Document:

Exhibit 4.1

 

[FORM OF CONVERTIBLE UNSECURED NOTE]

 

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

 

THIS
INSTRUMENT AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN
SUBORDINATION AND INTERCREDITOR AGREEMENT, DATED AS OF SEPTEMBER 1, 2016 (AS THE SAME MAY BE AMENDED OR OTHERWISE MODIFIED FROM
TIME TO TIME PURSUANT TO THE TERMS THEREOF, THE “SUBORDINATION AGREEMENT”), BY AND AMONG Longboard
Capital Advisors LLC (THE “SUBORDINATED AGENT”), THE
COMPANY (AS “BORROWER”), ENER-CORE POWER, INC., A DELAWARE CORPORATION (THE “GUARANTOR”),
ANTHONY TANG, AS A SENIOR LENDER (AS DEFINED THEREIN) (THE “SENIOR L/C LENDER”), AND EMPERY TAX EFFICIENT, LP
IN ITS CAPACITY AS COLLATERAL AGENT (“COLLATERAL AGENT”) FOR THE SENIOR NOTE LENDERS (AS DEFINED THEREIN) (TOGETHER
WITH ITS SUCCESSORS AND ASSIGNS, THE “AGENT”), TO THE INDEBTEDNESS (INCLUDING INTEREST) OWED BY THE CREDIT PARTIES
(AS DEFINED THEREIN) PURSUANT TO THAT CERTAIN (A)(I) SECURITIES PURCHASE AGREEMENT DATED AS OF APRIL 22, 2015 AND (II) A SECURITIES
PURCHASE AGREEMENT DATED AS OF MAY 7, 2015, IN EACH CASE OF CLAUSES (I) AND (II), BY AND AMONG BORROWER, AGENT AND THE SENIOR NOTE
LENDERS AND (B) BACKSTOP SECURITY SUPPORT AGREEMENT, DATED AS OF NOVEMBER 2, 2015, BY AND BETWEEN THE BORROWER AND SENIOR L/C LENDER,
IN EACH CASE, AS AMENDED, RESTATED, SUPPLEMENTED, REFINANCED OR OTHERWISE MODIFIED FROM TIME TO TIME; AND EACH HOLDER OF THIS INSTRUMENT,
BY ITS ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE SUBORDINATION AGREEMENT.

 

Ener-Core,
Inc.

 

CONVERTIBLE UNSECURED NOTE

 

	Issuance Date: September 1, 2016	Original Principal Amount: U.S.[              ]

 

FOR VALUE RECEIVED, Ener-Core,
Inc., a Delaware corporation (the “Company”), hereby promises to pay to [BUYER] or registered assigns
(the “Holder”) the amount set out above as the Original Principal Amount (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise, the “Principal”) when due, whether upon the Maturity Date (as
defined below), acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (“Interest”)
on any outstanding Principal at the applicable Interest Rate from the date set out above as the Issuance Date (the “Issuance
Date”) until the same becomes due and payable, whether upon an Interest Date (as defined below), the Maturity Date, acceleration,
conversion, redemption or otherwise (in each case in accordance with the terms hereof). This Convertible Unsecured Note (including
all Convertible Unsecured Notes issued in exchange, transfer or replacement hereof, this “Note”) is one of a
series of Convertible Unsecured Notes issued pursuant to the Securities Purchase Agreement on the Closing Date and that may be
issued as Additional Notes (as defined in the Securities Purchase Agreement) (collectively, the “Notes” and
such other Unsecured Notes and Additional Notes (to the extent issued), the “Other Notes”). Certain capitalized
terms used herein are defined in Section 26.

 

     

    

    

 

(1)PAYMENTS OF PRINCIPAL;
PREPAYMENT. On the Maturity Date, the Company shall pay to the Holder an amount in cash representing all outstanding Principal
and accrued and unpaid Interest; provided, however, that the Company may not make any such payment to the Holder
so long as any of the Senior Secured Notes remain outstanding. The “Maturity Date” shall be September
1, 2017; provided, however, that the Maturity Date (i) may be extended, at the option of the Holder, in the event
that, and for so long as, an Event of Default (as defined in Section 4(a)) shall have occurred and be continuing on the Maturity
Date (as may be extended pursuant to this Section 1) or any event shall have occurred and be continuing on the Maturity Date (as
may be extended pursuant to this Section 1) that with the passage of time and the failure to cure would result in an Event of Default
and (ii) shall automatically and without any further action by the Holder or the Company be extended to be a date ninety-one (91)
days after the maturity date under the Senior Secured Notes in the event that such maturity date under the Senior Secured Notes
is later than the Maturity Date hereunder. The Company may prepay any portion of the outstanding Principal and accrued and unpaid
Interest; provided, however, that the Company may not prepay any portion of the outstanding Principal and accrued
and unpaid Interest so long as any of the Senior Secured Notes remain outstanding. Notwithstanding anything to the contrary in
this Section 1, however, in no event shall the Maturity Date be earlier than at least ninety-one (91) days after the maturity date
under the Senior Secured Notes.

 

(2)INTEREST. Interest
on this Note shall commence accruing on the Issuance Date at the Interest Rate and shall be computed on the basis of a 360-day
year and twelve 30-day months and shall be payable in arrears for each calendar month on the first (1st) Business Day
of each calendar month after the Issuance Date (each, an “Interest Date”) with the first (1st)
Interest Date being October 1, 2016, subject to the restrictions in the Subordination Agreement upon a default under the Senior
Secured Notes. Interest shall be payable on each Interest Date, to the record holder of this Note on the applicable Interest Date
in cash by wire transfer of immediately available funds pursuant to wire instruction provided by the Holder in writing to the Company.
Prior to the payment of Interest on an Interest Date, Interest on this Note shall accrue at the Interest Rate and be payable, upon
either the prepayment or conversion of the Conversion Amount (as defined below), in cash by wire transfer of immediately available
funds pursuant to wire instructions provided by the Holder in writing to the Company.

 

(3)CONVERSION OF NOTES.
This Note shall be convertible at the Holder’s option into shares of the Company’s common stock, par value $0.0001
per share (including any capital stock into which such common stock shall have been changed or any capital stock resulting from
a reclassification of such common stock, the “Common Stock”), on the terms and conditions set forth in
this Section 3.

 

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

 

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

 

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

 

(ii)“Conversion
Price” means $4.31 per share of Common Stock; provided that, in the event of the conversion (a “Senior
Secured Note Conversion”) of at least fifty percent (50%) of the then outstanding (A) principal, (B) accrued and unpaid
interest with respect to such principal and (C) accrued and unpaid late charges, if any, with respect to such principal and interest,
under the Senior Secured Notes (the “Senior Secured Note Conversion Amount”) into shares of Common Stock and,
if applicable, Senior Secured Note Conversion Derivative Securities at a conversion price per share of Common Stock (the “Senior
Secured Note Conversion Price”) that is different from the Conversion Price hereunder (as in effect immediately prior
to such Senior Secured Note Conversion, after adjustments for any stock dividend, stock split, stock combination, reclassification
or similar transaction after the date hereof), the Conversion Price hereunder shall immediately be adjusted, with no additional
actions required by the Holder, to equal the conversion price per whole share of Common Stock under the Senior Secured Notes in
such Senior Secured Note Conversion.

 

    	 	- 2 -	 

    

    

 

(c)Mechanics of Conversion.

 

(i)Optional Conversion.
To convert any Conversion Amount into shares of Common Stock (such date of conversion, a “Conversion Date”),
the Holder shall (A) transmit by facsimile or electronic mail (or otherwise deliver), for receipt on or prior to 11:59 p.m., New
York time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the “Conversion
Notice”) to the Company and (B) if required by Section 3(c)(iii), surrender this Note to a common carrier for delivery
to the Company as soon as practicable on or following such date (or an indemnification undertaking with respect to this Note in
the case of its loss, theft or destruction). On or before the first (1st) Business Day following the date of receipt of a Conversion
Notice, the Company shall transmit by facsimile or electronic mail a confirmation of receipt of such Conversion Notice to the Holder
and the Company’s transfer agent (the “Transfer Agent”). On or before the earlier of (i) the third (3rd)
Trading Day following the date of receipt of a Conversion Notice and (ii) the number of Trading Days comprising the Standard Settlement
Period (such earlier date, the “Share Delivery Date”), the Company shall (x) provided that the Transfer
Agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, credit
such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s
balance account with DTC through its Deposit Withdrawal At Custodian system or (y) if the Transfer Agent is not participating in
the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled.
If this Note is physically surrendered for conversion as required by Section 3(c)(iii) and the outstanding Principal of this Note
is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and
in no event later than three (3) Business Days after receipt of this Note and at its own expense, issue and deliver to the Holder
a new Note (in accordance with Section 15(d)) representing the outstanding Principal not converted. The Person or Persons entitled
to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date, irrespective of the date such Conversion Shares are credited
to the Holder’s account with DTC or the date of delivery of the certificates evidencing such Conversion Shares, as the case
may be. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number
of Trading Days, on the Company’s primary trading market or quotation system with respect to the Company’s Common Stock
that is in effect on the date of receipt of an applicable Conversion Notice.

 

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

 

    	 	- 3 -	 

    

    

 

(iii)Registration;
Book-Entry. The Company shall maintain a register (the “Register”) for the recordation of the names and
addresses of the holders of each Note and the Principal amount of the Notes (and stated interest thereon) held by such holders
(the “Registered Notes”). The entries in the Register shall be conclusive and binding for all purposes absent
manifest error. The Company and the holders of the Notes shall treat each Person whose name is recorded in the Register as the
owner of a Note for all purposes, including, without limitation, the right to receive payments of Principal and Interest, if any,
hereunder, notwithstanding notice to the contrary. A Registered Note may be assigned or sold in whole or in part only by registration
of such assignment or sale on the Register. Upon its receipt of a request to assign or sell all or part of any Registered Note
by a Holder, the Company shall record the information contained therein in the Register and issue one or more new Registered Notes
in the same aggregate Principal amount as the Principal amount of the surrendered Registered Note to the designated assignee or
transferee pursuant to Section 15. Notwithstanding anything to the contrary in this Section 3(c)(iii), a Holder may assign any
Note or any portion thereof to an Affiliate of such Holder or a Related Fund of such Holder without delivering a request to assign
or sell such Note to the Company and the recordation of such assignment or sale in the Register (a “Related Party Assignment”);
provided, that (x) the Company may continue to deal solely with such assigning or selling Holder unless and until such Holder
has delivered a request to assign or sell such Note or portion thereof to the Company for recordation in the Register; (y) the
failure of such assigning or selling Holder to deliver a request to assign or sell such Note or portion thereof to the Company
shall not affect the legality, validity, or binding effect of such assignment or sale and (z) such assigning or selling Holder
shall, acting solely for this purpose as a non-fiduciary agent of the Company, maintain a register (the “Related Party
Register”) comparable to the Register on behalf of the Company, and any such assignment or sale shall be effective upon
recordation of such assignment or sale in the Related Party Register. Notwithstanding anything to the contrary set forth herein,
upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically
surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted or (B) the
Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance
of this Note upon physical surrender of this Note. The Holder and the Company shall maintain records showing the Principal and
Interest converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and
the Company, so as not to require physical surrender of this Note upon conversion.

 

(iv)Pro Rata Conversion;
Disputes. In the event that the Company receives a Conversion Notice from this Note and one or more holder of Other Notes
for the same Conversion Date and the Company can convert some, but not all, of such portions of this Note and the Other Notes
submitted for conversion due to an Authorized Share Failure, as described in Section 9(b), or otherwise, the Company, subject
to Section 3(d), shall convert from the Holder and each holder of Other Notes electing to have this Note or the Other Notes converted
on such date a pro rata amount of such holder’s portion of the Note and its Other Notes submitted for conversion based on
the Principal amount of this Note and the Other Notes submitted for conversion on such date by such holder relative to the aggregate
Principal amount of this Note and all Other Notes submitted for conversion on such date. Once the cause of the Company’s
inability to convert all of the securities referenced in the first sentence of this paragraph is resolved, except to the extent
one or more Conversion Notices are withdrawn by the Holder or one or more holders of Other Notes, the Company shall convert the
remaining portions of this Note and the Other Notes submitted for conversion. In the event of a dispute as to the number of shares
of Common Stock issuable to the Holder in connection with a conversion of this Note, the Company shall issue to the Holder the
number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 19. 

 

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(d)Limitations on Conversions.

 

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

 

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(3A)MANDATORY CONVERSION.
In the event of a Senior Secured Note Conversion, the sum of the Holder’s then outstanding Principal and accrued and unpaid
Interest with respect to such Principal (together, the “Automatic Conversion Amount”) shall automatically and
without any further action by the Holder or the Company be converted into a number of fully paid, validly issued and nonassessable
shares of Common Stock determined by dividing the Holder’s then outstanding Automatic Conversion Amount by the Senior Secured
Note Conversion Price, rounded up to the nearest whole number. Notwithstanding anything to the contrary contained herein, if the
Company issues any Senior Secured Note Conversion Derivative Securities in connection with a Senior Secured Note Conversion, the
Holder shall automatically and without any additional consideration to the Company receive the same number of Senior Secured Note
Conversion Derivative Securities per share of Common Stock receivable upon such conversion (the “Automatic Conversion
Derivative Securities”) as was or will be received by the holders of the Senior Secured Notes in the applicable Senior
Secured Note Conversion (the “Automatic Conversion”). The Company shall deliver within not less than
one (1) Trading Day prior to the date of consummation of the Senior Secured Note Conversion a written notice thereof by facsimile
or electronic mail to all of the holders of Notes and the Transfer Agent, which notice shall (A) state the Trading Day on which
the consummation of the Senior Secured Note Conversion is anticipated to occur and the number of shares of Common Stock and, if
applicable, Automatic Conversion Derivative Securities anticipated to be issued to the Holder pursuant to the Automatic Conversion
on such date and (B) contemporaneously with the consummation of the Senior Secured Note Conversion, (1) (x) if the underlying shares
of Common Stock are eligible to be issued without a restrictive legend pursuant to Rule 144, credit such aggregate number of shares
of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC through
its Deposit Withdrawal At Custodian system for the number of shares of Common Stock to which the Holder shall be entitled pursuant
to this Section 3A or (y) issue and deliver to the Holder a certificate representing the number of shares of Common Stock to which
the Holder shall be entitled pursuant to this Section 3A bearing an appropriate restrictive legend as set forth in Section 2(g)
of the Securities Purchase Agreement, and (2) issue and deliver to the Holder a certificate representing the Automatic Conversion
Derivative Securities. Notwithstanding anything to the contrary in this Section 3A, until the Automatic Conversion has occurred,
the Conversion Amount may be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3(c)(i). All Conversion
Amounts converted by the Holder prior to the Automatic Conversion shall reduce the Automatic Conversion Amount that will be converted
pursuant to the Automatic Conversion.

 

(4)EVENT OF DEFAULT.

 

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

 

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

 

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

 

(iii)at any time following
the fifth (5th) consecutive Business Day that the Holder’s Authorized Share Allocation is less than the sum of
(A) 200% of the number of shares of Common Stock that the Holder would be entitled to receive upon a conversion of the full Conversion
Amount of this Note (without regard to any limitations on conversion set forth in Section 3(d) or otherwise) calculated using an
assumed Conversion Price of $4.31 (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar
transaction occurring after the Subscription Date) (the “Assumed Conversion Price”) and (B) the number of shares
of Common Stock that the Holder would be entitled to receive upon exercise in full of the Holder’s Warrants (without regard
to any limitations on exercise set forth in the Warrants);

 

(iv)the Company’s
failure to pay to the Holder any amount of Principal, Interest or other amounts when and as due under this Note or any other Transaction
Document (as defined in the Securities Purchase Agreement) or any other agreement, document, certificate or other instrument delivered
in connection with the transactions contemplated hereby and thereby to which the Holder is a party if such failure continues for
a period of at least an aggregate of five (5) Business Days;

 

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

 

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

 

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

 

    	 	- 6 -	 

    

    

 

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

 

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

 

(x)any breach or failure
in any material respect to comply with Section 12 of this Note, except, in the case of a breach of a covenant or other term or
condition of such section which is curable, only if such breach or failure continues for a period of at least an aggregate of five
(5) Business Days;

 

(xi)any breach or failure
in any respect to comply with Section 4(f) of the Securities Purchase Agreement;

 

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

 

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

 

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

 

(b)Rights Upon Event of Default.
Upon the occurrence of an Event of Default with respect to this Note or any Other Note, the Company shall within two (2) Business
Days deliver written notice thereof via facsimile or electronic mail and overnight courier (an “Event of Default Notice”)
to the Holder. In the event of an Event of Default, Interest shall continue to accrue on the then outstanding Principal at the
applicable Interest Rate, but in no event shall such Interest be payable to the Holder until such time as (i) the then outstanding
Senior Secured Note Conversion Amount has been converted or repaid in full by the Company or (ii) the Event of Default is no longer
continuing. Notwithstanding anything to the contrary herein, the Holder shall not have the right to declare an Event of Default
with respect to this Note without the prior written consent of the Collateral Agent and the Required Holders (as defined in the
Senior Secured Notes), for so long as any of the Senior Secured Notes remain outstanding.

 

    	 	- 7 -	 

    

    

 

(5)RIGHTS UPON FUNDAMENTAL
TRANSACTION. In the event of a Fundamental Transaction, a Successor Entity may assume in writing all of the obligations of
the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section 5 and may deliver
to each holder of Notes in exchange for such Notes no less than an economically equivalent security of the Successor Entity evidenced
by a written instrument substantially similar in form and substance to the Notes, including, without limitation, having a principal
amount and interest rate equal to the principal amounts and the interest rates of the Notes then outstanding held by such holder,
having similar conversion rights and having similar ranking and security to the Notes. Within a reasonable time prior to the occurrence
or consummation of any Fundamental Transaction, the Company shall deliver written notice of any Fundamental Transaction via facsimile
or electronic mail and overnight courier to the Holder. Upon the occurrence or consummation of any Fundamental Transaction, the
Company and the Successor Entity or Successor Entities, jointly and severally, may succeed to, and the Company may cause any Successor
Entity or Successor Entities to jointly and severally succeed to, and be added to the term “Company” under this Note
(so that from and after the date of such Fundamental Transaction, in such case, each and every provision of this Note referring
to the “Company” refers instead to each of the Company and the Successor Entity or Successor Entities, jointly and
severally), and the Company and the Successor Entity or Successor Entities, jointly and severally, may exercise every right and
power of the Company prior thereto and shall assume all of the obligations of the Company prior thereto under this Note with the
same effect as if the Company and such Successor Entity or Successor Entities, jointly and severally, had been named as the Company
in this Note, and if the Successor Entity and/or Successor Entities is a publicly traded corporation whose common capital stock
is quoted on or listed for trading on an Eligible Market, may deliver (in addition to and without limiting any right under this
Note) to the Holder in exchange for this Note a security of the Successor Entity and/or Successor Entities evidenced by a written
instrument substantially similar in form and substance to this Note and convertible for a corresponding number of shares of capital
stock of the Successor Entity and/or Successor Entities (the “Successor Capital Stock”) equivalent (as set forth
below) to the shares of Common Stock acquirable and receivable upon conversion of this Note (determined using the Assumed Conversion
Price as the Conversion Price and determined without regard to any limitations on the conversion of this Note) prior to such Fundamental
Transaction (such corresponding number of shares of Successor Capital Stock to be delivered to the Holder shall equal the greater
of (I) the quotient of (A) the aggregate dollar value of all consideration (including cash consideration and any consideration
other than cash (“Non-Cash Consideration”), in such Fundamental Transaction, as such values are set forth in
any definitive agreement for the Fundamental Transaction that has been executed at the time of the first public announcement of
the Fundamental Transaction or, if no such value is determinable from such definitive agreement, as determined in accordance with
Section 19 with the term “Non-Cash Consideration” being substituted for the term “Conversion Price”) that
the Holder would have been entitled to receive upon the happening of such Fundamental Transaction or the record, eligibility or
other determination date for the event resulting in such Fundamental Transaction, had this Note been converted immediately prior
to such Fundamental Transaction or the record, eligibility or other determination date for the event resulting in such Fundamental
Transaction (determined using the Assumed Conversion Price as the Conversion Price and determined without regard to any limitations
on the conversion of this Note) (the “Aggregate Consideration”) divided by (B) the per share Closing Sale Price
of such corresponding Successor Capital Stock on the Trading Day immediately prior to the consummation or occurrence of the Fundamental
Transaction and (II) the product of (A) the Aggregate Consideration and (B) the highest exchange ratio pursuant to which any shareholder
of the Company may exchange Common Stock for Successor Capital Stock) (provided, however, to the extent that the
Holder’s right to receive any such shares of publicly traded common stock (or their equivalent) of the Successor Entity would
result in the Holder and its other Attribution Parties exceeding the Maximum Percentage, if applicable, then the Holder shall not
be entitled to receive such shares to such extent (and shall not be entitled to beneficial ownership of such shares of publicly
traded common stock (or their equivalent) of the Successor Entity as a result of such consideration to such extent) and the portion
of such shares shall be held in abeyance for the Holder until such time or times, as its right thereto would not result in the
Holder and its other Attribution Parties exceeding the Maximum Percentage, at which time or times the Holder shall be delivered
such shares to the extent as if there had been no such limitation), and such security shall be satisfactory to the Holder, and
with an identical conversion price to the Conversion Price hereunder (such adjustments to the number of shares of capital stock
and such conversion price being for the purpose of protecting after the consummation or occurrence of such Fundamental Transaction
the economic value of this Note that was in effect immediately prior to the consummation or occurrence of such Fundamental Transaction,
as elected by the Holder solely at its option). The provisions of this Section 5 shall apply similarly and equally to successive
Fundamental Transactions.

 

(6)RIGHTS UPON ISSUANCE OF
OTHER SECURITIES.

 

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

 

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

 

    	 	- 8 -	 

    

    

 

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

 

(a)General. At any time
after the Issuance Date, the Company shall have the right to redeem all or any portion of the Conversion Amount then remaining
under this Note and the Other Notes (the “Company Optional Redemption Amount”) as designated in the Company
Optional Redemption Notice on the Company Optional Redemption Date (each as defined below) (a “Company Optional Redemption;
provided, however, that the Company shall not redeem all or any portion of the Company Optional Redemption Amount
so long as any of the Senior Secured Notes remain outstanding without the prior written consent of the Collateral Agent and the
required holders pursuant to the Senior Secured Notes. The portion of this Note and the Other Notes subject to redemption pursuant
to this Section 7(a) shall be redeemed by the Company on the Company Optional Redemption Date (as defined below) in cash by wire
transfer of immediately available funds pursuant to wire instructions provided by the Holder in writing to the Company at a price
equal to the 100% of the Conversion Amount of this Note to be redeemed (the “Company Optional Redemption Price”).
The Company may exercise its right to require redemption under this Section 7 by delivering prior written notice thereof fifteen
(15) days prior to the Company Optional Redemption Date (as defined below) by facsimile or electronic mail and overnight courier
to the Holder and all, but not less than all, of the holders of the Other Notes (the “Company Optional Redemption Notice”
and the date all of the holders of the Notes received such notice is referred to as the “Company Optional Redemption Notice
Date”). The Company Optional Redemption Notice shall be irrevocable. The Company Optional Redemption Notice shall (i)
state the date on which the Company Optional Redemption shall occur (the “Company Optional Redemption Date”),
which date shall be fifteen (15) days following the Company Optional Redemption Notice Date or, if such date falls
on a Holiday, the next day that is not a Holiday and (ii) state the aggregate Conversion Amount of the Notes which the Company
has elected to be subject to Company Optional Redemption from the Holder and all of the holders of the Other Notes pursuant to
this Section 7(a) (and analogous provisions under the Other Notes) on the Company Optional Redemption Date and (iii) certify that
there is no Event of Default that is continuing as of the applicable Company Optional Redemption Notice Date. If the Company confirmed
that there was no such Event of Default continuing as of the applicable Company Optional Redemption Notice Date but an Event of
Default occurs between the applicable Company Optional Redemption Notice Date and any time through the applicable Company Optional
Redemption Date (the “Company Optional Redemption Interim Period”), the Company shall provide the Holder a subsequent
notice to that effect. If there is an Event of Default that is continuing (which is not waived in writing by the Holder) during
such Company Optional Redemption Interim Period, then the Company Optional Redemption shall be null and void with respect to all
or any part designated by the Holder of the unconverted Company Optional Redemption Amount and the Holder shall be entitled to
all the rights of a holder of this Note with respect to such amount of the Company Optional Redemption Amount. Notwithstanding
anything to the contrary in this Section 7, until the Company Optional Redemption Price is paid in full, during a Conversion Period,
the Company Optional Redemption Amount may be converted, in whole or in part, by the Holder into shares of Common Stock pursuant
to Section 3. All Conversion Amounts converted by the Holder after the Company Optional Redemption Notice Date shall reduce the
Company Optional Redemption Amount of this Note required to be redeemed on the Company Optional Redemption Date, unless the Holder
otherwise indicates in the applicable Conversion Notice. Company Optional Redemptions made pursuant to this Section 7 shall be
made in accordance with Section 7(c). To the extent redemptions required by this Section 7 are deemed or determined by a court
of competent jurisdiction to be prepayments of the Note by the Company, such redemptions shall be deemed to be voluntary prepayments.

 

(b)Pro Rata Redemption Requirement.
If the Company elects to cause a Company Optional Redemption pursuant to Section 7(a), then it must simultaneously take the same
action in the same proportion with respect to the Other Notes. If the Company elects to cause a Company Optional Redemption pursuant
to Section 7(a) (or similar provisions under the Other Notes) with respect to less than all of the Conversion Amounts of the Notes
then outstanding, then the Company shall require redemption of a Conversion Amount from each of the holders of the Notes equal
to the product of (i) the aggregate Company Optional Redemption Amount of Notes which the Company has elected to cause to be redeemed
pursuant to Section 7(a), multiplied by (ii) the fraction, the numerator of which is the sum of the aggregate Original Principal
Amount of the Notes purchased by such holder of outstanding Notes and the denominator of which is the sum of the aggregate Original
Principal Amount of the Notes purchased by all holders holding outstanding Notes (such fraction with respect to each holder is
referred to as its “Company Optional Redemption Allocation Percentage”, and such amount with respect
to each holder is referred to as its “Pro Rata Company Optional Redemption Amount”); provided, however
that in the event that any holder’s Pro Rata Company Optional Redemption Amount exceeds the outstanding Principal amount
of such holder’s Note, then such excess Pro Rata Company Optional Redemption Amount shall be allocated amongst the remaining
holders of Notes in accordance with the foregoing formula. In the event that the initial holder of any Notes shall sell or otherwise
transfer any of such holder’s Notes, the transferee shall be allocated a pro rata portion of such holder’s Company
Optional Redemption Allocation Percentage and Pro Rata Company Optional Redemption Amount.

 

(c)Mechanics. The Company
shall deliver the applicable Company Optional Redemption Price on the applicable Company Optional Redemption Date. The Company
shall pay the Company Optional Redemption Price to the Holder in cash by wire transfer of immediately available funds pursuant
to wire instruction provided by the holder in writing to the Company on the applicable due date. In the event of a redemption of
less than all of the Conversion Amount of this Note, the Company shall promptly cause to be issued and delivered to the Holder
a new Note (in accordance with Section 15(d)) representing the outstanding Principal which has not been redeemed and any accrued
Interest on such Principal which shall be calculated as if no Company Optional Redemption Notice has been delivered. In the event
that the Company does not pay the applicable Company Optional Redemption Price to the Holder within the time period required, at
any time thereafter and until the Company pays such unpaid Company Optional Redemption Price in full, the Holder shall have the
option, in lieu of redemption, to require the Company to promptly return to the Holder all or any portion of this Note representing
the Conversion Amount that was submitted for redemption and for which the applicable Company Optional Redemption Price has not
been paid. Upon the Company’s receipt of such notice, (x) the applicable Company Optional Redemption Notice shall be null
and void with respect to such Conversion Amount and (y) the Company shall immediately return this Note, or issue a new Note (in
accordance with Section 15(d)) to the Holder representing such Conversion Amount to be redeemed.

 

    	 	- 9 -	 

    

    

 

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

 

(9)RESERVATION OF AUTHORIZED
SHARES.

 

(a)Reservation. The Company
shall initially reserve out of its authorized and unissued shares of Common Stock a number of shares of Common Stock for each of
this Note and the Other Notes equal to 200% of the Conversion Rate determined using the Assumed Conversion Price as the Conversion
Price, with respect to the Conversion Amount of each such Note as of the Issuance Date. So long as any of this Note
and the Other Notes are outstanding, the Company shall take all action necessary to reserve and keep available out of its authorized
and unissued Common Stock, solely for the purpose of effecting the conversion of this Note and the Other Notes, the number of shares
of Common Stock specified above in this Section 9(a) as shall from time to time be necessary to effect the conversion of all of
the Notes then outstanding; provided, that at no time shall the number of shares of Common Stock so reserved be less than
the number of shares required to be reserved pursuant hereto (in each case, determined using the Assumed Conversion Price as the
Conversion Price and determined without regard to any limitations on conversions) (the “Required Reserve Amount”).
The initial number of shares of Common Stock reserved for conversions of this Note and the Other Notes and each increase in the
number of shares so reserved shall be allocated pro rata among the Holder and the holders of the Other Notes based on the Principal
amount of this Note and the Other Notes held by each holder at the Closing (as defined in the Securities Purchase Agreement) or
increase in the number of reserved shares, as the case may be (the “Authorized Share Allocation”). In the event
that a holder shall sell or otherwise transfer this Note or any of such holder’s Other Notes, each transferee shall be allocated
a pro rata portion of such holder’s Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any
Person which ceases to hold any Notes shall be allocated to the Holder and the remaining holders of Other Notes, pro rata based
on the Principal amount of this Note and the Other Notes then held by such holders.

 

(b)Insufficient Authorized
Shares. If at any time while any of the Notes remain outstanding the Company does not have a sufficient number of authorized
and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes at least a
number of shares of Common Stock equal to the Required Reserve Amount (an “Authorized Share Failure”), then
the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an
amount sufficient to allow the Company to reserve the Required Reserve Amount for the Notes then outstanding. Without limiting
the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than ninety (90) days after the occurrence of such Authorized Share Failure, the Company shall either (x)
obtain the written consent of its stockholders for the approval of an increase in the number of authorized shares of Common Stock
and provide each stockholder with an information statement with respect thereto or (y) hold a meeting of its stockholders for the
approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall
provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such
increase in authorized shares of Common Stock and to cause its Board of Directors to recommend to the stockholders that they approve
such proposal.

 

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

 

(11)NO SECURITY. This
Note and the Other Notes are unsecured. The Holder acknowledges and agrees that this Note and any obligations on behalf of the
Company owing thereunder shall be subject and subordinate to the Senior Secured Notes, as further governed by the Subordination
Agreement, and subject and subordinate to other Company secured obligations.

 

(12)COVENANTS.

 

(a)Rank. All payments
due under this Note shall rank pari passu with all Other Notes.

 

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

 

    	 	- 10 -	 

    

    

 

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

 

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

 

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

 

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

 

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

 

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

 

(14)TRANSFER; ASSIGNMENT.
This Note and any shares of Common Stock issued upon conversion of this Note may be offered, sold, assigned or transferred by the
Holder without the consent of the Company, subject only to the provisions of Section 2(f) of the Securities Purchase Agreement,
provided, any purchaser, assignee or transferee of this Note must agree in writing to be bound by the Subordination
Agreement prior to the consummation of such transaction. Additionally, the Company may assign this Note to a Successor Entity pursuant
to the terms of Section 5 hereof.

 

(15)REISSUANCE OF THIS NOTE.

 

(a)Transfer. If this
Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and
deliver upon the order of the Holder a new Note (in accordance with Section 15(d) and subject to Section 3(c)(iii)), registered
as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less than the entire
outstanding Principal is being transferred, a new Note (in accordance with Section 15(d)) to the Holder representing the outstanding
Principal not being transferred. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason
of the provisions of Section 3(c)(iii) following conversion or redemption of any portion of this Note, the outstanding Principal
represented by this Note may be less than the Principal stated on the face of this Note.

 

(b)Lost, Stolen or Mutilated
Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation
of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver
to the Holder a new Note (in accordance with Section 15(d)) representing the outstanding Principal.

 

    	 	- 11 -	 

    

    

 

(c)Note Exchangeable for
Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the
Company, for a new Note or Notes (in accordance with Section 15(d) and in Principal amounts of at least $100,000) representing
in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding
Principal as is designated by the Holder at the time of such surrender.

 

(d)Issuance of New Notes.
Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor
with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the
case of a new Note being issued pursuant to Section 15(a) or Section 15(c), the Principal designated by the Holder which, when
added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal
remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated
on the face of such new Note, which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions
as this Note, and (v) shall represent accrued and unpaid Interest, if any, on the Principal and Interest of this Note, from the
Issuance Date.

 

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

 

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

 

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

 

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

 

    	 	- 12 -	 

    

    

 

(20)NOTICES; PAYMENTS.

 

(a)Notices. Whenever
notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with
Section 8(f) of the Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions
taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore. Without limiting
the generality of the foregoing, the Company shall give written notice to the Holder (i) immediately upon any adjustment of the
Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least twenty
(20) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution
upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights
to vote with respect to any dissolution or liquidation, provided in each case that such information shall be made known to the
public prior to or in conjunction with such notice being provided to the Holder.

 

(b)Payments. Whenever
any payment of cash is to be made by the Company to any Person pursuant to this Note, such payment shall be made in lawful money
of the United States of America by a check drawn on the account of the Company and sent via overnight courier service to such Person
at such address as previously provided to the Company in writing (which address, in the case of each of the Purchasers, shall initially
be as set forth on the Schedule of Buyers attached to the Securities Purchase Agreement); provided, that the Holder may
elect to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written
notice setting out such request and the Holder’s wire transfer instructions. Whenever any amount expressed to be due by the
terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which
is a Business Day.

 

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

 

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

 

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

 

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

 

(25)DISCLOSURE. Upon
receipt or delivery by the Company of any notice in accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or
its Subsidiaries, the Company shall within three (3) Business Days after any such receipt or delivery publicly disclose such material,
nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains
material, nonpublic information relating to the Company or its Subsidiaries, the Company so shall indicate to such Holder contemporaneously
with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters
relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.

 

    	 	- 13 -	 

    

    

 

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

 

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

 

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

 

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

 

(d)“Bloomberg”
means Bloomberg Financial Markets.

 

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

 

(f)“Closing Bid Price”
and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing
trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins
to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may
be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York Time, as reported
by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last
closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last
trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg,
the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the OTC Link
or “pink sheets” by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.). If the Closing Bid Price or the Closing
Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by
the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then
such dispute shall be resolved pursuant to Section 19. All such determinations to be appropriately adjusted for any stock dividend,
stock split, stock combination, reclassification or similar transaction during the applicable calculation period.

 

(g)“Closing Date”
shall have the meaning set forth in the Securities Purchase Agreement, which date is the date the Company initially issued Notes
pursuant to the terms of the Securities Purchase Agreement.

 

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

 

    	 	- 14 -	 

    

    

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

    	 	- 15 -	 

    

    

 

(p)“Interest Rate”
means 12.00% per annum, subject to adjustment as set forth in Section 2.

 

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

 

(r)“Permitted Indebtedness”
means (i) Indebtedness evidenced by this Note and the Other Notes, (ii) Indebtedness evidenced by the Additional Notes, if any,
(iii) Indebtedness evidenced by the Senior Secured Notes, (iv) trade payables incurred in the ordinary course of business
consistent with past practice, (v) Indebtedness secured by 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, (vi) deemed
Indebtedness arising from one or more operating leases, including, without limitation, the leases for one or more test turbines
from Dresser-Rand and (vii) Indebtedness incurred pursuant to the Backstop Agreement.

 

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

 

(t)“Principal Market”
means the OTCQB.

 

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

 

(v)“Required Holders”
means the holders of Notes representing at least a majority of the aggregate principal amount of the Notes then outstanding.

 

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

 

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

 

(y)“Securities Purchase
Agreement” means that certain securities purchase agreement dated as of the Subscription Date by and among the Company
and the Purchasers of the Notes pursuant to which the Company issued the Notes and Warrants.

 

(z)“Senior Secured
Notes” means (A) those certain senior secured notes issued pursuant to the Securities Purchase Agreement, dated as of
April 22, 2015 by and among the Company and the investors listed on the signature pages thereto, as amended from time to time,
and (B) those certain senior secured notes issued pursuant to the Securities Purchase Agreement, dated as of May 7, 2015 by and
among the Company and the investors listed on the signature pages thereto, as amended from time to time.

 

(aa)“Senior Secured
Note Conversion Derivative Securities” means securities of the Company directly or indirectly convertible, exchangeable
or exercisable into Common Stock that are issued to the holders of the Senior Secured Notes in connection with a Senior Secured
Note Conversion.

 

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

 

(cc)“Subscription Date”
means September 1, 2016.

 

    	 	- 16 -	 

    

    

 

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

 

(ee)“Trading Day”
means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded;
provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such
exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of
trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on
such exchange or market, then during the hour ending at 4:00:00 p.m., New York Time).

 

(ff)“Warrants”
has the meaning ascribed to such term in the Securities Purchase Agreement, and shall include all warrants issued in exchange therefor
or replacement thereof as well as any Additional Warrants, as such term is defined in the Securities Purchase Agreement, issued
pursuant to the Securities Purchase Agreement.

 

(27)SUBORDINATION AGREEMENT.
Notwithstanding anything to the contrary in this Note, the rights of the Holder are subject to the prohibitions on cash payments
to the Holder by the Company set forth in the Subordination Agreement, except as explicitly permitted in the Subordination Agreement. 

 

[Signature Page Follows]

 

    	 	- 17 -	 

    

    

 

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

 

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

  

    Signature Page
to Unsecured Note

    

    

 

EXHIBIT I

Ener-Core, inc.

 

CONVERSION NOTICE

 

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

 

	 	Date of Conversion:	 
	 	 	 
	 	Aggregate Conversion Amount to be converted:	 
	 	 	 
	Please confirm the following information:	 
	 	 
	 	Conversion Price:	 
	 	Number of shares of Common Stock to be issued:	 
	 	 	 
	Please issue the Common Stock into which the Note is being converted in the following name and to the following address:
	 
	 	Issue to:	 
	 	 	 
	 	 	 
	 	 	 
	 	Facsimile Number and Electronic Mail:	 
	 	Authorization:	 
	 	By:	 
	 	Title:	 
	 	 	 
	Dated:	 
	 	 
	 	Account Number:	 
	 	(if electronic book entry transfer)	 
	 	Transaction Code Number:	 
	 	(if electronic book entry transfer)	 

 

 

    

Exhibit I

Conversion Notice

    

    

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges
this Conversion Notice and hereby directs VStock Transfer, LLC to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated September 1, 2016 from the Company and acknowledged and agreed to by VStock
Transfer, LLC.

 

	 	Ener-Core, Inc.
	 	 	 
	 	By:	 
	 	 	Name:
	 	 	Title:Exhibit
4.2

 

[FORM
OF WARRANT]

 

NEITHER
THE SECURITIES REPRESENTED BY THIS INSTRUMENT NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
THE SECURITIES.

 

This
instrument and the rights and obligations evidenced hereby are subordinate in the manner and to the extent set forth in that certain
Subordination and Intercreditor Agreement, dated as of September 1, 2016 (as the same may be amended or otherwise modified from
time to time pursuant to the terms thereof, the “Subordination Agreement”), by and among Longboard Capital
Advisors LLC (the “Subordinated Agent”), Ener-Core, Inc., a Delaware corporation (“Borrower”),
Ener-Core Power, Inc., a Delaware corporation (the “Guarantor”), Anthony Tang, as a Senior Lender (as defined
therein) (the “Senior L/C Lender”), and Empery Tax Efficient, LP in its capacity as collateral agent for the
Senior Note Lenders (as defined therein) (together with its successors and assigns, the “Agent”), to the indebtedness
(including interest) owed by the Credit Parties (as defined therein) pursuant to that certain (a)(i) Securities Purchase Agreement
dated as of April 22, 2015 and (ii) a Securities Purchase Agreement dated as of May 7, 2015, in each case of clauses (i) and (ii),
by and among Borrower, Agent and the Senior Note Lenders and (b) Backstop Security Support Agreement, dated as of November 2,
2015, by and between the Borrower and Senior L/C Lender, in each case, as amended, restated, supplemented, refinanced or otherwise
modified from time to time; and each holder of this instrument, by its acceptance hereof, irrevocably agrees to be bound by the
provisions of the Subordination Agreement.

 

Ener-Core,
Inc.

Warrant
To Purchase Common Stock

Warrant
No.: ___________________

Number
of Shares of Common Stock: __________________

Date
of Issuance: September 1, 2016 (“Issuance Date”)

Ener-Core,
Inc., a company incorporated under the laws of Delaware (the “Company”), hereby certifies that, for good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
[HOLDER], the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject
to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, at any time
or times on or after the Issuance Date, but not after 11:59 p.m., New York time, on the Expiration Date, (as defined below), ______________
(_____________) fully paid nonassessable shares of Common Stock (as defined below), subject to adjustment as provided herein
(the “Warrant Shares”). Except as otherwise defined herein, capitalized terms in this Warrant to Purchase
Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, this “Warrant”),
shall have the meanings set forth in Section 16. This Warrant is one of the Warrants to purchase Common Stock (the “SPA
Warrants”) issued pursuant to that certain Securities Purchase Agreement, dated as of September 1, 2016 (the “Subscription
Date”), by and among the Company and the investors (the “Buyers”) referred to therein (the “Securities
Purchase Agreement”).

 

      

     

    

 

1.EXERCISE
OF WARRANT.

(a)Mechanics
of Exercise. Subject to the terms and conditions hereof (including, without limitation, the limitations set forth in Section
1(f)), this Warrant may be exercised by the Holder at any time or times on or after the Issuance Date, in whole or in part,
by delivery (whether via facsimile, electronic mail or otherwise) of a written notice, in the form attached hereto as Exhibit
A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant. Within two (2) days
following the date of delivery of the Exercise Notice, the Holder shall make payment to the Company of an amount equal to the
Exercise Price in effect on the date of such exercise multiplied by the number of Warrant Shares as to which this Warrant is being
exercised (the “Aggregate Exercise Price”) in cash by wire transfer of immediately available funds or, if the
provisions of Section 1(d) are applicable, by notifying the Company that this Warrant is being exercised pursuant to a Cashless
Exercise (as defined in Section 1(d)). The Holder shall not be required to deliver the original Warrant in order to effect an
exercise hereunder, nor shall any ink-original signature or medallion guarantee (or other type of guarantee or notarization) with
respect to any Exercise Notice be required. Execution and delivery of the Exercise Notice with respect to less than all of the
Warrant Shares shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the
right to purchase the remaining number of Warrant Shares. On or before the first (1st) Trading Day following the date
on which the Company has received the applicable Exercise Notice, the Company shall transmit by facsimile or electronic mail an
acknowledgment of confirmation of receipt of the Exercise Notice, in the form attached to the Exercise Notice, to the Holder and
the Company’s transfer agent (the “Transfer Agent”). So long as the Holder delivers the Aggregate Exercise
Price (or notice of a Cashless Exercise) on or prior to the second (2nd) Trading Day following the date on which the
Exercise Notice has been delivered to the Company, then on or prior to the earlier of (i) the third (3rd) Trading Day
following the date on which the Exercise Notice has been delivered to the Company and (ii) the number of Trading Days comprising
the Standard Settlement Period (but in no event sooner than the 2nd Trading Day following the date on which the Exercise Notice
has been delivered to the Company, unless the Holder has elected to deliver a notice of a Cashless Exercise), or, if the Holder
does not deliver the Aggregate Exercise Price (or notice of a Cashless Exercise) on or prior to the second (2nd) Trading
Day following the date on which the Exercise Notice has been delivered to the Company, then on or prior to the second (2nd)
Trading Day following the date on which the Aggregate Exercise Price (or notice of a Cashless Exercise) is delivered (the “Share
Delivery Date”), the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company
(“DTC”) Fast Automated Securities Transfer Program, credit such aggregate number of Warrant Shares to which
the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through
its Deposit / Withdrawal At Custodian system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered
in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the
Holder is entitled pursuant to such exercise. The Company shall be responsible for all fees and expenses of the Transfer Agent
and all fees and expenses with respect to the issuance of Warrant Shares via DTC, if any, including without limitation for same
day processing. Upon delivery of the Exercise Notice, the Holder shall be deemed for purposes of Rule 200(b) of Regulation SHO
to have become the owner of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date
such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the certificates evidencing such
Warrant Shares, as the case may be, provided that the Holder delivers the Aggregate Exercise Price (or a duly executed
notice of a Cashless Exercise) on or prior to the second (2nd) Trading Day following the date on which the Exercise
Notice has been delivered to the Company. If this Warrant is physically delivered to the Company in connection with any exercise
pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than
the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later
than three (3) Trading Days after any exercise and at its own expense, issue and deliver to the Holder (or its designee) a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the number of Warrant Shares issuable immediately
prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.
No fractional Warrant Shares are to be issued upon the exercise of this Warrant, but rather the number of Warrant Shares to be
issued shall be rounded to the nearest whole number. The Company shall pay any and all transfer, stamp, issuance and similar taxes,
costs and expenses (including, without limitation, fees and expenses of the Transfer Agent) which may be payable with respect
to the issuance and delivery of Warrant Shares upon exercise of this Warrant. The Company’s obligations to issue and deliver
Warrant Shares in accordance with the terms and subject to the conditions 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;
provided, however, that the Company shall not be required to deliver Warrant Shares with respect to an exercise
prior to the Holder’s delivery of the Aggregate Exercise Price (or notice of a Cashless Exercise) with respect to such exercise.
As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of
Trading Days, on the Company’s primary trading market or quotation system with respect to the Company’s Common Stock
that is in effect on the date of receipt of an applicable Exercise Notice.

 

    	 	- 2 -	 

    

    

 

(b)Exercise
Price. For purposes of this Warrant, “Exercise Price” means $4.00, subject to adjustment as provided herein.

(c)Company’s
Failure to Timely Deliver Securities. If either (I) the Company shall fail for any reason or for no reason to issue to the
Holder on or prior to the applicable Share Delivery Date, if (x) the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program, a certificate for the number of shares of Common Stock to which the Holder is entitled and register
such Common Stock on the Company’s share register or (y) the Transfer Agent is participating in the DTC Fast Automated Securities
Transfer Program, to credit the Holder’s balance account with DTC, for such number of shares of Common Stock to which the
Holder is entitled upon the Holder’s exercise of this Warrant or (II) a registration statement covering the resale of the
Warrant Shares that are the subject of the Exercise Notice (the “Exercise Notice Warrant Shares”) is not available
for the resale of such Exercise Notice Warrant Notice Shares and (x) the Company fails to promptly, but in no event later than
one (1) Business Day after such registration statement becomes unavailable, to so notify the Holder and (y) the Company is unable
to deliver the Exercise Notice Warrant Shares electronically without any restrictive legend by crediting such aggregate number
of Exercise Notice Warrant Shares to the Holder’s or its designee’s balance account with DTC through its Deposit /
Withdrawal At Custodian system (the event described in the immediately foregoing clause (II) is hereinafter referred to as a “Notice
Failure” and together with the event described in clause (I) above, an “Exercise Failure”), then,
in addition to all other remedies available to the Holder, if on or prior to the applicable Share Delivery Date either (I) if
the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, the Company shall fail to issue
and deliver a certificate to the Holder and register such shares of Common Stock on the Company’s share register or, if
the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program, credit the Holder’s balance account
with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise hereunder or
pursuant to the Company’s obligation pursuant to clause (ii) below or (II) if a Notice Failure occurs, and if on or after
such Trading Day the Holder purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of
a sale by the Holder of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company
(a “Buy-In”), then the Company shall, within three (3) Trading Days after the Holder’s request and in
the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price
(including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to deliver such certificate (and to issue such shares of Common
Stock) or credit such Holder’s balance account with DTC for such shares of Common Stock shall terminate, or (ii) promptly
honor its obligation to deliver to the Holder a certificate or certificates representing such shares of Common Stock or credit
such Holder’s balance account with DTC, as applicable, and pay cash to the Holder in an amount equal to the excess (if any)
of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) any trading price of the Common Stock
selected by the Holder in writing as in effect at any time during the period beginning on the applicable Exercise Date and ending
on the applicable Share Delivery Date. Nothing shall limit the 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 (or to electronically deliver
such Warrant Shares) upon the exercise of this Warrant as required pursuant to the terms hereof. While this Warrant is outstanding,
the Company shall cause its transfer agent to participate in the DTC Fast Automated Securities Transfer Program. In addition to
the foregoing rights, if the Company fails to deliver the applicable number of Warrant Shares upon an exercise pursuant to Section
1 by the applicable Share Delivery Date, then the Holder shall have the right to rescind such exercise in whole or in part and
retain and/or have the Company return, as the case may be, any portion of this Warrant that has not been exercised pursuant to
such Exercise Notice; provided that the rescission of an exercise shall not affect the Company’s obligation to make
any payments that have accrued prior to the date of such notice pursuant to this Section 1(c) or otherwise, and (ii) if a registration
statement covering the resale of the Warrant Shares that are subject to an Exercise Notice is not available for the resale of
such Exercise Notice Warrant Shares and the Holder has submitted an Exercise Notice prior to receiving notice of the non-availability
of such registration statement and the Company has not already delivered the Warrant Shares underlying such Exercise Notice electronically
without any restrictive legend by crediting such aggregate number of Warrant Shares to which the Holder is entitled pursuant to
such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit / Withdrawal At Custodian
system, the Holder shall have the option, by delivery of notice to the Company, to (x) rescind such Exercise Notice in whole or
in part and retain or have returned, as the case may be, any portion of this Warrant that has not been exercised pursuant to such
Exercise Notice; provided that the rescission of an Exercise Notice shall not affect the Company’s obligation to
make any payments that have accrued prior to the date of such notice pursuant to this Section 1(c) or otherwise, and/or (y) switch
some or all of such Exercise Notice from a cash exercise to a Cashless Exercise.

 

    	 	- 3 -	 

    

    

 

(d)Cashless
Exercise.  Notwithstanding anything contained herein to the contrary, unless all of the Warrant Shares that are subject
to an Exercise Notice are registered for resale pursuant to an effective registration statement and are issuable without any restrictive
legends, the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment
otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead
to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula
(a “Cashless Exercise”):

Net
Number = (A x B) - (A x C)

D

 

For
purposes of the foregoing formula:

	 	A = 	the total number of shares with respect to which this
Warrant is then being exercised.
	 	 	 
	 	B = 	the arithmetic average of the Closing Sale Prices of
the Common Stock for the five (5) consecutive Trading Days ending on the date immediately preceding the date of the Exercise
Notice.
	 	 	 
	 	C = 	the Exercise Price then in effect for the applicable
Warrant Shares at the time of such exercise.
	 	 	 
	 	D
    =	as
applicable: (i) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the date of the applicable
Exercise Notice if such Exercise Notice is (1) both executed and delivered pursuant to Section 1(a) hereof on a day that
is not a Trading Day or (2) both executed and delivered pursuant to Section 1(d) hereof on a Trading Day prior to the opening
of “regular trading hours” (as defined in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities
laws) on such Trading Day, (ii) the Bid Price of the Common Stock as of the time of the Holder’s execution of the applicable
Exercise Notice if such Exercise Notice is executed during “regular trading hours” on a Trading Day and is delivered
within two (2) hours thereafter pursuant to Section 1(a) hereof, or (iii) the Closing Sale Price of the Common Stock on the
date of the applicable Exercise Notice if the date of such Exercise Notice is a Trading Day and such Exercise Notice is both executed
and delivered pursuant to Section 1(a) hereof after the close of “regular trading hours” on such Trading Day.

If
Warrant Shares are issued in such a cashless exercise, the Company acknowledges and agrees that in accordance with Section 3(a)(9)
of the Securities Act of 1933, as amended (the “1933 Act”), the Warrant Shares shall take on the characteristics
of the Warrants being exercised, and the holding period of the Warrants being exercised may be tacked on to the holding period
of the Warrant Shares. The Company agrees not to take any position contrary to this Section 1(d).

 

(e)Disputes.
In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance
with Section 11.

 

    	 	- 4 -	 

    

    

 

(f)Beneficial
Ownership. Notwithstanding anything to the contrary contained herein, the Company shall not effect the exercise of any portion
of this Warrant, and the Holder shall not have the right to exercise any portion of this Warrant, pursuant to the terms and conditions
of this Warrant and any such exercise shall be null and void and treated as if never made, to the extent that after giving effect
to such exercise, the Holder together with the other Attribution Parties collectively would beneficially own in excess of 9.99%
(the “Maximum Percentage”) of the number of shares of Common Stock outstanding immediately after giving effect
to such exercise. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by
the Holder and the other Attribution Parties shall include the number of shares of Common Stock held by the Holder and all other
Attribution Parties plus the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon
(A) exercise of the remaining, unexercised portion of this Warrant beneficially owned by the Holder or any of the other Attribution
Parties and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company (including,
without limitation, any convertible notes or convertible preferred stock or warrants, including the other SPA Warrants) beneficially
owned by the Holder or any other Attribution Party subject to a limitation on conversion or exercise analogous to the limitation
contained in this Section 1(f). For purposes of this Section 1(f), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”). For purposes of this Warrant,
in determining the number of outstanding shares of Common Stock the Holder may acquire upon the exercise of this Warrant without
exceeding the Maximum Percentage, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x)
the Company’s most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q and Current Reports on Form 8-K or other
public filing with the Securities and Exchange Commission (the “SEC”), as the case may be, (y) a more recent
public announcement by the Company or (3) any other written notice by the Company or the Transfer Agent setting forth the number
of shares of Common Stock outstanding (the “Reported Outstanding Share Number”). If the Company receives an
Exercise Notice from the Holder at a time when the actual number of outstanding shares of Common Stock is less than the Reported
Outstanding Share Number, the Company shall (i) notify the Holder in writing of the number of shares of Common Stock then outstanding
and, to the extent that such Exercise Notice would otherwise cause the Holder’s beneficial ownership, as determined pursuant
to this Section 1(f), to exceed the Maximum Percentage, the Holder must notify the Company of a reduced number of Warrant Shares
to be purchased pursuant to such Exercise Notice (the number of shares by which such purchase is reduced, the “Reduction
Shares”) and (ii) as soon as reasonably practicable, the Company shall return to the Holder any exercise price paid
by the Holder for the Reduction Shares. For any reason at any time, upon the written or oral request of the Holder, the Company
shall within one (1) Business Day confirm orally and in writing or by electronic mail to the Holder the number of shares of Common
Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect
to the conversion or exercise of securities of the Company, including this Warrant, by the Holder and any other Attribution Party
since the date as of which the Reported Outstanding Share Number was reported. In the event that the issuance of Common Stock
to the Holder upon exercise of this Warrant results in the Holder and the other Attribution Parties being deemed to beneficially
own, in the aggregate, more than the Maximum Percentage of the number of outstanding shares of Common Stock (as determined under
Section 13(d) of the 1934 Act), the number of shares so issued by which the Holder’s and the other Attribution Parties’
aggregate beneficial ownership exceeds the Maximum Percentage (the “Excess Shares”) shall be deemed null and
void and shall be cancelled ab initio, and the Holder shall not have the power to vote or to transfer the Excess Shares. As soon
as reasonably practicable after the issuance of the Excess Shares has been deemed null and void, the Company shall return to the
Holder the exercise price paid by the Holder for the Excess Shares. Upon delivery of a written notice to the Company, the Holder
may from time to time increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% as specified
in such notice; provided that (i) any such increase in the Maximum Percentage will not be effective until the sixty-first (61st)
day after such notice is delivered to the Company and (ii) any such increase or decrease will apply only to the Holder and the
other Attribution Parties and not to any other holder of Warrants that is not an Attribution Party of the Holder. For purposes
of clarity, the shares of Common Stock issuable pursuant to the terms of this Warrant in excess of the Maximum Percentage shall
not be deemed to be beneficially owned by the Holder for any purpose including for purposes of Section 13(d) or Rule 16a-1(a)(1)
of the 1934 Act. No prior inability to exercise this Warrant pursuant to this paragraph shall have any effect on the applicability
of the provisions of this paragraph with respect to any subsequent determination of exercisability. The provisions of this paragraph
shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 1(f) to the
extent necessary to correct this paragraph or any portion of this paragraph which may be defective or inconsistent with the intended
beneficial ownership limitation contained in this Section 1(f) or to make changes or supplements necessary or desirable to properly
give effect to such limitation. The limitation contained in this paragraph may not be waived and shall apply to a successor holder
of this Warrant.

 

    	 	- 5 -	 

    

    

 

(g)Required
Reserve Amount.  So long as this Warrant remains outstanding, the Company shall at all times keep reserved for issuance
under this Warrant a number of shares of Common Stock at least equal to 100% of the maximum number of shares of Common Stock as
shall be necessary to satisfy the Company’s obligation to issue shares of Common Stock under the Warrants then outstanding
(without regard to any limitations on exercise) (the “Required Reserve Amount”); provided that at no
time shall the number of shares of Common Stock reserved pursuant to this Section 1(g) be reduced other than in connection with
any exercise of Warrants or such other event covered by Section 2(c) below. The Required Reserve Amount (including, without
limitation, each increase in the number of shares so reserved) shall be allocated pro rata among the holders of the Warrants based
on the number of shares of Common Stock issuable upon exercise of Warrants held by each holder thereof on the Issuance Date (without
regard to any limitations on exercise) (the “Authorized Share Allocation”). In the event that a holder shall
sell or otherwise transfer any of such holder’s Warrants, each transferee shall be allocated a pro rata portion of such
holder’s Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to hold
any Warrants shall be allocated to the remaining holders of Warrants, pro rata based on the number of shares of Common Stock issuable
upon exercise of the Warrants then held by such holders thereof (without regard to any limitations on exercise).

(h)Insufficient
Authorized Shares. If at any time while this Warrant remains outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance the Required Reserve Amount
(an “Authorized Share Failure”), then the Company shall immediately take all action necessary to increase the
Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve
Amount for this Warrant then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after
the date of the occurrence of an Authorized Share Failure, but in no event later than seventy-five (75) days after the occurrence
of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the
number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each stockholder with
a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares
of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal. Notwithstanding
the foregoing, if any such time of an Authorized Share Failure, the Company is able to obtain the written consent of a majority
of the shares of its issued and outstanding shares of Common Stock to approve the increase in the number of authorized shares
of Common Stock, the Company may satisfy this obligation by obtaining such consent and submitting for filing with the SEC an Information
Statement on Schedule 14C.

2.ADJUSTMENT
OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price and the number of Warrant Shares shall be adjusted from
time to time as follows:

(a)Voluntary
Adjustment By Company. The Company may at any time during the term of this Warrant reduce the then current Exercise Price
to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

(b)Adjustment
Upon Subdivision or Combination of Common Stock. If the Company at any time on or after the Subscription Date subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock
into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced
and the number of Warrant Shares will be proportionately increased. If the Company at any time on or after the Subscription Date
combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into
a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased
and the number of Warrant Shares will be proportionately decreased. Any adjustment under this Section 2(b) shall become effective
at the close of business on the date the subdivision or combination becomes effective.

 

    	 	- 6 -	 

    

    

 

(c)Other
Events. If any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by
such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Company’s Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of Warrant Shares, as mutually determined by the Company’s Board of Directors and the Required Holders, so as
to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 2(c) will increase the Exercise
Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2.

3. RIGHTS
UPON DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant to Section 2 above, if, on or after the
Subscription Date and on or prior to the Expiration Date, the Company shall declare or make any dividend or other
distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of
capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property, options,
evidence of indebtedness or any other assets by way of a dividend, spin off, reclassification, corporate rearrangement,
scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of
this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent
that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon
complete exercise of this Warrant (without regard to any limitations or restrictions on exercise of this Warrant, including
without limitation, the Maximum Percentage) immediately before the date of which a record is taken for such Distribution, or,
if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the
participation in such Distribution (provided, however, that to the extent that the Holder’s right to
participate in any such Distribution would result in the Holder and the other Attribution Parties exceeding the Maximum
Percentage, then the Holder shall not be entitled to participate in such Distribution to such extent (and shall not be
entitled to beneficial ownership of such shares of Common Stock as a result of such Distribution (and beneficial ownership)
to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time
or times as its right thereto would not result in the Holder and the other Attribution Parties exceeding the
Maximum Percentage, at which time or times the Holder shall be granted such Distribution (and any Distributions declared or
made on such initial Distribution or on any subsequent Distribution held similarly in abeyance) to the same extent as if
there had been no such limitation).

4.PURCHASE
RIGHTS; FUNDAMENTAL TRANSACTIONS.

(a)Purchase
Rights. In addition to any adjustments pursuant to Section 2 above, if at any time on or after the Subscription Date and on
or prior to the Expiration Date the Company grants, issues or sells any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the “Purchase
Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon
complete exercise of this Warrant (without regard to any limitations or restrictions on exercise of this Warrant, including without
limitation, the Maximum Percentage) immediately before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined
for the grant, issuance or sale of such Purchase Rights (provided, however, that to the extent that the Holder’s
right to participate in any such Purchase Right would result in the Holder and the other Attribution Parties exceeding the Maximum
Percentage, then the Holder shall not be entitled to participate in such Purchase Right to such extent (and shall not be entitled
to beneficial ownership of such Common Stock as a result of such Purchase Right (and beneficial ownership) to such extent) and
such Purchase Right to such extent shall be held in abeyance for the benefit of the Holder until such time or times as its right
thereto would not result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times
the Holder shall be granted such right (and any Purchase Right granted, issued or sold on such initial Purchase Right or on any
subsequent Purchase Right to be held similarly in abeyance) to the same extent as if there had been no such limitation).

 

    	 	- 7 -	 

    

    

 

(b)The
Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes in writing all of the
obligations of the Company under this Warrant in accordance with the provisions of this Section 4(b), including agreements to
deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially
similar in form and substance to this Warrant, including, without limitation, which is exercisable for a corresponding number
of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which
applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares
of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such adjustments to the
number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant
immediately prior to the consummation of such Fundamental Transaction). Upon the consummation of each Fundamental Transaction,
the Successor Entity shall succeed to, and be substituted for (so that from and after the date of the applicable Fundamental Transaction,
the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead
to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the
Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation
of each Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon
exercise of this Warrant at any time after the consummation of the applicable Fundamental Transaction, in lieu of the shares of
Common Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 3 and 4(a)
above, which shall continue to be receivable thereafter)) issuable upon the exercise of this Warrant prior to the applicable Fundamental
Transaction, such shares of common stock (or its equivalent) of the Successor Entity (including its Parent Entity) which the Holder
would have been entitled to receive upon the happening of the applicable Fundamental Transaction had this Warrant been exercised
immediately prior to the applicable Fundamental Transaction (without regard to any limitations on the exercise of this Warrant),
as adjusted in accordance with the provisions of this Warrant. Notwithstanding the foregoing, and without limiting the provisions
of Section 1(f) hereof, the Holder may elect, at its sole option, by delivery of written notice to the Company to waive this Section
4(b) to permit the Fundamental Transaction without the assumption of this Warrant. In addition to and not in substitution for
any other rights hereunder, prior to the consummation of each Fundamental Transaction pursuant to which holders of shares of Common
Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “Corporate
Event”), the Company shall make appropriate provision to ensure that the Holder will thereafter have the right to receive
upon an exercise of this Warrant at any time after the consummation of the applicable Fundamental Transaction but prior to the
Expiration Date, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property (except such items
still issuable under Sections 3 and 4(a) above, which shall continue to be receivable thereafter)) issuable upon the exercise
of the Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights) (collectively, the “Corporate Event Consideration”)
which the Holder would have been entitled to receive upon the happening of the applicable Fundamental Transaction had this Warrant
been exercised immediately prior to the applicable Fundamental Transaction (without regard to any limitations on the exercise
of this Warrant). The provision made pursuant to the preceding sentence shall be in a form and substance reasonably satisfactory
to the Holder.

5.NONCIRCUMVENTION.
The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation or Bylaws,
or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issuance or sale
of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, and will at all times in good faith carry out all of the provisions of this Warrant and take all action as may be required
to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase
the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect,
(ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, so long as any of
the SPA Warrants are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares
of Common Stock, solely for the purpose of effecting the exercise of the SPA Warrants, the number of shares of Common Stock as
shall from time to time be necessary to effect the exercise of the SPA Warrants then outstanding (without regard to any limitations
on exercise).

 

    	 	- 8 -	 

    

    

 

6.WARRANT
HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, the Holder, solely in such Person’s
capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of capital stock
of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in
such Person’s capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to
vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock,
consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise,
prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise
of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to
purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities
are asserted by the Company or by creditors of the Company. Notwithstanding this Section 6, the Company shall provide the Holder
with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with
the giving thereof to the stockholders.

7.REISSUANCE
OF WARRANTS.

(a)Transfer
of Warrant. If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company
will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the
Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less
than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section
7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.

(b)Lost,
Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking
by the Holder to the Company in customary form (but without the obligation to post a bond) and, in the case of mutilation, upon
surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with
Section 7(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.

(c)Exchangeable
for Multiple Warrants. This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the
Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the
number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion
of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, that no
SPA Warrants for fractional Warrant Shares shall be given.

(d)Issuance
of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant
(i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to
purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a)
or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying
the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this
Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date,
and (iv) shall have the same rights and conditions as this Warrant.

8.NOTICES.
Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in writing,
(i) if delivered (a) from within the domestic United States, by first-class registered or certified airmail, or nationally recognized
overnight express courier, postage prepaid, electronic mail or by facsimile or (b) from outside the United States, by International
Federal Express, electronic mail or facsimile, and (ii) will be deemed given (A) if delivered by first-class registered or certified
mail domestic, three (3) Business Days after so mailed, (B) if delivered by nationally recognized overnight carrier, one (1) Business
Day after so mailed, (C) if delivered by International Federal Express, two (2) Business Days after so mailed and (D) if delivered
by electronic mail, when sent and (E) if delivered by facsimile, upon electronic confirmation of receipt of such facsimile, and
will be delivered and addressed as follows:

 

(i)if
to the Company, to:

 

Ener-Core,
Inc.

9400 Toledo Way

Irvine,
California 92618

Attention:Domonic J. Carney, Chief Financial Officer

Facsimile:(949)
616-3399

Email:
dj.carney@ener-core.com

 

    	 	- 9 -	 

    

    

 

(ii)
if to the Holder, at such address or other contact information delivered by the Holder to Company or as is on the books and
records of the Company.

The
Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable
detail a description of such action and the reason therefor. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail,
and certifying, the calculation of such adjustment and (ii) at least fifteen (15) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with
respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities
or other property pro rata to holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation; provided in each case that such information shall be made known to the public prior to
or in conjunction with such notice being provided to the Holder. It is expressly understood and agreed that the time of exercise
specified by the Holder in each Exercise Notice shall be definitive and may not be disputed or challenged by the Company.

9.AMENDMENT
AND WAIVER. Except as otherwise provided herein, the provisions of this Warrant may be amended or waived and the Company may
take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained
the written consent of the holder(s) of then-outstanding SPA Warrants exercisable for at least a majority of the shares of Common
Stock underlying such then-outstanding SPA Warrants.

10.GOVERNING
LAW; JURISDICTION; JURY TRIAL. This Warrant shall be governed by and construed and enforced in accordance with, and all questions
concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws
of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State
of New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The
City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is improper. The Company hereby irrevocably waives
personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof
to the Company at the address set forth in Section 8(i) above or such other address as the Company subsequently delivers to the
Holder and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein
shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other
jurisdiction to collect on the Company’s obligations to the Holder, to realize on any collateral or any other security for
such obligations, or to enforce a judgment or other court ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES
ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

    	 	- 10 -	 

    

    

11.DISPUTE
RESOLUTION. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic calculations via facsimile or electronic mail within
two (2) Business Days of receipt of the Exercise Notice or other event giving rise to such dispute, as the case may be, to the
Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the
Holder, then the Company shall, within two (2) Business Days submit via facsimile or electronic mail (a) the disputed determination
of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the
disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant. The Company shall
cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives the disputed
determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error.

12.REMEDIES,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Warrant shall be cumulative and in addition
to all other remedies available under this Warrant and any other Transaction Documents, at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual
damages for any failure by the Company to comply with the terms of this Warrant. The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate.
The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant shall be entitled,
in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.

13.RESTRICTIONS
ON TRANSFER; LEGEND. This Warrant and the Warrant Shares may be offered for sale, sold, transferred, pledged or assigned without
the consent of the Company.

(a)The
Holder understands that (i) the Warrant and Warrant Shares have not been and are not being registered under the 1933 Act or any
state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder,
(B) the Holder shall have delivered to the Company an opinion of counsel, in a generally acceptable form, to the effect that such
Warrant or Warrant Shares to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from
such registration, or (C) such Holder provides the Company with reasonable assurance that such Warrant or Warrant Shares can be
sold, assigned or transferred pursuant to Rule 144 or Rule 144A, as promulgated under the 1933 Act and then in effect (or a successor
rule thereto) (collectively, “Rule 144”); (ii) any sale of the Warrant or Warrant Shares made in reliance on
Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the Person) through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other Person is under any obligation to register the
Warrant or Warrant Shares under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption
thereunder, except to the extent provided in that certain Registration Rights Agreement dated as of the Issuance Date. Notwithstanding
the foregoing, the Warrant and Warrant Shares may be pledged in connection with a bona fide margin account or other loan or financing
arrangement secured by the Warrant and/or Warrant Shares and such pledge of the Warrant and/or Warrant Shares shall not be deemed
to be a transfer, sale or assignment of the Warrant or Warrant Shares hereunder, and no Holder effecting such a pledge shall be
required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Warrant.

 

(b)The
Holder understands that the stock certificates representing the Warrant Shares when issued, except as set forth below, shall bear
any legend as required by the “blue sky” laws of any state and a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of such stock certificates):

 

THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN FORM AND
SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT
TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SHARES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SHARES

 

    	 	- 11 -	 

    

    

 

 

The
legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Warrant
Shares upon which it is stamped or issue to such holder by electronic delivery at the applicable balance account at DTC, if, unless
otherwise required by state securities laws, (i) such Warrant Shares are registered for resale under the 1933 Act, (ii) in connection
with a sale, assignment or other transfer, such holder provides the Company with an opinion of counsel, in a generally acceptable
form, to the effect that such sale, assignment or transfer of the Warrant Shares may be made without registration under the applicable
requirements of the 1933 Act, or (iii) the Warrant Shares can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A.
The Company shall be responsible for the fees of its transfer agent and all DTC fees associated with such issuance. If the Company
shall fail for any reason or for no reason (other than failure of the Holder to comply with the provisions set forth in this paragraph)
to issue to the holder of the Warrant Shares within three (3) Trading Days after the occurrence of any of (i) through (iii) above,
a certificate without such legend to the holder or to issue such Warrant Shares to such holder by electronic delivery at the applicable
balance account at DTC, and if on or after such Trading Day the holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the holder of such Warrant Shares that the Holder anticipated receiving
without legend from the Company, then the Company shall, within three (3) Trading Days after the Holder’s request and in
the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so purchased (the “Legend Buy-In Price”),
at which point the Company’s obligation to deliver such unlegended Warrant Shares shall terminate, or (ii) promptly honor
its obligation to deliver to the holder such unlegended Warrant Shares as provided above and pay cash to the Holder in an amount
equal to the excess (if any) of the Legend Buy-In Price over the product of (A) such number of shares of Common Stock, times
(B) the Closing Bid Price on the date of the occurrence of any of clauses (i) through (iii), as applicable. In addition, the Company
shall cause its legal counsel to issue a legal opinion to the Transfer Agent, if required by the Company or such Transfer Agent,
to effect the removal of the restrictive legends hereunder, at such time as the Warrant Shares may be sold pursuant to Rule 144
or an effective registration statement, provided that, with respect to legend removal in reliance upon the availability
of Rule 144, the Holder provides the Company and such legal counsel with such information as may be reasonably required by such
legal counsel that provides reasonable assurance that the Warrant Shares can be sold assigned or transferred pursuant to Rule
144 as of the date in question.

 

14.SEVERABILITY;
CONSTRUCTION; HEADINGS.If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or
unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable
shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability
of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified
continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the
prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred
upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s)
with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable
provision(s). This Warrant shall be deemed to be jointly drafted by the Company and all the Buyers and shall not be construed
against any Person as the drafter hereof. The headings of this Warrant are for convenience of reference and shall not form part
of, or affect the interpretation of, this Warrant.

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

 

    	 	- 12 -	 

    

    

 

16.CERTAIN
DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:

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

(b)“Attribution
Parties” means, collectively, the following Persons and entities: (i) any investment vehicle, including, any funds,
feeder funds or managed accounts, currently, or from time to time after the Subscription Date, directly or indirectly managed
or advised by the Holder’s investment manager or any of its Affiliates or principals, (ii) any direct or indirect Affiliates
of the Holder or any of the foregoing, (iii) any Person acting or who could be deemed to be acting as a Group together with the
Holder or any of the foregoing and (iv) any other Persons whose beneficial ownership of the Company’s Common Stock would
or could be aggregated with the Holder’s and the other Attribution Parties for purposes of Section 13(d) of the 1934 Act.
For clarity, the purpose of the foregoing is to subject collectively the Holder and all other Attribution Parties to the Maximum
Percentage.

(c)
“Bid Price” means, for any security as of the particular time of determination, the bid price for such security
on the Principal Market as reported by Bloomberg as of such time of determination, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg as of such time of determination, or if the foregoing
does not apply, the bid price of such security in the over-the-counter market on the electronic bulletin board for such security
as reported by Bloomberg as of such time of determination, or, if no bid price is reported for such security by Bloomberg as of
such time of determination, the average of the bid prices of any market makers for such security as reported in the “pink
sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC) as of such time of determination. If the Bid Price cannot be
calculated for a security as of the particular time of determination on any of the foregoing bases, the Bid Price of such security
as of such time of determination shall be the fair market value as mutually determined by the Company and the Holder. If the Company
and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance
with the procedures in Section 11. All such determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during such period.

(d)“Bloomberg”
means Bloomberg Financial Markets.

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

(f)“Change
of Control” means any Fundamental Transaction other than (i) any reorganization, recapitalization or reclassification
of the Common Stock in which holders of the Company’s voting power immediately prior to such reorganization, recapitalization
or reclassification continue after such reorganization, recapitalization or reclassification to hold publicly traded securities
and, directly or indirectly, are, in all material respect, the holders of the voting power of the surviving entity (or entities
with the authority or voting power to elect the members of the board of directors (or their equivalent if other than a corporation)
of such entity or entities) after such reorganization, recapitalization or reclassification, (ii) pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of the Company or (iii) a merger in connection with
a bona fide acquisition by the Company of any Person in which (x) the gross consideration paid, directly or indirectly, by the
Company in such acquisition is not greater than 20% of the Company’s market capitalization as calculated on the date of
the consummation of such merger and (y) such merger does not contemplate a change to the identity of a majority of the board of
directors of the Company. Notwithstanding anything herein to the contrary, any transaction or series of transaction that, directly
or indirectly, results in the Company or the Successor Entity not having Common Stock or common stock, as applicable, registered
under the 1934 Act and quoted or listed on an Eligible Market shall be deemed a Change of Control.

 

    	 	- 13 -	 

    

    

 

(g)“Closing
Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid
price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if
the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing
trade price, as the case may be, then the last bid price or the last trade price, respectively, of such security prior to 4:00:00
p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities
exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply,
the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported
for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such
security as reported in the OTC Link or “pink sheets” by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.).
If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing
bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market
value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market
value of such security, then such dispute shall be resolved pursuant to Section 11. All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination, reclassification or other similar transaction during the applicable
calculation period.

(h)“Common
Stock” means (i) the Company’s Common Stock, par value $0.0001 per share, and (ii) any capital stock
into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock.

(i)“Convertible
Securities” means any stock or securities (other than Options) directly or indirectly convertible into or exercisable
or exchangeable for shares of Common Stock.

(j)“Eligible
Market” means the Principal Market, The NASDAQ Capital Market, the NYSE MKT LLC, The NASDAQ Global Select Market, The
NASDAQ Global Market or The New York Stock Exchange, Inc.

(k)
“Expiration Date” means the date sixty (60) months after the Issuance Date or, if such date falls on a day
other than a Business Day or on which trading does not take place on the Principal Market (a “Holiday”), the
next day that is not a Holiday.

(l)“Fundamental
Transaction” means (A) that the Company shall, directly or indirectly, including through subsidiaries, Affiliates or
otherwise, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving
corporation) another Subject Entity, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of
the properties or assets of the Company or any of its “significant subsidiaries” (as defined in Rule 1-02 of Regulation
S-X) to one or more Subject Entities, or (iii) make, or allow one or more Subject Entities to make, or allow the Company to be
subject to or have its shares of Common Stock be subject to or party to one or more Subject Entities making, a purchase, tender
or exchange offer that is accepted by the holders of at least either (x) 50% of the outstanding shares of Common Stock, (y) 50%
of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all Subject Entities making or party
to, or Affiliated with any Subject Entities making or party to, such purchase, tender or exchange offer were not outstanding;
or (z) such number of shares of Common Stock such that all Subject Entities making or party to, or Affiliated with any Subject
Entity making or party to, such purchase, tender or exchange offer, become collectively the beneficial owners (as defined in Rule
13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (iv) consummate a stock purchase agreement
or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement)
with one or more Subject Entities whereby all such Subject Entities, individually or in the aggregate, acquire, either (x) at
least 50% of the outstanding shares of Common Stock, (y) at least 50% of the outstanding shares of Common Stock calculated as
if any shares of Common Stock held by all the Subject Entities making or party to, or Affiliated with any Subject Entity making
or party to, such stock purchase agreement or other business combination were not outstanding; or (z) such number of shares of
Common Stock such that the Subject Entities become collectively the beneficial owners (as defined in Rule 13d-3 under the 1934
Act) of at least 50% of the outstanding shares of Common Stock, or (v) reorganize, recapitalize or reclassify its shares of Common
Stock, (B) that the Company shall, directly or indirectly, including through subsidiaries, Affiliates or otherwise, in one or
more related transactions, allow any Subject Entity individually or the Subject Entities in the aggregate to be or become the
“beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, whether through acquisition,
purchase, assignment, conveyance, tender, tender offer, exchange, reduction in outstanding shares of Common Stock, merger, consolidation,
business combination, reorganization, recapitalization, spin-off, scheme of arrangement, reorganization, recapitalization or reclassification
or otherwise in any manner whatsoever, of either (x) at least 50% of the aggregate ordinary voting power represented by issued
and outstanding shares of Common Stock, (y) at least 50% of the aggregate ordinary voting power represented by issued and outstanding
shares of Common Stock not held by all such Subject Entities as of the Subscription Date calculated as if any shares of Common
Stock held by all such Subject Entities were not outstanding, or (z) a percentage of the aggregate ordinary voting power represented
by issued and outstanding shares of Common Stock or other equity securities of the Company sufficient to allow such Subject Entities
to effect a statutory short form merger or other transaction requiring other stockholders of the Company to surrender their Common
Stock without approval of the stockholders of the Company or (C) directly or indirectly, including through subsidiaries, Affiliates
or otherwise, in one or more related transactions, the issuance of or the entering into any other instrument or transaction structured
in a manner to circumvent, or that circumvents, the intent of this definition in which case this definition shall be construed
and implemented in a manner otherwise than in strict conformity with the terms of this definition to the extent necessary to correct
this definition or any portion of this definition which may be defective or inconsistent with the intended treatment of such instrument
or transaction.

 

    	 	- 14 -	 

    

    

 

(m)“Group”
means a “group” as that term is used in Section 13(d) of the 1934 Act and as defined in Rule 13d-5 thereunder.

(n)“Options”
means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

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

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

(q)“Principal
Market” means the OTCQB, unless and until the Company lists its Common Stock on another Eligible Market, at which time
such Eligible Market shall become the Principal Market for purposes of this Warrant.

(r)“Required
Holders” means the holders of the SPA Warrants representing at least a majority of the aggregate shares of Common Stock
underlying the SPA Warrants then outstanding.

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

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

 

    	 	- 15 -	 

    

    

 

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

(v)“Transaction
Documents” means any agreement entered into by and between the Company and the Holder, as applicable.

(w)“Weighted
Average Price” means, for any security as of any date, the dollar volume-weighted average price for such security on
the Principal Market during the period beginning at 9:30:01 a.m., New York time (or such other time as the Principal Market publicly
announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as the Principal Market
publicly announces is the official close of trading), as reported by Bloomberg through its “Volume at Price” function
or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market
on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time (or such other time
as such market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time
as such market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar volume-weighted
average price is reported for such security by Bloomberg for such hours, the average of the highest Closing Bid Price and the
lowest closing ask price of any of the market makers for such security as reported in the OTC Link or “pink sheets”
by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.). If the Weighted Average Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the
fair market value of such security, then such dispute shall be resolved pursuant to Section 11 with the term “Weighted Average
Price” being substituted for the term “Exercise Price.” All such determinations shall be appropriately adjusted
for any stock dividend, stock split, stock combination, reclassification or other similar transaction during the applicable calculation
period.

[Signature
Page Follows]

 

    	 	- 16 -	 

    

    

 

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

 

		ENER-CORE,
    INC.
	 	 	 
	 	By:	               
	 	Name:	 
	 	Title:	 

 

 

    Signature
Page to Warrant

    

    

 

EXHIBIT
A

 

EXERCISE
NOTICE

TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT
TO PURCHASE COMMON STOCK

 

ENER-CORE,
INC.

 

The
undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“Warrant Shares”)
of Ener-Core, Inc., a company incorporated under the laws of Delaware (the “Company”), evidenced by the attached
Warrant to Purchase Common Stock (the “Warrant”). Capitalized terms used herein and not otherwise defined shall
have the respective meanings set forth in the Warrant.

 

1.
Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as:

 

____________a
“Cash Exercise” with respect to _________________ Warrant Shares; and/or

 

____________a
“Cashless Exercise” with respect to _______________ Warrant Shares.

 

2.
Payment of Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant
Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the
Company in accordance with the terms of the Warrant.

 

3.
Delivery of Warrant Shares. The Company shall deliver to the holder __________ Warrant Shares in accordance with the terms of
the Warrant.

 

Date:
_______________ __, ______

 

	 	 
	Name of Registered Holder	 
	 	 	 
	By:	 	 
	 	Name:	 
	 	Title:	 

 

     

    

    

 

ACKNOWLEDGMENT

 

The
Company hereby acknowledges this Exercise Notice and hereby directs VStock Transfer, LLC to issue the above indicated number of
shares of Common Stock on or prior to the applicable Share Delivery Date.

 

		ENER-CORE,
    INC.
	 	 
	 	By:	                
	 	Name:	 
	 	Title:

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