Exhibit 10.1


 


SUBSCRIBER’S NAME:     ______________________________________________________________


 


QUANTUMSPHERE,
INC.


A NEVADA CORPORATION


 


10% SUBORDINATED CONVERTIBLE PROMISSORY
NOTES


 


SUBSCRIPTION BOOKLET


 


THE PRIVATE PLACEMENT OF SECURITIES
DESCRIBED HEREIN HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR UNDER ANY SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION. THIS PRIVATE PLACEMENT IS MADE PURSUANT
TO SECTION 4(2) OF SAID ACT, WHICH EXEMPTS FROM SUCH REGISTRATION TRANSACTIONS NOT INVOLVING A PUBLIC OFFERING. FOR THIS REASON,
THESE SECURITIES WILL BE SOLD ONLY TO INVESTORS WHO MEET CERTAIN MINIMUM SUITABILITY QUALIFICATIONS DESCRIBED HEREIN.


 


IN MAKING AN INVESTMENT DECISION
INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY AND THE SECURITIES OFFERED, INCLUDING THE MERITS AND RISKS INVOLVED.
AN INVESTOR SHOULD BE PREPARED TO BEAR THE ECONOMIC RISK OF AN INVESTMENT IN THE COMPANY FOR AN INDEFINITE PERIOD OF TIME BECAUSE
THE SECURITIES DESCRIBED HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR THE LAWS OF ANY OTHER JURISDICTION, AND, THEREFORE,
CANNOT BE SOLD UNLESS THEY ARE SUBSEQUENTLY REGISTERED OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THERE IS NO OBLIGATION OF
THE ISSUER TO REGISTER THE SECURITIES UNDER THE SECURITIES ACT OR THE LAWS OF ANY OTHER JURISDICTION.


 




    	 



    	 



    

 


QUANTUMSPHERE, INC.


 


NOTE PURCHASE AGREEMENT


 


10% SUBORDINATED CONVERTIBLE PROMISSORY
NOTES


 


THIS NOTE PURCHASE
AGREEMENT (this “Agreement”) is made and entered into as of the date set forth on the signature page
hereto by and between QuantumSphere, Inc., a Nevada corporation (the “Company”), and the investor whose
name appears on the signature page hereto (the “Investor”).


 


WHEREAS, the Company
is conducting a private placement (the “Private Placement”) of its 10% Subordinated Convertible Promissory
Notes (the “Notes”). The Notes are convertible into common stock of the Company pursuant to the terms
set forth in the Notes. In addition, the Notes include a detachable warrant to purchase shares of common stock in an amount equal
to fifty-percent (50.0%) of the face value of the Notes, based on the exercise terms set forth in the common stock purchase warrant
(the “Warrants”). The Notes and the Warrants are collectively referred to herein as the “Securities”;
and


 


Whereas,
the Private Placement is to be exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities
Act”), pursuant to Section 4(2) of the Securities Act and/or Rule 506 of Regulation D and is limited to persons who
qualify as “accredited investors” as defined by Rule 501(a) of the Securities Act;


 


By execution below,
the Investor acknowledges that the Company is relying upon the accuracy and completeness of the representations contained herein
as a condition of complying with its obligations under applicable securities laws and this Agreement.


 


1.             Subscription.
Subject to the terms and conditions of this Agreement, the Investor hereby agrees to subscribe for the Securities in the original
principal amount set forth on the signature page hereto (the “Subscription Amount”). Upon receipt of
the Subscription Amount by the Company via wire transfer to the account designated by the Company in Section 1(a) below, or by
check made payable to “QuantumSphere, Inc.”, the Company shall (a) issue to the Investor a Note in the original principal
amount of the Subscription Amount in substantially the form attached hereto as Exhibit A, (b) issue to the Investor
a Common Stock Purchase Warrant in substantially the form attached hereto as Exhibit B, (c) counter-execute the Security
Agreement in substantially the form attached hereto as Exhibit C, and (d) counter-execute the Registration Rights
Agreement in substantially the form attached hereto as Exhibit D.


 


(a)          QSI
Wire Transfer Details. QSI wiring details are as follows:


 


Wells Fargo
Bank, N.A.


2677 Park Ave.,
Tustin, CA 92782


ABA No.:
121000248


Swift (International):
WFBIUS6S


Account No.: 8098588943


Account Name:
QuantumSphere, Inc.        


 


(b)          Binding
Subscription; Right to Reject. Subject to the terms and conditions hereof, the Investor’s obligation to subscribe and
pay for the Securities shall be complete and binding upon the execution and delivery of this Agreement. The Company reserves the
right to reject all or any part of any subscription for the Securities for any reason or no reason, where the subscription for
the Securities shall be subject to the acceptance of this Agreement by the Company.


 


2.             Use
of Proceeds. The Company proposes to use the proceeds from the Securities to fund working capital. Accordingly, the Company’s
management will have significant flexibility in applying the net proceeds of the Securities. The Investor should not invest in
the Securities if the Investor is not willing to grant the Company’s management such discretion over the net proceeds of
the Securities.


 




    	-1-



    	 



    

 


3.             Representations
and Warranties – Investor. The Investor acknowledges and represents as follows:


 


(a)          That
the Investor is in a financial position to hold the Securities for an indefinite period of time and is able to bear the economic
risk and withstand a complete loss of the Investor’s investment in the Securities;


 


(b)          That
the Investor, either alone or with the assistance of the Investor’s own professional advisor, has such knowledge and experience
in financial and business matters that the Investor is capable of evaluating the merits and risk of an investment in the Securities
and has the net worth to undertake such risks;


 


(c)          That
the Investor has obtained, to the extent the Investor deems necessary, the Investor’s own personal professional advice with
respect to the risks inherent in the investment in the Securities, and the suitability of an investment in the Securities in light
of the Investor’s financial condition and investment needs;


 


(d)          That
the Investor believes that an investment in the Securities is suitable for the Investor based upon the Investor’s investment
objectives and financial needs, and the Investor has adequate means for providing for the Investor’s current financial needs
and personal contingencies and has no need for liquidity of investment with respect to the Securities;


 


(e)          That
the Investor has been given certain information regarding the Company, and has asked for and received all information that Investor
deems necessary and a reasonable person would deem necessary, to make an informed investment decision, and has relied upon that
information for purposes of this investment;


 


(f)          That
the Investor recognizes that the Securities as an investment involve a high degree of risk, including, but not limited to, the
risk of economic losses from operations of the Company;


 


(g)          That
the Investor realizes that there is no public market for the Securities and the Investor may be unable to liquidate the Investor’s
investment in the event of an emergency, or pledge the Securities as collateral for a loan;


 


(h)          That
the Investor realizes that (i) the purchase of the Securities is a long-term investment; (ii) the purchaser of the Securities must
bear the economic risk of investment for an indefinite period of time because the Securities have not been registered under the
Securities Act or under the securities laws of any state and, therefore, the Securities cannot be resold unless they are subsequently
registered under said laws or exemptions from such registrations are available; and (iii) the transferability of the Securities
requires conformity with the restrictions contained in Section 4 below and legends will be placed on the certificate(s) representing
the Securities, referring to the applicable restrictions on transferability;


 


(i)          That
a legend will be placed on the Note or other instrument representing the Securities substantially to the following effect:


 


THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY OTHER APPLICABLE FEDERAL OR
STATE SECURITIES LAWS, AND HAVE BEEN ISSUED AND SOLD IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS,
INCLUDING, WITHOUT LIMITATION, THE EXEMPTION CONTAINED IN SECTION 4(2) OF THE SECURITIES ACT. NEITHER THIS NOTE NOR SUCH SECURITIES
MAY BE SOLD OR TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT HAS BECOME AND IS THEN EFFECTIVE WITH RESPECT TO SUCH SECURITIES,
(2) THIS NOTE OR SUCH SECURITIES, AS APPLICABLE, IS TRANSFERRED PURSUANT TO RULE 144 PROMULGATED UNDER THE SECURITIES ACT (OR ANY
SUCCESSOR RULE) OR (3) THE COMPANY (AS HEREINAFTER DEFINED) HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT, TO
THE EFFECT THAT THE PROPOSED SALE OR TRANSFER OF THIS NOTE OR SUCH SECURITIES IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES
ACT AND ALL OTHER APPLICABLE FEDERAL OR STATE SECURITIES LAWS.


 




    	-2-



    	 



    

 


(j)          That
the Investor was not solicited to purchase the Securities by any means of general solicitation, including but not limited to the
following: (i) any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media,
or broadcast over television or radio; or (ii) any meeting where attendees were invited by any general solicitation or general
advertising; and


 


(k)          That
no person, firm or corporation has or will have, as a result of any act or omission by the Investor, any right, interest or valid
claim against the Company for any commission, fee or other compensation as a finder or broker, or in any similar capacity, in connection
with the transactions contemplated by this Agreement.


 


4.           Transfer
Restrictions. The Investor has been advised that the Securities have not been registered under the Securities Act or applicable
state securities laws and that the Securities are being offered and sold pursuant to exemptions from such laws and that the Company’s
reliance upon such exemptions is predicated in part on the Investor’s representations as contained herein. The Investor represents
and warrants that the Securities are being purchased for the Investor’s own account and for investment purposes only, and
without the intention of reselling or redistributing the same; the Investor has made no agreement with others regarding any of
the Securities; and the Investor’s financial condition is such that it is not likely that it will be necessary to dispose
of any of such Securities in the foreseeable future. The Investor further represents and agrees that if the Investor should later
desire to dispose of or transfer any of the Securities in any manner, the Investor shall not do so without first obtaining (a)
an opinion of qualified legal counsel acceptable to the Company that such proposed disposition or transfer may be lawfully made
without the registration of such Securities pursuant to the Securities Act and applicable state securities laws, or (b) such registration
(it being understood that, the Company’s shall not have any obligation to register the Securities for such purpose).


 


5.           Residency.
The Investor represents and warrants that the Investor is a bona fide resident of, is domiciled in and received the offer and made
the decision to invest in the Securities in the state set forth in Section 14 hereof, and the Securities are being purchased
by the Investor in the Investor’s name solely for the Investor’s own beneficial interest and not as nominee for, or
on behalf of, or for the beneficial interest of, or with the intention to transfer to, any other person, trust or organization.


 


6.           Investor
Suitability. The Investor represents and warrants that the Investor comes within one or more of the categories marked below,
and that for any category marked the Investor has truthfully set forth the factual basis or reason the Investor comes within that
category. ALL INFORMATION IN RESPONSE TO THIS SECTION WILL BE KEPT STRICTLY CONFIDENTIAL, EXCEPT FOR DISCLOSURES TO FEDERAL OR
STATE REGULATORY AUTHORITIES. The Investor agrees to furnish any additional information that the Company deems necessary in order
to verify the answers set forth below.


 


	 	Category I	             	The Investor is an individual (not a partnership, corporation, etc.) whose individual net worth, or joint net worth with the Investor’s spouse, presently exceeds $1,000,000, exclusive of the Investor’s primary residence.  In the calculation of net worth (the amount of assets in excess of liabilities):
	 	 	 	 	 
	 	 	 	·	The Investor may include equity in personal property and real estate, expressly excluding the Investor’s principal residence, cash, short-term investments, stocks and securities.  Equity in personal property and real estate should be based on the fair market value of such property less debt secured by such property.
	 	 	 	 	 
	 	 	 	·	The amount of debt secured by the primary residence, up to its estimated fair market value, is not included as a liability, unless the person incurred debt within 60 days before buying securities in the unregistered offering for the purpose of buying those securities and not for buying the residence. In that situation, the amount of debt borrowed during that 60-day period must be included as a liability.


 




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	 	 	 	·	Any debt secured by the primary residence in excess of the estimated fair market value of the home is included as a liability. 
	 	 	 	 	 
	 	Category II	             	The Investor is an individual (not a partnership, corporation, etc.) who had an individual income in excess of $200,000 in 2013 and 2014, or joint income with his/her spouse in excess of $300,000 in 2013 and 2014, and has a reasonable expectation of reaching that income level in 2015.
	 	 	 	 
	 	Category III	             	The Investor is a bank, savings and loan, insurance company; registered broker or dealer, registered investment company; registered business development company; licensed small business investment company (“SBIC”); or employee benefit plan within the meaning of Title I of ERISA whose plan fiduciary is either a bank, savings and loan, insurance company or registered investment advisor or whose total assets exceed $5,000,000.
	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	(describe entity)	 
	 	 	 	 	 
	 	Category IV	             	The Investor is a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940.
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	(describe entity)	 
	 	 	 	 	 
	 	Category V	             	The Investor is a non-profit organization within the meaning of Section 501(c)(3) of the Internal Revenue Code, corporation, business trust, or partnership, not formed for the purpose of acquiring the securities offered, with total assets in excess of $5,000,000.
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	(describe entity)	 
	 	 	 	 	 
	 	Category VI	             	The Investor is a trustee for a trust that is revocable by the grantor at any time (including an IRA) and the grantor qualified under either Category I or Category II above.  A copy of the declaration of trust or trust agreement and a representation as to the net worth or income of the grantor is enclosed.
	 	 	 	 	 
	 	Category VII	             	The Investor is an entity all the equity owners of which are “accredited investors” within one or more of the above categories, other than Category IV or Category V.  If relying upon this category alone, each equity owner must complete a separate copy of this Agreement.
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	(describe entity)	 
	 	 	 	 	 	 


 




    	-4-



    	 



    

 


7.           Knowledge
and Experience. The Investor further represents and warrants that the Investor has such knowledge and experience in financial
and business matters so as to be capable of evaluating the merits and risks of an investment in the Securities and protecting the
Investor’s own interests in this transaction, and does not desire to utilize the services of any other person in connection
with evaluating such merits and risks.


 


8.           Money
Laundering. The Investor further represents and warrants that it is not, nor is any person or entity controlling, controlled
by or under common control with the Investor, a Prohibited Person (as defined below), and that the funds used by the Investor exclude
any funds received or derived from a Prohibited Person. All information provided with respect to the identity of the Investor is
accurate, and all evidence of such identity is genuine. The Investor agrees to provide any information that may be requested by
the Company or any other person with responsibility for implementing measures to prevent money laundering or terrorist financing
to comply with its anti-money laundering program and related responsibilities from time to time. “Prohibited Person”
means a person involved in money laundering or terrorist activities, including those persons or entities that are included on any
relevant lists maintained by the U.S. Treasury Department’s Office of Foreign Assets Control, any senior foreign political
figures, their immediate family members and close associates, and any foreign shell bank.


 


9.           Need
for Additional Financing. The Investor acknowledges and understands that the Company may need to raise additional financing
(either through private or public offerings of the equity or convertible debt securities of the Company or through loans, lines
of credit and other forms of indebtedness by the Company). The issuance of additional equity or convertible debt securities will
have the effect of reducing the relative interests of the Investor and may require the grant of certain rights, preferences or
privileges superior to those of the Investor. In the event the Company is required to raise additional funds, the Investor acknowledges
and understands that there is no assurance that the Company will be able to obtain the additional funds necessary on terms favorable
to the Company, or at all, and that, if adequate funds are not available or are not available on acceptable terms, the Company
may not be able to continue as a going-concern.


 


10.          Reliance
on Representations and Warranties; Changes in Information. The Investor is informed of the significance to the Company of the
foregoing representations, agreements and consents, and they are made with the intention that the Company will rely on them. The
Investor further represents and warrants that the Investor's representations and warranties do not contain any untrue statement
of material fact or omit to state a material fact necessary in order to make said representations and warranties not misleading.
The Investor further agrees that, if there should be any change in the information provided by the Investor to the Company (whether
pursuant to this Agreement or otherwise), the undersigned will immediately furnish such revised or corrected information in writing
to the Company.


 


11.          Representations
and Warranties – Company. The Company represents and warrants as follows:


 


(a)          Organization,
Good Standing and Qualification. The Company is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Nevada. The Company has all requisite corporate power and authority to own and operate its properties
and assets, to execute and deliver this Agreement, to issue and sell the Securities, and to carry out the provisions of this Agreement
and to carry on its business as presently conducted. The Company is duly qualified to do business and is in good standing as a
foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to do so would not have a material adverse effect
on the Company or its business.


 


(b)          Compliance
with Other Instruments. The Company is not in violation or default of any term of its charter documents, each as amended, or
of any provision of any mortgage, indenture, contract, lease, agreement, instrument or contract to which it is party or by which
it is bound or of any judgment, decree, order or writ other than any such violation that would not have a material adverse effect
on the Company. The execution, delivery, and performance of and compliance with this Agreement, and the issuance and sale of the
Securities will not, with or without the passage of time or giving of notice, result in any such material violation, or be in conflict
with or constitute a material default under any such term or provision, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company or the suspension, revocation, impairment, forfeiture
or nonrenewal of any permit, license, authorization or approval applicable to the Company, its business or operations or any of
its assets or properties.


 




    	-5-



    	 



    

 


(c)          Authorization;
Binding Obligations. All corporate action on the part of the Company, its officers, directors and stockholders necessary for
the authorization of this Agreement, and the exhibits hereto, the performance of all obligations of the Company hereunder and thereunder
at the closing and the authorization, sale, issuance and delivery of the Securities pursuant hereto has been taken. The Agreement
when executed and delivered, will be valid and binding obligations of the Company enforceable in accordance with their terms.


 


(d)          Compliance
with Laws; Permits. The Company is not in violation of any applicable statute, rule, regulation, order or restriction of any
domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership
of its properties, which violation would materially and adversely affect the business, assets, liabilities, financial condition,
operations or prospects of the Company. No governmental orders, permissions, consents, approvals or authorizations are required
to be obtained and no registrations or declarations are required to be filed in connection with the execution and delivery of this
Agreement, except such as have been duly and validly obtained or filed, or with respect to any filings that must be made after
the closing, as will be filed in a timely manner. The Company has all permits, licenses and any similar authority necessary for
the conduct of its business as now being conducted by it.


 


(e)          Disclosure
Documentation - Company Reports as Filed Pursuant to the Securities Exchange Act of 1934, as amended. The Company has delivered
to Investor the Company’s period reports filed with the Securities and Exchange Commission, including its Transition Report
on Form 10-KT filed on September 26, 2014, as updated through its Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2014 filed on November 14, 2014, its Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2014
filed on February 17, 2015, and its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 filed on May 14,
2015 (the “Disclosure Documentation”). The financial statements and notes, as well as the narrative, in the Disclosure
Documents fairly presents the financial condition and the results of operations, balance sheet, and cash flow of the Company as
at the respective dates of and for the periods referred to in such financial statements, all in accordance with GAAP, expressly
subject to fiscal year-end adjustments (the effect of which will not, individually or in the aggregate, be materially adverse)
and the absence of notes (that, if presented, would not differ materially from those included in the respective balance sheets).


 


(f)          Tax
Matters. Except for matters that would not have a Material Adverse Effect (as defined herein) on the Company, to the knowledge
of the undersigned, any and all Tax Returns required to be filed with respect to the Company for any period ending on or prior
to the execution date of this Agreement have been timely filed (taking into account any extension of time to file granted to or
obtained on behalf of the Company), all such federal and state, income and non-income Tax Returns were true, correct and complete
in all material respects and were prepared in substantial compliance with all applicable Tax laws and regulations, all Taxes shown
to be payable on such Tax Returns have been paid or will be paid by the Company prior to the date of execution of this Agreement
and no deficiency for any material amount of Tax has been asserted or assessed by a Tax Authority against the Company. The Company
is not currently the beneficiary of any extension of time within which to file any Tax Return, and no written claim has ever been
made by a Taxing Authority in a jurisdiction where the Company does not file Tax Returns that the Company is or may be subject
to taxation by that jurisdiction. Additionally, the Company makes the following warranties and representations with respect to
Tax Matters:


 


(i)          The
Company has withheld and remitted all material Taxes required to have been withheld and remitted by it on or prior to the execution
of this Agreement in connection with any amounts paid or owing to any employee, independent contractor, creditor, member or other
third party.


 


(ii)         The
Company does not expect any Tax Authority to assess any additional Taxes for any period for which Tax Returns have been filed by
the Company on or prior to the date of execution of this Agreement.


 




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(iii)          No
federal, state, local or non-U.S. Tax audits, administrative or judicial Tax proceedings are pending or being conducted with respect
to the Company, and the Company has not received in writing from any federal, state, local or non-U.S. Tax Authority (including
jurisdictions where the Company has not filed Tax Returns) any (1) notice indicating an intent to open an audit or other review,
(2) request for information related to Tax matters, or (3) notice of deficiency or proposed adjustment for any amount of Tax proposed,
asserted, or assessed by any Tax Authority against the Company.


 


(iv)          For
purposes of this Agreement the following definitions apply:


 


(1)         “Material
Adverse Effect” means a material adverse effect on the business or financial condition of the Company.


 


(2)         “Tax
Authority” shall mean any governmental agency, board, bureau, body, department or authority of any United States federal,
state or local jurisdiction or any foreign jurisdiction, having or purporting to exercise jurisdiction with respect to any Tax.


 


(3)         “Tax
Returns” shall mean all reports, returns, declarations, statements, claims for refund or other information required to
be supplied to a taxing authority in connection with Taxes.


 


(4)         “Taxes”
shall mean all taxes, charges, fees, levies or other similar assessments or liabilities, including income, gross receipts, ad valorem,
premium, value-added, excise, real property, personal property, sales, use, transfer, withholding, employment, unemployment, insurance,
social security, business license, business organization, environmental, workers compensation, payroll, profits, license, lease,
service, service use, severance, stamp, occupation, windfall profits, customs, duties, franchise and other taxes imposed by the
United States of America or any state, local or foreign government, or any agency thereof, or other political subdivision of the
United States or any such government, and any interest, fines, penalties, assessments or additions to tax resulting from, attributable
to or incurred in connection with any tax or any contest or dispute thereof.


 


(g)          Intellectual
Property. The Company has sufficient title to and ownership of, or other rights to use, all trade secrets, and, to its knowledge,
copyrights, information, proprietary rights, trademarks, service marks and trade names in each case necessary for its business
as now conducted without any material conflict with or infringement of the rights of others, except where such failures or conflicts
would not reasonably be expected to have a Material Adverse Effect. As of the date of this Agreement, the Company has not received
any written, or to its knowledge, oral communications alleging that the Company has violated or, by conducting its business as
proposed, would violate any of the trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights
of any other person or entity, except for such violations as would not reasonably be expected to have a Material Adverse Effect.


 


12.         Miscellaneous.


 


(a)          Governing
Law and Jurisdiction. This Agreement shall be governed in all respects by the laws of the State of Nevada, without regard to
any provisions thereof relating to conflicts of laws among different jurisdictions. The Investor hereby irrevocably and unconditionally
submits to the non-exclusive jurisdiction of the courts of the State of California. The Investor hereby agrees that all actions
or proceedings arising out of or relating to this Agreement or the transactions contemplated hereby must be litigated exclusively
in any such state or federal court, and accordingly, and the Investor irrevocably waives any objection which it may now or hereafter
have to the laying of the venue of any such litigation in any such court.


 


(b)          Successors
and Assigns. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon,
the successors, assigns, heirs, executors and administrators of the parties hereto; provided, however, that the rights of Investor
to purchase the Securities shall not be assignable without the consent of the Company. This Agreement shall not be construed so
as to confer any right or benefit on any party not a party hereto, other than their respective successors, assigns, heirs, executors
and administrators.


 




    	-7-



    	 



    

 


(c)          Entire
Agreement; Amendment. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof and supersede all prior written or oral agreements
and understandings relating thereto. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination
is sought. This Agreement integrates all prior oral and written negotiations between the parties relating to the purchase of the
Securities by Investor and is the final agreement between the parties regarding same.


 


(d)          Notices,
Etc. All notices under this Agreement shall be sufficiently given for all purposes if made in writing and delivered personally,
sent by documented overnight delivery service or, to the extent receipt is confirmed, facsimile or other electronic transmission,
to following addresses and numbers.


 


Notices
to the Investor shall be addressed to:


 


                                                  


                                                  


                                                  


 


with a
copy to:


 


                                                  


                                                  


                                                  


 


or at
such other address and to the attention to such other person as the Investor may designate by written notice to the Company.


 


Notices
to the Company shall be addressed to:


 


Kevin
D. Maloney


Chief
Executive Officer and President


QuantumSphere,
Inc.


2905 Tech
Center Dr.


Santa
Ana, CA 92705


Facsimile:
714-545-6265


 


with a
copy to:


 


Gregory
L. Hrncir, Esq.


Chief
Strategy Officer


QuantumSphere,
Inc.


2905 Tech
Center Dr.


Santa
Ana, CA 92705


Facsimile:
714-545-6265


 


or at
such other address and to the attention of such other person as the Company may designate by written notice to the Investor.


 


(e)          Delays
or Omissions. No delay or omission to exercise any right, power or remedy occurring to any party upon any breach or default
of the other party under this Agreement shall impair any such right, power or remedy of such first party, nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach
or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must
be in writing and shall be effective only to the extent specifically set forth in such writing or as provided in this Agreement.


 




    	-8-



    	 



    

 


(f)          Severability.
In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without such provision; provided that no such severability shall
be effective if it materially changes the economic benefit of this Agreement to any party.


 


(g)          Counterparts.
This Agreement may be executed at different times and in one or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.


 


13.         Subscription
Amount. The Parties agree that Investor has properly subscribed for the purchase of Securities in the following Subscription
Amount, where a Note shall be issued in the original principal amount (the Subscription Amount):


 


$____________________.


 


14.         Residency.
My state of residence, the state I received the offer to invest, and the state I made the decision to invest in the Securities
is:


 


                                                                                                                         .



 


15.         Ownership
of Securities. The Securities shall be issued in the following manner:


 


Place an “X” in one space below:


 


(a)                      
Individual Ownership


(b)                      
Community Property


(c)                       Joint
Tenant with Right of Survivorship (both parties must sign)


(d)                      Trust


(e)                      Other


 


16.         Registration
of the Securities. THE SECURITIES SUBSCRIBED FOR HEREIN SHOULD BE REGISTERED AS FOLLOWS:


 


                                                                                                                                                                                                         .


Please print above
the exact name(s) in which the Securities are to be held.


 


[SIGNATURE
PAGE FOLLOWS]


 




    	-9-



    	 



    

 


SIGNATURE


 


The Investor hereby represents that the
investor has read this entire Note Purchase Agreement and by the signature below agrees to the terms hereof.


 





 


	Date:	 	 	Address to Which Correspondence Should Be Directed:
	 	 	 	 
	By:	 	 	 
	 	 	 	Street Address
	 	 	 	 
	Name:	 	 	 
	 	 	City, State and Zip Code


 


	Title (if applicable):	 	 	 
	 	 	Social Security Number
	 	 	 
	 	 	 
	 	 	Telephone Number
	 	 	 
	 	 	 
	 	 	Email Address







 




    	-10-



    	 



    

 


ACCEPTANCE


 


The subscription for the Securities is hereby accepted by QuantumSphere,
Inc., a Nevada corporation, as of the date set forth below.


 


	QUANTUMSPHERE, INC.	 
	 	 	 
	By:	 	 
	 	Kevin D. Maloney	 
	 	Chief Executive Officer and President	 
	 	 	 
	Date:	 	 


 




    	-11-



    	 



    

 


EXHIBIT A


 


10% SUBORDINATED CONVERTIBLE PROMISSORY
NOTE


 




    	-12-



    	 



    

 


NEITHER THIS 10% SUBORDINATED CONVERTIBLE
PROMISSORY NOTE (THIS “NOTE”), NOR THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF, HAS BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY OTHER APPLICABLE FEDERAL OR STATE SECURITIES LAWS,
AND HAVE BEEN ISSUED AND SOLD IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS, INCLUDING, WITHOUT LIMITATION,
THE EXEMPTION CONTAINED IN SECTION 4(2) OF THE SECURITIES ACT. NEITHER THIS NOTE NOR SUCH SECURITIES MAY BE SOLD OR TRANSFERRED
UNLESS (1) A REGISTRATION STATEMENT HAS BECOME AND IS THEN EFFECTIVE WITH RESPECT TO SUCH SECURITIES, (2) THIS NOTE OR SUCH SECURITIES,
AS APPLICABLE, IS TRANSFERRED PURSUANT TO RULE 144 PROMULGATED UNDER THE SECURITIES ACT (OR ANY SUCCESSOR RULE) OR (3) THE COMPANY
(AS HEREINAFTER DEFINED) HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT, TO THE EFFECT THAT THE PROPOSED SALE
OR TRANSFER OF THIS NOTE OR SUCH SECURITIES IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND ALL OTHER APPLICABLE FEDERAL
OR STATE SECURITIES LAWS.


 


	
         US$_____________
	May 28, 2015


 


QUANTUMSPHERE, INC.


 


10% SUBORDINATED CONVERTIBLE PROMISSORY
NOTE


 


FOR VALUE RECEIVED, QuantumSphere,
Inc., a Nevada corporation (the “Company”), promises to pay to the order of ____________________________,
an individual, or such person’s successors and assigns (collectively, the “Holder”), the principal amount
of _______________________________ Dollars (US$_______________) (“Principal”), together with all accrued and
unpaid interest hereunder, on or before the earlier of (i) one (1) year from the date of issuance
of the Note, or (ii) closing of an equity financing of Four Million Dollars ($4,000,000) or more (“Qualifying Equity
Financing”)(the “Maturity Date”). Interest shall accrue and be payable as specified in
Section 2.


 


A.           This
Note is one of a series (the “Series”) of notes designated as the “10% Subordinated Convertible Promissory
Notes”.


 


B.           The
obligations due under this Note and the other notes in the Series are secured by a Security Agreement (the “Security Agreement”)
dated as of the date hereof and executed by the Company for the benefit of each Holder, and junior in priority to the senior lien
of Novus Capital or any successive third party lender who advances the Company not less than $1,000,000 of senior debt financing
(the “Senior Lender or Senior Debt Financing”). Additional rights of Holder and the other holders of
notes in the Series are set forth in the Security Agreement.


 


C.           This
Note is convertible into securities of the Company as provided herein.


 




    	-13-



    	 



    

 


The following is a statement of the rights
of the Holder and certain conditions to which this Note is subject, and to which the Holder, by the acceptance of this Note, agrees:


 


1.            Definitions.
As used in this Note, the following capitalized terms have the following meanings:


 


(a)          “Business
Day” means a day (i) other than Saturday or Sunday, and (ii) on which commercial banks are open for business in the State
of California.


 


(b)          “Default
Rate” means an interest rate of eighteen percent (18%) per annum.


 


(c)          “Event
of Default” has the meaning given in Section 6 hereof.


 


(d)          “Highest
Lawful Rate” means the maximum non-usurious rate of interest, as in effect from time to time, which may be charged, contracted
for, reserved, received or collected by the Holder in connection with this Note under applicable law.


 


(e)          “Holder”
shall mean the person or entity specified in the introductory paragraph of this Note or any person or entity who shall at the time
be the registered holder of this Note.


 


(f)          “Note”
shall mean this 10% Subordinated Convertible Promissory Note.


 


(g)          “Obligations”
means all debts, liabilities and obligations of the Company to the Holder under this Note and the Security Agreement, including
all unpaid Principal of this Note, all Interest accrued hereon, and all other amounts payable by the Company to the Holder hereunder
and under the Security Agreement, whether due or to become due, absolute or contingent, liquidated or unliquidated, determined
or undetermined.


 


2.            Interest.
Interest shall accrue on all outstanding Principal from the date hereof until paid at a rate of Ten Percent (10%) per annum (“Interest”).
Interest shall be computed on the basis of the actual number of days elapsed and a year of three hundred sixty (360) days. During
the existence of an Event of Default, Interest shall accrue on all outstanding Principal at the Default Rate.


 


3.            Prepayment.
The Principal and Interest may not be prepaid by the Company without the prior written consent of the Holder.


 


4.            Conversion.


 


(a)          Automatic
Conversion. All outstanding principal and accrued interest under the Note will be automatically converted into shares of common
stock of the Company at the closing of a Qualifying Equity Offering, provided such Qualifying Equity Offering closes prior to the
one-year anniversary of issuance of the Note (the “Automatic Conversion Date”), based upon a conversion price
equal to the lesser of (i) a twenty percent (20.0%) discount to the price per share of common stock of the Qualifying Equity
Financing, or (ii) a twenty percent (20.0%) discount to the closing bid price of the Company’s common stock, as listed
for trading on the Over The Counter Bulletin Board, on May 28, 2015 (the “Conversion Rate”).


 




    	-14-



    	 



    

 


(b)          No
more than five (5) days before the Automatic Conversion Date, the Company shall provide written notification to the Holder of the
price per share of the Qualifying Equity Offering, as well as a description of the number of shares of common stock to be issued
to Holder based upon the then outstanding principal and accrued interest under the Note divided by the Conversion Rate. At the
closing of the Qualifying Equity Financing, the Company shall issue instructions to the transfer agent to issue the applicable
number of shares of common stock to Holder. In the case of an automatic conversion pursuant hereto, the Units shall be deemed to
have been issued immediately prior to the close of the Merger and the Financing. In the case of a voluntary conversion, the Units
shall be deemed to have been issued on the date the notice of conversion is received by the Company. The Holder shall be treated
for all purposes as the holder of record of the Units unless the Holder provides the Company with written instructions to the contrary
or as otherwise required by law.


 


(c)          Voluntary
Conversion. The Holder may, at any time following the issuance of this Note and prior to the Closing of a Qualifying Equity
Financing, convert all or some of the outstanding principal and accrued interest under this Note at a conversion price equal to
the closing bid price of the Company’s common stock on May 28, 2015 (the “Voluntary Conversion”). To effectuate
the conversion, Holder shall complete and execute the Notice of Conversion attached hereto as Exhibit A attached hereto and return
it along with the original note to the Company. For interest calculation purposes, the Holder will accrue interest on this Note
through the date the Notice of Conversion is received by the Company, upon which the Note will be converted into shares of common
stock and the Company will issue instructions to the transfer agent to issue the applicable number of shares of common stock to
Holder.


 


(d)          If
the Company shall at any time from the date hereof through the repayment of this Note in full or the earlier conversion in full
hereof, by reclassification or otherwise, change the Company’s common stock into the same or a different number of securities
of any class or classes, or effect a split or reverse split of the Company’s common stock, this Note, as to the unpaid Principal
and Interest, shall thereafter be deemed to evidence the right to be issued (upon the conversion of this Note) an adjusted number
of shares of common stock as would have been issuable as a result of such change with respect to the Company’s common stock
if the Holder held such shares of common stock prior to such change. Whenever any event referenced in the first sentence of this
subsection shall become effective or be earlier approved by the Board of Directors of the Company, the Company shall promptly mail
by registered or certified mail, return receipt requested, to the Holder of this Note notice of such adjustment or adjustments
setting forth the adjustment to the Conversion Rate, and setting forth a brief statement of the facts requiring such adjustment
and setting forth the computation by which such adjustment was made. Such notice, in the absence of manifest error, shall be conclusive
evidence of the correctness of such adjustment.


 


(e)          The
Company covenants that until the repayment in full of this Note or the earlier conversion in full hereof, the Company will reserve
from its respective authorized and unissued shares of common stock a sufficient number of shares, free of preemptive rights, to
provide for the issuance of the shares of common stock upon the full conversion of this Note. The Company is required to have authorized
and reserved such number of shares of Company common stock as is actually issuable upon full conversion of the Note and exercise
of the detachable warrant (“Warrant”) that are included with the purchase of the Note that are exercisable into that
number of shares of common stock determined by the Conversion Rate in effect from time to time. The Company represents that the
shares of common stock (i) into which the Notes may be converted, and (ii) issuable upon exercise of the Warrant may be exercised,
shall be duly and validly issued, fully paid, and nonassessable. In addition, if the Company shall issue any securities or make
any change to its capital structure which would change the number of shares issuable upon conversion of the Note and exercise of
the Warrant, then in such event the Company shall, at the same time make proper provision so that thereafter there shall be a sufficient
number of shares of common stock authorized and reserved, free from preemptive rights, for conversion of the Note and exercise
of the Warrant. The Company agrees that its issuance of this Note shall constitute full authority to the respective officers and
agents of the Company who are charged with the duty of executing certificates, if any, to execute and issue the necessary shares
of common stock in accordance with the terms and conditions of this Note relating to conversion of the Note.


 




    	-15-



    	 



    

 


(f)          Upon
any partial conversion of this Note pursuant to Section 3(c), a new Note containing the same date, terms, and provisions
shall, at the request of the Holder, be issued by the Company to the Holder for the Principal balance of this Note and the Interest
which shall not have theretofore been converted or paid.


 


(g)          No
fractional shares of common stock will be issued upon conversion, but the number of such shares issuable shall be rounded to the
nearest whole share.


 


(h)          Nothing
contained in this Note shall be construed as conferring upon the Holder or any other person or entity the right to vote or to consent
or to receive notice as a shareholder in respect of meeting of shareholders for the election of directors of the Company or any
other matters or any rights whatsoever as a shareholder of the Company; and no dividends shall be payable or accrued in respect
of this Note.


 


5.            Highest
Lawful Rate. Notwithstanding any provision to the contrary contained herein, if during any period for which Interest is computed
hereunder, the amount of Interest computed on the basis provided for in this Note, together with all fees, charges and other payments
which are treated as interest under applicable law, as provided for herein or in any other document executed in connection herewith,
would exceed the amount of such Interest computed on the basis of the Highest Lawful Rate, the Company shall not be obligated to
pay, and the Holder shall not be entitled to charge, collect, receive, reserve or take Interest in excess of the Highest Lawful
Rate, and during any such period the Interest payable hereunder shall be computed on the basis of the Highest Lawful Rate.


 


6.            Make
Good Provision. During the term of this Note, including at any time prior to an Automatic Conversion or Voluntary Conversion
of this Note by Holder, if the Company elects to undertake another convertible debt financing on terms more favorable to the terms
of the Note and the Warrant, then in such event the terms of the Note and the Warrant shall be modified to reflect the more favorable
convertible debt financing terms.


 


7.            Events
of Default. Any of the following events which shall occur shall constitute an “Event of Default”:


 


(a)          the
Company shall fail to pay when due any amount of principal or interest hereunder or other amount payable hereunder or under the
Security Agreement, where such failure continues for five (5) days after receipt of written notice from Holder specifying such
failure; or


 


(b)          the
Company shall: (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all
or any material part of its property; (ii) admit in writing its inability to pay its debts generally as they become due; (iii)
make a general assignment for the benefit of any of its creditors; (iv) be dissolved or liquidated in full or in part; (v) commence
a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment
of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it; or (vi)
take or approve any action for the purpose of effecting any of the foregoing; or


 


(c)          proceedings
for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or any material part of its property,
or a voluntary or involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the
Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect, shall be commenced
and such involuntary case or proceeding shall not be dismissed or discharged within sixty (60) days of commencement; or an order
for relief shall be entered against the Company under the federal bankruptcy laws as now or hereafter in effect; or


 




    	-16-



    	 



    

 


(d)          a
default or event of default under any agreement of the Company shall occur that gives the holder of any other indebtedness for
borrowed money of the Company the right to accelerate the maturity of such indebtedness (subject to any applicable cure periods
set forth therein, if any); or


 


(e)          the
Company shall fail to observe or perform any other covenant, obligation, condition or agreement contained in this Note or the Security
Agreement and (i) such failure shall continue for fifteen (15) days, or (ii) if such failure is not curable within such fifteen
(15) day period, but is reasonably capable of cure within thirty (30) days, either (A) such failure shall continue for thirty (30)
days or (B) the Company shall not have commenced a cure in a manner reasonably satisfactory to Holder within the initial fifteen
(15) day period; or


 


(f)          any
representation or warranty made or furnished by or on behalf of Company to Holder in writing in connection with this Note or the
Security Agreement shall be false, incorrect, incomplete or misleading in any material respect when made or furnished.


 


Upon the occurrence of any Event of Default,
(x) the Holder may at any time declare all unpaid Obligations to be immediately due and payable without presentment, demand, protest
or any other notice of any kind, all of which are hereby expressly waived by the Company; (y) the Holder may exercise all rights
and remedies available to the Holder hereunder and under the Security Agreement and applicable law, and (z) in the case of an Event
of Default described in Section 7(b) or 7(c), all unpaid Obligations shall automatically become immediately due and
payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly and irrevocably
waived by the Company.


 


8.            Successors
and Assigns. Subject to the restrictions on transfer described in Section 10, the rights and obligations of the Company
and the Holder hereunder shall be binding upon and inure to the benefit of the successors, assigns, heirs, administrators and transferees
of the parties. Due to the reliance by the Company on the exemption from registration provided by Rule 506 of Regulation D, as
promulgated pursuant to the Securities Act, and the representation by Holder to the Company that Holder is an “accredited
investor” as such term is defined by Rule 501(a) of Regulation D, no assignment of this Note shall be made to any person
who is not an “accredited investor”, where any assignment or transfer of this Note, or any attempt thereof, shall be
null and void.


 


9.            Amendments
and Waivers. This Note may not be amended or modified, nor may any of its terms be waived, except by written instruments signed
by the Company and Holder. Each waiver or consent under any provision hereof shall be effective only in the specific instances
for the purpose for which given.


 


10.           Transfer
of this Note. Transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf
of the Company. Prior to presentation of this Note for registration of transfer, the Company shall treat the registered Holder
hereof as the owner and the Holder of this Note for the purpose of receiving all payments of Principal and Interest hereon and
for all other purposes whatsoever, whether or not this Note shall be overdue and the Company shall not be affected by notice to
the contrary.


 




    	-17-



    	 



    

 


11.          Assignment
or Delegation by the Company. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned or
delegated in whole or in part by the Company without the prior written consent of Holder.


 


12.          Notices.
Except as otherwise provided herein, all notices, requests, demands, consents, instructions or other communications to or upon
the Company or Holder under this Note shall be in writing and mailed or delivered to each party to its address set forth in the
Security Agreement (or to such other address as the recipient of any notice shall have notified the other in writing). All such
notices and communications shall be effective (a) when sent by a commercially recognized means of overnight delivery providing
confirmation of receipt, on the business day following the deposit with such service; (b) when mailed, by registered or certified
mail, first class postage prepaid and addressed as aforesaid through the United States Postal Service, upon receipt; and (c) when
delivered by hand, upon delivery.


 


13.          Expenses;
Waivers. If action is instituted to collect this Note, the Company promises to pay on demand all costs and expenses, including
reasonable attorneys’ fees and costs, incurred in connection with such action. The Company hereby waives notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this
instrument.


 


14.          Further
Assurance. Each party shall execute, acknowledge, deliver, file, notarize and register (at its own expense) all documents,
instruments, certificates, agreements and assurances and provide all information and take or forbear from all such action as the
other party may reasonably deem necessary or appropriate to achieve the purposes of the Note or satisfy the obligations of the
Company hereunder.


 


15.          Severability.
Whenever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under all applicable
laws and regulations. If, however, any provision of this Note shall be prohibited by or be invalid under any such law or regulation
in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such law or
regulation, or, if for any reason it is not deemed so modified, it shall be ineffective and invalid only to the extent of such
prohibition or invalidity without affecting the remaining provisions of this Note, or the validity or effectiveness of such provision
in any other jurisdiction.


 


16.          Cumulative
Rights, etc. The rights, powers and remedies of Holder under this Note and the Security Agreement shall be in addition to all
rights, powers and remedies given to Holder by virtue of any applicable law, rule or regulation of any governmental authority,
the Security Agreement or any other agreement, all of which rights, powers, and remedies shall be cumulative and may be exercised
successively or concurrently without impairing Holder’s rights hereunder. The Company waives any right to require Holder
to proceed against any person or entity or to exhaust any collateral or to pursue any remedy in Holder’s power.


 


17.          No
Waiver. No course of dealing between the Company and the Holder or any delay on the part of the Holder in exercising any rights
or remedies shall operate as a waiver of any such right or remedy of the Holder.


 


18.          Construction.
Each of the Security Agreement and this Note is the result of negotiations among, and has been reviewed by, the Company, Holder
and their respective counsel. Accordingly, this Note and the Security Agreement shall be deemed to be the product of all parties
hereto, and no ambiguity shall be construed in favor of or against the Company or Holder.


 




    	-18-



    	 



    

 


19.          Other
Interpretive Provisions. References in this Note and the Security Agreement to any document, instrument or agreement (a) includes
all exhibits, schedules and other attachments thereto, (b) includes all documents, instruments or agreements issued or executed
in replacement thereof, and (c) means such document, instrument or agreement, or replacement or predecessor thereto, as amended,
modified and supplemented from time to time and in effect at any given time. The words “hereof,” “herein”
and “hereunder” and words of similar import when used in this Note or the Security Agreement refer to this Note or
the Security Agreement, as the case may be, as a whole and not to any particular provision of this Note or the Security Agreement,
as the case may be. The words “include” and “including” and words of similar import when used in this Note
or the Security Agreement shall not be construed to be limiting or exclusive.


 


20.          Governing
Law and Jurisdiction. THIS NOTE AND ALL ACTIONS ARISING OUT OF OR IN CONNECTION WITH THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEVADA, WITHOUT REGARD TO THE CONFLICTS OF LAW RULES OF THE STATE OF NEVADA
OR OF ANY OTHER JURISDICTION. THE HOLDER HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION
OF THE COURTS OF THE STATE OF CALIFORNIA. THE HOLDER AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY MUST BE LITIGATED EXCLUSIVELY IN ANY SUCH STATE OR FEDERAL COURT, AND ACCORDINGLY,
THE HOLDER IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH LITIGATION
IN ANY SUCH COURT.


 


21.          Waiver
of Jury Trial. EACH OF THE COMPANY AND THE HOLDER, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO A TRIAL BY JURY AS TO ANY ISSUE RELATED HERETO IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING
TO THIS NOTE.


 


22.          Subordination.
Holder expressly agrees to the subordination of this Note to the Senior Debt Financing held by the Senior Lender, and where no
further action need to be taken by the Company or the Holder in connection with the subordination.


 




    	-19-



    	 



    

  


IN WITNESS WHEREOF, this Note has been executed by the Company
as of the date first above written.


 


	The Company:	 
	 	QuantumSphere, Inc.,
	 	a Nevada Corporation
	 	 	 
	 	By:	 
	 	 	Kevin D. Maloney
	 	Title:	CEO & President


 


Acknowledged and agreed to this 28th day of May,
2015.


 


The Holder:


 


	 	 
	 	Signature


 


	 	Name:	 


 


	 	Title (if applicable):	 


 




    	-20-



    	 



    

 


EXHIBIT A


NOTICE OF CONVERSION


OF


10% SUBORDINATED CONVERTIBLE PROMISSORY
NOTE


 


(To be Executed by
the Registered Holder in Order to Convert the Note)


 


FROM:                                                                                                                                               
 (“Holder”)


 


DATE:                                                                                                                                  
 (the “Conversion Date”)


 


		RE:	Conversion of the 10% Subordinated Convertible Promissory Note (the “Note”)
of QuantumSphere, Inc. (the “Company”) into shares of common stock (defined below)



 


 


The captioned Holder
hereby gives notice to the Company, pursuant to the above referenced Note that the Holder elects to convert $________________ of
the principal amount of, and accrued and unpaid interest on, the Note into fully paid and non-assessable shares of common stock
based upon the conversation rate equal to the lesser of (i) a twenty percent (20.0%) discount to the price per share of common
stock of the Qualifying Equity Financing (as defined in the Note), or (ii) a twenty percent (20.0%) discount to the closing
bid price of the Company’s common stock, as listed for trading on the Over The Counter Bulletin Board, on May 28, 2015. The
foregoing represents the Conversation Rate as defined in the Note.


 


	 	 
	 	Signature
	 	 
	 	 
	 	Print Name


 




    	-21-



    	 



    

 


EXHIBIT B


 


COMMON STOCK PURCHASE WARRANT


 




    	-22-



    	 



    

 


THE SECURITIES REPRESENTED BY THIS WARRANT
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SHARES UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE
SECURITIES ACT. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS AND THE LAWS OF OTHER
APPLICABLE JURISDICTIONS.


 





	W-____	COMMON STOCK PURCHASE WARRANT	 




  


For the Purchase of Shares


of Common Stock, $0.001 par value


of


QuantumSphere, Inc.,


A Nevada Corporation


 


For value received,
__________________________ (the “Holder”), or Holder’s assigns, is entitled to, for a period of five (5)
years (the “Exercise Period”), exercise this Common Stock Purchase Warrant (the “Warrant”) for purchase
and receive that number of fully paid and nonassessable shares of the common stock, $0.001 par value (the “Common Stock”),
of QuantumSphere, Inc., a Nevada corporation (the “Company”) represented by 50% of the face value of the 10% Subordinated
Convertible Promissory Note (the “Note”) purchased by Holder from the Company and based upon an exercise price equal
to the lesser of (i) a twenty percent (20.0%) discount to the price per share of common stock of the next equity financing
of the Company of not less than $4,000,000 (the “Qualifying Equity Financing”), or (ii) a twenty percent (20.0%)
discount to the closing bid price of the Company’s common stock on May 28, 2015 as listed for trading on the Over The Counter
Bulletin Board under the symbol “QSIM” (the “Exercise Price”), upon presentation and surrender of this
Warrant and upon payment by bank check or wire transfer of the Exercise Price for such shares of Common Stock to the Company at
its principal office.


 


1.            Exercise
of Warrant. This Warrant may be exercised in whole or in part, from time to time, during the Exercise Period, by presentation
and surrender hereof to the Company, with the Notice of Exercise annexed hereto duly executed and accompanied by payment by bank
check or wire transfer of the Exercise Price for the number of shares specified in such form, together with all federal and state
taxes applicable upon such exercise, if any. If this Warrant should be exercised in part only, the Company shall, upon surrender
of this Warrant for cancellation, execute and deliver a new Warrant evidencing the right of the Holder to purchase the balance
of the shares purchasable hereunder. Upon receipt by the Company of this Warrant and the Exercise Price at the office of the Company,
in proper form for exercise, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that certificates representing such shares of Common Stock shall not then be actually delivered
to the Holder. If the subscription rights represented hereby shall not be exercised at or before 5:00 P.M., Pacific Time, on the
expiration date specified above, this Warrant shall become void and without further force or effect, and all rights represented
hereby shall cease and expire.


 


2.            Rights
of the Holder. Prior to exercise of this Warrant, the Holder shall not, by virtue hereof, be entitled to any rights of a shareholder
in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in this Warrant and are not
enforceable against the Company except to the extent set forth herein.


 




    	-23-



    	 



    

 


3.            Adjustment
in Number of Shares.


 


(A)         Adjustment
for Reclassifications. In case at any time, or from time to time, after the date of issue (“Issue Date”), the holders
of the Common Stock of the Company (or any shares of stock or other securities at the time receivable upon the exercise of this
Warrant) shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have
become entitled to receive, without payment therefore, other or additional stock or other securities or property (including cash)
by way of stock-split, spinoff, reclassification, combination of shares or similar corporate rearrangement (exclusive of any stock
dividend of its or any subsidiary’s capital stock), then and in each such case the Holder(s) of this Warrant, upon the exercise
hereof as provided in Section 1, shall be entitled to receive the amount of stock and other securities and property which such
Holder(s) would hold on the date of such exercise if on the Issue Date they had been the holder of record of the number of shares
of Common Stock of the Company called for on the face of this Warrant and had thereafter, during the period from the Issue Date,
to and including the date of such exercise, retained such shares and/or all other or additional stock and other securities and
property receivable by them as aforesaid during such period, giving effect to all adjustments called for during such period. In
the event of a declaration of a dividend payable in shares of any equity security of a subsidiary of the Company, then the Company
may cause to be issued a warrant to purchase shares of the subsidiary (“Springing Warrant”) in an amount equal to such
number of shares of the subsidiary’s securities to which the Holders would have been entitled, but conditioned upon the exercise
of this Warrant as a prerequisite to receiving the shares issuable pursuant to the Springing Warrant.


 


(B)         Adjustment
for Reorganization, Consolidation, Merger. In case of any reorganization of the Company (or any other corporation the stock
or other securities of which are at the time receivable on the exercise of this Warrant) after the Issue Date, or in case, after
such date, the Company (or any such other corporation) shall consolidate with or merge into another corporation or convey all or
substantially all of its assets to another corporation, then and in each such case the Holder(s) of this Warrant, upon the exercise
hereof as provided in Section 1, at any time after the consummation of such reorganization, consolidation, merger or conveyance,
shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise of this Warrant
prior to such consummation, the stock or other securities or property to which such Holder(s) would be entitled had the Holders
exercised this Warrant immediately prior thereto, all subject to further adjustment as provided herein; in each such case, the
terms of this Warrant shall be applicable to the shares of stock or other securities or property receivable upon the exercise of
this Warrant after such consummation.


 


4.            Officer’s
Certificate. Whenever the number of shares of Common Stock issuable upon exercise of this Warrant or the Exercise Price shall
be adjusted as required by the provisions hereof, the Company shall forthwith file in the custody of its Secretary at its principal
office, an officer’s certificate showing the adjusted number of shares of Common Stock or Exercise Price determined as herein
provided and setting forth in reasonable detail the facts requiring such adjustment. Each such officer’s certificate shall
be made available at all reasonable times for inspection by the Holder(s) and the Company shall, forthwith after each such adjustment,
deliver a copy of such certificate to the Holder(s). Such certificate shall be conclusive as to the correctness of such adjustment.


 


5.            Restrictions
on Transfer. Certificates for the shares of Common Stock to be issued upon exercise of this Warrant shall bear the following
legend:


 




    	-24-



    	 



    

 


THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SHARES UNDER THE SECURITIES ACT OR AN EXEMPTION
FROM THE SECURITIES ACT. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS AND THE LAWS
OF OTHER APPLICABLE JURISDICTIONS.


 


The Holder, by acceptance
hereof, agrees that, absent an effective registration statement under the Securities Act of 1933, as amended (the “Act”),
covering the disposition of this Warrant or the Common Stock issued or issuable upon exercise hereof, such Holder(s) will not sell
or transfer any or all of this Warrant or such Common Stock without first providing the Company with an opinion of counsel reasonably
satisfactory to the Company to the effect that such sale or transfer will be exempt from the registration and prospectus delivery
requirements of the Act. The Holder agrees that the certificates evidencing the Warrant and Common Stock which will be delivered
to the Holder by the Company shall bear substantially the legend set forth above in this Section 5. The Holder of this Warrant,
at the time all or a portion of such Warrant is exercised, agrees to make such written representations to the Company as counsel
for the Company may reasonably request, in order that the Company may be reasonably satisfied that such exercise of the Warrant
and consequent issuance of Common Shares will not violate the registration and prospectus delivery requirements of the Act, or
other applicable state securities laws.


 


6.            Loss
or Mutilation. Upon receipt by the Company of evidence satisfactory to it (in the exercise of reasonable discretion) of the
ownership of and the loss, theft, destruction or mutilation of any Warrant and (in the case of loss, theft or destruction) of indemnity
satisfactory to it (in the exercise of reasonable discretion), and (in the case of mutilation) upon surrender and cancellation
thereof, the Company will execute and deliver in lieu thereof a new Warrant of like tenor.


 


7.            Reservation
of Common Stock. The Company shall at all times reserve and keep available for issue upon the exercise of the Warrant such
number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding
Warrants.


 


8.            Notices.
All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, to the address furnished to the Company in writing by the Holder.


 


9.            Change;
Waiver. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally but only by an instrument
in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.


 


10.          Law
Governing. This Warrant shall be construed and enforced in accordance with and governed by the laws of Nevada.


 


IN WITNESS WHEREOF, the Company has caused
this Warrant to be signed by its duly authorized officer on May 28, 2015.


 


	 	QUANTUMSPHERE, INC.
	 	 
	 	By:	 
	 	 	Kevin D. Maloney
	 	 	CEO & President


 




    	-25-



    	 



    

 


NOTICE OF EXERCISE


 


	TO:	QUANTUMSPHERE, INC.	DATE:                           


 


The
undersigned hereby elects irrevocably to exercise the within Warrant and to purchase                       
shares of the Common Stock of the Company called for thereby, and hereby makes payment by bank check or wire transfer of $          
 (at the Exercise Price defined in the Warrant) in payment of the Exercise Price pursuant thereto. Please issue the shares
of the Common Stock as to which this Warrant is exercised to:


 


___________________________


 


___________________________


 


___________________________


 


and if said number of Warrants shall not
be all the Warrants evidenced by the within Warrant, issue a new Warrant for the balance remaining of such Warrants to _____________________
at the address stated above.


 


	 	By:	 


 


	 	Print Name:	 


 




    	-26-



    	 



    

 


EXHIBIT C


 


SECURITY AGREEMENT


 






    	-27-



    	 



    

 


SECURITY
AGREEMENT


 


THIS SECURITY AGREEMENT
(this “Agreement”), is entered into as of May 28, 2015 by and between QuantumSphere, Inc., a Nevada corporation
(the “Borrower”), and each of the secured parties whose name appears on the signature pages to this Agreement
(individually, a “Secured Party” and, collectively, the “Secured Parties”). All capitalized
terms not otherwise defined herein shall the meanings ascribed to them in those certain Note Purchase Agreements and the Notes
(as defined below) by and between Borrower and each Secured Party (the “Note Purchase Agreements”).


 


RECITALS


 


WHEREAS, the Secured
Parties have loaned monies to Borrower, as more particularly described in the Note Purchase Agreements and as evidenced by 10%
Subordinated Convertible Promissory Notes issued by Borrower to the Secured Parties (the “Notes”);


 


WHEREAS, the term “Secured
Party” as used in this Agreement shall mean, collectively, all holders of Notes, including those persons who become holders
of Notes subsequent to the date hereof; and


 


WHEREAS, this Agreement
is being executed and delivered by Borrower to secure the Notes.


 


NOW, THEREFORE, for
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the parties hereto hereby
agrees as follows:


 


1.          Obligations
Secured. This Agreement secures, in part, the prompt payment and performance of all obligations of Borrower under the Notes,
and all renewals, extensions, modifications, amendments, and/or supplements thereto (collectively, the “Secured Obligations”).


 


2.          Grant
of Security.


 


a.           Collateral.
Borrower hereby grants, pledges, and assigns for the benefit of the Secured Parties, and there is hereby created in favor of each
of the Secured Parties, a security interest in and to all of Borrower’s right, title, and interest in, to, and under all
of the collateral set forth on Exhibit A hereto (collectively, “Collateral”) subject to Section
2(c) below.


 


b.           Effective
Date. This grant of security shall be effective as of the date hereof.


 


c.           Subordination.
The Notes and the Secured Obligations shall be subordinated, or junior in interest, to the obligations of Borrower in favor of
its senior lender, Novus Capital, or any other third party senior lender who provides a senior secured loan to the Company during
the term of the Notes, as well as debt incurred in the ordinary course of business.


 


3.          Filings
to Perfect Security. The Company will (and is hereby authorized to) file with any filing office such financing statements,
amendments, addenda, continuations, terminations, assignments and other records (whether or not executed by Borrower) to perfect
and to maintain perfected security interests in the Collateral by the Secured Parties, whereby (a) promptly upon the execution
of this Agreement, a Financing Statement on Form UCC-1 (the “Financing Statement”) shall be filed with the California
Secretary of State on behalf of the Secured Parties with respect to the Collateral; The Financing Statement shall designate each
of the Secured Parties as a Secured Party and Borrower as the debtor, shall identify the security interest in the Collateral, and
contain any other items required by law. The Financing Statement shall contain a description of collateral consistent with the
description set forth herein and shall not describe the collateral as “all assets” or “all personal property.”


 




    	-28-



    	 



    

 


4.          Transfers
and Other Liens. Except as set forth in Section 2(c) herein or in the Notes, Borrower shall not, without the prior written
consent of the Collateral Agent, in its sole and absolute discretion:


 


d.           Sell,
transfer, assign, or dispose of (by operation of law or otherwise), any of the Collateral outside of the ordinary course of business;


 


e.           Create
or suffer to exist any lien, security interest, or other charge or encumbrance upon or with respect to any of the Collateral, except
the security interests created hereby; or


 


f.            Permit
any of the Collateral to be levied upon under any legal process.


 


5.          Representations
and Warranties. Borrower hereby represents and warrants to the Secured Parties as follows: (a) to Borrower’s knowledge,
Borrower is the owner of the Collateral (or, in the case of after-acquired Collateral, at the time Borrower acquires rights in
the Collateral, will be the owner thereof) and that, except as expressly provided herein or contemplated pursuant to Section 2(c)
herein, no other person has (or, in the case of after-acquired Collateral, at the time Borrower acquires rights therein, will have)
any right, title, claim or interest (by way of Lien or otherwise) in, against or to the Collateral; (b) to Borrower’s knowledge,
except as expressly provided herein, upon the filing of a Financing Statement with the California Secretary of State, the Secured
Parties (or in the case of after-acquired Collateral, at the time Borrower acquires rights therein, will have) will have a perfected
security interest in the Collateral to the extent that a security interest in the Collateral can be perfected by such filing; (c)
all Accounts Receivable (as defined in Exhibit A) are genuine and enforceable against the party obligated to pay
the same; (d) Borrower has full power and authority to enter into the transactions provided for in this Agreement and the Notes;
(e) this Agreement and the Notes, when executed and delivered by Borrower, will constitute the legal, valid and binding obligations
of Borrower enforceable in accordance with their terms; (f) the execution and delivery by Borrower of this Agreement and the Notes
and the performance and consummation of the transactions contemplated hereby and thereby do not and will not violate Borrower’s
Certificate of Incorporation or Bylaws or any material judgment, order, writ, decree, statute, rule or regulation applicable to
Borrower (g) there does not exist any default or violation by Borrower of or under any of the terms, conditions or obligations
of (i) any indenture, mortgage, deed of trust, franchise, permit, contract, agreement, or other instrument to which Borrower is
a party or by which Borrower is bound, or (ii) any law, ordinance, regulation, ruling, order, injunction, decree, condition
or other requirement applicable to or imposed upon Borrower by any law, the action of any court or any governmental authority or
agency; and the execution, delivery and performance of this Agreement will not result in any such default or violation; (h) there
is no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand pending or, to the knowledge of Borrower,
threatened which adversely affects Borrower’s business or financial condition and there is no basis known to Borrower for
any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand which could result in the same; and (i)
this Agreement and the Notes do not contain any untrue statement of material fact or omit to state a material fact necessary in
order to make the statements contained in this Agreement and the Notes not misleading.


 




    	-29-



    	 



    

 


6.          Events
of Default. For purposes of this Agreement, the term “Event of Default” shall mean and refer to any of the following:


 


g.           Failure
of Borrower to perform or observe any covenant set forth in this Agreement, or to perform or observe any other term, condition,
covenant, warranty, agreement or other provision contained in this Agreement, where such failure continues for fifteen (15) days
after receipt of written notice from Lender specifying such failure;


 


h.           Any
representation or warranty made or furnished by Borrower in writing in connection with this Agreement and the Notes or any statement
or representation made in any certificate, report or opinion delivered pursuant to this Agreement or in connection with this Agreement
is false, incorrect or incomplete in any material respect at the time it is furnished; or


 


i.            Occurrence
of any other Event of Default as defined in the Note.


 


7.          Remedies.
Upon the occurrence and during the continuance of an Event of Default (subject to the notice and cure provisions provided for herein,
if any), each Secured Party shall have the rights of a secured creditor under the California Uniform Commercial Code, all rights
granted by the Notes, this Security Agreement and by law, including the right to require Borrower to assemble the Collateral and
make it available to the Secured Parties at a place to be designated by Borrower. The rights and remedies provided in this Agreement
and the Notes are cumulative and may be exercised independently or concurrently, and are not exclusive of any other right or remedy
provided at law or in equity. No failure to exercise or delay by the Secured Parties in exercising any right or remedy under this
Agreement or the Notes shall impair or prohibit the exercise of any such rights or remedies in the future or be deemed to constitute
a waiver or limitation of any such right or remedy or acquiescence therein. Every right and remedy granted to the Secured Parties
under this Agreement and the Notes or by law or in equity may be exercised by any Secured Party at any time and from time to time.


 


8.          Further
Assurances. Borrower agrees that, from time to time, at its own expense, it will:


 


j.            Protect
and defend the Collateral against all claims and demands of all persons at any time claiming the same or any interest therein,
and preserve and protect Secured Party’s security interest in the Collateral.


 


k.          Promptly
execute and deliver to Secured Parties all instruments and documents, and take all further action necessary or desirable, as any
Secured Party may reasonably request to (i) continue, perfect, or protect any security interest granted or purported to be granted
hereby, and (ii) enable a Secured Party to exercise and enforce any of Secured Party’s rights and remedies hereunder with
respect to any Collateral.


 


l.            Permit
a Secured Party’s representatives to inspect and make copies of all books and records relating to the Collateral, wherever
such books and records are located, and to conduct an audit relating to the Collateral at any reasonable time or times.


 


9.          Reserved.


 


10.         Notices.
All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery
to the party to be notified, (b) when sent by confirmed telex, e-mail or facsimile if sent during normal business hours of
the recipient, if not, then on the next business day, (c) five (5) days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All communications shall be sent as follows:


 




    	-30-



    	 



    

 


	 	If to the Secured Party:	 	 
	 	 	 	 
	 	 	 	 
	 	 	Facsimile:  _______________	 
	 	 	 	 
	 	If to Borrower:	QuantumSphere, Inc.	 
	 	 	2905 Tech Center Dr.	 
	 	 	Santa Ana, CA 92705	 
	 	 	Facsimile: 714-545-6265	 


 


or to such other address
or telecopy number as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith.


 


11.         Amendments and Waivers.
No modification, amendment or waiver of any provision of, or consent required by, this Agreement, nor any consent to any departure
herefrom, shall be effective unless it is in writing and signed by each of the parties hereto. Such modification, amendment, waiver
or consent shall be effective only in the specific instance and for the purpose for which given.


 


12.         Exclusivity
and Waiver of Rights. No failure to exercise and no delay in exercising on the part of any party, any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude
any other right, power or privilege. The rights and remedies herein provided are cumulative and are not exclusive of any other
rights or remedies provided by law.


 


13.         Invalidity.
Any term or provision of this Agreement shall be ineffective to the extent it is declared invalid or unenforceable, without rendering
invalid or enforceable the remaining terms and provisions of this Agreement.


 


14.         Headings.
Headings used in this Agreement are inserted for convenience only and shall not affect the meaning of any term or provision of
this Agreement.


 


15.         Counterparts.
This Agreement may be executed in one or more counterparts, each of which shall be deemed an original instrument, but all of which
collectively shall constitute one and the same agreement.


 


16.         Assignment.
This Agreement and the rights and obligations hereunder shall not be assignable or transferable by the any of the parties without
the prior written consent of the other parties.


 


17.         Survival.
Unless otherwise expressly provided herein, all representations warranties, agreements and covenants contained in this Agreement
shall survive the execution hereof and shall remain in full force and effect until the earliest to occur of (a) the payment in
full of the Notes, and (b) the conversion of the principal and accrued and unpaid interest and all other amounts owing under the
Notes into common stock of Borrower.


 


18.         Miscellaneous.
This Agreement shall inure to the benefit of each of the parties hereto and all their respective successors and permitted assigns.
Nothing in this Agreement is intended or shall be construed to give to any other person, firm or corporation any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision herein contained.


 




    	-31-



    	 



    

 


19.         GOVERNING
LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEVADA (WITHOUT GIVING
EFFECT TO ANY CHOICE OR CONFLICT OF LAWS PROVISIONS).


 


20.         CONSENT
TO JURISDICTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION
OF THE COURTS OF THE STATE OF CALIFORNIA. EACH OF THE PARTIES HERETO AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY MUST BE LITIGATED EXCLUSIVELY IN ANY SUCH STATE OR FEDERAL COURT, AND
ACCORDINGLY, EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH LITIGATION IN ANY SUCH COURT.


 


21.         WAIVER
OF JURY TRIAL.  EACH OF THE PARTIES HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS AGREEMENT. EACH OF THE PARTIES HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND EACH OF THE OTHER PARTIES HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 21.


 


22.         Attorneys’
Fees. In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and expenses of appeals.


 


23.         Entire
Agreement. This Agreement contains the entire agreement among the parties with respect to the transactions contemplated by
this Agreement and supersedes all prior agreements or understandings among the parties with respect to the subject matter hereof.


 


[SIGNATURE PAGE(S) FOLLOW]


 




    	-32-



    	 



    

 


IN WITNESS WHEREOF,
this Security Agreement has been executed as of the date first set written above.


 


“SECURED PARTY”


 


	By:	 	 


 


	Name:	 	 


 


	Title (if applicable):		 


 


“BORROWER”


 


QUANTUMSPHERE, INC.,


a Nevada corporation


 


	By:	 	 
	 	Kevin D. Maloney	 
	 	Chief Executive Officer & President	 


 




    	-33-



    	 



    

 


EXHIBIT A


 


COLLATERAL


 


Subject to Section 2(c) of the Security
Agreement, Borrower hereby grants, pledges, and assigns for the benefit of each Secured Party, and there is hereby created in favor
of the Secured Parties, a security interest in and to all of Borrower’s right, title, and interest in, to, and under all
assets and all personal property of Borrower, whether now or hereafter existing, or now owned or hereafter acquired, including
but not limited to the following (collectively, “Collateral”):


 


1.          All
accounts, chattel paper, contracts, contract rights, accounts receivable, tax refunds, notes receivable, documents, other choses
in action and general intangibles, including, but not limited to, proceeds of inventory and returned goods and proceeds from the
sale of goods and services, and all rights, liens, securities, guaranties, remedies and privileges related thereto, including the
right of stoppage in transit and rights and property of any kind forming the subject matter of any of the foregoing (“Accounts
Receivable”);


 


2.          All
time, savings, demand, certificate of deposit or other accounts in the name of Borrower or in which Borrower has any right, title
or interest, including but not limited to all sums now or at any time hereafter on deposit, and any renewals, extensions or replacements
of and all other property which may from time to time be acquired directly or indirectly using the proceeds of any of the foregoing;


 


3.          All
inventory and equipment of every type or description wherever located, including, but not limited to all raw materials, parts,
containers, work in process, finished goods, goods in transit, wares, merchandise furniture, fixtures, hardware, machinery, tools,
parts, supplies, automobiles, trucks, other intangible property of whatever kind and wherever located associated with the Borrower’s
business, tools and goods returned for credit, repossessed, reclaimed or otherwise reacquired by Borrower;


 


4.          All
documents of title and other property from time to time received, receivable or otherwise distributed in respect of, exchange or
substitution for or addition to any of the foregoing including, but not limited to, any documents of title;


 


5.          All
know-how, information, permits, patents, copyrights, goodwill, trademarks, trade names, licenses and approvals held by Borrower,
including all other intangible property of Borrower;


 


6.          All
assets of any type or description that may at any time be assigned or delivered to or come into possession of Borrower for any
purpose for the account of Borrower or as to which Borrower may have any right, title, interest or power, and property in the possession
or custody of or in transit to anyone for the account of Borrower, as well as all proceeds and products thereof and accessions
and annexations thereto; and


 


7.          All
proceeds (including but not limited to insurance proceeds) and products of and accessions and annexations to any of the foregoing.


 




    	-34-



    	 



    

 


EXHIBIT D


 


REGISTRATION RIGHTS AGREEMENT


 




    	-35-



    	 



    

 


REGISTRATION
RIGHTS AGREEMENT


 


THIS REGISTRATION RIGHTS
AGREEMENT (the “Agreement”) is dated May 28, 2015 by and between QuantumSphere, Inc., a Nevada corporation (the
“Company”), and each of the signatories hereto (collectively, the “Investor”).


 


RECITALS


 


WHEREAS, to
induce the Investor to invest in the Offering described in the accompanying Note Purchase Agreement, the Company has agreed to
provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or
any similar successor statute (collectively, the “Securities Act”), and applicable state securities laws.


 


NOW, THEREFORE, in
consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Company and the Investor hereby agree as follows:


 


AGREEMENT


 


1.          DEFINITIONS.


 


As used in this Agreement, the following
terms shall have the following meanings:


 


a.           “Person”
means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.


 


b.           “Register,”
“registered,” and “registration” refer to a registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor
rule providing for offering securities on a continuous or delayed basis (“Rule 415”), and the declaration or ordering
of effectiveness of such Registration Statement(s) by the United States Securities and Exchange Commission (the “SEC”).


 


c.           “Registrable
Securities” means shares of common stock issuable to Investor upon conversion of the 10% Subordinated Convertible Promissory
Notes in the Offering (the “Shares”), and the shares of common stock issuable upon exercise of the warrants
issued to Investor pursuant to the Offering (“Warrant Shares”).


 


d.           “Registration
Statement” means a registration statement filed with the SEC, pursuant to the Securities Act, that includes the Registrable
Securities.


 


2.          REGISTRATION.


 


a.           Piggyback
Registration Rights. Investor shall be afforded unlimited piggyback registration rights with respect to the Shares and Warrant
Shares. The Company shall notify the Investor in writing no less than fifteen (15) calendar days prior to the filing of any Registration
Statement on Form S-1 or S-3 of its intention to file such registration statement with the Securities and Exchange Commission.
The Investor shall have a period of ten (10) calendar days to notify the Company of its intention to have its Registrable Securities
included in such Registration Statement.


 




    	-36-



    	 



    

 


b.           Sufficient
Number of Shares Registered. The number of shares of common stock included in a Registration Statement filed pursuant to Section
2(a) shall be sufficient to cover all of the Registrable Securities.


 


3.          RELATED
OBLIGATIONS.


 


a.           The
Company shall keep the Registration Statement effective pursuant to Rule 415 at all times until the date on which the Investor
shall have sold all the Registrable Securities covered by such Registration Statement (the “Registration Period”),
which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain
any untrue statement of a material fact or omit to a material fact required to be stated therein, or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading.


 


b.           The
Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule
424 promulgated under the Securities Act, as may be necessary to keep such Registration Statement effective at all times during
the Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable
Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof
as set forth in such Registration Statement. In the case of amendments and supplements to a Registration Statement which are required
to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company’s filing a report
on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), the Company shall have incorporated such report by reference into the Registration Statement, if applicable, or shall
file such amendments or supplements with the SEC on the same day on which the Exchange Act report is filed which created the requirement
for the Company to amend or supplement the Registration Statement.


 


c.           The
Company shall furnish to the Investor without charge, (i) at least one (1) copy of such Registration Statement as declared effective
by the SEC and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference,
all exhibits and each preliminary prospectus, (ii) one (1) copy of the final prospectus included in such Registration Statement
and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request) and (iii) such
other documents as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable
Securities owned by such Investor.


 


d.           The
Company shall use its best efforts to (i) register and qualify the Registrable Securities covered by a Registration Statement under
such other securities or “blue sky” laws of such jurisdictions in the United States as the Investor reasonably requests,
(ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii)
take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for
sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition
thereto to (w) make any change to its certificate of incorporation or by-laws, (x) qualify to do business in any jurisdiction where
it would not otherwise be required to qualify but for this Section 3(d), (y) subject itself to general taxation in any such jurisdiction,
or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify the Investor of
the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the
Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or
its receipt of actual notice of the initiation or threat of any proceeding for such purpose.


 




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e.           As
promptly as practicable after becoming aware of such event or development, the Company shall notify the Investor in writing of
the happening of any event as a result of which the prospectus included in a Registration Statement, as then in effect, includes
an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were made, not misleading (provided that in no event shall
such notice contain any material, nonpublic information), and promptly prepare a supplement or amendment to such Registration Statement
to correct such untrue statement or omission, and deliver one (1) copy of such supplement or amendment to each Investor. The Company
shall also promptly notify the Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment
has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness
shall be delivered to the Investor by facsimile on the same day of such effectiveness), (ii) of any request by the SEC for amendments
or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company’s
reasonable determination that a post-effective amendment to a Registration Statement would be appropriate.


 


f.            The
Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration
Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction within the
United States of America and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify the Investor of the issuance of such order and the resolution thereof or its receipt
of actual notice of the initiation or threat of any proceeding for such purpose.


 


g.           At
the reasonable request of the Investor, the Company shall furnish to the Investor, on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as the Investor may reasonably request (i) a letter, dated such date,
from the Company’s independent certified public accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering, if any, and (ii) an opinion, dated as of such
date, of counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily
given in an underwritten public offering (if applicable), addressed to the Investor.


 


h.           The
Company shall hold in confidence and not make any disclosure of information concerning the Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information
is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information
is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction,
or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement
or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning the Investor
is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to
the Investor and allow the Investor, at the Investor’s expense, to undertake appropriate action to prevent disclosure of,
or to obtain a protective order for, such information.


 




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i.            The
Company shall use its best efforts either to cause all the Registrable Securities covered by a Registration Statement (i) to be
listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any,
if the listing of such Registrable Securities is then permitted under the rules of such exchange or to secure the inclusion for
quotation on the Over-The Counter Bulletin Board for such Registrable Securities. The Company shall pay all fees and expenses in
connection with satisfying its obligation under this Section 3(i).


 


j.            The
Company shall cooperate with the Investor to the extent applicable, to facilitate the timely preparation and delivery of certificates
(not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement
and enable such certificates to be in such denominations or amounts, as the case may be, as the Investor may reasonably request
and registered in such names as the Investor may request; provided, however, delivery of such certificates shall not be made until
such Registration Statement is declared effective by the SEC and all applicable state securities regulatory agencies.


 


k.          The
Company shall use its best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable
Securities.


 


l.            The
Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with
any registration hereunder.


 


m.           Within
two (2) business days after a Registration Statement which covers Registrable Securities is ordered effective by the SEC, the Company
shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities
(with copies to the Investor) confirmation that such Registration Statement has been declared effective by the SEC in the form
attached hereto as Exhibit 1.


 


n.           The
Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.


 


4.          OBLIGATIONS
OF THE INVESTOR.


 


The Investor agrees that, upon receipt
of any notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of 3(e),
the Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering
such Registrable Securities until the Investor’s receipt of a copy of the supplemented or amended prospectus contemplated
by Section 3(e) or receipt of notice that no supplement or amendment is required. Notwithstanding anything to the contrary, the
Company shall cause its transfer agent to deliver unlegended certificates for shares of Common Stock to a transferee of the Investor
in accordance with the terms of the Offering in connection with any sale of Registrable Securities with respect to which the Investor
has entered into a contract for sale prior to the Investor’s receipt of a notice from the Company of the happening of any
event of the kind described in Section 3(f) or the first sentence of 3(e) and for which the Investor has not yet settled. All selling
expenses relating to the Registrable Securities shall be borne exclusively by the Investor.


 


5.          EXPENSES
OF REGISTRATION.


 


All expenses incurred in connection with
registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing
and qualifications fees, printers, legal and accounting fees shall be paid by the Company.


 




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6.          INDEMNIFICATION.


 


With respect to Registrable Securities
which are included in a Registration Statement under this Agreement:


 


a.           To
the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend the Investor, the directors,
officers, partners, employees, agents, representatives of, and each Person, if any, who controls the Investor within the meaning
of the Securities Act or the Exchange Act (each, an “Indemnified Person”), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or
several (collectively, “Claims”) incurred in investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory
agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“Indemnified
Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material
fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification
of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are
offered (“Blue Sky Filing”), or the omission or alleged omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in any final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein,
in light of the circumstances under which the statements therein were made, not misleading; or (iii) any violation or alleged violation
by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law,
or any rule or regulation there under relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement
(the matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”). The Company shall reimburse
the Investor and each such controlling person promptly as such expenses are incurred and are due and payable, for any legal fees
or disbursements or other reasonable expenses incurred by them in connection with investigating or defending any such Claims. Notwithstanding
anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (x) shall not apply to
a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by such Indemnified Person expressly for use in connection with the preparation
of the Registration Statement or any such amendment thereof or supplement thereto; (y) shall not be available to the extent such
Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company,
if such prospectus was timely made available by the Company pursuant to Section 3(e); and (z) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not
be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf
of the Indemnified Person. In connection with a Registration Statement, the Investor agrees to indemnify, hold harmless and defend,
to the same extent and in the same manner as is set forth in this Section 6(a), the Company, each of its directors, each of its
officers who signs the Registration Statement and each Person, if any, who controls the Company within the meaning of the Securities
Act or the Exchange Act (each an “Indemnified Party”), against any Claim or Indemnified Damages to which any of them
may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim or Indemnified Damages arise
out of or is based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by the Investor expressly for use in connection with such
Registration Statement; and, subject to Section 6(d), the Investor will reimburse any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained
in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement
of any Claim if such settlement is effected without the prior written consent of the Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim
or Indemnified Damages as does not exceed the net proceeds to the Investor as a result of the sale of Registrable Securities pursuant
to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or
on behalf of such Indemnified Party. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained
in this Section 6 with respect to any prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement
or omission of material fact contained in the prospectus was corrected and such new prospectus was delivered to the Investor prior
to the Investor’s use of the prospectus to which the Claim relates.


 




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b.           Promptly
after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall,
if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party
a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense
thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel
with the fees and expenses of not more than one counsel for such Indemnified Person or Indemnified Party to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified
Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between
such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Indemnified
Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of
any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available
to the Indemnified Party or Indemnified Person that relates to such action or claim. The indemnifying party shall keep the Indemnified
Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect
thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior
written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent.
No indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to entry
of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such
claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights
of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter
for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time
of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend
such action.


 




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c.           The
indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.


 


d.           The
indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party
or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject
to pursuant to the law.


 


7.          CONTRIBUTION.


 


To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect
to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however,
that: (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation;
and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received
by such seller from the sale of such Registrable Securities.


 


8.          REPORTS
UNDER THE EXCHANGE ACT.


 


The Company agrees to file all periodic
and other reports required to be filed as a publicly reporting company under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and to:


 


a.           make
and keep public information available as those terms are understood and defined in Rule 144 that may at any time permit the Investors
to sell securities of the Company to the public without registration (“Rule 144”);


 


b.           file
with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange
Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company’s
obligations under Section 6 hereof) and the filing of such reports and other documents is required for the applicable provisions
of Rule 144; and


 


c.           furnish
to the Investor, so long as the Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company
that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested to permit the Investor to sell such securities pursuant to Rule 144 without registration.


 


9.          AMENDMENT
OF REGISTRATION RIGHTS.


 


Provisions of this Agreement may be amended
and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively),
only with the written consent of the Company and the Investor. Any amendment or waiver effected in accordance with this Section
9 shall be binding upon the Investor and the Company. No consideration shall be offered or paid to any Person to amend or consent
to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered to all of the
parties to this Agreement.


 




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10.         MISCELLANEOUS.


 


a.           A
Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the
same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered
owner of such Registrable Securities.


 


b.           Any
notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be
in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent
by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending
party); or (iii) one business day after deposit with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:


 


	If to the Company, to:	QuantumSphere, Inc.	 
	 	2905 Tech Center Dr.	 
	 	Santa Ana, CA 92705	 
	 	Attention:  Kevin D. Maloney	 
	 	Facsimile:  (714) 545-6266 	 
	 	 	 
	If to the Investor, to:	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 


 


Any party may change its address by providing
written notice to the other parties hereto at least five (5) days prior to the effective date of such change. Written confirmation
of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically
generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first
page of such transmission, or (C) provided by a courier or overnight courier service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or
(iii) above, respectively.


 


c.           Failure
of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.


 




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d.           This
Agreement shall be governed by and construed under the law of the State of Nevada, disregarding any principles of conflicts of
law that would otherwise provide for the application of the substantive law of another jurisdiction. The Company and the Investor
each: (a) agrees that any legal suit, action or proceeding arising out of or relating to this Agreement shall be instituted
exclusively in California, or in the United States District Court, Los Angeles, California; (b) waives any objection to the
venue of any such suit, action or proceeding and the right to assert that such forum is not a convenient forum; and (c) irrevocably
consents to the jurisdiction of the California State Court, or the United States District Court, Los Angeles, California in any
such suit, action or proceeding. EACH PARTY 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 HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.


 


e.           The
Agreement, the Note Purchase Agreement, the10% Subordinated Convertible Promissory Note, the Security Agreement, and the Common
Stock Purchase Warrant constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof.
The foregoing agreements supersede all prior agreements and understandings among the parties hereto with respect to the subject
matter hereof and thereof.


 


f.            This
Agreement shall inure to the benefit of and be binding upon the permitted heirs, personal representatives, successors and assigns
of each of the parties hereto.


 


g.           The
headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.


 


h.           This
Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute
one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission
of a copy of this Agreement bearing the signature of the party so delivering this Agreement.


 


i.            Each
party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.


 


j.            The
language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules
of strict construction will be applied against any party.


 


k.          This
Agreement is intended for the benefit of the parties hereto and their respective permitted heirs, personal representatives, successors
and assigns, and is not for the benefit of, nor may any provision hereof be enforced by any other Person.


 




    	-44-



    	 



    

 


IN WITNESS WHEREOF, the parties have caused
this Registration Rights Agreement to be duly executed as of the date first written above.


 


“INVESTOR”


 


	By: 	 	 


 


	Name:	 	 


 


	Title (if applicable): 	 	 


 


“BORROWER”


 


QUANTUMSPHERE, INC.,


a Nevada corporation


 


	By:	 	 
	 	Kevin D. Maloney	 
	 	Chief Executive Officer & President	 


 




    	-45-



    	 



    

 


EXHIBIT 1


 


FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT


 


[TRANSFER AGENT]


Attn: _____________________


 


		Re:	QUANTUMSPHERE, INC.



 


Ladies and Gentlemen:


 


We are counsel to QuantumSphere, Inc.,
a Nevada corporation (the “Company”), and have represented the Company in connection with that certain private placement
(the “Offering”), pursuant to which the Company issued to __________________________ (the “Investor”) 10%
Subordinated Convertible Promissory Notes convertible into shares of its common stock, $0.001 par value (the “Common Stock”)
and detachable warrants to purchase shares of common stock (the “Warrant”). Pursuant to the Offering, the Company also
has entered into a Registration Rights Agreement with the Investors (the “Registration Rights Agreement”) pursuant
to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights
Agreement) under the Securities Act of 1933, as amended (the “Securities Act”). In connection with the Company’s
obligations under the Registration Rights Agreement, on ____________ ____, the Company filed a Registration Statement on Form ________
(File No. 333-_____________) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”)
relating to the Registrable Securities which names the Investor as a selling stockholder thereunder.


 


In connection with the foregoing, we advise
you that a member of the SEC’s staff has advised us by telephone that the SEC has entered an order declaring the Registration
Statement effective under the Securities Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and
we have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that any stop order suspending its effectiveness
has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities
are available for resale under the Securities Act pursuant to the Registration Statement.


 


	 	Very truly yours,
	 	 
	 	 
	 	By:	 


 


		cc:	Investor



 




    	EXHIBITS