Document:

Exhibit 4.3

 

AMENDMENT TO

SENIOR SECURED NOTES

 

THIS AMENDMENT TO SENIOR
SECURED NOTES (this “Amendment”) is made and entered into as of  November 2, 2015 by and among
Ener-Core, Inc., a Delaware corporation (the “Company”) and the undersigned, and amends those certain Senior Secured Notes dated as of May 9, 2015 (the
“Notes”) as issued by the Company pursuant to that certain Securities Purchase Agreement, dated May
7, 2015, by and among the Company, the "Buyers" identified therein, and the Collateral Agent identified therein
(the “Agreement”). Capitalized terms used herein but not otherwise defined herein shall have the
meanings ascribed to such terms in the Notes.

 

RECITALS

 

WHEREAS, pursuant to Section
15 of the Notes, the written consent of the holders of Notes representing at least a majority of the sum of (1) the aggregate principal
amount of the Notes then outstanding and (2) the aggregate principal amount of the April 2015 Notes (as defined in the Agreement)
then outstanding, including Empery Asset Master, Ltd. (“Empery”) so long as the Empery or any of its
Affiliates holds any April 2015 Notes (the “Required Holders”) shall be required for any change or amendment
or waiver of any provision of the Notes, provided that any such amendment or waiver does not disproportionately, materially and
adversely affects the rights and obligations of any Holder relative to the comparable rights and obligations of the other Holders;

 

WHEREAS, any amendment effected
in accordance with Section 15 of the Notes is binding upon all holders of Notes purchased under the Agreement and the Company;

 

WHEREAS, the Company wishes
to enter into a Backstop Security Support Agreement, in the form attached hereto as Exhibit A, obligating the Company to
pay certain fees and pledge certain collateral for assistance in obtaining a letter of credit to satisfy certain existing contractual
commitments central to its operations; and

 

WHEREAS, the parties hereto
wish to amend the Notes as set forth below.

  

AGREEMENT

 

NOW, THEREFORE, in consideration
of the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:

 

ARTICLE I

AMENDMENT TO THE NOTES

 

Section 1.1 Additional Permitted
Indebtedness. Section 29(t) of the Notes is hereby amended and restated as follows:

 

“(t)“Permitted Indebtedness"
means (i) Indebtedness evidenced by this Note and the Other Notes, (ii) trade payables incurred in the ordinary course of business
consistent with past practice, (iii) Indebtedness incurred by the Company that is made expressly subordinate in right of payment
to the Indebtedness evidenced by this Note, as reflected in a written agreement acceptable to the Required Holders and approved
by the Required Holders in writing, and which Indebtedness does not provide at any time for (a) the payment, prepayment, repayment,
repurchase or defeasance, directly or indirectly, of any principal or premium, if any, thereon until ninety-one (91) days after
the Maturity Date or later and (b) total interest and fees at a rate in excess of twelve percent (12.0%) per annum, (iv) Indebtedness
secured by Permitted Liens described in clauses (iv) of the definition of Permitted Liens, (v) deemed Indebtedness arising from
one or more operating leases, including, without limitation, the leases for one or more test turbines from Dresser-Rand, but only
if such lease, if secured, is secured solely by such test turbine, (vi) Indebtedness listed on Schedule 29(t) attached hereto,
and Indebtedness incurred pursuant to the Backstop Agreement.”

 

     

     

    

 

Section 1.2 Additional Permitted
Lien. Section 29(u) of the Notes is hereby amended and restated as follows:

 

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

 

Section 1.3 Additional Definition.
Section 29(nn) of the Notes is hereby added as follows:

 

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

 

ARTICLE
II

MISCELLANEOUS

 

Section 2.1 Effect of this Amendment.
This Amendment shall form a part of each Note for all purposes, and each holder thereof shall be bound hereby. This Amendment shall
only be deemed to be in full force and effect from and after both the execution of this Amendment by the parties hereto and the
execution of agreements substantially identical to this Amendment by the Company and holders of Notes representing
at least a majority of the sum of (1) the aggregate principal amount of the Notes then outstanding and (2) the aggregate principal
amount of the April 2015 Notes (as defined in the Agreement) then outstanding that, together with undersigned, constituting the
Required Holders. From and after such effectiveness, any reference to the Notes shall be deemed to be a reference to the Notes
as amended hereby. Except as specifically amended as set forth herein, each term and condition of the Notes shall continue in full
force and effect.

 

Section 2.2 Entire Agreement.
This Amendment, together with the Notes, contains the entire agreement of the parties and supersedes any prior or contemporaneous
written or oral agreements between them concerning the subject matter of this Amendment.

 

Section 2.3 Governing Law.
This Amendment shall be governed by the internal law of the State of New York.

 

Section 2.4 Counterparts.
This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and
the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so
that all signature pages are physically attached to the same document. This Amendment may be executed by fax or electronic mail,
in PDF format, and no party hereto may contest this Amendment’s validity solely because a signature was faxed or otherwise
sent electronically.

 

[Signature Pages Follow]

 

    	 	2	 

     

    

 

 IN WITNESS WHEREOF,
the parties hereto have executed this Amendment to Senior Secured Notes as of the date first written above.

 

	 	COMPANY:
	 	 
	 	ENER - CORE, INC.
	 	 	 
	 	By:	 
	 	 	Name: Alain J. Castro
	 	 	Title:   Chief Executive Officer 

 

 [Signature Page to Amendment
to Senior Secured Notes - May 2015 Notes]

 

    	 	3	 

     

    

 

IN WITNESS WHEREOF, the
parties hereto have executed this Amendment to Senior Secured Notes as of the date first written above.

 

	 	
        HOLDER:

	 	 	 
	 	By:	 
	 	 	Name:
	 	 	Title:

 

[Signature Page to Amendment to Senior Secured Notes - May 2015 Notes]

 

    	 	4	 

     

    

 

EXHIBIT A

 

BACKSTOP SECURITY SUPPORT AGREEMENT

 

 

A-1Exhibit 10.1

 

BACKSTOP
SECURITY SUPPORT AGREEMENT

 

This
Backstop Security Support Agreement (“Agreement”) is made and entered into on November 2, 2015 by Anthony
Tang an individual investor (or, subject to the reasonable approval of Ener-Core (as defined below), which approval will not be
unreasonably withheld or delayed, by an affiliate of Anthony Tang herein, with respect to the individual or such affiliate, as
the case may be, the “Investor”) and Ener-Core, Inc., a corporation incorporated under the laws of Delaware
(“Ener-Core”), each or both of which may also hereinafter be referred to as a “Party”
or the “Parties” respectively.

 

RECITALS

 

WHEREAS,
Ener-Core has entered into that certain Commercial License Agreement dated Nov 14, 2014, as subsequently amended (the “CLA”),
with the Dresser-Rand Company, a New York General Partnership and SIEMENS Business (“D-R”); and

 

WHEREAS,
Ener-Core has performed in all material respects its obligations to date under terms and conditions of the CLA and is currently
in compliance in all material respects with all material terms of the CLA and without default; and

 

WHEREAS,
Ener-Core is required by the terms of the CLA to put into place a Backstop Security (“BSS”) in the amount
of $2.1 million to secure performance of its obligations during the term of BSS and in compliance with the requirements imposed
upon the BSS by the CLA; and

 

WHEREAS,
Investor has reviewed the CLA (including the amendment) and is willing to provide the financial and other assistance necessary
for Ener-Core to have the BSS in place until such a time when Ener-Core has sufficient capital on its balance sheet to support,
without the financial and other assistance of Investor, the BSS under conditions set forth below;

WHEREAS,
Ener-Core will have obtained, prior to the beginning of the Term (as defined below) hereof and as a condition precedent to the
beginning of such Term, appropriate executed waivers from the holders of the Senior Secured Notes (as defined below), which waivers
will allow Ener-Core to grant the security interest contemplated by this Agreement and the Security Agreement (as defined below);
and

 

NOW,
THEREFORE, in consideration of the above recitals and of the undertakings and covenants of each of the Parties set forth herein
and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties agree as
follows:

 

	1.	Letter
                                         of Credit. Investor shall promptly (but in any event no later than November 9, 2015)
                                         provide Ener-Core with financial and other assistance (including but not limited to the
                                         provision by Investor of sufficient and adequate collateral acceptable to East West Bank
                                         (“EW”)) as necessary in order for Ener-Core to obtain a $2.1 million
                                         letter of credit from EW acceptable to D-R as the BSS and with an expiration date of
                                         June 30, 2017 (“Letter of Credit”), at and after which time
                                         (i.e., June 30, 2017) Investor shall have no further obligation hereunder to provide
                                         any financial or other assistance to EW or otherwise.

 

    	 	1	 

     

    

 

	2.	TERM.
                                         As used in this Agreement, the “Term” will mean that period
                                         commencing on the date Ener-Core obtains the Letter of Credit from EW and ending on the
                                         earliest of any of the following events:
	 	 

		(a)	Ener-Core
                                         effectively replaces the Letter of Credit with an alternative BSS in favor of D-R;
	 	 	 

		(b)	D-R
                                         communicates in writing to Ener-Core the elimination of the requirement of the BSS for
                                         the Pacific Ethanol Stockton Project covered by the CLA; or
	 	 	 

		(c)	The
                                         last day of the twenty-fourth calendar month following the commencement of the Term.
	 	 	 

	3.	FEES.
                                         In consideration of Investor’s performance of its covenants, obligations and agreements
                                         set forth in this Agreement, Ener-Core hereby agrees to pay Investor the following cash
                                         payments as fees (subject, in the case of Sections 3(b) and 3 (d), to reduction pursuant
                                         to the provisions of Section 6):
	 	 

		(a)	a
                                         one-time fee equal to 4% of the amount of the Letter of Credit, which fee will be due
                                         and payable on the first day of the Term;
	 	 	 

		(b)	for
                                         each calendar month (or part thereof if applicable in the case where the Term ends pursuant
                                         to Section 2) commencing on the first day of the Term and continuing for a total of twelve
                                         months (unless the Term ends earlier as provided in Section 2), a monthly fee equal to
                                         1% of the amount of the Letter of Credit, which monthly fee will be due and payable at
                                         the end of each such calendar month;
	 	 	 

		(c)	if
                                         after the initial twelve months the Term has not ended, then a one-time fee equal to
                                         4% of the amount of the Letter of Credit, which will be due and payable on the business
                                         day immediately following the expiration of such twelve months (as used in this Agreement,
                                         “business day” means any day other than a Saturday or Sunday or any day on
                                         which the Federal Reserve Bank of San Francisco, CA is closed);
	 	 	 

		(d)	if
                                         after the initial twelve months the Term has not ended, then for each calendar month
                                         (or part thereof if applicable in the case where the Term ends pursuant to Section 2)
                                         commencing with the month immediately following the initial twelve months and continuing
                                         for a total of twelve months (unless the Term ends earlier as provided in Section 2),
                                         a monthly fee equal to 2% of the amount of the Letter of Credit, which monthly fee will
                                         be due and payable at the end of each such calendar month;
	 	 	 

		(e)	in
                                         the event that Investor is required by EW to make any payments on the Letter of Credit,
                                         Ener-Core shall, within ten calendar days after Ener-Core’s receipt of written
                                         or electronic notice of such payment to EW by Investor, pay to Investor the full amount
                                         of any such payment made by Investor to EW; and

 

    	 	2	 

     

    

 

		(f)	to
                                         the extent Investor is required by EW to pay any upfront fees or expenses in connection
                                         with Investor’s obtaining of the Letter of Credit, Ener-Core shall, within five
                                         calendar days after Ener-Core’s receipt of written or electronic notice of such
                                         payment by Investor to EW, reimburse Investor the full amount of any such payment made
                                         by Investor to EW.
	 	 	 

In
addition, Ener-Core is currently anticipating the payment to EW of an upfront fee equal to 2% of the amount of the Letter of Credit
in exchange for EW’s services in setting up and supporting the Letter of Credit for the BSS with D-R. In the event Ener-Core
is able to obtain an upfront fee of less than 2% from EW related to EW’s services in setting up and supporting the Letter
of Credit for the BSS with D-R, Ener-Core agrees to pay to Investor an additional one-time fee equal to 50% of the reduction in
upfront fees to EW, between the anticipated upfront fee of 2% and the actual upfront fee paid. By way of example only, if Ener-Core
were able to obtain an upfront fee from EW of 1% of the amount of the Letter of Credit, that would represent a savings of 1% from
the anticipated upfront fee of 2%, and hence Ener-Core would pay Investor an additional one-time fee equal to 0.5% of the amount
of the Letter of Credit, which additional fee would be due and payable on the first day of the Term. Payment by Ener-Core to Investor
of any fees under this Section 3 or under any other provisions of this Agreement is subject to such payment being permitted at
such time pursuant to the Subordination and Intercreditor Agreement (as amended, restated, supplemented or otherwise modified
from time to time in accordance with the terms thereof, the “Intercreditor Agreement”) entered into as of even
date herewith by and among Anthony Tang, Ener-Core and Empery Tax Efficient, LP in its capacity as collateral agent for the Senior
Lenders (as defined in the Intercreditor Agreement).

 

	4.	WARRANTS.
                                         As an additional incentive and consideration for Investor to enter into the transaction,
                                         Ener-Core agrees, subject only to, and conditioned only upon, the issuance of such Letter
                                         of Credit as accepted by D-R as sufficient to satisfy the BSS obligation under the CLA,
                                         to issue to Investor on the first day of the Term a one-time warrant (“Warrant”)
                                         substantially in the form attached hereto as Exhibit A, under which Investor will have
                                         the right
	 	 

		(a)	to
                                         purchase 74,000 shares (collectively, the “Shares”) of the
                                         common stock of Ener-Core, par value $0.0001 per share, which Warrant will have a duration
                                         of 5 years from the first day of the Term and an exercise price of $15.00/share, subject
                                         to adjustment for stock splits or other similar changes to Ener-Core’s capital
                                         structure. The Warrant will become exercisable on the one-year anniversary of the first
                                         day of the Term.

 

    	 	3	 

     

    

 

	5.	SECURITY.
                                         As an additional incentive and consideration for Investor to enter into the transaction,
                                         Ener-Core shall, subject only to, and conditioned only upon, the issuance of the Letter
                                         of Credit as accepted by D-R as sufficient to satisfy the BSS obligation under the CLA,
                                         provide to Investor a security interest, as evidenced by a Security Agreement substantially
                                         in the form attached hereto as Exhibit B, in its assets as follows:
	 	 

		(a)	Subordinated
                                         to D-R’s security interest in $2.1M BSS or any partial proceeds that may be recovered
                                         therefrom under terms and conditions of the BSS and CLA.
	 	 	 

		(b)	Subordinated
                                         to the security interest held by the holders of the Senior Secured Notes (“Senior
                                         Secured Notes”) of Ener-Core (as referenced in the Current Reports on Form
                                         8-K filed by Ener-Core with the Securities and Exchange Commission on April 23, 2015
                                         and May 7, 2015) pursuant to that certain Pledge and Security Agreement, dated as of
                                         April 22, 2015 (as amended, including the First Amendment dated as of May 7, 2015, the
                                         “Pledge Agreement”).
	 	 	 

		(c)	Subject
                                         to the same cumulative qualifications, exceptions and permitted liens (“Permitted
                                         Liens”) as contained in the provisions of the Pledge Agreement.
	 	 	 

		(d)	This
                                         security interest for the benefit of Investor will terminate upon the earlier of the
                                         elimination of the requirement of the BSS or the entire Letter of Credit is replaced
                                         with an alternative BSS in favor of D-R; provided, however, that in each case, Ener-Core
                                         has no outstanding payment obligations at the time to the Investor under this Agreement
                                         and/or the Security Agreement (provided, further, that the security interest will terminate
                                         upon the full satisfaction of such payment obligations).
	 	 	 

Notwithstanding
anything to the contrary contained in this Agreement, the parties hereto acknowledge and agree that any security interest granted
under this Agreement and under the Security Agreement shall be subject to the Intercreditor Agreement and limited to the extent
not permitted by the Intercreditor Agreement. For purposes of clarity, the parties hereto acknowledge and agree to the following
legend: “This Agreement and the rights and obligations evidenced hereby are subordinate in the manner and to the extent
set forth in that certain Intercreditor Agreement, and certain guarantees of the indebtedness evidenced thereby, as such agreements
and such guarantees have been and hereafter may be amended, restated, supplemented or otherwise modified from time to time; and
each party to the Agreement, by its acceptance hereof, irrevocably agrees to be bound by the provisions of the Intercreditor Agreement.”

 

	6.	EARLY
                                         COLLATERAL EXCHANGE; NO PENALTY. Ener-Core will have the right to replace at any
                                         time (or times), and in whole or in part, the collateral provided by Investor in connection
                                         with the Letter of Credit for the BSS with an alternative solution, with or without notice
                                         to Investor, and with no penalty for the exchange (“Early Exchange”).
                                         Commencing with the calendar month in which there is an Early Exchange, the monthly fees
                                         pursuant to Section 3(b) or 3(d) above, as applicable, will be reduced a pro-rated amount
                                         in accordance with the corresponding proportionate reduction of collateral resulting
                                         from the Early Exchange. Upon an Early Exchange replacing all of the collateral, the
                                         obligation of Ener-Core to pay the monthly fees pursuant to Sections 3(b) and 3(d) above
                                         will terminate and cease as of the month in which the full replacement is completed and
                                         all other cash obligations of Ener-Core to Investor hereunder shall immediately terminate
                                         and cease; provided, however, Ener-Core shall be responsible for any unpaid fees for
                                         the months prior to the Early Exchange as well as the monthly fee in which the Early
                                         Exchange occurs.

 

    	 	4	 

     

    

 

	7.	REPRESENTATIONS
                                         AND WARRANTIES.
	 	 

		(a)	Ener-Core
                                         Representations and Warranties. On and as of the first day of the Term, Ener-Core
                                         represents and warrants to Investor that:
	 	 	 

		(i)	Due
                                         Incorporation, Qualification, etc. Ener-Core is a corporation duly organized, validly
                                         existing and in good standing under the laws of its state of incorporation or formation
                                         and has the requisite corporate power and authority to conduct its business as it is
                                         presently being conducted. Ener-Core is duly qualified to do business and is in good
                                         standing under the laws of the State of California.
	 	 	 

		(ii)	Authority.
                                         The execution, delivery and performance by Ener-Core of this Agreement and the consummation
                                         of the transactions contemplated hereby (A) are within the corporate power and authority
                                         of Ener-Core and (B) have been duly authorized by all necessary corporate actions on
                                         the part of Ener-Core.
	 	 	 

		(iii)	Enforceability.
                                         This Agreement has been duly executed and delivered by Ener-Core and constitutes a legal,
                                         valid and binding obligation of Ener-Core, enforceable against Ener-Core in accordance
                                         with its terms, except as limited by bankruptcy, insolvency or other laws of general
                                         application relating to or affecting the enforcement of creditors’ rights generally
                                         and general principles of equity.
	 	 	 

		(iv)	Non-Contravention.
                                         The execution and delivery by Ener-Core of this Agreement and the performance and consummation
                                         of the transactions contemplated hereby do not and will not (A) violate the articles
                                         or certificate of incorporation or bylaws of Ener-Core, (B) violate any judgment, order,
                                         writ, decree, statute, rule or regulation applicable to Ener-Core, (C) except as disclosed
                                         to Investor, violate any provision of, or result in the breach or the acceleration of,
                                         or entitle any other person to accelerate (whether after the giving of notice or lapse
                                         of time or both), any mortgage, indenture, agreement, instrument or contract to which
                                         Ener-Core is a party or by which it is bound (provided, further, that such mortgage,
                                         indenture, agreement, instrument or contract involves an amount greater than $50,000),
                                         or (D) result in the creation or imposition of any lien greater that $50,000 upon any
                                         property or asset of Ener-Core (other than those in favor of the Investor).
	 	 	 

		(v)	Approvals.
                                         Other than those already obtained, no consent, approval, order or authorization of, or
                                         registration, declaration or filing with, any governmental authority or other person
                                         or entity (including, without limitation, the shareholders of the Ener-Core) is required
                                         in connection with the execution and delivery by Ener-Core of this Agreement and the
                                         performance and consummation by Ener-Core of the transactions contemplated hereby and
                                         thereby.

 

    	 	5	 

     

    

 

		(b)	Investor
                                         Representations and Warranties. On and as of the first day of the Term, Investor
                                         represents and warrants to Ener-Core that:
	 	 	 

		(i)	Due
                                         Incorporation, Qualification, etc. If Investor is not a natural person, Investor
                                         is duly organized, validly existing and in good standing under the laws of its jurisdiction
                                         of incorporation or formation and has requisite power and authority to conduct its business
                                         as it is presently being conducted.
	 	 	 

		(ii)	Authority.
                                         Investor has all requisite power, authority and capacity to execute, deliver and perform
                                         this Agreement, and if Investor is not a natural person, the execution, delivery and
                                         performance by Investor of this Agreement and the consummation of the transactions contemplated
                                         hereby (A) are within the corporate power and authority of Investor and (B) have been
                                         duly authorized by all necessary corporate actions on the part of Investor.
	 	 	 

		(iii)	Enforceability.
                                         This Agreement has been duly executed and delivered by Investor and constitutes a legal,
                                         valid and binding obligation of Investor, enforceable against Investor in accordance
                                         with its terms, except as limited by bankruptcy, insolvency or other laws of general
                                         application relating to or affecting the enforcement of creditors’ rights generally
                                         and general principles of equity.
	 	 	 

		(iv)	Non-Contravention.
                                         The execution and delivery by Investor of this Agreement and the performance and consummation
                                         of the transactions contemplated hereby do not and will not violate any material judgment,
                                         order, writ, decree, statute, rule or regulation applicable to Investor or, if Investor
                                         is not a natural person, the formative or governing documents of Investor.
	 	 	 

		(v)	Accredited
                                         Investor. Investor is an accredited investor as such term is defined in the Securities
                                         Act of 1933, as amended (the “Securities Act”).
	 	 	 

		(vi)	Knowledge
                                         and Experience. Investor has knowledge and experience in financial and business matters
                                         and is capable of evaluating the merits and risks of acquiring the Shares pursuant to
                                         the Warrant and making an informed investment decision with respect hereto.
	 	 	 

		(vii)	Information.
                                         Investor has been furnished access to such information and documents regarding Ener-Core
                                         as Investor has requested and has had an adequate opportunity to ask questions of, and
                                         receive answers from, the officers of the Ener-Core concerning any and all matters relating
                                         to the terms and conditions of the Warrant, the acquisition of the Shares, the business,
                                         operations, market potential, capitalization, financial condition and prospects of the
                                         Ener-Core and all other matters deemed relevant by Investor.

 

    	 	6	 

     

    

 

		(viii)	Investment.
                                         Investor (X) will, upon exercise of the Warrant, be acquiring the Shares for investment
                                         for its own account, not as a nominee or agent and not with a present view to, or for
                                         resale in connection with, any “distribution” of any such Shares within the
                                         meaning of the Securities Act; and (Y) has no present intention of selling, granting
                                         any participation in, or otherwise distributing, the Shares.
	 	 	 

		(ix)	Registration;
                                         Restrictions on Transfer. Investor understands and acknowledges that the Shares have
                                         not been, and are not being, registered under the Securities Act or under the “blue
                                         sky” laws or securities laws of any jurisdiction and that the Shares may not be
                                         sold or transferred or otherwise disposed of without registration under the Securities
                                         Act or an exemption therefrom, and that in the absence of or an effective registration
                                         statement covering the Shares or an available exemption from registration under the Securities
                                         Act, the Shares must be held indefinitely.
	 	 	 

		(x)	Approvals.
                                         Other than those already obtained, no consent, approval, order or authorization of, or
                                         registration, declaration or filing with, any governmental authority or other person
                                         or entity is required in connection with the execution and delivery by Investor of this
                                         Agreement and the performance and consummation by Investor of the transactions contemplated
                                         hereby and thereby.
	 	 	 

	8.	NOTICES.
                                         Any notices to be given hereunder by either Party to the other shall be in writing on
                                         paper and be delivered either by personal delivery (including delivery by Federal Express
                                         or similar reputable overnight courier), by mail, registered or certified, postage prepaid
                                         with return receipt requested or by fax. Mailed or faxed notices shall be addressed to
                                         the Parties at the addresses appearing in this Section of this Agreement, but each Party
                                         may change such address by written notice in accordance with this paragraph. Notices
                                         delivered personally, including via overnight courier, shall be deemed communicated as
                                         of actual receipt. Notices forwarded via the United States mail shall be deemed communicated
                                         as of five (5) days after mailing. Notices forwarded via fax shall be deemed communicated
                                         upon confirmation of receipt.
	 	 

	 	If
    to Ener-Core, to:	ENER-CORE
        INC.

        9400
        Toledo Way

        Irvine,
        CA 92618

        Attn:
        Alain Castro, Chief Executive Officer

        Domonic
        Carney, Chief Financial Officer

        Fax:
        949-616-3399

         

	 	with
    a copy, which shall not constitute notice, to:	K&L
        Gates LLP

        1717
        Main Street, Suite 2800

        Dallas,
        TX 75201

        Attention:
        Robert Wolin

        Fax:
        214-939-5949

         

 

    	 	7	 

     

    

 

	 	If
    to Investor, to:	Anthony
                                         Tang

        87-
        Orlando Road

        San
        Marino, CA 91108

        Fax:
        626-279-3639

         

	 	with
    a copy, which shall not constitute notice, to:	O’Neil
                                         LLP

        19900
        MacArthur Blvd. Ste 1050

        Irvine,
        CA 92612

        Attention:
        John D. Hudson

        Fax:
        949-798-0511

 

	9.	DISPUTE
                                         RESOLUTION. The Parties agree that any dispute, claim, or controversy directly or
                                         indirectly relating to or arising out of this Agreement, the termination or validity
                                         hereof, any alleged breach of this Agreement (“Dispute”) shall
                                         first be brought before a senior level executive of each Party, which senior level executives
                                         shall work in good faith to resolve such Dispute. In the event the Dispute is not resolved
                                         by such senior level executives, it shall be brought before three jointly agreed upon
                                         arbitrators, from the American Arbitration Association, in Los Angeles, California for
                                         final and binding arbitration. Absent bad faith or frivolous claims, all costs and attorney’s
                                         fees of each Party shall be the responsibility of that Party, while the costs and fees
                                         of the arbitrator shall be split equally by the Parties. The award in the arbitration
                                         shall be final and binding. Judgment upon the award rendered by the arbitrator may, subject
                                         to Section 11, be entered by any court having jurisdiction thereof.
	 	 
	10.	PUBLIC
                                         ANNOUNCEMENTS. Each Party agrees that it shall not make any public announcements
                                         with respect to this Agreement or any transaction contemplated herein without the prior
                                         written approval of the other Party, which consent shall not be unreasonably withheld
                                         or delayed; provided, however, the Parties agree and acknowledge that, notwithstanding
                                         the foregoing prohibition against public announcements, Ener-Core will not be in violation,
                                         breach or default of this Agreement if Ener-Core determines that it is prudent or necessary
                                         under the federal securities laws to make such disclosures about this Agreement or any
                                         transaction contemplated herein.
	 	 
	11.	GOVERNING
                                         LAW; VENUE. This Agreement will be governed in accordance with the laws of the State
                                         of California. Subject to the provisions of Section 9 hereof regarding binding arbitration,
                                         any action brought by either party against the other concerning the transactions contemplated
                                         by this Agreement shall be brought only in the state courts of California in Los Angeles
                                         County or in the federal courts located in the county of Los Angeles, California. The
                                         parties to this Agreement hereby irrevocably waive any objection to jurisdiction and
                                         venue of any action instituted hereunder and shall not assert any defense based on lack
                                         of jurisdiction or venue or based upon forum non conveniens. Each Party waives trial
                                         by jury. The prevailing party shall be entitled to recover from the other party its reasonable
                                         attorney’s fees and costs. In the event that any provision of this Agreement or
                                         any other agreement delivered in connection herewith is invalid or unenforceable under
                                         any applicable statute or rule of law, then such provision shall be deemed inoperative
                                         to the extent that it may conflict therewith and shall be deemed modified to conform
                                         to such statute or rule of law. Any such provision which may prove invalid or unenforceable
                                         under any law shall not affect the validity or enforceability of any other provision
                                         of any agreement. Each Party hereby irrevocably waives personal service of process and
                                         consents to process being served in any suit, action or proceeding in connection with
                                         this Agreement 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 Agreement 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 other manner permitted by law.

 

    	 	8	 

     

    

 

	12.	NO
                                         ASSIGNMENT. Neither Party may assign this Agreement or any of its rights or obligations
                                         hereunder without prior written consent of the other Party, and any attempt by either
                                         Party to assign this Agreement or any of its rights or obligations hereunder without
                                         such consent shall be null and void.
	 	 
	13.	ENTIRE
                                         AGREEMENT. This Agreement, along with the Exhibits, (which are deemed to be a part
                                         of the Agreement), constitute the entire and exclusive agreement between the Parties
                                         relating to the subject matter hereof and supersedes any prior agreements, understandings,
                                         or commitments relating to the subject matter hereof, whether oral or written and may
                                         be changed only by a written amendment mutually agreed and executed by both Parties.
                                         This Agreement may not be amended or modified except in writing signed by the Party against
                                         whom any such amendment or modification is intended to be enforced.
	 	 
	14.	COUNTERPARTS.
                                         This Agreement may be executed in multiple counterparts. Facsimile signatures shall be
                                         deemed originals.

 

[SIGNATURE
PAGE FOLLOWS]

 

    	 	9	 

     

    

 

IN
WITNESS WHEREOF, the Parties hereto have caused this document to be executed and delivered by their respective authorized representatives.

 

	Ener-Core, Inc. 	 	Anthony Tang 
	 	 	 	 	 
	
        By:
	/s/ Domonic Carney	 	By: 	/s/ Anthony Tang
	Name:	Domonic Carney	 	Name:	Anthony Tang
	Title:	CFO	 	 	 

 

    	 	10	 

     

    

 

EXHIBIT
A

 

FORM OF WARRANT

 

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.

 

ENER-CORE,
INC.

 

WARRANT

 

	Warrant
    No.	Original Issue Date: _______ __, 201_

 

Ener-Core, Inc.,
a Delaware corporation (the “Company”), hereby certifies that, for value received, or its registered assigns
(the “Holder”), is entitled to purchase from the Company up to a total of 74,000 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 __________ __, 201_ (the “Commencement Date”), and through and including the date of
the expiration of five years beginning on the Commencement Date (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, $0.0001 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.

 

    	 	A-1	 

     

    

 

 

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

 

“Exercise
Price” means $15.00, subject to adjustment in accordance with Section 9.

 

“Fair
Market Value” of one share of Common Stock means (i) if the Common Stock is publicly traded, the average of the per
share closing prices of the Common Stock as quoted on the Over-the-Counter Bulletin Board, or the principal exchange on which
the Common Stock is listed, in each case for the fifteen trading days ending five trading days prior to the date of determination
of fair market value or (ii) if the Common Stock is not so publicly traded, the per share fair market value as is determined in
good faith by the Board of Directors of the Company after taking into consideration factors it deems appropriate, including, without
limitation, recent sale and offer prices of the capital stock of the Company in private transactions negotiated at arm’s
length.

 

“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.

 

“California
Courts” means the state and federal courts sitting in the City of Los Angeles, County of Los Angeles.

 

“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.

 

    	 	A-2	 

     

    

 

“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.

 

“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 date of the expiration of twelve calendar months beginning on the Commencement Date, 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 all of the Warrant Shares
then represented by this Warrant are 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 (i) payment of the
Exercise Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder or (ii) effecting a net
issue exercise as provided for in Section 10(b), 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.

 

    	 	A-3	 

     

    

 

(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)          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.

 

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.

 

    	 	A-4	 

     

    

 

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. The Company shall use its reasonable best efforts to ensure that 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 Company shall use its
reasonable best efforts to ensure that 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.

 

    	 	A-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 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.

 

    	 	A-6	 

     

    

 

10.         Payment of Exercise Price. 

 

(a)          Cash
Exercise. The Holder shall pay the Exercise Price by delivery of immediately available funds; or

 

(b)          Net
Issue Exercise. In lieu of exercising this Warrant, the Holder may elect to receive Warrant Shares equal to the value of
this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election, in which event the Company shall issue to the Holder a number of Warrant Shares
computed using the following formula:

 

	 	 X=
	Y
(A-B)	 	 	 	 
	 	A	 	 	 	 

	 	 	 	 	 	 	 
	Where:	 	X	 	=	 	the
    number of the Warrant Shares to be issued to the Holder.
	 	 	 	 
	 	 	Y	 	=	 	the
    number of the Warrant Shares purchasable under this Warrant.
	 	 	 	 
	 	 	A	 	=	 	the
    Fair Market Value of one share of Common Stock for the date of determination.
	 	 	 	 
	 	 	B	 	=	 	the
    per share Exercise Price (as adjusted to the date of such calculation)

 

11.          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.

 

12.          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 9400 Toledo Way, Irvine, CA 92618, Attn: Chief
Executive Officer, or to Facsimile No.: (949) 616-3399 (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.

 

13.          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.

 

    	 	A-7	 

     

    

 

	 	14.	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.

 

(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 California, 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 California Courts. Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the California 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 California 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.

 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

    	 	A-8	 

     

    

 

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

 

	 	ENER-CORE, INC.
	 	 	 
	 	By:	 
	 	Name
    :	Domonic
    Carney
	 	Title:	Chief
    Financial Officer

  

    	 	A-9	 

     

    

 

EXERCISE
NOTICE

ENER-CORE,
INC.

WARRANT DATED__________________ __, 201_

 

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)	Method
                                         of Exercise (Please initial the applicable blank):

 

		__	The
                                         undersigned Holder elects to exercise the Warrant by means of a cash payment in accordance
                                         with Section 10(a) of the Warrant, and tenders herewith or by concurrent wire transfer
                                         payment in full for the purchase price of the Warrant Shares being purchased, together
                                         with all applicable transfer taxes, if any.

 

		__	The
                                         undersigned Holder elects to exercise the Warrant by means of the net exercise provisions
                                         of Section 10(b) 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.

  

	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)

  

    	 	A-10	 

     

    

 

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
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 

 

    	 	A-11	 

     

    

 

ENER-CORE,
INC.

WARRANT
DATED ________ __, 201_

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:	 
	 	 
	 	 

 

    	 	A-12	 

     

    

 

EXHIBIT
B

 

FORM
OF SECURITY AGREEMENT 

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT
(the "Agreement") is made as of November __, 2015, by and between Anthony Tang, a natural person (or, subject to
the reasonable approval of Debtor, which approval will be unreasonably withheld or delayed, by an affiliate of Anthony Tang; referred
to herein, with respect to such natural person or affiliate, as the case may be, “Secured Party”) and Ener-Core,
Inc., a Delaware corporation (“Debtor”). Capitalized terms used herein but not otherwise defined in this Agreement
shall have the meaning assigned to such terms in the Backstop Support Agreement (as defined below).

 

RECITALS

 

Pursuant to a Backstop
Security Support Agreement made and entered into on November 2, 2015 (the “Backstop Support Agreement”), Debtor
has agreed to provide Secured Party with a security interest in certain of Debtor’s assets to secure Debtor’s payment
and other obligations to Secured Party pursuant to the Backstop Support Agreement;

 

As a material inducement
for the Secured Party to enter into the Backstop Support Agreement, Debtor agreed, subject only to, and conditioned only upon,
the issuance of the Letter of Credit as accepted by D-R as sufficient to satisfy the BSS obligation under the CLA, to enter into
a security agreement to provide the Secured Party with a security interest in certain assets of Debtor; and

 

Debtor and Secured
Party desire to enter into this Agreement in order to secure the performance of the Obligations (as defined below) of Debtor.

 

NOW, THEREFORE,
in consideration of the covenants and conditions contained herein, the parties agree as follows:

 

	1.	CERTAIN DEFINED TERMS

 

1.1.          Terms
Defined In Uniform Commercial Code. Except as otherwise provided in this Agreement, all terms in this Agreement have the
meanings assigned to them in Division 9 (or, absent definition in Division 9, in any other Division) of the Uniform Commercial
Code, as those meanings may be amended, supplemented, revised or replaced from time to time.

 

1.2.          Uniform
Commercial Code. "Uniform Commercial Code" means the California Uniform Commercial Code, as amended, supplemented,
revised or replaced from time to time. Notwithstanding the foregoing, the parties intend that the terms used herein which are defined
in the Uniform Commercial Code have, at all times, the broadest and most inclusive meanings possible. Accordingly, if the Uniform
Commercial Code shall in the future be amended or held by a court to define any term used herein more broadly or inclusively than
the Uniform Commercial Code in effect on the date of this Agreement, then such term, as used herein, shall be given such broadened
meaning. If the Uniform Commercial Code shall in the future be amended or held by a court to define any term used herein more narrowly,
or less inclusively, than the Uniform Commercial Code in effect on the date of this Agreement, such amendment or holding shall
be disregarded in defining terms used in this Agreement.

 

    B-1

     

    

 

1.3.          Obligations.
As used in this Agreement, “Obligations” means all of the liabilities and obligations (primary, secondary, direct,
contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing
to, the Debtor to the Secured Party under this Agreement, the Backstop Support Agreement, and any other instruments, agreements
or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing,
voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owned
with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all
or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from any of the Secured Party as a preference, fraudulent transfer or otherwise as such obligations may
be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing,
the term “Obligations” shall include, without limitation: (i) all payments due under the Backstop Support Agreement;
(ii) any and all other fees, indemnities, costs, obligations and liabilities of the Debtor from time to time under or in connection
with this Agreement, the Backstop Support Agreement, and any other instruments, agreements or other documents executed and/or
delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in
respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are not allowable due
to the existence of a bankruptcy, reorganization or similar proceeding involving the Debtor.

 

	2.	CREATION OF SECURITY INTEREST

 

2.1.         Security
Interest. As security for the payment and performance of the Obligations, Debtor hereby pledges grants to Secured Party
a continuing security interest (“Security Interest”) in and a lien upon, all of Debtor’s right, title
and interest in the following property and interests of Debtor, whether now existing or owned or hereafter acquired or arising
(collectively, the “Collateral”) (provided, however, for avoidance of doubt, such Security Interest (i) shall
not include any security interest or lien in “Excluded Assets”, (ii) shall be subordinated to that certain security
interest held by the holders of the Senior Secured Notes (“Senior Secured Notes”) of Debtor referenced
in the Current Reports on Form 8-K filed by Debtor with the Securities and Exchange Commission on April 23, 2015 and May 7, 2015,
as such security interest is granted pursuant to that certain Pledge and Security Agreement, dated as of April 22, 2015 (as amended,
including the First Amendment dated as of May 7, 2015, the “Pledge Agreement”), and (iii) shall be subject
to the same cumulative qualifications, exceptions and Permitted Liens as provided for in the Pledge Agreement (for purposes of
this Agreement, Excluded Assets” shall mean collectively: (X) all patents, (Y) any and all licenses or other rights
granted by the Debtor (or one its affiliates) to D-R pursuant to that certain Commercial License Agreement entered into by and
between D-R and Debtor, dated November 14, 2014 (the “CLA”) and (Z) any and all intellectual property that
is developed or which shall be developed under the CLA; provided, however, that the foregoing exclusion shall in no way be construed
so as to limit, impair or otherwise affect the Secured Party’s unconditional security interest in and liens upon any rights
of Debtor in or to the proceeds of, or any monies due or to become due under or in respect of, all or any portion of such Excluded
Assets and provided, further, that immediately upon the termination of the CLA, all assets that are no longer included in the
definition of Excluded Assets shall constitute Collateral and the Debtor shall be deemed to have granted a security interest therein):

 

a.        All cash, bank deposits,
deposit accounts, checks, certificates of deposit, checking and savings accounts, bankers’ acceptances, letters of credit,
United States obligations, state and municipal obligations, obligations of foreign governments and subdivisions thereof, commercial
paper, notes, instruments (whether negotiable or nonnegotiable), drafts, bonds, debentures (excluding debentures convertible into
shares of capital stock and other equity securities) of and claims against corporations, joint ventures, persons, partnerships,
whether limited or general, and other entities of every description, and other instruments and the like;

 

    B-2

     

    

 

b.      All accounts
receivable, agreements, contracts, leases, contract rights, rights to payment, instruments, documents, chattel paper, security
agreements, guaranties, undertakings, surety bonds, insurance policies, notes and drafts, and all forms of obligations owing to
Debtor or in which Debtor may have any interest;

 

c.      All goods and
other inventory of the Debtor, now owned and hereafter acquired, wherever located, including, without limitation, all merchandise,
goods and other personal property which are held for sale or lease or leased by the Debtor or to be furnished under a contract
of service, all raw materials, work in process, materials used or consumed in the Debtor’s business and finished goods, inventory
leased to others or held for lease, all goods in which the Debtor has an interest in mass or a joint or other interest or gifts
of any kind (including goods in which the Debtor has an interest or right as consignee), and all goods which are returned to or
repossessed by the Debtor, together with all additions and accessions thereto and replacements therefor and products thereof and
documents therefor;

 

d.      All general intangibles,
choses in action, or causes of action, including, particularly, any right of indemnity or other right that Debtor may have or hereafter
acquire against any Person arising under or with respect to any judgment, statute, or rule and all other properties, assets and
rights of every kind and nature, including, but not limited to, rights to refunds, tax refunds, claims for tax refunds, rights
of indemnification, books and records (including, without limitation, corporate and other business records, customer lists, credit
files, computer programs, printouts and other computer materials and records), inventions, designs, patents, copyrights, trademarks,
trade names, trade styles, trade secrets, registrations, licenses, customer lists and computer source and object codes;

 

e.       All equitable
rights and interests of whatever kind or nature;

 

f.       All investment
property;

 

g.      All rights and
claims in or under any policy of insurance, including, but not limited to, insurance for fire, damage, loss and casualty, whether
covering personal property, real property, tangible rights, or intangible rights, and all liability, life, key man and business
interruption insurance, together with the proceeds, products, renewals and replacements thereof, including prepaid and unearned
premiums;

    B-3

     

    

h.      All equipment,
machinery, tools, furnishings, fixtures, vehicles and motor vehicles and all other goods used or bought primarily for use in Debtor’s
business, together with all products and proceeds of the foregoing whether due or voluntary or involuntary disposition;

 

i.       All other agreements
for use or purchase of the properties, assets and rights described herein or any part thereof and all renewals and extensions thereof,
and all amounts, rents, issues, royalties, profits and rights, and other sums of money due and to become due under such other agreements
for use or purchase of such properties, assets, or rights and all renewals and extensions;

 

j.       All other property
of the Debtor now or hereafter in the possession, custody or control of the Secured Party, and all property of the Debtor in which
the Secured Party now has or hereafter acquires a security interest;

 

k.       All other now
existing or hereafter acquired personal property assets and/or real property assets of the Debtor not otherwise included in the
foregoing Collateral;

 

l.       All now existing
and hereafter acquired books, records, writings, data bases, information and other property relating to, used or useful in connection
with, embodying, incorporating or referring to, any of the foregoing Collateral;

 

m.     Without in any
way limiting the foregoing, the proceeds of any of the foregoing, whether derived from voluntary or involuntary disposition of
the foregoing, and all renewals, replacements, substitutions, additions, accessions, rents, issue, royalties and profits of any
of the foregoing, whether now owned, existing or hereafter acquired or arising; and

 

n.      All proceeds
of and substitutions for any and all of the Collateral and, to the extent not otherwise included, all payments under insurance,
or any indemnity, warranty or guaranty, payable to Debtor by reason of loss or damage to or otherwise with respect to any of the
foregoing Collateral.

 

Notwithstanding anything
to the contrary contained in this Agreement, the parties hereto acknowledge and agree that any security interest granted under
this Agreement shall be subject to the Intercreditor Agreement (as defined below) and limited to the extent not permitted by the
Intercreditor Agreement.

 

2.2.         Obligations
Secured; Subordination; Permitted Liens. The Security Interest is granted to secure Debtor’s Obligations. Such Security
Interest is (i) subordinated to D-R’s security interest in $2.1M BSS or any partial proceeds that may be recovered therefrom
under terms and conditions of the BSS and CLA, (ii) subordinated to that certain security interest granted to the holders of the
Senior Secured Notes pursuant to the Pledge Agreement and (iii) subject to the same cumulative qualifications, exceptions and Permitted
Liens as provided for in the Pledge Agreement; for purposes of this Agreement.

 

2.3.         Retained
Rights. Other than during the existence of an Event of Default, Debtor shall be entitled to retain possession and enjoy
the use of the Collateral.

 

    B-4

     

    

2.4.         Express
Waivers. Debtor hereby expressly waives:

 

a.       Diligence, presentment,
protest, demand, and notice of every kind;

 

b.      The right, if
any, to require Secured Party to proceed against any person liable for the payment of any of the Obligations of Debtor as a condition
or prior to proceeding hereunder; and

 

c.      The right, if
any, to require Secured Party to foreclose upon, sell, or otherwise realize upon, collect, or apply any other property, real or
personal, securing any of the Obligations of Debtor as a condition or prior to proceeding hereunder

 

2.5.         UCC
Financing Statement. Debtor hereby authorizes Secured Party to file a UCC-1 financing statement recording Secured Party’s
security interest in the Collateral (for avoidance of doubt, Secured Party hereby agrees that such UCC-1 financing statement will
expressly state that (i) there is no perfected security interest in the Excluded Assets, (ii) the Secured Party’s security
interest is subordinated as provided in Section 2.2 hereof and (iii) the Secured Party’s security interest will have the
same cumulative qualifications Exceptions and Permitted Liens as provided in Section 2.2 hereof.

 

2.6.         Termination
of Security Interest. This Security Interest will terminate upon the earlier of the elimination of the requirement of the
BSS or the entire Letter of Credit is replaced with an alternative BSS in favor of D-R; provided, however, that in each case, such
termination is conditioned upon Ener-Core having at the time no outstanding payment obligations to the Secured Party under this
Agreement and/or the Backstop Support Agreement (provided, further, that this Security Interest will terminate upon the full satisfaction
of such payment obligations). Upon the termination of this Security Interest, all rights to the Collateral shall revert to Debtor.
Also upon the termination of this Security Interest, Secured Party will authorize the filing of appropriate termination statements
to terminate this Security Interest.

 

	3.	WARRANTIES AND REPRESENTATIONS

 

3.1.         Debtor warrants,
represents, and covenants that:

 

a.       Debtor will defend
title to the Collateral and the Security Interest of Secured Party therein against the claims and demands of all persons;

 

b.       Debtor will,
at its own cost and expense, keep the Collateral in a good state of repair;

 

c.       Debtor will not
waste, destroy, misuse, abuse, or illegally use the Collateral, or any part thereof, and will not be negligent in the care thereof;

 

d.       Debtor will keep
the Collateral free and clear of all attachments, levies, taxes, liens, and all other encumbrances of every kind and nature, other
than Permitted Liens, and will not sell (other than in the ordinary course of business), assign, transfer, lease, hypothecate,
or in any way allow or suffer the Collateral, or any part thereof, to come into the possession of any other person other than Permitted
Liens, sales of inventory in the ordinary course of business and dispositions of obsolete and worn out equipment;

 

    B-5

     

    

 

e.       Debtor will
not secrete, abandon, or remove the Collateral, or any part thereof, or suffer the removal of it, or any part thereof, from Debtor’s
business locations or third party warehouse maintained as of the date hereof other than in connection with sales of inventory
in the ordinary course of business and dispositions of obsolete and worn out equipment;

 

f.       Debtor will immediately
notify Secured Party of any change in Debtor's address;

 

g.      Debtor shall
not be released from this Agreement because of the loss, injury, or destruction of the Collateral;

 

h.      Debtor shall
allow Secured Party, and any of its representatives, free access to and right of inspection of the Collateral at all times;

 

i.       Debtor shall
immediately give Secured Party written notice of any material loss or damage to the Collateral or any diminution in value and shall
provide Secured Party with monthly account statements regarding the portion of the Collateral consisting of inventory;

 

j.       Debtor shall,
at its own cost and expense, pay all taxes or other charges levied against or otherwise respecting the Collateral;

 

k.      Debtor shall,
when requested by a Secured Party, execute any and all written instruments and documents and, at Debtor's sole cost and expense,
do any other acts necessary to effectuate the purposes and provisions of this Agreement;

 

l.       Debtor will not
do or permit any act for which the Collateral might be confiscated;

 

m.     Each and every
one of the papers, writings, documents, instruments, contracts, agreements, memoranda, receipts, guaranties, certificates, statements,
notices, assignments, notes, and the like, presented to Secured Party by or on behalf of Debtor, at any time, in any way or to
any extent connected with the events or transactions referred to or contemplated in this Agreement, are genuine and were duly executed;
and

 

n.      Debtor shall
indemnify and hold Secured Party harmless from all losses, costs, damages, liabilities, or expenses, including reasonable attorneys'
fees, which Secured Party may sustain or incur by reason of defending or protecting the Security Interest herein granted, the priority
thereof, enforcing payment of the Obligations, or in the prosecution or defense of any action or proceeding concerning any matter
growing out of or connected with this Agreement.

 

o.      Except pursuant
to the Pledge Agreement and/or the CLA and/or this Agreement, Debtor shall not grant a security interest in, or encumber, any of
the Excluded Assets (subject to the cumulative qualifications, exceptions and Permitted Liens as provided for in the Pledge Agreement
or this Agreement).

 

    B-6

     

    

  

	4.	RIGHTS OF SECURED PARTY

 

Secured Party may, from time to time, without
notice to Debtor and without affecting the Obligations of Debtor (subject to the Subordination and Intercreditor Agreement (as
amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof, the “Intercreditor
Agreement”) entered into as of even date herewith by and among Anthony Tang, Debtor and Empery Tax Efficient, LP in
its capacity as collateral agent for the Senior Lenders (as defined in the Intercreditor Agreement)):

 

a.       Release, renew, extend, or alter the
time or terms of payment of any Obligation;

 

b.      Release, surrender or substitute any
property or other security; or

 

c.      Accept any type of further security
therefor.

 

	5.	DEFAULT

 

5.1.         Default.
The occurrence of any of the following will constitute an event of default ("Event of Default") under this
Agreement:

 

a.      The default
by Debtor in the performance of any Obligation, and such payment default shall not have been remedied by payment within three (3)
days after written notice of such default has been given to Debtor by Secured Party.

 

b.      The default by
Debtor in the performance of any other term, covenant or agreement contained in this Agreement, and such default shall not have
been remedied to the reasonable satisfaction of Secured Party or waived in writing by Secured Party within five (5) days after
written notice of such default has been given to Debtor or where the cure requires more than five (5) days to cure the cure is
commenced within three (3) days and diligently completed.

 

c.      Debtor becomes
insolvent or unable to meet its debts as they mature.

 

d.      Debtor (i) makes
an assignment for the benefit of creditors or admits in writing Debtor’s inability to pay its debts generally as they become
due, or (ii) applies to any tribunal for the appointment of a trustee or receiver of any substantial part of Debtor’s assets,
or (iii) commences any voluntary proceedings under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or other liquidation law of any jurisdiction, or (iv) becomes the subject of any such involuntary proceedings and Debtor
indicates Debtor’s approval, consent or acquiescence, or (v) becomes the subject of an order appointing a trustee or receiver,
adjudicating it bankrupt or insolvent, or approving a petition in any such involuntary proceeding, and such order remains in effect
for sixty (60) days.

 

e.      There is a levy
upon, seizure, or attachment of any of the Collateral, other than Permitted Liens.

 

    B-7

     

    

 

5.2.         Remedies.
Upon an Event of Default, and at the option of Secured Party, all of the Obligations shall become immediately due and payable,
together with any other sums due hereunder, with interest theretofore accrued, without notice or demand and then and thereafter
Secured Party shall have all of the rights and remedies of a secured party under the Uniform Commercial Code; provided, however,
that notwithstanding anything to the contrary contained in this Agreement, any action under this Agreement and all rights and remedies
of the Secured Party shall be subject to being permitted pursuant to the Intercreditor Agreement. Without limiting the foregoing
(but subject to being permitted pursuant to the Intercreditor Agreement), Secured Party shall have the immediate right to (subject
to such remedy or right being permitted at the time pursuant to the Intercreditor Agreement):

 

a.       Notify all persons
indebted to Debtor under receivables, leases, trade accounts, and other Obligations to make all payments solely and directly to
Secured Party;

 

b.       Take and maintain
possession of the Collateral and in so doing, alone or with any other person, enter upon the premises where the Collateral may
be found or believed by Secured Party to be located. Debtor hereby waives all claims for damages and otherwise, due to, arising
from, or connected with any entry upon the premises or any seizure of the Collateral by Secured Party;

 

c.       Maintain possession
and dispose of the Collateral on any premises of Debtor or under Debtor's control; or

 

d.       Remove the Collateral
or any part thereof to any place Secured Party may desire.

 

5.3.         Sale
of Collateral. If requested by Secured Party (but subject to being permitted at the time pursuant to the Intercreditor
Agreement), Debtor shall assemble and make the Collateral available to Secured Party at a place to be designated by Secured Party.
In the event of a sale by a Secured Party after a default by Debtor, the Collateral need not be in view of those present attending
the sale, or at the same location at which the sale is being conducted. Secured Party may sell the Collateral in such order, priority,
and lots as is commercially reasonable in the opinion of Secured Party. Debtor shall receive all notices of sale required to be
given and which cannot be waived by law, all other notices of every type, nature, or kind being hereby expressly waived by Debtor.
Any notice required to be given by law shall be conclusively presumed given and received by Debtor when it is mailed, postage prepaid,
to Debtor at its last business address known to the Secured Party. Unless the Collateral is perishable, depreciates rapidly, or
is of a type customarily sold on a recognized market, Debtor will be given reasonable notice of the time and place of any public
sale, or of the time on or after which any private sale or other intended disposition is to be made. The requirements of reasonable
notice shall be met if notice is mailed, postage prepaid, to Debtor at least two (2) days before the time of sale or other disposition.
Secured Party may be the purchasers at any sale of the Collateral.

 

    B-8

     

    

5.4.         Power
of Attorney. Subject to being permitted pursuant to the Intercreditor Agreement, Debtor hereby appoints Secured Party as
its irrevocable attorney with power, upon the occurrence and during the continuance of an Event of Default, to:

 

a.      Receive, open,
and dispose of all mail addressed to Debtor;

 

b.      Endorse the name
of Debtor on any checks or other evidences of payment that may come into the possession of Secured Party on the receivables and
on any invoice, freight or express bill, bill of landing, or other document about any of the receivables;

 

c.      In its name or
otherwise, to demand, sue for, collect, and give acquittances for any and all monies due or to become due on receivables;

 

d.      Compromise, prosecute,
or defend any action, claim, or proceeding regarding receivables; and

 

e.      Do any and all
things necessary and proper to carry out the purposes contemplated in this Agreement.

 

f.       Nothing herein
shall be construed as limiting the rights of Secured Party pursuant to that certain Power of Attorney executed by Debtor in favor
of Secured Party pursuant to the Loan Agreement.

 

	6.	MISCELLANEOUS

 

6.1          Waiver.
Waiver by Secured Party of any default or breach contained in or secured by this Agreement shall not be construed as a waiver
of any subsequent breach.

 

6.2          Modification.
This Agreement is entered into for the benefit of the parties hereto and their respective successors and assigns, and cannot be
amended or terminated except in a writing signed by both parties.

 

6.3          Governing
Law, Jurisdiction and Venue. This Agreement will be governed by, and construed, interpreted, and enforced in accordance
with, the laws of the State of California, without giving effect to its conflict of laws provisions. Each of Debtor and Secured
Party, subject to the binding arbitration undertakings of the Backstop Support Agreement: (a) submits to the jurisdiction of any
state or federal court sitting in the County of Los Angeles, California in any legal suit, action or proceeding arising out of
or relating to this Agreement or the Note; (b) agrees that all claims in respect of the action or proceeding to enforce such
arbitration may be heard or determined in any such court; and (c) agrees not to bring any action or proceeding arising out of or
relating to this Agreement or the Obligations in any other court. Each of the parties waives any defense of inconvenient forum
to the maintenance of any action or proceeding so brought and waives any bond, surety or other security that might be required
of any other party with respect thereto. Any party may make service on any other party by sending or delivering a copy of the process
to the party to be served at the address and in the manner provided for the giving of notices in Section 6. Each party agrees that
a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any
other manner provided by law. Nothing in this Agreement shall affect the right to serve process in any other manner permitted by
law, statute, rule or regulation.

 

6.4          Severability.
If any term, provision, covenant or condition of this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable the remainder of the provisions shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.

 

    B-9

     

    

6.5          Notices.
Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing
and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following:
(i) one (1) business day after deposit with an express overnight courier for United States deliveries, or (ii) three
(3) business days after deposit in the United States mail by certified mail (return receipt requested). The address for such notices
and communications shall be, if to Debtor, 9400 Toledo Way, Irvine, CA 92618, Attn: Alain Castro (Chief Executive Officer) and
Domonic Carney (Chief Financial Officer) and, if to the Secured Party, 870 Orlando Road, San Marino, CA 91108.

 

6.6          Entire
Agreement. This Agreement contains the entire agreement of the parties hereto and supersedes any prior written or oral
agreement between them concerning the subject matter contained herein.

 

6.7          Attorneys'
Fees; Costs and Expenses. Debtor agrees that it will reimburse Secured Party, upon demand, for all costs and expenses incurred
by Secured Party in connection with (i) collecting or attempting to collect the Obligations or any part thereof, (ii) maintaining
or defending Secured Party’s security interests or liens (or the priority thereof), (iii) the enforcement of Secured Party’s
rights or remedies under this Agreement, the Obligations or any related agreement, document or certificate, (iv) the preparation
or making of any amendments, modifications, waivers or consents with respect to this Agreement, the Obligations or any related
agreement, document or certificate, and/or (v) any other matters, suits, actions or proceedings arising out of or in connection
with this Agreement, the Obligations or any related agreement, document or certificate between Secured Party and Debtor (including,
without limitation, any actions or proceedings pursuant to which Debtor asserts any claims against Secured Party or contests the
validity or enforceability of this Agreement), which costs and expenses include without limit payments made by Secured Party for
taxes, insurance, assessments, or other costs or expenses which Debtor or Debtor is required to pay under this Agreement, the Obligations
or any related agreement, document or certificate; expenses related to the examination of any collateral; audit expenses; court
costs and reasonable attorneys’ fees (whether in-house or outside counsel is used, whether legal assistants are used, and
whether such costs are incurred in formal or informal collection actions, federal Bankruptcy proceedings, probate proceedings,
on appeal or otherwise); and all other costs and expenses of Secured Party incurred in connection with any of the foregoing. Debtor
further indemnifies Secured Party, its directors, officers, employees and agents against all losses, claims, damages, penalties,
judgments, liabilities and expenses (including without limitation all expenses of litigation or preparation for litigation whether
or not Secured Party is a party), which any of them pay or incur arising out of or relating to this Agreement, the or any related
agreement, document or certificate, the transactions described in this Agreement, the Obligations or any related agreement, document
or certificate.

 

6.8          Assignment
and Delegation. This Agreement and the rights and duties hereunder may not be assigned by Debtor. Debtor may not assign
this Agreement or the benefits it is to receive hereunder nor may it delegate the services and Obligations it is required to perform
under this Agreement. The parties agree that any attempt by Debtor to assign its rights or delegate its duties hereunder shall
be null and void.

 

    B-10

     

    

6.9          Further
Assurances. Whenever and so often as requested by a party, the other party will promptly execute and deliver, or cause
to be executed and delivered, all such other and further instruments, documents or assurances, and promptly do or cause to be done
all such other and further things as may be necessary and reasonably required in order to further and more fully discharge and
perform the Obligations and agreements hereunder, and to more fully vest in such requesting party, all rights, interests, powers,
benefits, privileges and advantages conferred, or intended to be conferred, upon it by this Agreement.

 

6.10        Form
of Documents. All instruments, certificates and other documents to be executed and delivered under this Agreement by any
party to any other party shall be in a form satisfactory to the counsel for the other party.

 

6.11        Indemnification;
Expenses. Subject to being permitted pursuant to the Intercreditor Agreement, the Debtor agrees to indemnify and hold harmless
the Secured Party and its trustees, directors, officers, agents, employees, and counsel from and against any and all costs, expenses,
claims, or liability incurred by Secured Party or such person hereunder and under any other document prepared in connection herewith
or therewith, unless such claim or liability shall be due to willful misconduct or gross negligence on the part of a Secured Party
or such person. The Debtor agrees upon demand to pay or reimburse Secured Party for all liabilities, Obligations and reasonable
out-of-pocket expenses, including reasonable fees and expenses of legal counsel for the Debtor from time to time arising in connection
with the enforcement or collection of sums due under this Agreement or other documents related hereto or any “work-out”
in connection with any such documents.

 

6.12        Successors
and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the parties
to the extent this Agreement is assignable.

 

6.13        Executed
Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered
one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other
party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

 

6.14        Section
Headings. The various section headings are inserted for convenience of reference only and shall not affect the meaning
or interpretation of this Agreement or any section thereof.

 

    	 	B-11	 

     

    

 

6.15        Construction
of Agreement. In determining the meaning of, or resolving any ambiguity with respect to, any word, phrase or provision
of this Agreement, no uncertainty or ambiguity shall be construed or resolved against any party under any rule of construction,
including the party primarily responsible for the drafting and preparation of this Agreement.

 

6.16        Waiver
of Jury Trial. DEBTOR AND SECURED PARTY HEREBY WAIVE (TO THE EXTENT PERMITTED BY APPLICABLE LAW) TRIAL BY JURY IN ANY LITIGATION
IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT OR THE OBLIGATIONS, OR THE VALIDITY, PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR SECURED PARTY’S CONDUCT WITH RESPECT TO ANY OF THE FOREGOING. DEBTOR
AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGES THAT SECURED PARTY WOULD NOT ACCEPT
THIS AGREEMENT OR THE OBLIGATIONS IF THIS SECTION WERE NOT PART OF THIS AGREEMENT. 

 

6.17        Termination.
Notwithstanding anything to the contrary in the Agreement, this Agreement and the liens and security interests granted herein shall
automatically terminate upon end of the Term under the Backstop Support Agreement

 

[Remainder of page intentionally left blank;
signature page follows.]

 

    B-12

     

    

 

IN WITNESS WHEREOF,
the parties have executed this Security Agreement in one or more counterparts which, taken together, shall constitute one agreement,
which Security Agreement shall be effective as of and on the last date set forth below.

 

	 	SECURED PARTY:
	 	 	 
	 	Anthony Tang
	 	 	 
	 	By	
	 	 	Anthony
    Tang:
	 	 	 
	 	DEBTOR:
	 	 	 
	 	Ener-Core, Inc.
	 	 	 
	 	By  	
	 		Name/Title:

 

 

B-13

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