ENER-CORE, INC.


 


2013 EQUITY AWARD INCENTIVE PLAN


 


STOCK OPTION AGREEMENT


 


Unless otherwise defined
herein, the terms defined in the 2013 Equity Award Incentive Plan shall have the same defined meanings in this Stock Option Agreement
(the “Option Agreement”).


 


I.           NOTICE
OF GRANT


 


Optionee’s Name:  Alain
Castro


 


Optionee’s Address:   512
N. McClurg Ct. Ste. 1707


 


Chicago, IL 60611


 


You have been granted
an option to purchase common stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as
follows:


 





 


	Grant Number	AC-1
	 	 
	Date of Grant	July 3, 2013
	 	 
	Vesting Commencement Date	November 1, 2013
	 	 
	Exercise Price per Share	$0.75
	 	 
	Total Number of Shares Granted	1,250,000
	 	 




	Total Exercise Price	$	937,500
	 	 	 




	Type of Option:	 	Incentive Stock Option
	 	 	 




	 	X	Nonstatutory Stock Option
	 	 	 




	Term/Expiration Date:	May 5, 2018




  


Exercise and Vesting
Schedule:


 


This Option shall be
exercisable in whole or in part, and this Option (and any Shares with respect to which the Optionee exercises this Option) shall
vest according to the following vesting schedule, subject to the terms and conditions of the Plan and this Option Agreement, as
follows:


 


1/3 of Total Number
of Shares Granted ........... November 1, 2013


 


1/45 of Total Number
of Shares Granted ......... after each month thereafter


 




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Termination Period:


 


This Option may be
exercised, to the extent it is then vested, for three (3) months after Optionee ceases to be a Service Provider. Upon death or
Disability of the Optionee, this Option may be exercised, to the extent it is then vested, for six (6) months after Optionee ceases
to be Service Provider. In no event shall this Option be exercised later than the Term/Expiration Date as provided above.


 


II.           AGREEMENT


 


A.           Grant
of Option. The Administrator of the Company hereby grants to the Optionee named in the Notice of Grant above (the “Optionee”),
an option (the “Option”) to purchase the number of Shares set forth in the Notice of Grant above, at the exercise
price per Share set forth in the Notice of Grant above (the “Exercise Price”), and subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to Section 14(c) of the Ener-Core, Inc. 2013 Equity
Award Incentive Plan (the “Plan”), in the event of a conflict between the terms and conditions of the Plan and
this Option Agreement, the terms and conditions of the Plan shall prevail.


 


If designated in the
Notice of Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as an Incentive Stock
Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section
422(d), this Option shall be treated as a Nonstatutory Stock Option (“NSO”).


 


B.           Exercise
of Option. This Option shall be exercisable during its term in accordance with the provisions of Section 9 of the Plan
as follows:


 


1.          Right
to Exercise.


 


(a)          This
Option shall be exercisable cumulatively according to the vesting schedule set forth in the Notice of Grant. Alternatively, at
the election of the Optionee, this Option may be exercised in whole or in part at any time as to Shares that have not yet vested.
Vested Shares shall not be subject to the Company’s repurchase right (as set forth in the Restricted Stock Purchase Agreement,
attached hereto as Exhibit C-1).


 


(b)          As
a condition to exercising any rights granted under this Option for Unvested Shares, the Optionee shall execute the Restricted Stock
Purchase Agreement.


 


(c)          As
a condition to exercising any rights granted under this Option, the Optionee shall execute the Company’s then-current stockholders
agreement(s) applicable to holders of common stock in the Company.


 


(d)          This
Option may not be exercised for a fraction of a Share.


 


2.          Method
of Exercise. This Option shall be exercisable by delivery of an exercise notice in the form attached as Exhibit A (the
“Exercise Notice”), which shall state the election to exercise the Option, the number of Shares with respect
to which the Option is being exercised, and such other representations and agreements as may be required by the Company. The Exercise
Notice shall be accompanied by payment of the aggregate Exercise Price as to all Shares with respect to which the Optionee exercises
this Option (the “Exercised Shares”). This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by the aggregate Exercise Price.


 




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No Shares shall be
issued pursuant to the exercise of an Option unless such issuance and such exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option
is exercised with respect to such Shares. Upon an exercise of this Option, all Exercised Shares shall


 


C.           Optionee’s
Representations. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time
this Option is exercised, the Optionee shall, if required by the Company, concurrently with the exercise of all or any portion
of this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit B.


 


D.          Lock-Up
Period. Optionee hereby agrees that, if so requested by the Company or any representative of the underwriters (the “Managing
Underwriter”) in connection with any registration of the offering of any securities of the Company under the Securities Act,
Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the “Market
Standoff Period”) following the effective date of a registration statement of the Company filed under the Securities Act.
Such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act
that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities
Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the
end of such Market Standoff Period.


 


E.          Method
of Payment. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election
of the Optionee:


 


1.          cash;


 


2.          check;


 


3.          consideration
received by the Company under a formal cashless exercise program adopted by the Company (in its discretion) in connection with
the Plan; or


 


4.          surrender
of other Shares which, (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the
aggregate Exercise Price of the Exercised Shares.


 


F.          Restrictions
on Exercise. This Option may not be exercised if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable Law.


 




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G.          Non-Transferability
of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by Optionee. The terms of the Plan and this Option Agreement shall be
binding upon the executors, administrators, heirs, successors and assigns of the Optionee.


 


H.          Term
of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such
term only in accordance with the Plan and the terms of this Option.


 


I.           Tax
Consequences. Set forth below is a brief summary as of the date of this Option of some of the federal tax consequences of exercise
of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.


 


1.          Exercise
of NSO. There may be a regular federal income tax liability upon the exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the
Exercised Shares on the date of exercise over the Exercise Price. If Optionee is an Employee or a former Employee, the Company
will be required to withhold from Optionee’s compensation or collect from Optionee and pay to the applicable taxing authorities
an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise
and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise.


 


2.          Exercise
of ISO. If this Option qualifies as an ISO, there will be no regular federal income tax liability upon the exercise of the
Option, although the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over the Exercise
Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.


 


3.          Exercise
of ISO Following Disability. If the Optionee ceases to be an Employee as a result of a disability that is not a total and permanent
disability as defined in Section 22(e)(3) of the Code, to the extent permitted on the date of termination, the Optionee must exercise
an ISO within three months after such termination for the ISO to be qualified as an ISO.


 


4.          Disposition
of Shares. In the case of an NSO, if Shares are held for at least one year, any gain realized on disposition of the Shares
will be treated as long-term capital gain for federal income tax purposes. In the case of an ISO, if Shares transferred pursuant
to the Option are held for at least one year after exercise and at least two years after the Date of Grant, any gain realized on
disposition of the Shares will also be treated as long-term capital gain for federal income tax purposes. If Shares purchased under
an ISO are disposed of within one year after exercise or two years after the Date of Grant, any gain realized on such disposition
will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise
Price of the Exercised Shares and the lesser of (i) the Fair Market Value of the Exercised Shares on the date of exercise, or (ii)
the sale price of the Exercised Shares. Different rules may apply if the Shares are subject to a substantial risk of forfeiture
(within the meaning of Section 83 of the Code) at the time of purchase. Any additional gain will be taxed as capital gain, short-term
or long-term depending on the period that the ISO Shares were held.


 




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5.          Notice
of Disqualifying Disposition of ISO Shares. If the Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two years after the Date
of Grant, or (ii) the date one year after the date of exercise, the Optionee shall immediately notify the Company in writing
of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation
income recognized by the Optionee.


 


6.          Section
83(b) Election for Unvested Shares Purchased Pursuant to Options. With respect to the exercise of an Option for Unvested Shares,
an election (the “Election”) may be filed by the Optionee with the Internal Revenue Service, within 30 days
after the purchase of the Shares, electing pursuant to Section 83(b) of the Code to be taxed currently on any difference between
the purchase price of the Shares and their Fair Market Value on the date of purchase. In the case of an NSO, this will result in
a recognition of taxable income to the Optionee on the date of exercise, measured by the excess, if any, of the Fair Market Value
of the Exercised Shares, at the time the Option is exercised over the purchase price for the Exercised Shares. Absent such an election,
taxable income will be measured and recognized by Optionee at the time or times on which the Company’s Repurchase Option
lapses. In the case of an ISO, such an election will result in a recognition of income to the Optionee for alternative minimum
tax purposes on the date of exercise, measured by the excess, if any, of the Fair Market Value of the Exercised Shares, at the
time the Option is exercised, over the purchase price for the Exercised Shares. Absent such an election, alternative minimum taxable
income will be measured and recognized by Optionee at the time or times on which the Company’s Repurchase Option lapses.
Optionee is strongly encouraged to seek the advice of his or her own tax consultants in connection with the purchase of the Shares
and the advisability of filing of the Election under Section 83(b) of the Code. A form of Election under Section 83(b) is attached
hereto as Exhibit C-5 for reference.


 


OPTIONEE ACKNOWLEDGES
THAT IT IS OPTIONEE’S SOLE RESPONSIBILITY AND NOT THE COMPANY’S TO DETERMINE THE EFFECT OF AND OPTIONEE’S ABILITY
TO MAKE AND TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF OPTIONEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO
MAKE THIS FILING ON OPTIONEE’S BEHALF.


 


J.           Entire
Agreement; Governing Law. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements
of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s
interest except by means of a writing signed by the Company and Optionee. This Option Agreement is governed by the internal substantive
laws but not the choice of law rules of the State of Nevada.


 




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K.          No
Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE
HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT
AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE’S
RIGHT OR THE COMPANY’S RIGHT TO TERMINATE OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.


 


L.           Familiarity
with the Plan. Optionee acknowledges receipt of a copy of the Plan and represents that Optionee is familiar with the terms
and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed
the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option
and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions arising under the Plan or this Option. Optionee further agrees to notify
the Company upon any change in the residence address indicated below.


 


	OPTIONEE	 	ENER-CORE, INC.
	 	 	 
	 	 	 
	Signature	 	By:  
	 	 	Title: 
	 	 	 
	Print Name	 	 
	 	 	 
	 	 	 
	Spouse signature	 	 
	 	 	 
	 	 	 
	Print Name	 	 
	 	 	 
	 	 	 
	Residence Address	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 


 




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EXHIBIT A


 


2013
Equity Award Incentive Plan 



EXERCISE NOTICE


 


Ener-Core, Inc.


 


____________________________


 


____________________________


 


Attention: Stock Plan Administrator


 


A.           Exercise
of Option. Effective as of today, ________________, 20___, the undersigned (“Optionee”) hereby elects to
exercise Optionee’s option (the “Option”) to purchase ________________ shares of the common stock
(the “Shares”) of Ener-Core, Inc., a Nevada corporation (the “Company”), under and pursuant
to the 2013 Equity Award Incentive Plan (the “Plan”) and the Stock Option Agreement dated ______________, ____
(the “Option Agreement”).


 


B.           Delivery
of Payment. Purchaser herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option Agreement.


 


C.           Representations
of Optionee. Optionee acknowledges that Optionee has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.


 


D.           Rights
as Stockholder. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the optioned stock, notwithstanding the exercise of the Option. The Shares shall be issued to the Optionee
as soon as practicable after the Option is exercised. No adjustment shall be made for a dividend or other right for which the record
date is prior to the date of issuance except as provided in Section 12 of the Plan.


 


E.           Tax
Consultation. Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee’s purchase
or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable
in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice.


 


F.           Restrictive
Legends and Stop-Transfer Orders.


 


1.          Legends.
Optionee understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by
the Company or by state or federal securities laws:


 




    	A-1



    	 



    

 


THE SECURITIES REPRESENTED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER
OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.


 


THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S)
AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED
AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE
SHARES.


 


2.          Stop-Transfer
Notices. Optionee agrees that, to ensure compliance with the restrictions referred to herein, the Company may issue appropriate
“stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own securities,
it may make appropriate notations to the same effect in its own records.


 


3.          Refusal
to Transfer. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise
transferred in violation of any of the provisions of this Exercise Notice or (ii) to treat as owner of such Shares or to accord
the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.


 


G.           Successors
and Assigns. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and the terms
and conditions of this Exercise Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, the terms and conditions of this Exercise Notice shall be binding upon Optionee and
his or her heirs, executors, administrators, successors and assigns.


 


H.           Interpretation.
Any dispute regarding the interpretation of this Exercise Notice shall be submitted by Optionee or by the Company forthwith to
the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator
shall be final and binding on all parties.


 


I.           Governing
Law; Severability. This Exercise Notice is governed by the internal substantive laws, but not the choice of law rules, of the
State of Nevada.


 




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J.           Entire
Agreement. The Plan and Option Agreement are incorporated herein by reference. This Exercise Notice, the Plan, the Restricted
Stock Purchase Agreement, if applicable, the Option Agreement, and the Investment Representation Statement, constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements
of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s
interest except by means of a writing signed by the Company and Optionee.


 





 


	Submitted by:	 	Accepted by:
	 	 	 
	OPTIONEE	 	ENER-CORE, INC.
	 	 	 
	 	 	By:	 
	Signature	 	Its:	 
	 	 	 


 


	 	 	 
	Print Name	 	 
	 	 	 
	Address:	 	Address:
	 	 	 


 


	 	 	Date Received:	 
	Spouse Signature	 	 


 




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EXHIBIT B


 


INVESTMENT REPRESENTATION STATEMENT


 


	OPTIONEE	:	Alain Castro
	 	 	 
	COMPANY	:	ENER-CORE, INC.
	 	 	 
	SECURITY	:	COMMON STOCK
	 	 	 
	AMOUNT	:	1,250,000
	 	 	 
	DATE	:	July 3, 2013


 


In connection with the purchase of the
above-listed Securities, the undersigned Optionee represents to the Company the following:


 


1.          Optionee
is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. Optionee is acquiring these Securities for investment
for Optionee’s own account only and not with a view to, or for resale in connection with, any “distribution”
thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).


 


2.          Optionee
acknowledges and understands that the Securities constitute “restricted securities” under the Securities Act and have
not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among
other things, the bona fide nature of Optionee’s investment intent as expressed herein. In this connection, Optionee understands
that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee’s
representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified
under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period
of one year or any other fixed period in the future. Optionee further understands that the Securities must be held indefinitely
unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Optionee
further acknowledges and understands that the Company is under no obligation to register the Securities. Optionee understands that
the certificate evidencing the Securities will be imprinted with a legend that prohibits the transfer of the Securities unless
they are registered or such registration is not required in the opinion of counsel satisfactory to the Company and with any other
legend required under applicable state securities laws.


 


3.          Optionee
is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance,
permit limited public resale of “restricted securities” acquired, directly or indirectly from the issuer thereof, in
a non-public offering subject to the satisfaction of certain conditions. Optionee further understands that in the event all of
the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation
A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive,
the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of
proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own risk. Optionee understands that no assurances can be
given that any such other registration exemption will be available in such event.


 





 


	 	Signature of Optionee:	 


 


	 	Date:	 


 




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EXHIBIT C-1


 


ENER-CORE, INC.


 


2013
Equity Award Incentive Plan


 


RESTRICTED STOCK PURCHASE AGREEMENT


 


THIS AGREEMENT is made
between _____________________________ (the “Purchaser”) and Ener-Core, Inc., a Nevada corporation (the “Company”)
as of __________________, ____.


 


Unless otherwise defined
herein, the terms defined in the Ener-Core, Inc. 2013 Equity Award Incentive Plan (the “Plan”) shall have the
same defined meanings in this Agreement.


 


RECITALS


 


A.           Pursuant
to the exercise of the option (grant number ____) granted to Purchaser under the Plan and pursuant to the Option Agreement dated
_______________, ____ by and between the Company and Purchaser with respect to such grant (the “Option”), which
Plan and Option Agreement are hereby incorporated by reference, Purchaser has elected to purchase _________ of those shares of
common stock that have not become vested under the vesting schedule set forth in the Option Agreement (“Unvested Shares”).
The Unvested Shares and the shares subject to the Option Agreement which have become vested are sometimes collectively referred
to herein as the “Shares”.


 


B.           As
required by the Option Agreement, as a condition to Purchaser’s election to exercise the option with respect to Unvested
Shares, Purchaser must execute this Agreement, which sets forth the rights and obligations of the parties with respect to Shares
acquired upon exercise of the Option.


 


1.            Repurchase
Option.


 


A.           If
Purchaser’s status as a Service Provider is terminated for any reason, including for cause, death, and Disability, the Company
shall have the right and option to purchase from Purchaser, or Purchaser’s personal representative, as the case may be, all
of the Purchaser’s Unvested Shares as of the date of such termination at the price paid by the Purchaser for such Shares
(the “Repurchase Option”).


 


B.           Upon
the occurrence of such termination, the Company may exercise its Repurchase Option by delivering personally or by registered mail,
to Purchaser (or his transferee or legal representative, as the case may be), within 90 days of the termination, a notice in writing
indicating the Company’s intention to exercise the Repurchase Option and setting forth a date for closing not later than
30 days from the mailing of such notice. The closing shall take place at the Company’s office. At the closing, the holder
of the certificates for the Unvested Shares being transferred shall deliver the stock certificate or certificates evidencing the
Unvested Shares, and the Company shall deliver the purchase price therefor.


 




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C.           At
its option, the Company may elect to make payment for the Unvested Shares to a bank selected by the Company. The Company shall
avail itself of this option by a notice in writing to Purchaser stating the name and address of the bank, date of closing, and
waiving the closing at the Company’s office.


 


D.           If
the Company does not elect to exercise the Repurchase Option conferred above by giving the requisite notice within 90 days following
the termination, the Repurchase Option shall terminate.


 


E.           The
Repurchase Option shall terminate in accordance with the vesting schedule contained in Optionee’s Option Agreement.


 


2.            Transferability
of the Shares; Escrow.


 


A.           Purchaser
hereby authorizes and directs the Secretary of the Company, or such other person designated by the Company, to transfer the Unvested
Shares as to which the Repurchase Option has been exercised from Purchaser to the Company.


 


B.           To
ensure the availability for delivery of Purchaser’s Unvested Shares upon repurchase by the Company pursuant to the Repurchase
Option under Section 1, Purchaser hereby appoints the Secretary, or any other person designated by the Company as escrow
agent, as its attorney-in-fact to sell, assign and transfer unto the Company, such Unvested Shares, if any, repurchased by the
Company pursuant to the Repurchase Option and shall, upon execution of this Agreement, deliver and deposit with the Secretary of
the Company, or such other person designated by the Company, the share certificates representing the Unvested Shares, together
with the stock assignment duly endorsed in blank, attached hereto as Exhibit C-2. The Unvested Shares and stock assignment
shall be held by the secretary in escrow, pursuant to the Joint Escrow Instructions of the Company and Purchaser attached as Exhibit C-3
hereto, until the Company exercises its Repurchase Option, until such Unvested Shares are vested, or until such time as this Agreement
no longer is in effect. As a further condition to the Company’s obligations under this Agreement, the spouse of the Purchaser,
if any, shall execute and deliver to the Company the Consent of Spouse attached hereto as Exhibit C-4. Upon vesting of the
Unvested Shares, the escrow agent shall promptly deliver to the Purchaser the certificate or certificates representing such Shares
in the escrow agent’s possession belonging to the Purchaser, and the escrow agent shall be discharged of all further obligations
hereunder; provided, however, that the escrow agent shall nevertheless retain such certificate or certificates as escrow agent
if so required pursuant to other restrictions imposed pursuant to this Agreement.


 


C.           The
Company, or its designee, shall not be liable for any act it may do or omit to do with respect to holding the Shares in escrow
and while acting in good faith and in the exercise of its judgment.


 


D.           Transfer
or sale of the Shares is subject to restrictions on transfer imposed by any applicable state and federal securities laws. Any transferee
shall hold such Shares subject to all the provisions hereof and the Exercise Notice executed by the Purchaser with respect to any
Unvested Shares purchased by Purchaser and shall acknowledge the same by signing a copy of this Agreement.


 




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3.            Ownership,
Voting Rights, Duties. This Agreement shall not affect in any way the ownership, voting rights or other rights or duties of
Purchaser, except as specifically provided herein.


 


4.            Legends.
The share certificate evidencing the Shares issued hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable federal and state securities laws):


 


THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT BETWEEN THE
COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.


 


5.           Adjustment
for Stock Split. All references to the number of Shares and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the Shares which may be made by the Company pursuant to
Section 12 of the Plan after the date of this Agreement.


 


6.           Notices.
Notices required hereunder shall be given in person or by registered mail to the address of Purchaser shown on the records of the
Company, and to the Company at their respective principal executive offices.


 


7.           Survival
of Terms. This Agreement shall apply to and bind Purchaser and the Company and their respective permitted assignees and transferees,
heirs, legatees, executors, administrators and legal successors.


 


8.           Section
83(b) Election. Purchaser hereby acknowledges that he or she has been informed that, with respect to the exercise of an Option
for Unvested Shares, an election (the “Election”) may be filed by the Purchaser with the Internal Revenue Service,
within 30 days of the purchase of the exercised Shares, electing pursuant to Section 83(b) of the Code to be taxed currently on
any difference between the purchase price of the exercised Shares and their Fair Market Value on the date of purchase. In the case
of a Nonstatutory Stock Option, this will result in the recognition of taxable income to the Purchaser on the date of exercise,
measured by the excess, if any, of the Fair Market Value of the exercised Shares, at the time the Option is exercised over the
purchase price for the exercised Shares. Absent such an Election, taxable income will be measured and recognized by the Purchaser
at the time or times on which the Company’s Repurchase Option lapses. In the case of an Incentive Stock Option, such an Election
will result in a recognition of income to the Purchaser for alternative minimum tax purposes on the date of exercise, measured
by the excess, if any, of the Fair Market Value of the exercised Shares, at the time the option is exercised, over the purchase
price for the exercised Shares. Absent such an Election, alternative minimum taxable income will be measured and recognized by
Purchaser at the time or times on which the Company’s Repurchase Option lapses. The Purchaser is strongly encouraged to seek
the advice of his or her own tax consultants in connection with the purchase of the Shares and the advisability of filing of the
Election under Section 83(b) of the Code. A form of Election under Section 83(b) is attached hereto as Exhibit C-5 for reference.


 




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PURCHASER ACKNOWLEDGES
THAT IT IS PURCHASER’S SOLE RESPONSIBILITY AND NOT THE COMPANY’S TO DETERMINE THE EFFECT OF AND OPTIONEE’S ABILITY
TO MAKE AND TO FILE TIMELY THE ELECTION UNDER SECTION 83(b) OF THE CODE, EVEN IF PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVE
TO MAKE THIS FILING ON PURCHASER’S BEHALF.


 


9.            Representations.
Purchaser has reviewed with his own tax advisors the federal, state, local and foreign tax consequences of this investment and
the transactions contemplated by this Agreement. Purchaser is relying solely on such advisors and not on any statements or representations
of the Company or any of its agents. Purchaser understands that he (and not the Company) shall be responsible for his own tax liability
that may arise as a result of this investment or the transactions contemplated by this Agreement.


 


10.           Governing
Law. This Agreement shall be governed by the internal substantive laws, but not the choice of law rules, of the State of Nevada.


 


Purchaser represents
that he has read this Agreement and is familiar with its terms and provisions. Purchaser hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions arising under this Agreement.


 




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IN WITNESS WHEREOF, this Agreement is deemed
made as of the date first set forth above.


 





 


	OPTIONEE	 	ENER-CORE, INC.
	 	 	 
	 	 	By:	 
	Signature	 	Its:	 




	 	 	 
	Print Name	 	 	 
	 	 	 
	 	 	 
	Spouse Signature	 	 
	 	 	 
	 	 	 
	Print Name	 	 	 
	 	 	 
	Residence Address:	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 


 


Dated:                                                                                 ,
____




 




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EXHIBIT C-2


 


ASSIGNMENT SEPARATE FROM CERTIFICATE


 


FOR VALUE RECEIVED
I, __________________________, hereby sell, assign and transfer unto ______________  ______________________ (__________)
shares of Common Stock of Ener-Core, Inc., a Nevada corporation, standing in my name of the books of said corporation represented
by Certificate No. _____ herewith and do hereby irrevocably constitute and appoint ________________________, to transfer
the said stock on the books of the within named corporation with full power of substitution in the premises.


 


This Stock Assignment
may be used only in accordance with the Restricted Stock Purchase Agreement between _______________ and the undersigned dated ______________,
_____.


 


	Dated: _______________, ____	 	Signature:	 


 


INSTRUCTIONS: Please do not fill
in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its “repurchase
option,” as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser.


 




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EXHIBIT C-3


 


JOINT ESCROW INSTRUCTIONS


 


Ener-Core, Inc.


Corporate Secretary


________________________


________________________


 


Dear Sir or Madam:


 


As Escrow Agent for
both Ener-Core, Inc., a Nevada corporation (the “Company”), and the undersigned purchaser of stock of the Company
(the “Purchaser”), you are hereby authorized and directed to hold the documents delivered to you pursuant to
the terms of that certain Restricted Stock Purchase Agreement (the “Agreement”) between the Company and the undersigned,
in accordance with the following instructions:


 


1.          In
the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the “Company”)
exercises the Company’s repurchase option set forth in the Agreement, the Company shall give to Purchaser and you a written
notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction
contemplated by such notice in accordance with the terms of said notice.


 


2.          At
the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in
the number of shares being transferred, and (c) to deliver the stock assignments, together with the certificate evidencing
the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase
price (by cash, a check, or some combination thereof) for the number of shares of stock being purchased pursuant to the exercise
of the Company’s repurchase option.


 


3.          Purchaser
irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder
and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and
appoint you as Purchaser’s attorney-in-fact and agent for the term of this escrow to execute with respect to such securities
all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to,
or notice of transfer of, the securities. Subject to the provisions of this paragraph 3, Purchaser shall exercise all
rights and privileges of a stockholder of the Company while the stock is held by you.


 


4.          Upon
written request of the Purchaser, but no more than once per calendar year, unless the Company’s repurchase option has been
exercised, you will deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject
to the Company’s repurchase option. Within 120 days after cessation of Purchaser’s continuous employment by or services
to the Company, or any parent or subsidiary of the Company, you will deliver to Purchaser a certificate or certificates representing
the aggregate number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant
to exercise of the Company’s repurchase option.


 




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5.          If
at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging
to Purchaser, you shall deliver all of the same to Purchaser and shall be discharged of all further obligations hereunder.


 


6.          Your
duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto.


 


7.          You
shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented
by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent
or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.


 


8.          You
are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and are hereby expressly authorized to comply with and obey orders,
judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable
to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.


 


9.          You
shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder.


 


10.         You
shall not be liable for the outlawing of any rights under the Statute of Limitations with respect to these Joint Escrow Instructions
or any documents deposited with you.


 


11.         You
shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection
with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor.


 


12.         Your
responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you
shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow
Agent.


 


13.         If
you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.


 




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14.         It
is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of
the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone
all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties
concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and
no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings.


 


15.         Any
notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each
of the other parties thereunto entitled at the following addresses or at such other addresses as a party may designate by ten days’
advance written notice to each of the other parties hereto.


 


16.         By
signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you
do not become a party to the Agreement.


 


17.         This
instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted
assigns.


 


18.         These
Joint Escrow Instructions shall be governed by the internal substantive laws, but not the choice of law rules, of Nevada.


 


	PURCHASER	 	ENER-CORE, INC.
	 	 	 
	 	 	By:	 
	Signature	 	Its:	 
	 	 	 
	Print Name_________________________________________	 	 
	 	 	 
	 	 	 
	Spouse Signature	 	 
	 	 	 
	 	 	 
	Print Name	 	 
	 	 	 
	Residence Address	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 	 	 


 




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ESCROW AGENT


 


	 	 
	Corporate Secretary	 


 


Dated: ________________________, _____




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EXHIBIT C-4


 


CONSENT OF SPOUSE


 


I, ____________________,
spouse of ___________________, have read and approve the foregoing Restricted Stock Purchase Agreement (the “Agreement”).
In consideration of granting of the right to my spouse to purchase shares of common stock of Ener-Core, Inc., a Nevada corporation,
as set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under
the Agreement and agree to be bound by the provisions of the Agreement insofar as I may have any rights in said Agreement or any
shares issued pursuant thereto under the community property laws or similar laws relating to marital property in effect in the
state of our residence as of the date of the signing of the foregoing Agreement.


 


	Dated: ___________________, _____	Signature:	 


 




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EXHIBIT C-5


 


ELECTION UNDER SECTION 83(b) OF THE INTERNAL
REVENUE CODE OF 1986


 


The undersigned taxpayer hereby elects,
pursuant to Sections 55 and 83(b) of the Internal Revenue Code of 1986, as amended, to include in taxpayer’s gross income
or alternative minimum taxable income, as the case may be, for the current taxable year the amount of any compensation taxable
to taxpayer in connection with taxpayer’s receipt of the property described below:


 


1.          The
name, address, taxpayer identification number and taxable year of the undersigned are as follows:


 


	NAME:  TAXPAYER:	 	SPOUSE:	 


 


	ADDRESS:	 


 


	IDENTIFICATION NO.:	 	TAXPAYER:	 	SPOUSE:	 


 


	TAXABLE YEAR:	 	 


 


2.          The
property with respect to which the election is made is described as follows: __________ shares (the “Shares”)
of the common stock of Ener-Core, Inc., a Nevada corporation (the “Company”).


 


3.          The
date on which the property was transferred is:___________________ ,______.


 


4.          The
property is subject to the following restrictions: The Shares may not be transferred and are subject to forfeiture under the terms
of an agreement between the taxpayer and the Company. These restrictions lapse upon the satisfaction of certain conditions contained
in such agreement.


 


5.          The
fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms
will never lapse, of such property is: $_________________.


 


6.          The
amount (if any) paid for such property is: $_________________.


 


The undersigned has submitted a copy of
this statement to the person for whom the services were performed in connection with the undersigned’s receipt of the above-described
property. The transferee of such property is the person performing the services in connection with the transfer of said property.


 


The undersigned understands that the
foregoing election may not be revoked except with the consent of the Commissioner.


 


	Dated: ______________________, _____	_________________________________________
	 	Taxpayer
	 	 
	The undersigned spouse of taxpayer joins in this election.	 
	 	 
	Dated: _____________________, ______	_________________________________________
	 	Spouse of Taxpayer


 




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