Document:

Exhibit 10.3

 

CAPSTEAD MORTGAGE CORPORATION

 

PERFORMANCE UNIT AGREEMENT

 FOR EMPLOYEES

THIS PERFORMANCE UNIT AGREEMENT (this “Agreement”) made and entered into as of the 18th day of December, 2013, effective as of the date hereof (hereinafter called the “Award Date”), by and between Capstead Mortgage Corporation, a Maryland corporation (“Capstead” or the “Company”), and « Name» (the “Grantee”).

 

WHEREAS, the compensation committee of Capstead’s board of directors (the “Committee”) believes employees of the Company should have an ongoing stake in the long-term success of the Company, and

 

WHEREAS, the Committee believes that providing a long-term equity-based award appropriately linked to the Company’s performance over a multiple year period will better align the employees’ long-term interests with those of our stockholders.

 

THEREFORE, the Committee has awarded to the Grantee a performance unit award conditioned upon the execution by the Company and the Grantee of this Performance Unit Agreement that contains certain performance criteria set forth herein. In consideration of the mutual promise(s) and covenant(s) contained herein, the parties hereby agree as follows:

 

SECTION 1.         GRANT.

 

1.1            Grant and Acceptance.  Pursuant to the December 18, 2013 authorization to grant performance units to current executive officers, the Company does hereby grant and transfer to the Grantee, for no cash consideration from the Grantee, and the Grantee does hereby accept from the Company, an aggregate of «Target» performance units (the “Performance Units”), which are convertible into shares of Common Stock, $0.01 par value per share, of the Company (the “Common Stock”) according to the terms and conditions and subject to the restrictions, forfeiture risks and other terms and conditions hereinafter set forth.

 

1.2            Effect of Plan.  The Performance Units shall constitute a Performance Award, as defined in the Company’s Amended and Restated 2004 Flexible Long-Term Incentive Plan (the “Plan”).  This Agreement is expressly subject to the terms and provisions of the Plan and in the event there is a conflict between the terms of the Plan and this Agreement, the terms of the Plan shall control.  All undefined capitalized terms used herein shall have the meanings assigned in the Plan.  The Award is subject to all laws, approvals, requirements and regulations of any governmental authority which may be applicable thereto.

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SECTION 2.         CONVERSION RIGHTS; DIVIDENDS.  Provided the Performance Criteria are satisfied, each Performance Unit is automatically convertible into Common Stock following the end of the Performance Period, but no later than March 15, 2017, with the conversion factor determined formulaically based on the stated performance criteria, as set forth in the 2004 Flexible Long-Term Incentive Plan Long-Term Award Criteria attached hereto as Exhibit A (the “Long-Term Award Criteria”).  The Grantee, for the duration of this Agreement shall not be entitled to vote or receive dividends or any other distributions declared on the Common Stock into which the Performance Units are ultimately convertible.  From the date of grant through the end of the Performance Period, the Company shall accrue dividends and any other distributions declared with respect to its Common Stock, initially as if each Performance Unit were entitled to the same dividend as a single share of Common Stock.  The Company shall have discretion to accrue additional or lesser amounts if management has a reasonable basis to believe that the conversion ratio will result in automatic conversion into Common Stock on something other than a one-to-one basis (based on the actual performance criteria during the Performance Period).  To the extent the Performance Units are ultimately convertible into Common Stock, the Grantee shall be entitled to receive all dividends and any other distributions declared from the date of grant with respect to the shares Common Stock into which the Performance Units are ultimately converted, as if such Common Stock had been issued on the date of grant (provided, however, that nothing contained herein shall cause the Company to declare any such dividends or to make any such distributions).  If Performance Units are forfeited pursuant to Section 3.3, 3.4 or 3.5, Grantee is not entitled to receive any such amounts representing accrued dividends or distributions.

 

SECTION 3.         PERFORMANCE CRITERIA, PERFORMANCE PERIOD AND VESTING.

 

3.1            Performance Criteria.  The “Performance Criteria” with respect to the Performance Units shall be comprised of the performance metrics, and each performance metric shall be weighted, as described in the Long-Term Award Criteria.  Based on the “Payout Factors” and weighting described in the Long-Term Award Criteria, the Performance Units could expire without converting into any shares of Common Stock or could be convertible into as many as 200% of the number of Performance Units granted to each Grantee.

 

3.2            Performance Period.  Performance shall be measured for a single three-year period beginning January 1, 2014 and ending December 31, 2016.

 

3.3            Conversion Date.

 

(a)            Pursuant to the Plan, after the end of the Performance Period, the Committee shall determine whether, and to what degree, the Performance Criteria were satisfied. If any of the Performance Criteria were satisfied at or above the “Minimum” level (as described in the Long-Term Award Criteria) with respect to the Performance Period, the Committee shall establish a “Conversion Date” with respect to such Performance Period.  The determination by the Committee as to the satisfaction of the Performance Criteria with respect to the Performance Period shall be deemed to be final.

 

(b)            Provided the Grantee remains continuously employed by the Company throughout the Performance Period and some or all of the Performance Criteria for the Performance Period have been satisfied and acknowledged by the Committee at or above the “Minimum” level, then on the Conversion Date, the Performance Units shall automatically convert into the number of shares of Common Stock calculated consistent with the Payout Factors shown on the Long-Term Award Criteria.

 

(c)            Except as otherwise provided in Sections 3.4, 3.5 and 3.6 below, no Performance Units shall become convertible after:

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(i)            termination of Grantee’s employment with the Company or any Affiliate for any reason other than death (including termination by reason of voluntary or involuntary discharge, Disability or Retirement) in which case the Grantee shall, at the time of termination, forfeit all right, title and interest in and to any Performance Units and the Common Stock into which such Performance Units may have been convertible following the Performance Period; or

 

(ii)          a Grantee working full-time at the Award Date reduces his/her scheduled hours worked per week below a standard 40-hour work week, in which case the Grantee shall, at the time of such reduction and subject to management’s discretion, forfeit all right, title and interest in and to any Performance Units and the Common Stock into which such Performance Units may have been convertible following the Performance Period; or

 

(iii)         a Grantee working part-time at the Award Date reduces his/her scheduled hours worked per week below a standard 20-hour work week, in which case the Grantee shall, at the time of such reduction and subject to management’s discretion, forfeit all right, title and interest in and to any Performance Units and the Common Stock into which such Performance Units may have been convertible following the Performance Period.

 

3.4            Effect of Grantee’s Death.  If the Grantee ceases to be an employee of the Company or any Affiliate by reason of death prior to the end of a Performance Period, the personal representatives, heirs, legatees or distributees of the Grantee, as appropriate, shall be entitled to the Performance Units, which shall be convertible into the same number of shares of Common Stock that would have otherwise been applicable for the Performance Period multiplied by a fraction, the numerator of which is the number of years during the related Performance Period in which the Grantee was alive and employed by the Company for any portion of such year and the denominator of which is three.  Such beneficiary shall have no further rights under this Agreement.

 

3.5            Effect of Dissolution or Liquidation.  In the event of the dissolution or liquidation of the Company, any and all outstanding Performance Units that have not become convertible into shares of Common Stock shall automatically be forfeited.

 

3.6            Effect of Change of Control.  If there is a Change in Control (as defined in the Plan) during the Performance Period, the Grantee’s employment is terminated at any time within 24 months of the Change of Control and such termination is by the Company without Cause or by the Grantee with Good Reason, all performance goals with respect to the Performance Units shall be deemed to have been met at the Targeted Amount set forth in the Long-Term Award Criteria for the entire Performance Period under the terms of the Long-Term Award Criteria and the Performance Period shall immediately end.  In such an event, the Conversion Date shall be the date of the occurrence of the Change in Control.  For purposes of this Agreement, “Good Reason” shall include (i) a reduction in Grantee’s base salary; (ii) a material diminution in Grantee’s duties and job responsibilities; or (iii) a relocation of Grantee’s primary place of work as of the date of this Agreement to a location that requires Grantee to travel from his or her primary residence to such new location an additional 50 or more miles each way.

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For purposes of this Agreement, “Cause” means:

 

(i)             gross negligence in the performance of Grantee’s duties and responsibilities, which negligence results in material harm to the business, interests or reputation of the Company;

 

(ii)            a violation of any material Company policy, including, without limitation, the theft, embezzlement or misappropriation or material misuse of any Company funds or property;

 

(iii)            any criminal or civil conviction for a crime involving moral turpitude;

 

(iv)            willful and continued failure by Grantee to perform his or her duties and responsibilities; or

 

(v)            any misconduct that, in the Company’s good faith determination, is materially harmful to the business, interests or reputation of the Company.

 

3.7            Effect of Forfeiture.  Any Performance Units forfeited pursuant to Section 3.3, 3.4 and 3.5 shall revert to the Company.

 

SECTION 4.         FORM OF PERFORMANCE UNITS.  The Performance Units shall not be certificated.  On the Conversion Date, the Company shall cause its Transfer Agent to record Grantee’s ownership of the Common Stock of the Company (into which the Performance Units are converted) in unrestricted book entry form or, at the request of the Grantee, issued in stock certificate form.  Any such certificates shall be unencumbered by any of the restrictions enumerated herein other than such restrictions as may be imposed by applicable federal or state securities laws and regulations.

 

SECTION 5.         TRANSFER OF PERFORMANCE UNITS.

 

5.1            Except as otherwise provided in the Plan, the Performance Units shall not be offered, sold, transferred, assigned, exchanged, pledged, encumbered or otherwise disposed of (each, a “Transfer”) for any purpose whatsoever, other than to the Company, and shall not be subject, in whole or in part, to execution, attachment, or similar process in all such cases until the Conversion Date.  Any attempted Transfer of the Performance Units, other than in accordance with the terms set forth herein, shall be void and of no effect.

 

5.2            Grantee acknowledges that any sale, assignment, transfer or other disposition of Performance Units may be subject to restrictions contained in applicable federal or state securities laws and regulations and that any such sale, assignment, transfer or other disposition of Performance Units by him or her will be in compliance with such laws and regulations.

 

SECTION 6.        WITHHOLDINGS.  The Company and each Affiliate shall have the right to retain and withhold from any payment of Performance Units, Common Stock into which Performance Units are convertible (and any dividends on such Common Stock) any amounts required to be withheld or otherwise deducted and paid with respect to such payment.  At its discretion, the Company and each Affiliate may require the Grantee receiving Performance Units or Common Stock into which Performance Units are convertible to reimburse the Company or any Affiliate for any such taxes required to be withheld by the Company or the Affiliate and withhold any distribution in whole or in part until the Company and each Affiliate is so reimbursed.  In lieu thereof, the Company and each Affiliate shall have the right to withhold from any other cash amounts due or to become due from the Company or the Affiliate to the Grantee an amount equal to such taxes required to be withheld by the Company or the Affiliate as reimbursement for any such taxes or retain and withhold a number of shares having a market value not less than the amount of such taxes in order to reimburse the Company or the Affiliate for any such taxes.

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SECTION 7.         ADJUSTMENTS TO PERFORMANCE UNITS.

 

7.1            Stock Dividends and Splits and Similar Transactions.  Subject to any required action by the Company’s Board of Directors and stockholders, the number of Performance Units shall be proportionately adjusted for any increase or decrease in the number of issued Shares of the Company resulting from the payment of a Share dividend, a Share split, a Share reverse-split or any similar transaction.

 

7.2            Change in Par Value.  In the event of a change in the Company’s Shares, which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be shares within the meaning of the Plan.

 

7.3            Other Capital Adjustments.  Except as hereinbefore expressly provided in Section 7.1 and except for rights that all holders of Common Stock shall have, Grantee shall have no rights by reason of any subdivision or consolidation of Shares of any class or payment of any share dividend or any other increase or decrease in the number of shares of any class or by reason of any dissolution, liquidation, merger or consolidation or spin-off of assets or stock of another corporation; any issuance by the Company of Shares of any class, or securities convertible into Shares of any class, shall not affect the Award, and no adjustment by reason thereof shall be made with respect to the number or price of the Performance Units subject to the Award.  An Award of Performance Units shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell or transfer all or any part of its business or assets.

 

SECTION 8.         GRANTEE’S REPRESENTATIONS AND WARRANTIES.  Grantee represents and warrants that:

 

(a)            such Grantee has not and will not, directly or indirectly, Transfer any Performance Units except in accordance with the terms of this Agreement;

 

(b)            such Grantee has, or such Grantee together with such Grantee’s advisors, if any, have such knowledge and experience in financial, business and tax matters that such Grantee is, or such Grantee together with such Grantee’s advisors, if any, are capable of evaluating the merits and risks relating to such Grantee’s investment in the Performance Units and making an investment decision with respect to the Company;

 

(c)            such Grantee has been given the opportunity to obtain information and documents relating to the Company and to ask questions of and receive answers from representatives of the Company concerning the Company and such Grantee’s investment in the Performance Units; and

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(d)            such Grantee realizes that there are substantial risks incident to an investment in the Performance Units.

 

SECTION 9.         IMPACT ON OTHER BENEFITS.  The value of the Performance Units (either on the Award Date or at the Conversion Date) shall not be includable as compensation or earnings for purposes of any other benefit plan offered by the Company.

 

SECTION 10.      ADMINISTRATION.  The Committee shall have full authority and discretion (subject only to the express provisions of the Plan) to decide all matters relating to the administration and interpretation of the Plan and this Agreement.  All such Committee determinations shall be final, conclusive, and binding upon the Company, the Grantee, and any and all interested parties.

 

SECTION 11.      NO AGREEMENT TO CONTINUE IN EMPLOYMENT.  Nothing in the Plan or this Agreement shall confer on the Grantee any right to continue in the employ of the Company or any Affiliate or interfere in any way with the right of the Company and any Affiliate to terminate the Grantee’s employment at any time.

 

SECTION 12.      AMENDMENT(S).  This Agreement shall be subject to the terms of the Plan, as amended from time to time, except that the Award that is the subject of this Agreement may not in any way be restricted or limited by any amendment or termination approved after the Award Date without the Grantee’s written consent.

 

SECTION 13.     FORCE AND EFFECT.  The various provisions of this Agreement are severable in their entirety.  Any determination of invalidity or unenforceability of any one provision shall have no effect on the continuing force and effect of the remaining provisions.

 

SECTION 14.      GOVERNING LAWS.  This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Maryland.

 

SECTION 15.      MISCELLANEOUS.

 

15.1            Any notice necessary under this Agreement shall be in writing, signed by the party giving or making the same, and addressed (a) to the Company in the care of its President or Secretary at the principal executive office of the Company in Dallas, Texas, (b) to the Grantee at the address appearing in the personnel records of the Company for such Grantee or (c) to either party at such other address as either party hereto may hereafter designate in writing to the other.  Except as otherwise provided herein, any such notice shall be deemed effective upon receipt thereof by the addressee.

 

15.2            This Agreement may be executed in counterparts, each of which shall be deemed an original for all purposes and both of which taken together shall constitute but one and the same instrument.

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date hereof.  By execution of this Agreement, the Grantee acknowledges receipt of a copy of the Plan, the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 and the informational supplement required by Rule 428(b)(1) under the Securities Act of 1933.

		
CAPSTEAD MORTGAGE CORPORATION

	 	 	 	 
		
By:

	  	
			
Phillip A. Reinsch

	
			
Executive Vice President & Chief Financial Officer

		 	 	
		
GRANTEE

	
		 	 	
		 	
			
«Name»NEITHER THESE SECURITIES NOR THE SECURITIES
ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH
EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

  

ENERPULSE
TECHNOLOGIES, INC.

 

AMENDED
AND RESTATED WARRANT

 

	Warrant No. 1	Original Issue Date:  September 4, 2013

 

Enerpulse Technologies,
Inc., a Nevada corporation (the “Company”), hereby certifies that, for value received, Roth Capital Partners,
LLC or its registered assigns (the “Holder”), is entitled to purchase from the Company up to a total of 150,000
shares of Common Stock (each such share, a “Warrant Share” and all such shares, the “Warrant Shares”),
at any time and from time to time from and after the 181st day immediately following the date of effectiveness of that
certain registration statement on Form S-1 (File No. 333-191471) filed by the Company, and through and including September 3, 2018
(the “Expiration Date”), and subject to the following terms and conditions:

 

1.                 
Definitions. As used in this Warrant, the following terms shall have the respective definitions set forth in this
Section 1.

 

“Affiliate”
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 144.

 

“Business
Day” means any day except Saturday, Sunday and any day which is a federal legal holiday or a day on which banking institutions
in the State of New York are authorized or required by law or other governmental action to close.

 

    	 

    	 

    

 

“Common Stock”
means the common stock of the Company, $0.001 par value per share, and any securities into which such common stock may hereafter
be reclassified or for which it may be exchanged as a class.

 

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

 

“Exercise
Price” means $0.64, subject to adjustment in accordance with Section 9.

 

“Fundamental
Transaction” means any of the following: (1) the Company effects any merger or consolidation of the Company with or into
another Person, (2) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions,
(3) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities, cash or property, or (4) the Company effects any reclassification
of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged
for other securities, cash or property.

 

“New York
Courts” means the state and federal courts sitting in the City of New York, Borough of Manhattan.

 

“Original
Issue Date” means the Original Issue Date first set forth on the first page of this Warrant.

 

“Person”
means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Rule 144”
means Rule 144 promulgated by the Securities and Exchange Commission pursuant to the Securities Act, as such Rule may be amended
from time to time, or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission having substantially
the same effect as such Rule.

 

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

 

“Subsidiary”
means any “significant subsidiary” as defined in Rule 1-02(w) of Regulation S-X promulgated by the Securities and Exchange
Commission under the Exchange Act.

 

“Trading Day”
means (i) a day on which the Common Stock is traded on a Trading Market, or (ii) if the Common Stock is not quoted on any Trading
Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by the OTC Markets Group, Inc. (or
any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common
Stock is not listed or quoted as set forth in (i) or (ii) hereof, then Trading Day shall mean a Business Day.

 

“Trading Market”
means whichever of the New York Stock Exchange, the NYSE MKT, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ
Capital Market, OTC Bulletin Board, or the OTC Markets Group, Inc. OTCQX or OTCQB tier on which the Common Stock is listed or quoted
for trading on the date in question.

 

    	-2-

    	 

    

 

“Warrant Shares”
means the shares of Common Stock issuable upon exercise of this Warrant.

 

2.                 
Registration of Warrant. The Company shall register this Warrant upon records to be maintained by the Company for
that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company
may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or
any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

3.                 
Registration of Transfers. The Company shall register the transfer of any portion of this Warrant in the Warrant
Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Company
at its address specified herein. Upon any such registration or transfer, a new Warrant to purchase Common Stock, in substantially
the form of this Warrant (any such new Warrant, a “New Warrant”), evidencing the portion of this Warrant so
transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred,
if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed
the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant.

 

4.                 
Exercise and Duration of Warrants. This Warrant shall be exercisable by the registered Holder at any time and from
time to time from and after the 181st day immediately following the date of effectiveness of that certain registration
statement on Form S-1 (File No. 333-191471) filed by the Company, and through and including the Expiration Date. At 5:30 p.m.,
New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and
of no value. The Company may not call or redeem any portion of this Warrant without the prior written consent of the affected Holder.

 

5.                 
Delivery of Warrant Shares.

 

(a)               
To effect exercises hereunder, the Holder shall not be required to physically surrender this Warrant unless the aggregate
Warrant Shares represented by this Warrant is being exercised. Upon delivery of the Exercise Notice (in the form attached hereto)
to the Company (with the attached Warrant Shares Exercise Log) at its address for notice set forth herein and upon payment of the
Exercise Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, the Company shall promptly
(but in no event later than three Trading Days after the Date of Exercise (as defined herein)) issue and deliver to the Holder,
a certificate for the Warrant Shares issuable upon such exercise. The Company shall, upon request of the Holder and subsequent
to the date on which a registration statement covering the resale of the Warrant Shares has been declared effective by the Securities
and Exchange Commission, use its reasonable best efforts to deliver Warrant Shares hereunder electronically through the Depository
Trust & Clearing Corporation or another established clearing corporation performing similar functions, if available, provided,
that, the Company may, but will not be required to change its transfer agent if its current transfer agent cannot deliver Warrant
Shares electronically through the Depository Trust Corporation. A “Date of Exercise” means the date on which
the Holder shall have delivered to the Company: (i) the Exercise Notice (with the Warrant Exercise Log attached to it), appropriately
completed and duly signed and (ii) payment of the Exercise Price for the number of Warrant Shares so indicated by the Holder to
be purchased.

 

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(b)              
If by the third Trading Day after a Date of Exercise the Company fails to deliver the required number of Warrant Shares
in the manner required pursuant to Section 5(a), then the Holder will have the right to rescind such exercise.

 

(c)               
If by the third Trading Day after a Date of Exercise the Company fails to deliver the required number of Warrant Shares
in the manner required pursuant to Section 5(a), and if after such third Trading Day and prior to the receipt of such Warrant Shares,
the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a "Buy-In"), then
the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number
of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue by (B) the closing
bid price of the Common Stock on the Date of Exercise and (2) at the option of the Holder, either reinstate the portion of the
Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of
shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder.
The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In.

 

(d)              
The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to
any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the
Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance
which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely
deliver certificates representing Warrant Shares upon exercise of the Warrant as required pursuant to the terms hereof.

 

6.                 
Charges, Taxes and Expenses. Issuance and delivery of Warrant Shares upon exercise of this Warrant shall be made
without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense
in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however,
that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for
all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise
hereof.

 

    	-4-

    	 

    

 

7.                 
Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause
to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a
New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary
and reasonable indemnity (which shall not include a surety bond), if requested. Applicants for a New Warrant under such circumstances
shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the
Company may prescribe. If a New Warrant is requested as a result of a mutilation of this Warrant, then the Holder shall deliver
such mutilated Warrant to the Company as a condition precedent to the Company’s obligation to issue the New Warrant.

 

8.                 
Reservation of Warrant Shares. The Company covenants that it will at all times reserve and keep available out of
the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue
Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of Persons other
than the Holder (taking into account the adjustments and restrictions of Section 9). The Company covenants that all Warrant Shares
so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.

 

9.                 
Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject
to adjustment from time to time as set forth in this Section 9.

 

(a)               
Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend
on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock,
(ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares
of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause
(i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to
receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective
immediately after the effective date of such subdivision or combination.

 

(b)              
Fundamental Transactions. If, at any time while this Warrant is outstanding there is a Fundamental Transaction, then
the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash
or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately
prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant
(the “Alternate Consideration”). For purposes of any such exercise, the determination of the Exercise Price
shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable
in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among
the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.
If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant
following such Fundamental Transaction. At the Holder’s option and request, any successor to the Company or surviving entity
in such Fundamental Transaction shall issue to the Holder a new warrant substantially in the form of this Warrant and consistent
with the foregoing provisions and evidencing the Holder’s right to purchase the Alternate Consideration for the aggregate
Exercise Price upon exercise thereof. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (b) and ensuring
that the Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.

 

    	-5-

    	 

    

 

(c)               
Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to this Section 9, the
number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so
that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the
same as the aggregate Exercise Price in effect immediately prior to such adjustment.

 

(d)              
Calculations. All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100th
of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common
Stock.

 

(e)               
Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense
will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such
adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities
issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing
in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each
such certificate to the Holder and to the Company’s Transfer Agent.

 

(f)               
Notice of Corporate Events. If the Company (i) declares a dividend or any other distribution of cash, securities
or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe
for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating
or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation
or winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice describing the material terms
and conditions of such transaction (but only to the extent such disclosure would not result in the dissemination of material, non-public
information to the Holder) at least 10 calendar days prior to the applicable record or effective date on which a Person would need
to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably
necessary in order to ensure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so
as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to be described in such notice.

 

    	-6-

    	 

    

 

10.             
Payment of Exercise Price. The Holder may pay the Exercise
Price in one of the following manners:

 

(a)               
Cash Exercise. The Holder may deliver immediately available funds; or

 

(b)              
Cashless Exercise. The Holder may notify the Company in an Exercise Notice of its election to utilize cashless exercise,
in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows:

 

X = Y [(A-B)/A]

 

where:

 

X = the number of Warrant Shares
to be issued to the Holder.

 

Y = the number of Warrant Shares
with respect to which this Warrant is being exercised.

 

A = the average of the daily volume
weighted average price for the five Trading Days immediately prior to (but not including) the Exercise Date.

 

B = the Exercise Price.

 

For purposes of Rule 144 promulgated under
the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction
shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced,
on the date this Warrant was originally issued.

 

11.             
Limitations on Exercise. Notwithstanding anything to the contrary contained herein, the number of Warrant Shares
that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent
necessary to ensure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially
owned by such Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with
the Holder’s for purposes of Section 13(d) of the Exchange Act, does not exceed 9.99% of the total number of issued and outstanding
shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). For such purposes,
beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. This provision shall not restrict the number of shares of Common Stock which a Holder may receive or beneficially own
in order to determine the amount of securities or other consideration that such Holder may receive in the event of a Fundamental
Transaction as contemplated in Section 9 of this Warrant. This restriction may not be waived. Notwithstanding anything to the contrary
contained in this Warrant, (a) no term of this Section may be waived by any party, nor amended such that the threshold percentage
of ownership would be directly or indirectly increased, (b) this restriction runs with the Warrant and may not be modified or waived
by any subsequent holder hereof and (c) any attempted waiver, modification or amendment of this Section will be void ab
initio.

 

    	-7-

    	 

    

 

12.             
No Fractional Shares. No fractional shares of Warrant Shares will be issued in connection with any exercise of this
Warrant. In lieu of any fractional shares which would, otherwise be issuable, the Company shall pay cash equal to the product of
such fraction multiplied by the closing price of one Warrant Share as reported by the applicable Trading Market on the date of
exercise.

 

13.             
Notices. Any and all notices or other communications or deliveries hereunder (including, without limitation, any
Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 5:30 p.m. (New
York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 5:30
p.m. (New York City time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The addresses
for such communications shall be: (i) if to the Company, to 2451 Alamo Ave. SE, Albuquerque, NM 87106, Attn: Chief Executive Officer,
or to Facsimile No.: [] (or such other address as the Company shall indicate in writing in accordance with this Section), or
(ii) if to the Holder, to the address or facsimile number appearing on the Warrant Register or such other address or facsimile
number as the Holder may provide to the Company in accordance with this Section.

 

14.             
Warrant Agent. The Company shall serve as warrant agent under this Warrant. Upon 10 days’ notice to the Holder,
the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any
corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation
to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business
shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s
last address as shown on the Warrant Register.

 

    	-8-

    	 

    

 

15.             
Miscellaneous.

 

(a)               
This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns.
Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and
the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing
signed by the Company and the Holder and their successors and assigns. The foregoing sentence shall be subject to the restrictions
on waivers and amendments set forth in Section 11 of this Warrant.

 

(b)              
All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by
and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts
of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of this Warrant
and the transactions herein contemplated (“Proceedings”) (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the New York Courts. Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or
with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any Proceeding,
any claim that it is not personally subject to the jurisdiction of any New York Court, or that such Proceeding has been commenced
in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process
being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence
of delivery) to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Warrant or the transactions
contemplated hereby. If either party shall commence a Proceeding to enforce any provisions of this Warrant, then the prevailing
party in such Proceeding shall be reimbursed by the other party for its attorney’s fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such Proceeding.

 

(c)               
The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit
or affect any of the provisions hereof.

 

(d)              
In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and
the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.

 

(e)               
Prior to exercise of this Warrant, the Holder hereof shall not, by reason of being a Holder, be entitled to any rights of
a stockholder with respect to the Warrant Shares.

 

    	-9-

    	 

    

 

IN WITNESS WHEREOF,
the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above.

 

	 	ENERPULSE TECHNOLOGIES, INC.
	 	 	 
	 	By:  	/s/ Joseph E. Gonnella
	 	 	Name: Joseph E. Gonnella
	 	 	Title: Chief Executive Officer

 

    	-10-

    	 

    

 

EXERCISE
NOTICE

ENERPULSE
TECHNOLOGIES, INC.

WARRANT DATED SEPTEMBER 4, 2013

  

The undersigned Holder hereby irrevocably
elects to purchase _____________ shares of Common Stock pursuant to the above referenced Warrant. Capitalized terms used herein
and not otherwise defined have the respective meanings set forth in the Warrant.

 

		(1)	The undersigned Holder hereby exercises its right to purchase _________________ Warrant Shares
pursuant to the Warrant.

 

		(2)	The holder shall pay the sum of $____________ to the Company in accordance with the terms of the
Warrant.

 

		(3)	Pursuant to this Exercise Notice, the Company shall deliver to the holder _______________ Warrant
Shares in accordance with the terms of the Warrant.

 

		(4)	By its delivery of this Exercise Notice, the undersigned represents and warrants to the Company
that in giving effect to the exercise evidenced hereby the Holder will not beneficially own in excess of the number of shares of
Common Stock (determined in accordance with Section 13(d) of the Securities Exchange Act of 1934) permitted to be owned under Section
11 of this Warrant to which this notice relates.

 

	 	 
	 	 
	Dated: _________________, _____	Name of Holder:
	 	 
	 	(Print) ______________________
	 	 
	 	By:________________________
	 	Name:______________________
	 	Title:_______________________
	 	 
	 	(Signature must conform in all respects to name
    of holder as specified on the face of the Warrant)

 

    	-11-

    	 

    

 

Warrant Shares Exercise Log

 

	Date	Number of Warrant Shares Available to be Exercised	Number of Warrant Shares Exercised	Number of Warrant Shares Remaining to be Exercised
	
         

         

         

         

         

         

         

         

         

         

         

         

         

         

         

         

         

         

         

         

         

         

         

         

         

         

         

         
	 	 	 

 

    	-12-

    	 

    

 

ENERPULSE
TECHNOLOGIES, INC.

WARRANT
DATED SEPTEMBER 4, 2013

WARRANT NO. [ ]

 

FORM
OF ASSIGNMENT

 

[To be completed and
signed only upon transfer of Warrant]

 

FOR VALUE RECEIVED,
the undersigned hereby sells, assigns and transfers unto ________________________________ the right represented by the above-captioned
Warrant to purchase ____________ shares of Common Stock to which such Warrant relates and appoints ________________ attorney to
transfer said right on the books of the Company with full power of substitution in the premises.

 

Dated:_______________, ____

 

_______________________________________

(Signature must conform in all respects to name of 

holder as specified on the face of the Warrant)

 

_______________________________________

Address of Transferee

 

_______________________________________

 

_______________________________________

 

In the presence of:

 

__________________________

 

    	-13-

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