Holder
(the “Credit
Facility Agreement”), together with interest thereon
in accordance with the terms hereof, from the date hereof until the
date on which this Note is paid in full. This Note amends,
re-evidences, and supersedes in full, but does not in any way
satisfy or discharge, the indebtedness owed under that certain
Secured Promissory Note dated March 22, 2018, in an original
principal amount of $5,000,000 made by Borrower in favor in Holder
(the “Original
Note”).

 

This
Note is made and delivered by Borrower to Holder pursuant to the
terms of the Credit Facility Agreement. Under the Credit Facility
Agreement, Holder, at its sole discretion and along with other
Lenders (as defined in the Credit Facility Agreement), agreed to
advance funds up to a maximum of Seven Million Dollars ($7,000,000)
to Borrower, from time to time, to be used by Borrower to purchase
inventory and related operational support expenses. All capitalized
terms used and not defined herein shall have the meanings ascribed
to them in the Credit Facility Agreement.

 

THE
OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED BY AN AMENDED AND
RESTATED SECURITY AGREEMENT (THE “SECURITY AGREEMENT”)
DATED AS OF THE DATE HEREOF AND EXECUTED BY BORROWER FOR THE
BENEFIT OF HOLDER AND LENDERS. ADDITIONAL RIGHTS OF HOLDER AND THE
OTHER LENDERS ARE SET FORTH IN THE SECURITY AGREEMENT.

 

1. Advances.
So long as there is no Event of Default (as defined below in
Section 4), Holder shall at its sole discretion provide Advances
hereunder so long as the total of all unpaid Advances at the time
of such request does not exceed Seven Million Dollars ($7,000,000)
(the “Maximum
Amount”). If, at any time
or for any reason, the amount of Advances pursuant to the Notes
owed by Borrower to Lenders exceeds the Maximum Amount, Borrower
shall immediately pay to Lenders, based on the Lender’s Pro
Rata Percentage, in cash, the amount of such excess. For the
purpose of this Note, “Pro Rata
Percentage” shall mean
such Lender’s interest in the LOC equal to the amount of all
Advances made by such Lender divided by the aggregate amount of all
Advances made by the Lenders.

 

2. Terms
of the Secured Promissory Note.

 

(a) Interest Rate. Interest on the
then outstanding Principal Amount of this Note shall accrue at a
rate per annum equal to fifteen percent (15%), beginning on the
date of each Advance (the “Advance Date”). All
interest shall be calculated on the basis of the actual daily
balances of Principal Amount outstanding for the exact number of
days elapsed, using a year of three hundred sixty (360)
days.

 

 

 

 

(b) Maturity Date. Except as
otherwise provided herein, the entire Principal Amount of this
Note, together with all accrued but unpaid interest payable
thereon, shall be due and payable in full on the earlier of: (i)
December 31, 2019, unless extended pursuant to the terms of this
Note (the “Maturity
Date”) or (ii) when such amounts are declared due and
payable by Holder upon or after the occurrence of an Event of
Default (as defined below).

 

3. Voluntary Prepayment. Advances
may be prepaid, in whole or in part, at any time prior to the
Maturity Date without penalty.

 

4. Events of Default. Upon the
occurrence of any of the following events (“Event of Default”), the
Company shall be deemed to be in default hereunder:

 

(a)           
failure by the Company to pay when due any of the principal or
accrued and unpaid interest hereunder or under the Security
Agreement; or

 

(b)           
the Company (i) applies for or consents to the appointment of a
receiver, trustee, custodian or liquidator of itself or any part of
its property, (ii) becomes subject to the appointment of a
receiver, trustee, custodian or liquidator of itself or any part of
its property if such appointment is not terminated or dismissed
within thirty (30) days, (iii) makes an assignment for the benefit
of creditors, (iv) is adjudicated as bankrupt or insolvent, (v)
institutes any proceedings under the United States Bankruptcy Code
or any other federal or state bankruptcy, reorganization,
receivership, insolvency or other similar law affecting the rights
of creditors generally, or files a petition or answer seeking
reorganization or an arrangement with creditors to take advantage
of any insolvency law, or files an answer admitting the material
allegations of a bankruptcy, reorganization or insolvency petition
filed against it, or (vi) becomes subject to any proceedings under
the United States Bankruptcy Code or any other federal or state
bankruptcy, reorganization, receivership, insolvency or other
similar law affecting the rights of creditors generally, which
proceeding is not dismissed within thirty (30) days of filing, or
has an order for relief entered against it in any proceeding under
the United States Bankruptcy Code.

 

If an Event of
Default occurs, all indebtedness under this Note shall become
immediately due and payable, and the Company shall immediately pay
to Holder all such amounts. Holder shall, following and during the
continuance of an Event of Default, also have any other rights
which Holder may have pursuant to applicable law.

 

5.           

Amendment and Waiver. Neither
party may assign this Note nor any right or interest arising out of
this Note, in whole or in part, without consent of the other party.
Any term of this Note may be amended and the observance of any term
of this Note may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the
written consent of the Company and Holder.

 

6.           

Place of Payment. Payments of
principal and interest and all notices and other communications to
Holder hereunder or with respect hereto are to be delivered to
Holder at the address identified in the Credit Facility Agreement
or to such other address as specified by Holder by prior written
notice to the Company, including any transferee of this
Note.

 

7.           

Costs of Collection. In the
event that the Company fails to pay when due (including, without
limitation upon acceleration in connection with an Event of
Default) the full amount of principal and/or interest hereunder,
the Company shall indemnify and hold harmless Holder of any portion
of this Note from and against all reasonable costs and expenses
incurred in connection with the enforcement of this provision or
collection of such principal and interest, including, without
limitation, reasonable attorneys’ fees and
expenses.

 

 

 

2

 

 

8.           
Waivers. The Company hereby
waives presentment, demand, notice, protest and all other demands
and notices in connection with the delivery, acceptance,
performance, default or enforcement of this
Note.

 

9.           

Mutilated, Destroyed, Lost and Stolen
Note. In case the Note shall be mutilated, lost, stolen or
destroyed, the Company shall issue a new Note of like date, tenor
and denomination and deliver the same in exchange and substitution
for and upon surrender and cancellation of the mutilated Note, or
in lieu of a lost, stolen or destroyed Note, upon receipt of
evidence satisfactory to the Company of the loss, theft or
destruction of such Note.

 

10.         

Interest Savings Clause. In the
event any interest is paid on this Note which is deemed to be in
excess of the then legal maximum rate, then that portion of the
interest payment representing an amount in excess of the then legal
maximum rate shall be deemed a payment of principal and applied
against the principal of this Note.

 

11.         

Governing Law. THIS NOTE AND
THE RIGHTS AND DUTIES OF THE COMPANY AND HOLDER HEREOF SHALL BE
GOVERNED BY, CONSTRUED IN AND ENFORCED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS EXECUTED AND TO
BE PERFORMED ENTIRELY WITHIN THAT STATE.

 

 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

 

 

3

 

IN
WITNESS WHEREOF, the Company has executed and delivered this Note
on March 28, 2019.

	
 

	
 

COMPANY:

 

Flux
Power, Inc.

 

 

By:                                                                

       Ronald
Dutt, Chief Executive Officer

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