Exhibit 4.1


 





[FORM OF SENIOR SECURED NOTE]


 


NEITHER THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES MAY BE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN form
and substance reasonably acceptable to the Company, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT, OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD
CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 17(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS
NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF
PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.


 


Ener-Core,
Inc.


 


SENIOR
SECURED NOTE


 


	Issuance Date:  November 1, 2017	Original Principal Amount: U.S. $[            ]


 


FOR VALUE RECEIVED,
Ener-Core, Inc., a Delaware corporation (the “Company”), hereby promises to pay to [BUYER] or registered assigns
(the “Holder”) in cash and/or in shares of Common Stock (as defined below) the amount set out above as the Original
Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the “Principal”)
when due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance
with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the applicable Interest
Rate from the date set out above as the Issuance Date (the “Issuance Date”) until the same becomes due and payable,
whether upon an Interest Date (as defined below), the Maturity Date, acceleration, conversion, redemption or otherwise (in each
case in accordance with the terms hereof). This Senior Secured Note (including all Senior Secured Notes issued in exchange, transfer
or replacement hereof, this “Note”) is one of a series of Senior Secured Notes issued pursuant to the Agreement
on the Initial Closing Date and the Subsequent Closing Date (collectively, the “Notes” and such other Senior
Secured Notes, the “Other Notes”). Certain capitalized terms used herein are defined in Section 30.


 


(1) ORIGINAL
ISSUE DISCOUNT; PAYMENTS OF PRINCIPAL; PREPAYMENT. The Company acknowledges and agrees that this Note was issued at an original
issue discount. On the Maturity Date, the Company shall pay to the Holder an amount in cash representing all outstanding Principal,
accrued and unpaid Interest and accrued and unpaid Late Charges (as defined in Section 23(b)) on such Principal and Interest. The
“Maturity Date” shall be December 31, 2018, as may be extended at the option of the Holder (i) in the event
that, and for so long as, an Event of Default (as defined in Section 4(a)) shall have occurred and be continuing on the Maturity
Date (as may be extended pursuant to this Section 1) or any event shall have occurred and be continuing on the Maturity Date (as
may be extended pursuant to this Section 1) that with the passage of time and the failure to cure would result in an Event of Default
and (ii) through the date that is ten (10) Business Days after the consummation of a Change of Control in the event that a Change
of Control is publicly announced or a Change of Control Notice (as defined in Section 5(b)) is delivered prior to the Maturity
Date. Other than as specifically permitted by this Note, the Company may not prepay any portion of the outstanding Principal, accrued
and unpaid Interest or accrued and unpaid Late Charges on Principal and Interest, if any.


 






     


     


    

 


(2) DEFAULT
INTEREST. This Note shall not bear any ordinary interest as this principal amount of this Note includes an original issue discount.
Interest on this Note shall commence accruing immediately upon the occurrence of, and shall continue accruing during the continuance
of, an Event of Default, at ten percent (10.0%) per annum (the “Default Rate”) and shall be computed on the
basis of a 360-day year of twelve 30-day months and shall be payable, if applicable, in arrears for each calendar month on the
first (1st) Business Day of each calendar month after any such Interest accrues after an Event of Default (each, an
“Interest Date”). Interest, if any, shall be payable on each Interest Date, to the record holder of this Note
on the applicable Interest Date in cash by wire transfer of immediately available funds pursuant to wire instruction provided by
the Holder in writing to the Company. Prior to the payment of Interest on an Interest Date, Interest on this Note shall accrue
at the Default Rate and be payable by way of inclusion of the Interest in the Conversion Amount (as defined in Section 3(b)(i))
on each Conversion Date (as defined in Section 3(c)(i)) in accordance with Section 3(c)(i) and on each Redemption Date. In the
event that such Event of Default is subsequently cured, Interest shall no longer accrue as of the date of such cure; provided,
that for the purpose of this Section 2, such Event of Default shall not be deemed cured unless and until any accrued and unpaid
Interest shall be paid to the Holder.


 


(3) CONVERSION
OF NOTES. At any time or times after the Issuance Date, this Note shall be convertible, at the Holder’s option, into
shares of the Company’s common stock, par value $0.0001 per share (including any capital stock into which such common
stock shall have been changed or any capital stock resulting from a reclassification of such common stock, the “Common
Stock”) or, solely as to Section 3(c)(vi), Equity Securities (as defined below), on the terms and conditions set forth
in this Section 3.


 


(a) Conversion
Right. Subject to the provisions of Section 3(d), at any time or times on or after the Issuance Date, the Holder shall be entitled
to convert any portion of the outstanding and unpaid Conversion Amount into fully paid and nonassessable shares of Common Stock
in accordance with Section 3(c), at the Conversion Rate (as defined below). The Company shall not issue any fraction of a share
of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the
Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all transfer,
stamp and similar taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion
Amount.


 


(b) Conversion
Rate. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall
be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (the “Conversion Rate”).


 


(i) “Conversion
Amount” means the sum of (A) the portion of the Principal to be converted, redeemed or otherwise with respect to which
this determination is being made, (B) accrued and unpaid Interest with respect to such Principal, if any, and (C) accrued and unpaid
Late Charges, if any, with respect to such Principal and Interest.


 


(ii) “Conversion
Price” means, as of any Conversion Date or other applicable date of determination, $2.50 per share, subject to adjustment
as provided herein.


 






    	 	- 2 -	 



     


    

 


(c) Mechanics
of Conversion.


 


(i) Optional
Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a “Conversion Date”),
the Holder shall (A) transmit by facsimile or electronic mail (or otherwise deliver), for receipt on or prior to 11:59 p.m., New
York time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the “Conversion
Notice”) to the Company and (B) if required by Section 3(c)(iii), surrender this Note to a common carrier for delivery
to the Company as soon as practicable on or following such date (or an indemnification undertaking with respect to this Note in
the case of its loss, theft or destruction). On or before the first (1st) Business Day following the date of receipt of a Conversion
Notice, the Company shall transmit by facsimile or electronic mail a confirmation of receipt of such Conversion Notice to the Holder
and the Company’s transfer agent (the “Transfer Agent”). On or before the earlier of (i) the third (3rd)
Trading Day and (ii) the number of Trading Days comprising the Standard Settlement Period, in each case, following the date on
which the Holder delivers the Conversion Notice (such earlier date, the “Share Delivery Date”), the Company
shall (x) provided that the Transfer Agent is participating in the Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the
Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal At Custodian system or (y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as
specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares
of Common Stock to which the Holder shall be entitled. If this Note is physically surrendered for conversion as required by Section
3(c)(iii) and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted,
then the Company shall as soon as practicable and in no event later than three (3) Business Days after receipt of this Note and
at its own expense, issue and deliver to the Holder a new Note (in accordance with Section 17(d)) representing the outstanding
Principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this
Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date, irrespective
of the date such Conversion Shares are credited to the Holder’s account with DTC or the date of delivery of the certificates
evidencing such Conversion Shares, as the case may be.


 






    	 	- 3 -	 



     


    

 


(ii) Company’s
Failure to Timely Convert. If the Company shall fail on or prior to the Share Delivery Date to issue and deliver a certificate
to the Holder, if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, or credit the
Holder’s balance account with DTC, if the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program,
for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion of any Conversion Amount
(a “Conversion Failure”), then (A) the Company shall pay damages to the Holder for each Trading Day of such
Conversion Failure in an amount equal to 1.5% of the product of (1) the sum of the number of shares of Common Stock not issued
to the Holder on or prior to the Share Delivery Date and to which the Holder is entitled, and (2) any trading price of the Common
Stock selected by the Holder in writing as in effect at any time during the period beginning on the applicable Conversion Date
and ending on the applicable Share Delivery Date and (B) the Holder, upon written notice to the Company, may void its Conversion
Notice with respect to, and retain or have returned, as the case may be, any portion of this Note that has not been converted pursuant
to such Conversion Notice; provided that the voiding of a Conversion Notice shall not affect the Company’s obligations
to make any payments which have accrued prior to the date of such notice pursuant to this Section 3(c)(ii) or otherwise. In addition
to the foregoing, if the Company shall fail on or prior to the Share Delivery Date to issue and deliver a certificate to the Holder,
if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, or credit the Holder’s
balance account with DTC, if the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program, for the
number of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion of any Conversion Amount or
on any date of the Company’s obligation to deliver shares of Common Stock as contemplated pursuant to clause (y) below, and
if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction
of a sale by the Holder of Common Stock issuable upon such conversion that the Holder anticipated receiving from the Company (a
“Buy-In”), then the Company shall, within three (3) Trading Days after the Holder’s request and in the
Holder’s discretion, either (x) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including
brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to issue and deliver such certificate or credit the Holder’s
balance account with DTC for the shares of Common Stock to which the Holder is entitled upon the Holder’s conversion of the
applicable Conversion Amount shall terminate, or (y) promptly honor its obligation to deliver to the Holder a certificate or certificates
representing such shares of Common Stock or credit the Holder’s balance account with DTC for such shares of Common Stock
and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) any trading price of the Common Stock selected by the Holder in writing as in effect at any time
during the period beginning on the applicable Conversion Date and ending on the date the Company makes all payments provided for
in this sentence.


 


(iii) Registration;
Book-Entry. The Company shall maintain a register (the “Register”) for the recordation of the names and
addresses of the holders of each Note and the Principal amount of the Notes (and stated interest thereon) held by such holders
(the “Registered Notes”). The entries in the Register shall be conclusive and binding for all purposes absent
manifest error. The Company and the holders of the Notes shall treat each Person whose name is recorded in the Register as the
owner of a Note for all purposes, including, without limitation, the right to receive payments of Principal and Interest, if any,
hereunder, notwithstanding notice to the contrary. A Registered Note may be assigned or sold in whole or in part only by registration
of such assignment or sale on the Register. Upon its receipt of a request to assign or sell all or part of any Registered Note
by a Holder, the Company shall record the information contained therein in the Register and issue one or more new Registered Notes
in the same aggregate Principal amount as the Principal amount of the surrendered Registered Note to the designated assignee or
transferee pursuant to Section 17. Notwithstanding anything to the contrary in this Section 3(c)(iii), a Holder may assign any
Note or any portion thereof to an Affiliate of such Holder or a Related Fund of such Holder without delivering a request to assign
or sell such Note to the Company and the recordation of such assignment or sale in the Register (a “Related Party Assignment”);
provided, that (x) the Company may continue to deal solely with such assigning or selling Holder unless and until such Holder
has delivered a request to assign or sell such Note or portion thereof to the Company for recordation in the Register; (y) the
failure of such assigning or selling Holder to deliver a request to assign or sell such Note or portion thereof to the Company
shall not affect the legality, validity, or binding effect of such assignment or sale and (z) such assigning or selling Holder
shall, acting solely for this purpose as a non-fiduciary agent of the Company, maintain a register (the “Related Party
Register”) comparable to the Register on behalf of the Company, and any such assignment or sale shall be effective upon
recordation of such assignment or sale in the Related Party Register. Notwithstanding anything to the contrary set forth herein,
upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically
surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted in which case
the Holder shall then deliver this Note to the Company as promptly as reasonable practicable after the date it receives the Conversion
Shares related to the applicable conversion or (B) the Holder has provided the Company with prior written notice (which notice
may be included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of this Note in which case the
Holder shall then deliver this Note to the Company as promptly as reasonable practicable after the date it receives the Conversion
Shares related to the applicable conversion. The Holder and the Company shall maintain records showing the Principal, Interest
and Late Charges, if any, converted and the dates of such conversions or shall use such other method, reasonably satisfactory to
the Holder and the Company, so as not to require physical surrender of this Note upon conversion.


 






    	 	- 4 -	 



     


    

 


(iv) Pro
Rata Conversion; Disputes. In the event that the Company receives a Conversion Notice from this Note and one or more holder
of Other Notes for the same Conversion Date and the Company can convert some, but not all, of such portions of this Note and the
Other Notes submitted for conversion, the Company, subject to Section 3(d), shall convert from the Holder and each holder of Other
Notes electing to have this Note or the Other Notes converted on such date a pro rata amount of such holder’s portion of
the Note and its Other Notes submitted for conversion based on the Principal amount of this Note and the Other Notes submitted
for conversion on such date by such holder relative to the aggregate Principal amount of this Note and all Other Notes submitted
for conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection
with a conversion of this Note, the Company shall issue to the Holder the number of shares of Common Stock not in dispute and resolve
such dispute in accordance with Section 22.


 


(v) Automatic
Conversion. The Conversion Amount shall be automatically converted into shares of Common Stock based on the then-effective
applicable Conversion Price (an “Automatic Conversion”) on the fifth (5th) Trading Day immediately
following the first Trading Day after the Issuance Date (the “Automatic Conversion Date”) on which (i) the Weighted
Average Price of the Common Stock for each Trading Day during a consecutive twenty (20) Trading Day period (the “Automatic
Conversion Measuring Period”) equals or exceeds $5.00 (as adjusted for any stock dividend, stock split, stock combination,
reclassification or similar transaction occurring after the Subscription Date) and (ii) no Equity Conditions Failure has occurred.
The Company shall deliver within two (2) Trading Days following the end of such Automatic Conversion Measuring Period a written
notice thereof by facsimile or electronic mail and overnight courier to all, but not less than all, of the holders of Notes and
the Transfer Agent (the “Automatic Conversion Notice” and the date the Holder and all the holders of the Other
Notes receive such notice is referred to as the “Automatic Conversion Notice Date”). The Automatic Conversion
Notice shall (i) state (a) the Automatic Conversion Date, (b) the aggregate Conversion Amount of the Notes which shall be subject
to Automatic Conversion from the Holder and all of the holders of the Other Notes pursuant to this Section 3(c)(v) (and analogous
provisions under the Other Notes) and (c) the number of shares of Common Stock to be issued to the Holder on the Automatic Conversion
Date and (ii) certify that there has been no Equity Conditions Failure on any day during the period beginning on the first day
of the Equity Conditions Measuring Period relating to the first date of the Automatic Conversion Measuring Period and ending on,
and including, the Automatic Conversion Date. This Note and all of the outstanding Other Notes shall be converted automatically
on the Automatic Conversion Date without any further action by the Holder and the holders of such Other Notes and whether or not
this Note or the Other Notes are surrendered to the Company or its Transfer Agent. Upon the occurrence of such Automatic Conversion
of this Note and the Other Notes, including, without limitation, the delivery of the applicable Conversion Shares, this Note will
be deemed converted in full on the Automatic Conversion Date, and the Holder and the holders of the Other Notes shall be deemed
to have surrendered such Notes to the Company. Notwithstanding anything to the contrary in this Section 3(c)(v), until the Automatic
Conversion has occurred, the Conversion Amount subject to the Automatic Conversion may be converted, in whole or in part, by the
Holder into shares of Common Stock pursuant to Sections 3(c)(i). All Conversion Amounts converted by the Holder after the Automatic
Conversion Notice Date shall reduce the Conversion Amount of this Note to be converted on the Automatic Conversion Date.


 






    	 	- 5 -	 



     


    

 


(vi) Conversion
Upon Next Equity Financing. If the Company authorizes and consummates an issuance of equity securities for cash and/or other
consideration (a “Next Equity Financing,” and the securities to be issued in such Next Equity Financing, the
“Equity Securities”), the Holder of this Note and the Holders of the Other Notes shall have the right to participate
in the Next Equity Financing and may make payment for Equity Securities in the Next Equity Financing, in lieu of payment of cash
or other consideration, by exchange of this Note and the Other Notes. A portion of the purchase price for the Next Equity Financing
may be made by the payment of cash and a portion may be made by exchange of this Note and the Other Notes into the Equity Securities.
The Company and the Holder hereby acknowledge and agree that if the Lead Investor elects to convert its Note into the Equity Securities
that the Holder’s Note shall be deemed to have been converted into the same Equity Securities on the same terms and conditions.
At least five (5) Trading Days prior to the closing of the Next Equity Financing, the Company will notify the Holder in writing
of the terms of the Equity Securities that are expected to be issued in such financing and provide copies of the purchase agreement
and any ancillary documents governing the rights and obligations of the Equity Securities in the same form as required from the
other investors in the Next Equity Financing, which, if and only if the Lead Investor has executed such documents, the Holder shall
be required to execute in support of the conversion (the “Required Documents”). The issuance of Equity Securities
pursuant to such conversion of this Note will be on, and subject to, the same terms and conditions applicable to the Equity Securities
issued in the Next Equity Financing including the per security purchase price (the “Next Equity Financing Price”)
and applicable warrant coverage, if any. The number of Equity Securities the Company issues upon such Next Equity Financing will
equal the quotient (rounded down to the nearest whole share) obtained by dividing (x) the outstanding principal balance and any
unpaid accrued interest under this Note on the date that is no more than one (1) Trading Day prior to the closing of the Next Equity
Financing by (y) the Next Equity Financing Price, plus the issuance of any applicable warrant coverage under the terms of the Next
Equity Financing, provided, that the Company shall not be required to deliver the Equity Securities issuable in the Next Equity
Financing until the Holder has surrendered this Note to the Company and the Holder has executed the Required Documents in the same
form as required from investors in the Next Equity Financing and as executed by the Lead Investor (except that reimbursement for
legal expenses may differ). Such conversion shall be contingent upon the closing of the Next Equity Financing. Notwithstanding
anything to the contrary in this Section 3(c)(vi), until the date of consummation of the Next Equity Financing, the Conversion
Amount subject to the Next Equity Financing Conversion may be converted, in whole or in part, by the Holder into shares of Common
Stock pursuant to Section 3(c)(i).


 






    	 	- 6 -	 



     


    

 


(d) Limitations
on Conversions. The Company shall not effect the conversion of any portion of this Note, and the Holder shall not have the
right to convert any portion of this Note, to the extent that after giving effect to such conversion, the Holder together with
the other Attribution Parties collectively would beneficially own in excess of [4.99/9.99%]1
(the “Maximum Percentage”) of the shares of Common Stock outstanding immediately after giving effect to such
conversion. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by the Holder
and the other Attribution Parties shall include the number of shares of Common Stock held by the Holder and all other Attribution
Parties plus the number of shares of Common Stock issuable upon conversion of this Note with respect to which the determination
of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (i) conversion of the remaining,
nonconverted portion of this Note beneficially owned by the Holder or any of the other Attribution Parties and (ii) exercise or
conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any
convertible notes or convertible preferred stock or warrants, including the Other Notes and Warrants) beneficially owned by the
Holder or any other Attribution Party subject to a limitation on conversion or exercise analogous to the limitation contained in
this Section 3(d). For purposes of this Section 3(d), beneficial ownership shall be calculated in accordance with Section 13(d)
of the Exchange Act. For purposes of determining the number of outstanding shares of Common Stock the Holder may acquire upon the
conversion of the Note without exceeding the Maximum Percentage, the Holder may rely on the number of outstanding shares of Common
Stock as reflected in (i) the Company’s most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report
on Form 8-K or other public filing with the SEC, as the case may be, (ii) a more recent public announcement by the Company or (iii)
any other written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding (the
“Reported Outstanding Share Number”). If the Company receives a Conversion Notice from a Holder at a time when
the actual number of outstanding shares of Common Stock is less than the Reported Outstanding Share Number, the Company shall notify
the Holder in writing of the number of shares of Common Stock then outstanding and, to the extent that such Conversion Notice would
otherwise cause the Holder’s beneficial ownership, as determined pursuant to this Section 3(d), to exceed the Maximum Percentage,
the Holder must notify the Company of a reduced number of shares of Common Stock to be issued pursuant to such Conversion Notice.
For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Trading Day confirm
orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including
this Note, by the Holder and any other Attribution Party since the date as of which the Reported Outstanding Share Number was reported.
In the event that the issuance of shares of Common Stock to the Holder upon conversion of this Note results in the Holder and the
other Attribution Parties being deemed to beneficially own, in the aggregate, more than the Maximum Percentage of the number of
outstanding shares of Common Stock (as determined under Section 13(d) of the Exchange Act), the number of shares so issued by which
the Holder’s and the other Attribution Parties’ aggregate beneficial ownership exceeds the Maximum Percentage (the
“Excess Shares”) shall be deemed null and void and shall be cancelled ab initio, and the Holder shall not have
the power to vote or to transfer the Excess Shares. Upon delivery of a written notice to the Company, the Holder may from time
to time increase (with such increase not effective until the sixty-first (61st) day after delivery of such notice) or
decrease the Maximum Percentage to any other percentage not in excess of 9.99% as specified in such notice; provided that (i) any
such increase in the Maximum Percentage will not be effective until the sixty-first (61st) day after such notice is
delivered to the Company and (ii) any such increase or decrease will apply only to the Holder and the other Attribution Parties
and not to any other holder of Notes that is not an Attribution Party of the Holder. For purposes of clarity, the shares of Common
Stock issuable pursuant to the terms of this Note in excess of the Maximum Percentage shall not be deemed to be beneficially owned
by the Holder for any purpose including for purposes of Section 13(d) or Rule 16a-1(a)(1) of the Exchange Act. The provisions of
this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section
3(d) to the extent necessary to correct this paragraph (or any portion of this paragraph) which may be defective or inconsistent
with the intended beneficial ownership limitation contained in this Section 3(d) or to make changes or supplements necessary or
desirable to properly give effect to such limitation. The limitation contained in this paragraph may not be waived and shall apply
to a successor holder of this Note.


 





 



1
At the Holder’s election.


 






    	 	- 7 -	 



     


    

 


(4) RIGHTS
UPON EVENT OF DEFAULT.


 


(a) Event
of Default. Each of the following events shall constitute an “Event of Default”:


 


(i) [Intentionally
omitted.];


 


(ii) the
suspension of the Common Stock from trading for a period of five (5) or more consecutive Trading Days or for more than an aggregate
of ten (10) Trading Days in any 365 day period or the failure of the Common Stock to be listed on an Eligible Market;


 


(iii) the
Company’s (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock within five
(5) Business Days after the applicable Conversion Date or (B) notice, written or oral, to the Holder or any holder of the Other
Notes, including by way of public announcement or through any of its agents, at any time, of its intention not to comply with a
request for conversion of this Note or any Other Notes into shares of Common Stock that is tendered in accordance with the provisions
of this Note or the Other Notes, other than pursuant to Section 3(d) (and analogous provisions under the Other Notes);


 


(iv) at
any time following the fifth (5th) consecutive Business Day that the Holder’s Authorized Share Allocation is less
than the sum of (A) the number of shares of Common Stock that the Holder would be entitled to receive upon a conversion of the
full Conversion Amount of this Note (without regard to any limitations on conversion set forth in Section 3(d) or otherwise) calculated
using the initial Conversion Price of $2.50 (as adjusted for any stock dividend, stock split, stock combination, reclassification
or similar transaction occurring after the Subscription Date) and (B) the number of shares of Common Stock that the Holder would
be entitled to receive upon exercise in full of the Holder's Warrants (without regard to any limitations on exercise set forth
in the Warrants) (the “Initial Conversion Price”);


 


(v) the
Company’s failure to pay to the Holder any amount of Principal, Interest, Late Charges or other amounts when and as due under
this Note (including, without limitation, the Company’s failure to pay any Redemption Price) or any other Transaction Document
(as defined in the Agreement) or any other agreement, document, certificate or other instrument delivered in connection with the
transactions contemplated hereby and thereby to which the Holder is a party if such failure continues for a period of at least
an aggregate of five (5) Business Days;


 


(vi) any
default under, redemption of or acceleration prior to maturity of an aggregate principal amount of $100,000 or more of Indebtedness
of the Company and/or any of its Subsidiaries (as defined in Section 3(a) of the Agreement) other than with respect to this Note
or any Other Notes;


 


(vii) the
Company or any of its Subsidiaries, pursuant to or within the meaning of Title 11, U.S. Code, or any similar Federal, foreign or
state law for the relief of debtors (collectively, “Bankruptcy Law”), (A) commences a voluntary case, (B) consents
to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a receiver, trustee,
assignee, liquidator or similar official (a “Custodian”), (D) makes a general assignment for the benefit of
its creditors or (E) admits in writing that it is generally unable to pay its debts as they become due;


 






    	 	- 8 -	 



     


    

 


(viii) a
court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for relief against the Company or
any of its Subsidiaries in an involuntary case, (B) appoints a Custodian of the Company or any of its Subsidiaries or (C) orders
the liquidation of the Company or any of its Subsidiaries;


 


(ix) a
final judgment or judgments for the payment of money aggregating in excess of $100,000 are rendered against the Company or any
of its Subsidiaries and which judgments are not, within sixty (60) days after the entry thereof, bonded, discharged or stayed pending
appeal, or are not discharged within sixty (60) days after the expiration of such stay; provided, however, that any
judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the $100,000
amount set forth above so long as the Company provides the Holder a written statement from such insurer or indemnity provider (which
written statement shall be reasonably satisfactory to the Holder) to the effect that such judgment is covered by insurance or an
indemnity and the Company will receive the proceeds of such insurance or indemnity within thirty (30) days of the issuance of such
judgment;


 


(x) other
than as specifically set forth in another clause of this Section 4(a), the Company or any of its Subsidiaries breaches in any material
respect any representation, warranty, covenant or other term or condition of any Transaction Document, except, in the case of a
breach of a covenant or other term or condition of any Transaction Document which is curable, only if such breach continues for
a period of at least an aggregate of five (5) Business Days;


 


(xi) any
breach or failure in any material respect to comply with Section 14 of this Note, except, in the case of a breach of a covenant
or other term or condition of such section which is curable, only if such breach or failure continues for a period of at least
an aggregate of five (5) Business Days;


 


(xii) the
Company or any Subsidiary shall fail in any material respect to perform or comply with any covenant or agreement contained in the
Security Agreement (as defined in the Agreement) to which it is a party;


 


(xiii) any
material provision of any Security Document (as defined in the Agreement) (as determined by the Collateral Agent (as defined in
the Agreement)) shall at any time for any reason (other than pursuant to the express terms thereof) cease to be valid and binding
on or enforceable against the Company or any Subsidiary intended to be a party thereto, or the validity or enforceability thereof
shall be contested by any party thereto, or a proceeding shall be commenced by the Company or any Subsidiary or any governmental
authority having jurisdiction over any of them, seeking to establish the invalidity or unenforceability thereof, or the Company
or any Subsidiary shall deny in writing that it has any liability or obligation purported to be created under any Security Document,
except, in the case of any such event which is curable, only if such event continues for a period of at least an aggregate of ten
(10) Business Days.


 






    	 	- 9 -	 



     


    

 


(xiv) any
Security Document or any other security document, after delivery thereof pursuant hereto, shall for any reason fail or cease to
create a valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien (as defined
in Section 14(c)) in favor of the Collateral Agent for the benefit of the holders of the Notes on any Collateral (as defined in
the Security Documents) purported to be covered thereby, except, in the case of any such event which is curable, only if such event
continues for a period of at least an aggregate of ten (10) Business Days;


 


(xv) any
material damage to, or loss, theft or destruction of, any Collateral or a material amount of property of the Company, whether or
not insured, or any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty which
causes, for more than fifteen (15) consecutive days, the cessation or substantial curtailment of revenue producing activities at
any facility of the Company or any Subsidiary, if any such event or circumstance could reasonably be expected to have a Material
Adverse Effect (as defined in the Agreement);


 


(xvi) a
false or inaccurate certification as to whether any Event of Default has occurred;


 


(xvii) the
Company’s failure for any reason after the date that is six (6) months immediately following the Issuance Date to satisfy
the current public information requirement under Rule 144(c), which failure continues for more than an aggregate of ten (10) Trading
Days in any 365-day period; or


 


(xviii) any
Event of Default (as defined in the Other Notes) occurs with respect to any Other Notes.


 


(b) Redemption
Right. Upon the occurrence of an Event of Default with respect to this Note or any Other Note, the Company shall within two
(2) Business Days deliver written notice thereof via facsimile or electronic mail and overnight courier (an “Event of
Default Notice”) to the Holder. At any time after the earlier of the Holder’s receipt of an Event of Default Notice
and the Holder becoming aware of an Event of Default, the Holder may require the Company to redeem (an “Event of Default
Redemption”) all or any portion of this Note by delivering written notice thereof (the “Event of Default Redemption
Notice”) to the Company, which Event of Default Redemption Notice shall indicate the portion of this Note the Holder
is electing to require the Company to redeem. Each portion of this Note subject to redemption by the Company pursuant to this Section
4(b) shall be redeemed by the Company in cash by wire transfer of immediately available funds at a price equal to 115% of the Conversion
Amount being redeemed (the “Event of Default Redemption Price”). Redemptions required by this Section 4(b) shall
be made in accordance with the provisions of Section 11. To the extent redemptions required by this Section 4(b) are deemed or
determined by a court of competent jurisdiction to be prepayments of the Note by the Company, such redemptions shall be deemed
to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 4, but subject to Section 3(d), until the
Event of Default Redemption Price (together with any interest thereon) is paid in full, the Conversion Amount submitted for redemption
under this Section 4(b) (together with any interest thereon) may be converted, in whole or in part, by the Holder into Common Stock
pursuant to Section 3. The parties hereto agree that in the event of the Company’s redemption of any portion of the Note
under this Section 4(b), the Holder’s damages would be uncertain and difficult to estimate because of the parties’
inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity
for the Holder. Accordingly, any Event of Default redemption premium due under this Section 4(b) is intended by the parties to
be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its investment opportunity and not as a penalty.


 






    	 	- 10 -	 



     


    

 


(5) RIGHTS
UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.


 


(a) Assumption.
The Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes in writing all of
the obligations of the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section
5(a) pursuant to written agreements in form and substance satisfactory to the Required Holders and approved by the Required Holders
prior to such Fundamental Transaction, including agreements, if so requested by the Holder, to deliver to each holder of Notes
in exchange for such Notes a security of the Successor Entity evidenced by a written instrument substantially similar in form and
substance to the Notes, including, without limitation, having a principal amount and interest rate equal to the Principal amounts
and the Default Rate of the Notes then outstanding held by such holder, having similar conversion rights and having similar ranking
and security to the Notes, and satisfactory to the Required Holders. No later than (i) thirty (30) days prior to the occurrence
or consummation of any Fundamental Transaction or (ii) if later, the first Trading Day following the date the Company first becomes
aware of the occurrence or potential occurrence of a Fundamental Transaction, the Company shall deliver written notice thereof
via facsimile or electronic mail and overnight courier to the Holder. Upon the occurrence or consummation of any Fundamental Transaction,
and it shall be a required condition to the occurrence or consummation of any Fundamental Transaction that, the Company and the
Successor Entity or Successor Entities, jointly and severally, shall succeed to, and the Company shall cause any Successor Entity
or Successor Entities to jointly and severally succeed to, and be added to the term “Company” under this Note (so that
from and after the date of such Fundamental Transaction, each and every provision of this Note referring to the “Company”
shall refer instead to each of the Company and the Successor Entity or Successor Entities, jointly and severally), and the Company
and the Successor Entity or Successor Entities, jointly and severally, may exercise every right and power of the Company prior
thereto and shall assume all of the obligations of the Company prior thereto under this Note with the same effect as if the Company
and such Successor Entity or Successor Entities, jointly and severally, had been named as the Company in this Note, and, solely
at the request of the Holder, if the Successor Entity and/or Successor Entities is a publicly traded corporation whose common capital
stock is quoted on or listed for trading on an Eligible Market, shall deliver (in addition to and without limiting any right under
this Note) to the Holder in exchange for this Note a security of the Successor Entity and/or Successor Entities evidenced by a
written instrument substantially similar in form and substance to this Note and convertible for a corresponding number of shares
of capital stock of the Successor Entity and/or Successor Entities (the “Successor Capital Stock”) equivalent
(as set forth below) to the shares of Common Stock acquirable and receivable upon conversion of this Note (determined using the
Initial Conversion Price as the Conversion Price and determined without regard to any limitations on the conversion of this Note)
prior to such Fundamental Transaction (such corresponding number of shares of Successor Capital Stock to be delivered to the Holder
shall equal the greater of (I) the quotient of (A) the aggregate dollar value of all consideration (including cash consideration
and any consideration other than cash (“Non-Cash Consideration”), in such Fundamental Transaction, as such values
are set forth in any definitive agreement for the Fundamental Transaction that has been executed at the time of the first public
announcement of the Fundamental Transaction or, if no such value is determinable from such definitive agreement, as determined
in accordance with Section 22 with the term “Non-Cash Consideration” being substituted for the term “Conversion
Price”) that the Holder would have been entitled to receive upon the happening of such Fundamental Transaction or the record,
eligibility or other determination date for the event resulting in such Fundamental Transaction, had this Note been converted immediately
prior to such Fundamental Transaction or the record, eligibility or other determination date for the event resulting in such Fundamental
Transaction (determined using the Initial Conversion Price as the Conversion Price and determined without regard to any limitations
on the conversion of this Note) (the “Aggregate Consideration”) divided by (B) the per share Closing Sale Price
of such corresponding Successor Capital Stock on the Trading Day immediately prior to the consummation or occurrence of the Fundamental
Transaction and (II) the product of (A) the Aggregate Consideration and (B) the highest exchange ratio pursuant to which any stockholder
of the Company may exchange Common Stock for Successor Capital Stock) (provided, however, to the extent that the
Holder’s right to receive any such shares of publicly traded common stock (or their equivalent) of the Successor Entity would
result in the Holder and its other Attribution Parties exceeding the Maximum Percentage, if applicable, then the Holder shall not
be entitled to receive such shares to such extent (and shall not be entitled to beneficial ownership of such shares of publicly
traded common stock (or their equivalent) of the Successor Entity as a result of such consideration to such extent) and the portion
of such shares shall be held in abeyance for the Holder until such time or times, as its right thereto would not result in the
Holder and its other Attribution Parties exceeding the Maximum Percentage, at which time or times the Holder shall be delivered
such shares to the extent as if there had been no such limitation), and such security shall be satisfactory to the Holder, and
with an identical conversion price to the Conversion Price hereunder (such adjustments to the number of shares of capital stock
and such conversion price being for the purpose of protecting after the consummation or occurrence of such Fundamental Transaction
the economic value of this Note that was in effect immediately prior to the consummation or occurrence of such Fundamental Transaction,
as elected by the Holder solely at its option). Upon occurrence or consummation of the Fundamental Transaction, and it shall be
a required condition to the occurrence or consummation of such Fundamental Transaction that, the Company and the Successor Entity
or Successor Entities shall deliver to the Holder confirmation that there shall be issued upon conversion of this Note at any time
after the occurrence or consummation of the Fundamental Transaction, as elected by the Holder solely at its option, shares of Common
Stock, Successor Capital Stock or, in lieu of the shares of Common Stock or Successor Capital Stock (or other securities, cash,
assets or other property purchasable upon the conversion of this Note prior to such Fundamental Transaction), such shares of stock,
securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights), which
for purposes of clarification may continue to be shares of Common Stock, if any, that the Holder would have been entitled to receive
upon the happening of such Fundamental Transaction or the record, eligibility or other determination date for the event resulting
in such Fundamental Transaction, had this Note been converted immediately prior to such Fundamental Transaction or the record,
eligibility or other determination date for the event resulting in such Fundamental Transaction (determined using the Initial Conversion
Price as the Conversion Price and determined without regard to any limitations on the conversion of this Note), as adjusted in
accordance with the provisions of this Note. The provisions of this Section 5(a) shall apply similarly and equally to successive
Fundamental Transactions.


 






    	 	- 11 -	 



     


    

 


(b) Redemption
Right. No sooner than twenty-five (25) days nor later than twenty (20) days prior to the consummation of a Change of Control,
but not prior to the public announcement of such Change of Control, the Company shall deliver written notice thereof via facsimile
or electronic mail and overnight courier to the Holder (a “Change of Control Notice”). At any time during the
period beginning on the earlier to occur of (x) any oral or written agreement by the Company or any of its Subsidiaries to consummate
a transaction that would reasonably be expected to result in a Change of Control, (y) the Holder becoming aware of a Change of
Control and (z) the Holder’s receipt of a Change of Control Notice, and ending twenty-five (25) Trading Days after the date
of the consummation of such Change of Control, the Holder may require the Company to redeem (a “Change of Control Redemption”)
all or any portion of this Note by delivering written notice thereof (“Change of Control Redemption Notice”)
to the Company, which Change of Control Redemption Notice shall indicate the Conversion Amount the Holder is electing to require
the Company to redeem. The portion of this Note subject to redemption pursuant to this Section 5(b) shall be redeemed by the Company
in cash by wire transfer of immediately available funds at a price equal to 115% of the Conversion Amount being redeemed (the “Change
of Control Redemption Price”). Redemptions pursuant to this Section 5 shall be made in accordance with the provisions
of Section 11 and shall have priority to payments to stockholders in connection with a Change of Control. To the extent redemptions
required by this Section 5(b) are deemed or determined by a court of competent jurisdiction to be prepayments of the Note by the
Company, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section
5, but subject to Section 3(d), until the Change of Control Redemption Price (together with any interest thereon) is paid in full,
the Conversion Amount submitted for redemption under this Section 5(b) (together with any interest thereon) may be converted, in
whole or in part, by the Holder into Common Stock pursuant to Section 3. The parties hereto agree that in the event of the Company’s
redemption of any portion of the Note under this Section 5(b), the Holder’s damages would be uncertain and difficult to estimate
because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable
substitute investment opportunity for the Holder. Accordingly, any Change of Control redemption premium due under this Section
5(b) is intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its investment
opportunity and not as a penalty.


 


(6) RIGHTS
UPON ISSUANCE OF OTHER SECURITIES.


 


(a) Adjustment
of Conversion Price upon Subdivision or Combination of Common Stock. If the Company at any time on or after the Subscription
Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares
of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately
reduced. If the Company at any time on or after the Subscription Date combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately
prior to such combination will be proportionately increased.


 


(b) Voluntary
Adjustment by Company. The Company may at any time during the term of this Note, with the prior written consent of the Required
Holders, reduce the then current Conversion Price to any amount and for any period of time deemed appropriate by the Board of Directors
of the Company.


 


(7) OPTIONAL
REDEMPTION AT THE HOLDER’S ELECTION. At any time from and after January 1, 2018 and provided that the Company shall not
have received either (i) initial deposits for at least eight 2 megawatt (MW) Power Oxidizer units or (ii) firm purchase orders
totaling not less than $3,500,000 and initial payment collections of at least $1,600,000, in each case during the period commencing
on the Issuance Date and ending on December 31, 2017 (inclusive), the Holder shall have the right, in its sole and absolute discretion,
at any time or times, to require that the Company redeem (a “Holder Optional Redemption”) all or any portion
of the Conversion Amount of this Note then outstanding by delivering written notice thereof (a “Holder Optional Redemption
Notice” and the date the Holder delivers such notice, the “Holder Optional Redemption Notice Date”)
to the Company, which notice shall state (i) the portion of this Note that is being redeemed and (ii) the date on which the Holder
Optional Redemption shall occur, which date shall be not less than three (3) Business Days from the Holder Optional Redemption
Notice Date (the “Holder Optional Redemption Date”). The portion of this Note subject to redemption pursuant
to this Section 7 shall be redeemed by the Company in cash at a price (the “Holder Optional Redemption Price”)
equal to 100% of the Conversion Amount of the portion of this Note being redeemed. On the applicable Holder Optional Redemption
Date, the Company shall deliver or shall cause to be delivered to the Holder the applicable Holder Optional Redemption Price in
cash by wire transfer of immediately available funds pursuant to wire instructions provided by the Holder in writing to the Company.
Holder Optional Redemptions made pursuant to this Section 7 shall be made in accordance with Section 11. To the extent redemptions
required by this Section 7 are deemed or determined by a court of competent jurisdiction to be prepayments of the Note by the Company,
such redemptions shall be deemed to be voluntary prepayments.


 






    	 	- 12 -	 



     


    

 


(8) OPTIONAL
REDEMPTION AT THE COMPANY’S ELECTION.


 


(a) General.
At any time after the Issuance Date, the Company shall have the right to redeem all or any portion of the Conversion Amount then
remaining under this Note and the Other Notes (the “Company Optional Redemption Amount”) as designated in the
Company Optional Redemption Notice on the Company Optional Redemption Date (each as defined below) (a “Company Optional
Redemption”); provided, that the aggregate Conversion Amount under this Note and the Other Notes being redeemed
pursuant to this Section 8 (and analogous provisions under the Other Notes) shall be at least $500,000, or such lesser amount that
is then outstanding under this Note and the Other Notes, in the aggregate. The portion of this Note and the Other Notes subject
to redemption pursuant to this Section 8(a) shall be redeemed by the Company on the Company Optional Redemption Date (as defined
below) in cash by wire transfer of immediately available funds pursuant to wire instructions provided by the Holder in writing
to the Company at a price equal to the greater of (x) 110% of the Conversion Amount of this Note to be redeemed and (y) the product
of (A) the Conversion Amount being redeemed and (B) the quotient determined by dividing (I) the greatest Weighted Average Price
of the shares of Common Stock during the period beginning on the date immediately preceding the Company Optional Redemption Notice
Date (as defined below) and ending on the Company Optional Redemption Date (as defined below), by (II) the lowest Conversion Price
in effect during such period (the “Company Optional Redemption Price”). The Company may exercise its right to
require redemption under this Section 8 by delivering prior written notice thereof fifteen (15) days prior to the Company Optional
Redemption Date (as defined below) by facsimile or electronic mail and overnight courier to the Holder and all, but not less than
all, of the holders of the Other Notes (the “Company Optional Redemption Notice” and the date all of the holders
of the Notes received such notice is referred to as the “Company Optional Redemption Notice Date”). The Company
Optional Redemption Notice shall be irrevocable. The Company Optional Redemption Notice shall (i) state the date on which the Company
Optional Redemption shall occur (the “Company Optional Redemption Date”), which date shall be fifteen (15) days
following the Company Optional Redemption Notice Date or, if such date falls on a Holiday, the next day that is not a Holiday and
(ii) state the aggregate Conversion Amount of the Notes which the Company has elected to be subject to Company Optional Redemption
from the Holder and all of the holders of the Other Notes pursuant to this Section 8(a) (and analogous provisions under the Other
Notes) on the Company Optional Redemption Date and (iii) certify that there is no Event of Default that is continuing as of the
applicable Company Optional Redemption Notice Date. If the Company confirmed that there was no such Event of Default continuing
as of the applicable Company Optional Redemption Notice Date but an Event of Default occurs between the applicable Company Optional
Redemption Notice Date and any time through the applicable Company Optional Redemption Date (the “Company Optional Redemption
Interim Period”), the Company shall provide the Holder a subsequent notice to that effect. If there is an Event of Default
that is continuing (which is not waived in writing by the Holder) during such Company Optional Redemption Interim Period, then
the Company Optional Redemption shall be null and void with respect to all or any part designated by the Holder of the unconverted
Company Optional Redemption Amount and the Holder shall be entitled to all the rights of a holder of this Note with respect to
such amount of the Company Optional Redemption Amount. Notwithstanding anything to the contrary in this Section 8, until the Company
Optional Redemption Price is paid in full, the Company Optional Redemption Amount may be converted, in whole or in part, by the
Holder into shares of Common Stock pursuant to Section 3. All Conversion Amounts converted by the Holder after the Company Optional
Redemption Notice Date shall reduce the Company Optional Redemption Amount of this Note required to be redeemed on the Company
Optional Redemption Date, unless the Holder otherwise indicates in the applicable Conversion Notice. Company Optional Redemptions
made pursuant to this Section 8 shall be made in accordance with Section 11. To the extent redemptions required by this Section
8 are deemed or determined by a court of competent jurisdiction to be prepayments of the Note by the Company, such redemptions
shall be deemed to be voluntary prepayments.


 






    	 	- 13 -	 



     


    

 


(b) Pro
Rata Redemption Requirement. If the Company elects to cause a Company Optional Redemption pursuant to Section 8(a), then it
must simultaneously take the same action in the same proportion with respect to the Other Notes. If the Company elects to cause
a Company Optional Redemption pursuant to Section 8(a) (or similar provisions under the Other Notes) with respect to less than
all of the Conversion Amounts of the Notes then outstanding, then the Company shall require redemption of a Conversion Amount from
each of the holders of the Notes equal to the product of (i) the aggregate Company Optional Redemption Amount of Notes which the
Company has elected to cause to be redeemed pursuant to Section 8(a), multiplied by (ii) the fraction, the numerator of which is
the sum of the aggregate Original Principal Amount of the Notes purchased by such holder of outstanding Notes and the denominator
of which is the sum of the aggregate Original Principal Amount of the Notes purchased by all holders holding outstanding Notes
(such fraction with respect to each holder is referred to as its “Company Optional Redemption Allocation Percentage”,
and such amount with respect to each holder is referred to as its “Pro Rata Company Optional Redemption Amount”);
provided, however that in the event that any holder’s Pro Rata Company Optional Redemption Amount exceeds the
outstanding Principal amount of such holder’s Note, then such excess Pro Rata Company Optional Redemption Amount shall be
allocated amongst the remaining holders of Notes in accordance with the foregoing formula. In the event that the initial holder
of any Notes shall sell or otherwise transfer any of such holder’s Notes, the transferee shall be allocated a pro rata portion
of such holder’s Company Optional Redemption Allocation Percentage and Pro Rata Company Optional Redemption Amount.


 


(9) NONCIRCUMVENTION.
The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities,
or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will
at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect the rights
of the Holder of this Note.


 


(10) RESERVATION
OF AUTHORIZED SHARES.


 


(a) Reservation.
The Company shall initially reserve out of its authorized and unissued shares of Common Stock a number of shares of Common Stock
for each of this Note and the Other Notes equal to the Conversion Rate determined using the Initial Conversion Price as the Conversion
Price, with respect to the Conversion Amount of each such Note as of the Issuance Date. So long as any of this Note and the Other
Notes are outstanding, the Company shall take all action necessary to reserve and keep available out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of this Note and the Other Notes, the number of shares of Common
Stock specified above in this Section 10(a) as shall from time to time be necessary to effect the conversion of all of the Notes
then outstanding; provided, that at no time shall the number of shares of Common Stock so reserved be less than the number
of shares required to be reserved pursuant hereto (in each case, determined using the Initial Conversion Price as the Conversion
Price and determined without regard to any limitations on conversions) (the “Required Reserve Amount”). The
initial number of shares of Common Stock reserved for conversions of this Note and the Other Notes and each increase in the number
of shares so reserved shall be allocated pro rata among the Holder and the holders of the Other Notes based on the Principal amount
of this Note and the Other Notes held by each holder at the Closing (as defined in the Agreement) or increase in the number of
reserved shares, as the case may be (the “Authorized Share Allocation”). In the event that a holder shall sell
or otherwise transfer this Note or any of such holder’s Other Notes, each transferee shall be allocated a pro rata portion
of such holder’s Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases
to hold any Notes shall be allocated to the Holder and the remaining holders of Other Notes, pro rata based on the Principal amount
of this Note and the Other Notes then held by such holders.


 






    	 	- 14 -	 



     


    

 


(b) Insufficient
Authorized Shares. If at any time while any of the Notes remain outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes
at least a number of shares of Common Stock equal to the Required Reserve Amount (an “Authorized Share Failure”),
then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock
to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Notes then outstanding. Without limiting
the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall either (x)
obtain the written consent of its stockholders for the approval of an increase in the number of authorized shares of Common Stock
and provide each stockholder with an information statement with respect thereto or (y) hold a meeting of its stockholders for the
approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall
provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such
increase in authorized shares of Common Stock and to cause its Board of Directors to recommend to the stockholders that they approve
such proposal.


 


(11) REDEMPTIONS.


 


(a) Mechanics.
The Company shall deliver the applicable Event of Default Redemption Price to the Holder within three (3) Business Days after the
Company’s receipt of the Holder’s Event of Default Redemption Notice (the “Event of Default Redemption Date”).
If the Holder has submitted a Change of Control Redemption Notice in accordance with Section 5(b), the Company shall deliver the
applicable Change of Control Redemption Price to the Holder (i) concurrently with the consummation of such Change of Control if
such notice is received prior to the consummation of such Change of Control and (ii) within three (3) Business Days after the Company’s
receipt of such notice otherwise (such date, the “Change of Control Redemption Date”). The Company shall deliver
the applicable Holder Optional Redemption Price on the applicable Holder Optional Redemption Date. The Company shall deliver the
applicable Company Optional Redemption Price on the applicable Company Optional Redemption Date. The Company shall pay the applicable
Redemption Price to the Holder in cash by wire transfer of immediately available funds pursuant to wire instruction provided by
the holder in writing to the Company on the applicable due date. In the event of a redemption of less than all of the Conversion
Amount of this Note, the Company shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with Section
17(d)) representing the outstanding Principal which has not been redeemed and any accrued Interest on such Principal which shall
be calculated as if no Redemption Notice has been delivered. In the event that the Company does not pay the applicable Redemption
Price to the Holder within the time period required, at any time thereafter and until the Company pays such unpaid Redemption Price
in full, the Holder shall have the option, in lieu of redemption, to require the Company to promptly return to the Holder all or
any portion of this Note representing the Conversion Amount that was submitted for redemption and for which the applicable Redemption
Price (together with any Late Charges thereon) has not been paid. Upon the Company’s receipt of such notice, (x) the applicable
Redemption Notice shall be null and void with respect to such Conversion Amount and (y) the Company shall immediately return this
Note, or issue a new Note (in accordance with Section 17(d)) to the Holder representing such Conversion Amount to be redeemed.
The Holder’s delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not
affect the Company’s obligations to make any payments of Late Charges which have accrued prior to the date of such notice
with respect to the Conversion Amount subject to such notice.


 






    	 	- 15 -	 



     


    

 


(b) Redemption
by Other Holders. Upon the Company’s receipt of notice from any of the holders of the Other Notes for redemption or repayment
as a result of an event or occurrence substantially similar to the events or occurrences described in Section 4(b), Section 5(b)
or Section 7 or pursuant to equivalent provisions set forth in the Other Notes (each, an “Other Redemption Notice”),
the Company shall immediately, but no later than one (1) Business Day of its receipt thereof, forward to the Holder by facsimile
or electronic mail a copy of such notice. If the Company receives a Redemption Notice and one or more Other Redemption Notices,
during the seven (7) Business Day period beginning on and including the date which is three (3) Business Days prior to the Company’s
receipt of the Holder’s Redemption Notice and ending on and including the date which is three (3) Business Days after the
Company’s receipt of the Holder’s Redemption Notice and the Company is unable to redeem all principal, interest and
other amounts designated in such Redemption Notice and such Other Redemption Notices received during such seven (7) Business Day
period, then the Company shall redeem a pro rata amount from the Holder and each holder of the Other Notes (including the Holder)
based on the Principal amount of this Note and the Other Notes submitted for redemption pursuant to such Redemption Notice and
such Other Redemption Notices received by the Company during such seven Business Day period.


 


(12) VOTING
RIGHTS. The Holder shall have no voting rights as the holder of this Note, except as required by law and as expressly provided
in this Note.


 


(13) SECURITY.
This Note and the Other Notes are secured to the extent and in the manner set forth in the Security Documents.


 


(14) COVENANTS.


 


(a)Rank.All
payments due under this Note (a) shall rank pari passu with all Other Notes and Additional Notes and (b) shall be senior
to all other Indebtedness of the Company and its Subsidiaries.


 


(b) Incurrence
of Indebtedness. So long as this Note is outstanding, the Company shall not, and the Company shall not permit any of its Subsidiaries
to, directly or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness, other than Permitted Indebtedness.


 


(c) Existence
of Liens. So long as this Note is outstanding, without the prior written consent of the Collateral Agent (as defined in the
Agreement), the Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, allow or
suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by the Company or any of its Subsidiaries (collectively, “Liens”) other
than Permitted Liens.


 


(d) Restricted
Payments.


 


(i) The
Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, redeem, defease, repurchase,
repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open
market purchases, tender offers, private transactions or otherwise), all or any portion of any Indebtedness (other than this Note
and the Other Notes), whether by way of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness
if at the time such payment is due or is otherwise made or, after giving effect to such payment, an event constituting, or that
with the passage of time and without being cured would constitute, an Event of Default has occurred and is continuing.


 






    	 	- 16 -	 



     


    

 


(ii) Except
for payments in the ordinary course of business, the Company shall not, and the Company shall not permit any of its Subsidiaries
to, directly or indirectly, redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash
equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all
or any portion of any Indebtedness (including, without limitation Permitted Indebtedness other than this Note and the Other Notes),
by way of payment in respect of principal of (or premium, if any) such Indebtedness. For clarity, such restriction shall not preclude
the payment of regularly scheduled interest payments which may accrue under such Permitted Indebtedness.


 


(e) Restriction
on Redemption and Cash Dividends. Until all of the Notes have been converted, redeemed or otherwise satisfied in accordance
with their terms, the Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, redeem
or repurchase its Equity Interest, or permit any Subsidiary to redeem or repurchase its Equity Interests (except on a pro rata
basis among all holders thereof) or declare or pay any cash dividend or distribution on any Equity Interest of the Company or of
its Subsidiaries without in each case the prior express written consent of the Required Holders.


 


(f) Change
in Nature of Business. The Company shall not make, or permit any of its Subsidiaries to make, any change in the nature of its
business as described in the Company’s most recent Annual Report filed on Form 10-K with the SEC. Without the prior written
consent of the Required Holders, the Company shall not modify its corporate structure or purpose.


 


(g) Intellectual
Property. The Company shall not, and the Company shall not permit any of its Subsidiaries, directly or indirectly, to encumber
or allow any Liens on, any of its copyright rights, copyright applications, copyright registrations and like protections in each
work of authorship and derivative work, whether published or unpublished, any patents, patent applications and like protections,
including improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part of the same, trademarks,
service marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not, and the
goodwill of the business of the Company and its Subsidiaries connected with and symbolized thereby, know-how, operating manuals,
trade secret rights, rights to unpatented inventions, and any claims for damage by way of any past, present, or future infringement
of any of the foregoing, other than Permitted Liens.


 


(h) Preservation
of Existence, Etc. The Company shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, its
existence, rights and privileges, and become or remain, and cause each of its Subsidiaries to become or remain, duly qualified
and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction
of its business makes such qualification necessary.


 


(i) Maintenance
of Properties, Etc. The Company shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all
of its properties which are necessary or useful in the proper conduct of its business in good working order and condition, ordinary
wear and tear excepted, and comply, and cause each of its Subsidiaries to comply, at all times with the provisions of all leases
to which it is a party as lessee or under which it occupies property, so as to prevent any loss or forfeiture thereof or thereunder.


 


(j) Maintenance
of Insurance. The Company shall maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations (including, without limitation, comprehensive general liability, hazard, rent and business
interruption insurance) with respect to its properties (including all real properties leased or owned by it) and business, in such
amounts and covering such risks as is required by any governmental authority having jurisdiction with respect thereto or as is
carried generally in accordance with sound business practice by companies in similar businesses similarly situated.


 






    	 	- 17 -	 



     


    

 


(k) Transactions
with Affiliates. The Company shall not, nor shall it permit any of its Subsidiaries to, enter into, renew, extend or be a party
to, any transaction or series of related transactions (including, without limitation, the purchase, sale, lease, transfer or exchange
of property or assets of any kind or the rendering of services of any kind) with any Affiliate, except in the ordinary course of
business in a manner and to an extent consistent with past practice and necessary or desirable for the prudent operation of its
business, for fair consideration and on terms no less favorable to it or its Subsidiaries than would be obtainable in a comparable
arm’s length transaction with a Person that is not an Affiliate thereof.


 


(15) VOTE
TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at a meeting duly called for such purpose or the written consent
without a meeting of the Required Holders shall be required for any change or amendment or waiver of any provision to this Note
or any of the Other Notes; provided that any such amendment or waiver that complies with the foregoing but that disproportionately,
materially and adversely affects the rights and obligations of any Holder relative to the comparable rights and obligations of
the other Holders shall require the prior written consent of such adversely affected Holder. Any change, amendment or waiver by
the Company and the Required Holders shall be binding on the Holder of this Note and all holders of the Other Notes.


 


(16) TRANSFER.
This Note and any shares of Common Stock issued upon conversion of this Note may be offered, sold, assigned or transferred by the
Holder without the consent of the Company, subject only to the provisions of Section 2(f) of the Agreement.


 


(17) REISSUANCE
OF THIS NOTE.


 


(a) Transfer.
If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue
and deliver upon the order of the Holder a new Note (in accordance with Section 17(d) and subject to Section 3(c)(iii)), registered
as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less than the entire
outstanding Principal is being transferred, a new Note (in accordance with Section 17(d)) to the Holder representing the outstanding
Principal not being transferred. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason
of the provisions of Section 3(c)(iii) following conversion or redemption of any portion of this Note, the outstanding Principal
represented by this Note may be less than the Principal stated on the face of this Note.


 


(b) Lost,
Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company
shall execute and deliver to the Holder a new Note (in accordance with Section 17(d)) representing the outstanding Principal.


 


(c) Note
Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal
office of the Company, for a new Note or Notes (in accordance with Section 17(d) and in Principal amounts of at least $100,000)
representing in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such
outstanding Principal as is designated by the Holder at the time of such surrender.


 






    	 	- 18 -	 



     


    

 


(d) Issuance
of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall
be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding
(or in the case of a new Note being issued pursuant to Section 17(a) or Section 17(c), the Principal designated by the Holder which,
when added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal
remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated
on the face of such new Note, which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions
as this Note, and (v) shall represent accrued and unpaid Interest and Late Charges, if any, on the Principal and Interest of this
Note, from the Issuance Date.


 


(18) REMEDIES,
CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity
(including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s
right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. Amounts
set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts
to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable
harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being
required.


 


(19) PAYMENT
OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of an attorney for collection or enforcement
or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this
Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company
or other proceedings affecting Company creditors’ rights and involving a claim under this Note, then the Company shall pay
the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, but not limited to, attorneys’ fees and disbursements.


 


(20) CONSTRUCTION;
HEADINGS. This Note shall be deemed to be jointly drafted by the Company and all the purchasers of the Notes pursuant to the
Agreement (the “Purchasers”) and shall not be construed against any person as the drafter hereof. The headings
of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note.


 


(21) FAILURE
OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.


 






    	 	- 19 -	 



     


    

 


(22) DISPUTE
RESOLUTION. In the case of a dispute as to the determination of the Closing Bid Price, the Closing Sale Price or the Weighted
Average Price or the arithmetic calculation of the Conversion Rate, the Conversion Price or any Redemption Price, the Company shall
submit the disputed determinations or arithmetic calculations via facsimile or electronic mail within one (1) Business Day of receipt,
or deemed receipt, of the Conversion Notice or Redemption Notice or other event giving rise to such dispute, as the case may be,
to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation within one (1) Business
Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within one
Business Day submit via facsimile or electronic mail (a) the disputed determination of the Closing Bid Price, the Closing Sale
Price or the Weighted Average Price to an independent, reputable investment bank selected by the Holder and approved by the Company,
such approval not to be unreasonably withheld or delayed, or (b) the disputed arithmetic calculation of the Conversion Rate, Conversion
Price or any Redemption Price to an independent, outside accountant, selected by the Holder and approved by the Company, such approval
not to be unreasonably withheld or delayed. The Company, at the Company’s expense, shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results
no later than five (5) Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s
or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.


 


(23) NOTICES;
PAYMENTS.


 


(a) Notices.
Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance
with Section 9(f) of the Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant
to this Note, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality
of the foregoing, the Company shall give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price,
setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least twenty (20) days prior
to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with
respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known
to the public prior to or in conjunction with such notice being provided to the Holder.


 


(b) Payments.
Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, such payment shall be made in lawful
money of the United States of America by a check drawn on the account of the Company and sent via overnight courier service to
such Person at such address as previously provided to the Company in writing (which address, in the case of each of the Purchasers,
shall initially be as set forth on the Schedule of Buyers attached to the Agreement); provided, that the Holder may elect
to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written notice
setting out such request and the Holder’s wire transfer instructions. Whenever any amount expressed to be due by the terms
of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a
Business Day. Any amount of Principal or other amounts due under the Transaction Documents which is not paid when due shall result
in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of eighteen
percent (18.0%) per annum from the date such amount was due until the same is paid in full (“Late Charge”).


 


(24) CANCELLATION.
After all Principal, accrued Interest and other amounts at any time owed on this Note have been paid in full, this Note shall automatically
be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.


 


(25) WAIVER
OF NOTICE. To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices
in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Agreement.


 






    	 	- 20 -	 



     


    

 


(26) GOVERNING
LAW; JURISDICTION; JURY TRIAL. This Note shall be construed and enforced in accordance with, and all questions concerning the
construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any
other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Company
hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough
of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient
forum or that the venue of such suit, action or proceeding is improper. The Company hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party
at the address it set forth on the signature page hereto and agrees that such service shall constitute good and sufficient service
of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other
legal action against the Company in any other jurisdiction to collect on the Company’s obligations to the Holder, to realize
on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder.
THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF
ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.


 


(27) Severability.
If any provision of this Note is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the
broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect
the validity of the remaining provisions of this Note so long as this Note as so modified continues to express, without material
change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability
of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties
or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good
faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which
comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).


 


(28) DISCLOSURE.
Upon receipt or delivery by the Company of any notice in accordance with the terms of this Note, unless the Company has in good
faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company
or its Subsidiaries, the Company shall within one (1) Business Day after any such receipt or delivery publicly disclose such material,
nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains
material, nonpublic information relating to the Company or its Subsidiaries, the Company so shall indicate to such Holder contemporaneously
with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters
relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.


 


(29) [Intentionally
omitted.]


 






    	 	- 21 -	 



     


    

 


(30) CERTAIN
DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings:


 


(a) “Additional
Notes” means (i) those certain senior secured convertible notes issued by the Company pursuant to that certain Securities
Purchase Agreement, dated as of April 22, 2015 by and among the Company and the investors listed on the signature pages attached
thereto, as amended to date, and that certain Securities Purchase Agreement, dated as of May 7, 2015 by and among the Company and
the investors listed on the signature pages attached thereto, as amended to date, which senior secured convertible notes have been
amended and restated pursuant to those certain amendment agreements dated November 23, 2016, as further amended to date, and (ii)
those certain senior secured convertible notes, as amended to date, issued by the Company pursuant to that certain Securities Purchase
Agreement, dated as of November 23, 2016 by and among the Company and the investors listed on the signature pages attached thereto,
as amended to date.


 


(b) “Affiliate”
means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common
control with, such Person, it being understood for purposes of this definition that “control” of a Person means the
power directly or indirectly either to vote 10% or more of the stock having ordinary voting power for the election of directors
of such Person or direct or cause the direction of the management and policies of such Person whether by contract or otherwise.


 


(c) “Agreement”
means that certain securities purchase agreement dated as of the Subscription Date by and among the Company and the Purchasers
of the Notes pursuant to which the Company issued the Notes and Warrants, as amended, restated, modified or joined from time to
time.


 


(d) “Attribution
Parties” means, collectively, the following Persons and entities: (i) any investment vehicle, including, any funds, feeder
funds or managed accounts, currently, or from time to time after the Issuance Date, directly or indirectly managed or advised by
the Holder’s investment manager or any of its Affiliates or principals, (ii) any direct or indirect Affiliates of the Holder
or any of the foregoing, (iii) any Person acting or who could be deemed to be acting as a Group together with the Holder or any
of the foregoing and (iv) any other Persons whose beneficial ownership of the Company’s Common Stock would or could be aggregated
with the Holder’s and the other Attribution Parties for purposes of Section 13(d) of the Exchange Act. For clarity, the purpose
of the foregoing is to subject collectively the Holder and all other Attribution Parties to the Maximum Percentage.


 


(e) “Backstop
Agreement” means that certain Backstop Security Support Agreement entered into on November 2, 2015 by an individual investor
and the Company, as amended to date.


 


(f)“Bloomberg”
means Bloomberg Financial Markets.


 


(g) “Business
Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized
or required by law to remain closed.


 


(h) “Change
of Control” means any Fundamental Transaction other than (i) any reorganization, recapitalization or reclassification
of the Common Stock in which holders of the Company’s voting power immediately prior to such reorganization, recapitalization
or reclassification continue after such reorganization, recapitalization or reclassification to hold publicly traded securities
and, directly or indirectly, are, in all material respect, the holders of the voting power of the surviving entity (or entities
with the authority or voting power to elect the members of the board of directors (or their equivalent if other than a corporation)
of such entity or entities) after such reorganization, recapitalization or reclassification or (ii) pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of the Company.


 






    	 	- 22 -	 



     


    

 


(i) “Closing
Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price
and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal
Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as
the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York Time,
as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security,
the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security
by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported
in the OTC Link or “pink sheets” by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.). If the Closing Bid Price
or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid
Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined
by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then
such dispute shall be resolved pursuant to Section 22. All such determinations to be appropriately adjusted for any stock dividend,
stock split, stock combination, reclassification or similar transaction during the applicable calculation period.


 


(j) “Contingent
Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect
to any Indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring
such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will
be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will
be protected (in whole or in part) against loss with respect thereto.


 


(k) “Conversion
Shares” means shares of Common Stock issuable by the Company pursuant to the terms of any of the Notes, including, without
limitation, any related Interest and Late Charges, if any, so converted or redeemed.


 


(l)“Eligible
Market” means The New York Stock Exchange, The Nasdaq Global Market, The
Nasdaq Global Select Market, The NASDAQ Capital Market, the NYSE American or the
Principal Market.


 






    	 	- 23 -	 



     


    

 


(m) “Equity
Conditions” means each of the following conditions: (i) on each day during an Equity Conditions Measuring Period, all
Conversion Shares issuable pursuant to the terms of this Note and the Other Notes and the Warrant Shares issuable upon exercise
of the Warrants, including the shares of Common Stock issuable upon conversion of the Conversion Amount that is subject to the
Automatic Conversion, shall be eligible for sale without restriction pursuant to Rule 144 and without the need for registration
under any applicable federal or state securities laws; (ii) on each day during the Equity Conditions Measuring Period, the Common
Stock is designated for quotation on the Principal Market or any other Eligible Market and shall not have been suspended from trading
on such exchange or market (other than suspensions of not more than two (2) days and occurring prior to the applicable date of
determination due to business announcements by the Company) nor shall delisting or suspension by such exchange or market been threatened,
commenced or pending either (A) in writing by such exchange or market or (B) as a result of the Company’s failure to meet
the then effective minimum requirements for continued listing on such exchange or market; (iii) during the Equity Conditions Measuring
Period, in the event of an Automatic Conversion or the transmission to the Company of a Conversion Notice pursuant to Section 3(c)(i),
the Company shall have delivered Conversion Shares pursuant to the terms of this Note and the Other Notes and Warrant Shares upon
exercise of the Warrants to the holders on a timely basis as set forth in Section 3(c) hereof (and analogous provisions under the
Other Notes) and Section 1(a) of the Warants; (iv) the shares of Common Stock issuable upon conversion of the Conversion Amount
that is subject to the Automatic Conversion requiring the satisfaction of the Equity Conditions may be issued in full without violating
Section 3(d) hereof and the rules or regulations of the Principal Market or any other applicable Eligible Market; (v) during the
Equity Conditions Measuring Period, the Company shall not have failed to timely make any payments within five (5) Business Days
of when such payment is due pursuant to any Transaction Document; (vi) during the Equity Conditions Measuring Period, there shall
not have occurred either (A) the public announcement of a pending, proposed or intended Fundamental Transaction which has not been
abandoned, terminated or consummated, (B) an Event of Default or (C) an event that with the passage of time or giving of notice
would constitute an Event of Default; (vii) the Company shall have no knowledge of any fact that would cause any shares of Common
Stock issuable pursuant to the terms of this Note and the Other Notes, and
shares of Common Stock issuable upon exercise of the Warrants, including the shares of Common Stock issuable upon conversion
of the Conversion Amount that is subject to the Automatic Conversion requiring the satisfaction of the Equity Conditions, not to
be eligible for sale without restriction pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1)
(or any successor thereto) promulgated under the Securities Act and any applicable state securities laws; (viii) during the Equity
Conditions Measuring Period, the Company otherwise shall have been in compliance with and shall not have breached any provision,
covenant, representation or warranty of any Transaction Document; (ix) the Holder shall not be in possession of any material, nonpublic
information received from the Company, any Subsidiary or its respective agent or affiliates; and (x) the shares of Common Stock
issuable upon conversion of the Conversion Amount that is subject to the Automatic Conversion requiring the satisfaction of the
Equity Conditions are duly authorized and listed and eligible for trading without restriction on an Eligible Market.


 


(n) “Equity
Conditions Failure” means that on any day during the applicable Equity Conditions Measuring Period, the Equity Conditions
have not each been satisfied (or waived in writing by the Holder).


 


(o) “Equity
Conditions Measuring Period” means each day during the period beginning twenty (20) Trading Days prior to the applicable
date of determination and ending on and including the applicable date of determination.


 


(p) “Equity
Interests” means (a) all shares of capital stock (whether denominated as common capital stock or preferred capital stock),
equity interests, beneficial, partnership or membership interests, joint venture interests, participations or other ownership or
profit interests in or equivalents (regardless of how designated) of or in a Person (other than an individual), whether voting
or non-voting and (b) all securities convertible into or exchangeable for any of the foregoing and all warrants, options or other
rights to purchase, subscribe for or otherwise acquire any of the foregoing, whether or not presently convertible, exchangeable
or exercisable.


 


(q) “Exchange
Act” means the Securities Exchange Act of 1934, as amended.


 






    	 	- 24 -	 



     


    

 


(r) “Fundamental
Transaction” means (A) that the Company shall, directly or indirectly, including through Subsidiaries, Affiliates or
otherwise, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving
corporation) another Subject Entity, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of
the properties or assets of the Company or any of its “significant subsidiaries” (as defined in Rule 1-02 of Regulation
S-X) to one or more Subject Entities, or (iii) make, or allow one or more Subject Entities to make, or allow the Company to be
subject to or have its Common Stock be subject to or party to one or more Subject Entities making, a purchase, tender or exchange
offer that is accepted by the holders of at least either (x) 50% of the outstanding shares of Common Stock, (y) 50% of the outstanding
shares of Common Stock calculated as if any shares of Common Stock held by all Subject Entities making or party to, or Affiliated
with any Subject Entities making or party to, such purchase, tender or exchange offer were not outstanding; or (z) such number
of shares of Common Stock such that all Subject Entities making or party to, or Affiliated with any Subject Entity making or party
to, such purchase, tender or exchange offer, become collectively the beneficial owners (as defined in Rule 13d-3 under the Exchange
Act) of at least 50% of the outstanding shares of Common Stock, or (iv) consummate a share purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with one or
more Subject Entities whereby such Subject Entities, individually or in the aggregate, acquire, either (x) at least 50% of the
outstanding shares of Common Stock, (y) at least 50% of the outstanding shares of Common Stock calculated as if any shares of Common
Stock held by all the Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such stock
purchase agreement or other business combination were not outstanding; or (z) such number of shares of Common Stock such that the
Subject Entities become collectively the beneficial owners (as defined in Rule 13d-3 under the Exchange Act) of at least 50% of
the outstanding shares of Common Stock, or (v) reorganize, recapitalize or reclassify its Common Stock, (B) that any Subject
Entity individually or the Subject Entities in the aggregate is or shall become the “beneficial owner” (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, whether through acquisition, purchase, assignment, conveyance,
tender, tender offer, exchange, reduction in outstanding shares of Common Stock, merger, consolidation, business combination, reorganization,
recapitalization, spin-off, scheme of arrangement, reorganization, recapitalization or reclassification or otherwise in any manner
whatsoever, of either (x) at least 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock,
(y) at least 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock not held by all such
Subject Entities as of the date of this Note calculated as if any shares of Common Stock held by all such Subject Entities were
not outstanding, or (z) a percentage of the aggregate ordinary voting power represented by issued and outstanding shares of Common
Stock or other equity securities of the Company sufficient to allow such Subject Entities to effect a statutory short form merger
or other transaction requiring other stockholders of the Company to surrender their shares of Common Stock without approval of
the stockholders of the Company or (C) the issuance of or the entering into any other instrument or transaction structured in a
manner to circumvent, or that circumvents, the intent of this definition in which case this definition shall be construed and implemented
in a manner otherwise than in strict conformity with the terms of this definition to the extent necessary to correct this definition
or any portion of this definition which may be defective or inconsistent with the intended treatment of such instrument or transaction.


 


(s) “GAAP”
means United States generally accepted accounting principles, consistently applied.


 


(t) “Group”
means a “group” as that term is used in Section 13(d) of the Exchange Act and as defined in Rule 13d-5 thereunder.


 


(u)“Guaranty
Agreements” means (A) that certain Guaranty Agreement dated as of April 23, 2015, made by Ener-Core Power, Inc. in favor
of the buyers that are party to that certain Securities Purchase Agreement, dated as of April 22, 2015 by and among the Company
and the investors listed on the signature pages thereto, as amended from time to time and (B) that certain Guaranty Agreement dated
as of November 23, 2016 made by Ener-Core Power, Inc. in favor of the buyers that are party to that certain Securities Purchase
Agreement, dated as of November 23, 2016 by and among the Company and the investors listed on the signature pages thereto, as amended
by the Guaranty Amendment (as defined in the Agreement) dated as of the Subscription Date, and as amended from time to time.


 






    	 	- 25 -	 



     


    

 


(v) “Holiday”
means a day other than a Business Day or on which trading does not take place on the Principal Market.


 


(w) “Indebtedness”
of any Person means, without duplication (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed
as the deferred purchase price of property or services, including (without limitation) “capital leases” in accordance
with GAAP (other than trade payables entered into in the ordinary course of business), (iii) all reimbursement or payment obligations
with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property,
assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or
sale of such property), (vi) all monetary obligations under any leasing or similar arrangement which, in connection with GAAP,
consistently applied for the periods covered thereby, is classified as a capital lease, (vii) all indebtedness referred to in clauses
(i) through (vi) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, and (viii) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (i) through (vii) above.


 


(x)“Initial Closing Date”
means September 19, 2017.


 


(y)“Lead Investor”
means Empery Asset Master, Ltd.


 


(z) “Parent
Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person, including such entity
whose common capital stock or equivalent equity security is quoted or listed on an Eligible Market (or, if so elected by the Required
Holders, any other market, exchange or quotation system), or, if there is more than one such Person or such entity, the Person
or entity designated by the Required Holders or in the absence of such designation, such Person or entity with the largest public
market capitalization as of the date of consummation of the Fundamental Transaction.


 


(aa)“Permitted
Indebtedness” means (i) Indebtedness evidenced by this Note and the Other Notes, (ii) trade payables incurred in the
ordinary course of business consistent with past practice, (iii) Indebtedness incurred by the Company that is made expressly subordinate
in right of payment to the Indebtedness evidenced by this Note, as reflected in a written agreement acceptable to the Required
Holders and approved by the Required Holders in writing, and which Indebtedness does not provide at any time for (a) the payment,
prepayment, repayment, repurchase or defeasance, directly or indirectly, of any principal or premium, if any, thereon until ninety-one
(91) days after the Maturity Date or later and (b) total interest and fees at a rate in excess of twelve percent (12.0%) per annum,
(iv) Indebtedness secured by Permitted Liens described in clauses (iv) of the definition of Permitted Liens, (v) deemed Indebtedness
arising from one or more operating leases, including, without limitation, the leases for one or more test turbines from Dresser-Rand,
but only if such lease, if secured, is secured solely by such test turbine, (vi) Indebtedness incurred pursuant to the Backstop
Agreement, (vii) Indebtedness evidenced by the notes issued pursuant to the Securities Purchase Agreement dated as of September
1, 2016 by and among the Company and the investors thereto, as subsequently amended, restated or modified thereafter), (viii) the
Additional Notes as in effect on the Subscription Date, provided that the Indebtedness evidenced by the Additional Notes is not
increased, refinanced, amended, changed or modified on or after the Subscription Date and (ix) the guarantees pursuant to the Guaranty
Agreements.


 






    	 	- 26 -	 



     


    

 


(bb)“Permitted
Liens” means (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course
of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation
of law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary course of business
with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings,
(iv) Liens (A) upon or in 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 or lease of such equipment, or (B)
existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired
and improvements thereon, and the proceeds of such equipment, (v) Liens incurred in connection with the extension, renewal or refinancing
of the indebtedness secured by Liens of the type described in clause (iv) above, provided that any extension, renewal or replacement
Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended,
renewed or refinanced does not increase, (vi) leases or subleases and licenses and sublicenses granted to others in the ordinary
course of the Company’s business, not interfering in any material respect with the business of the Company and its Subsidiaries
taken as a whole, (vii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of
custom duties in connection with the importation of goods, (viii) Liens arising from judgments, decrees or attachments in circumstances
not constituting an Event of Default under Section 4(a)(ix), (ix) Liens created pursuant to the Backstop Agreement and (x) Liens
securing Permitted Indebtedness set forth in clause (viii) of such definition.


 


(cc)“Person”
means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization,
any other entity and a government or any department or agency thereof.


 


(dd)“Principal
Market” means the OTCQB.


 


(ee)“Redemption
Dates” means, collectively, the Event of Default Redemption Dates, the Change of Control Redemption Dates, the Holder
Optional Redemption Dates and the Company Optional Redemption Dates, each of the foregoing, individually, a Redemption Date.


 


(ff)“Redemption
Notices” means, collectively, the Event of Default Redemption Notices, the Change of Control Redemption Notices, the
Holder Optional Redemption Notices and the Company Optional Redemption Notices, each of the foregoing, individually, a Redemption
Notice.


 


(gg)“Redemption
Prices” means, collectively, the Event of Default Redemption Prices, the Change of Control Redemption Prices, the Holder
Optional Redemption Prices and the Company Optional Redemption Prices, each of the foregoing, individually, a Redemption Price.


 


(hh)[Intentionally
omitted.]


 






    	 	- 27 -	 



     


    

 


(ii) [Intentionally
omitted.]


 


(jj)“Related
Fund” means, with respect to any Person, a fund or account managed by such Person or an Affiliate of such Person.


 


(kk)“Required
Holders” means (i) the Lead Investor so long as the Lead Investor or any of its Affiliates holds any Notes and (ii) the
Collateral Agent.


 


(ll)“SEC”
means the United States Securities and Exchange Commission.


 


(mm)“Securities
Act” means the Securities Act of 1933, as amended.


 


(nn)“Standard
Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s
principal Eligible Market with respect to the Common Stock that is in effect on the date of receipt of an applicable Conversion
Notice.


 


(oo) “Subject
Entity” means any Person, Persons or Group or any Affiliate or associate of any such Person, Persons or Group.


 


(pp)“Subscription
Date” means September 19, 2017.


 


(qq)“Subsequent Closing Date”
means November 1, 2017.


 


(rr) “Successor
Entity” means one or more Person or Persons (or, if so elected by the Holder, the Company or Parent Entity) formed by,
resulting from or surviving any Fundamental Transaction or one or more Person or Persons (or, if so elected by the Holder, the
Company or the Parent Entity) with which such Fundamental Transaction shall have been entered into.


 


(ss)“Trading
Day” means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common
Stock is then traded.


 


(tt)“Warrants”
has the meaning ascribed to such term in the Securities Purchase Agreement, and shall include all warrants issued in exchange therefor
or replacement thereof.


 


(uu)“Weighted
Average Price” means, for any security as of any date, the dollar volume-weighted average price for such security on
the Principal Market during the period beginning at 9:30:01 a.m., New York Time (or such other time as the Principal Market publicly
announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as the Principal Market
publicly announces is the official close of trading) as reported by Bloomberg through its “Volume at Price” functions,
or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York Time (or such other time
as such market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time
as such market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted
average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in the OTC Link or “pink sheets” by OTC
Markets Group Inc. (formerly Pink OTC Markets Inc.). If the Weighted Average Price cannot be calculated for a security on a particular
date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value
of such security, then such dispute shall be resolved pursuant to Section 22. All such determinations to be appropriately adjusted
for any stock dividend, stock split, stock combination, reclassification or similar transaction during the applicable calculation
period.


 


[Signature Page Follows]


 




    	 	- 28 -	 



     


    

 


IN WITNESS WHEREOF,
the Company has caused this Note to be duly executed as of the Issuance Date set out above.


 


	 	Ener-Core, Inc.
	 	 
	 	By:	 
	 	 	Name: Alain J. Castro
	 	 	Title: Chief Executive Officer


 




     


     


    

 


EXHIBIT I



Ener-Core, inc.


 


CONVERSION NOTICE


 


Reference is made to the Senior Secured
Note (the “Note”) issued to the undersigned by Ener-Core, Inc., a Delaware corporation (the “Company”).
In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the
Note) of the Note indicated below into shares of Common Stock par value $0.0001 per share (the “Common Stock”)
of the Company, as of the date specified below.


 


Date of Conversion: ___________________________________________________________________________


 


Aggregate Conversion Amount to be converted: _____________________________________________________


 


Please confirm the following information:


 


Conversion Price: _____________________________________________________________________________


 


Number of shares of Common Stock to be issued: ____________________________________________________


 


Please issue the Common Stock into which the Note is being converted
in the following name and to the following address:


 


	Issue to: 	__________________________________________________________________________________
	 	__________________________________________________________________________________
	 	__________________________________________________________________________________


 


Facsimile Number and Electronic Mail: _____________________________________________________________


 


Authorization: __________________________________________________________________________________


 


By: ___________________________________________________________________________________________


 


Title: __________________________________________________________________________________________


 


Dated: ________________________________________________________________________________________________


 


Account Number: ________________________________________________________________________________


  (if electronic book
entry transfer)


 


Transaction Code Number: _________________________________________________________________________


  (if electronic
book entry transfer)


 




     


     


    

 


ACKNOWLEDGMENT


 


The Company hereby
acknowledges this Conversion Notice and hereby directs VStock Transfer, LLC to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated November 1, 2017 from the Company and acknowledged and agreed to
by VStock Transfer, LLC.


 


	 	Ener-Core, Inc.
	 	 	 
	 	By:	 
	 	 	Name:
	 	 	Title: