Exhibit 10.1

BACKSTOP SECURITY SUPPORT AGREEMENT

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

RECITALS

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

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

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

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

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

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

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

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

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

EXHIBIT A

FORM OF WARRANT

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

ENER-CORE, INC.

WARRANT

Ener-Core, Inc. , a Delaware corporation (the “ Company ”), hereby certifies that, for value received, or its registered assigns (the “ Holder ”), is entitled to purchase from the Company up to a total of 74,000 shares of Common Stock (each such share, a “Warrant Share” and all such shares, the “ Warrant Shares ”), at any time and from time to time from and after __________ __, 201_ (the “ Commencement Date ”), and through and including the date of the expiration of five years beginning on the Commencement Date (the “ Expiration Date ”), and subject to the following terms and conditions:

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

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

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

“ Common Stock ” means the common stock of the Company, $0.0001 par value per share, and any securities into which such common stock may hereafter be reclassified or for which it may be exchanged as a class.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4.           Exercise and Duration of Warrants . This Warrant shall be exercisable by the registered Holder at any time and from time to time from and after the date of the expiration of twelve calendar months beginning on the Commencement Date, and through and including the Expiration Date. At 5:30 p.m., New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value. The Company may not call or redeem any portion of this Warrant without the prior written consent of the affected Holder.

(a)           To effect exercises hereunder, the Holder shall not be required to physically surrender this Warrant unless all of the Warrant Shares then represented by this Warrant are being exercised. Upon delivery of the Exercise Notice (in the form attached hereto) to the Company (with the attached Warrant Shares Exercise Log) at its address for notice set forth herein and upon (i) payment of the Exercise Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder or (ii) effecting a net issue exercise as provided for in Section 10(b), the Company shall promptly (but in no event later than three Trading Days after the Date of Exercise (as defined herein)) issue and deliver to the Holder, a certificate for the Warrant Shares issuable upon such exercise. The Company shall, upon request of the Holder and subsequent to the date on which a registration statement covering the resale of the Warrant Shares has been declared effective by the Securities and Exchange Commission, use its reasonable best efforts to deliver Warrant Shares hereunder electronically through the Depository Trust & Clearing Corporation or another established clearing corporation performing similar functions, if available, provided , that, the Company may, but will not be required to change its transfer agent if its current transfer agent cannot deliver Warrant Shares electronically through the Depository Trust Corporation. A “ Date of Exercise ” means the date on which the Holder shall have delivered to the Company: (i) the Exercise Notice (with the Warrant Exercise Log attached to it), appropriately completed and duly signed and (ii) payment of the Exercise Price for the number of Warrant Shares so indicated by the Holder to be purchased.

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

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

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

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

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

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

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

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

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

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

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

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

10.         Payment of Exercise Price .

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

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

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

12.          Notices . Any and all notices or other communications or deliveries hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 5:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be: (i) if to the Company, to 9400 Toledo Way, Irvine, CA 92618, Attn: Chief Executive Officer, or to Facsimile No.: (949) 616-3399 (or such other address as the Company shall indicate in writing in accordance with this Section), or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant Register or such other address or facsimile number as the Holder may provide to the Company in accordance with this Section.

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

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

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

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

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

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

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SIGNATURE PAGE FOLLOWS]

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

EXERCISE NOTICE

ENER-CORE, INC.

WARRANT DATED__________________ __, 201_

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

ENER-CORE, INC.

WARRANT DATED ________ __, 201_

WARRANT NO. ______________
 

FORM OF ASSIGNMENT

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

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

EXHIBIT B

FORM OF SECURITY AGREEMENT  

SECURITY AGREEMENT

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

RECITALS

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

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

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

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

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

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

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

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

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

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

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

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

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

f.       All investment property;

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

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

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

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

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

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

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

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

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

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

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

2.4.          Express Waivers . Debtor hereby expressly waives:

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

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

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

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

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

3.1.         Debtor warrants, represents, and covenants that:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

c.      Accept any type of further security therefor.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

B-13

Exhibit 10.2

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (the " Agreement ") is made as of November 2, 2015, by and between Anthony Tang, a natural person (or, subject to the reasonable approval of Debtor, which approval will be unreasonably withheld or delayed, by an affiliate of Anthony Tang; referred to herein, with respect to such natural person or affiliate, as the case may be, “ Secured Party ”) and Ener-Core, Inc., a Delaware corporation (“ Debto r”). Capitalized terms used herein but not otherwise defined in this Agreement shall have the meaning assigned to such terms in the Backstop Support Agreement (as defined below).

RECITALS

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

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

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

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

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

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

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

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

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

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

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

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

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

f.       All investment property;

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

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

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

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

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

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

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

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

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

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

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

2.4.       Express Waivers . Debtor hereby expressly waives:

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

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

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

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

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

3.1.      Debtor warrants, represents, and covenants that:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

c.      Accept any type of further security therefor.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

B-12

Exhibit 10.3

SUBORDINATION AND INTERCREDITOR AGREEMENT

THIS SUBORDINATION AND INTERCREDITOR AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof, this " Agreement ") is entered into as of November 2, 2015, by and among Anthony Tang (the " Subordinated Creditor "), Ener-Core, Inc., a Delaware corporation (" Borrower "), and Empery Tax Efficient, LP in its capacity as collateral agent for the Senior Lenders (as defined below) (together with its successors and assigns, the " Agent ").

R E C I T A L S

A.           Borrower, Agent and Senior Lenders (as hereinafter defined) have entered into (i) a Securities Purchase Agreement dated as of April 22, 2015 and (ii) a Securities Purchase Agreement dated as of May 7, 2015 (collectively, as the same may be amended, restated, supplemented or otherwise modified from time to time, the " Senior Agreements ") pursuant to which, among other things, Senior Lenders have agreed, subject to the terms and conditions set forth in the Senior Agreements, to purchase senior secured notes from Borrower. All of (i) Borrower's obligations to Agent and Senior Lenders under the Senior Agreements and the other Senior Debt Documents, and (ii) the obligations of Ener-Core Power, Inc., a Delaware corporation (the " Guarantor "), to Agent and Senior Lenders under the Guaranty dated as of April 23, 2015 (as amended prior to the date hereof and as the same may be further amended, restated, supplemented or otherwise modified from time to time, the " Senior Guaranty ") are secured by liens on and security interests in substantially all of the now existing and hereafter acquired real and personal property of the Borrower and the Grantor (the " Collateral ").

B.           Borrower and the Subordinated Creditor have entered into that certain Backstop Security Support Agreement of even date herewith (as the same may be amended, restated, supplemented or otherwise modified from time to time as permitted hereunder, the " Subordinated Support Agreement "), pursuant to which Subordinated Creditor may extend credit to Borrower in the aggregate principal amount not to exceed $2,100,000.

C.           As an inducement to and as one of the conditions precedent to the agreement of Agent and Senior Lenders to approve the transactions contemplated by the Subordinated Support Agreement, Agent and Senior Lenders have required the execution and delivery of this Agreement by Subordinated Creditor and the Credit Parties (as hereinafter defined) in order to set forth the relative rights and priorities of Agent, Senior Lenders and Subordinated Creditor under the Senior Debt Documents and the Subordinated Debt Documents (as defined below).

NOW, THEREFORE, in order to induce Agent and Senior Lenders to consummate the transactions contemplated by the Senior Agreements, and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto hereby agree as follows:

1.             Definitions . The following terms shall have the following meanings in this Agreement:

" Bankruptcy Code " shall mean the provisions of Title 11 of the United States Code, as amended from time to time and any successor statute and all rules and regulations promulgated thereunder.

" Credit Parties " shall mean, collectively, Borrower, Guarantor and each other subsidiary, and any guarantor or obligor of all or any portion of the Senior Debt and/or the Subordinated Debt.

" Distribution " shall mean, with respect to any indebtedness, obligation or security (a) any payment or distribution by any Credit Party of cash, securities or other property, by set-off or otherwise, on account of such indebtedness, obligation or security, (b) any redemption, purchase or other acquisition of such indebtedness, obligation or security by any Credit Party or (c) the granting of any lien or security interest to or for the benefit of the holders of such indebtedness, obligation or security in or upon any property or interests in property of any Credit Party.

" Enforcement Action " shall mean (a) to take from or for the account of any Credit Party, by set-off or in any other manner, the whole or any part of any moneys which may now or hereafter be owing by any Credit Party with respect to the Subordinated Debt (other than receipt of Permitted Subordinated Debt Payments to the extent permitted under Section 2.3 ), (b) to sue for payment of, or to initiate or participate with others in any suit, action or proceeding against any Credit Party to (i) enforce payment of or to collect the whole or any part of the Subordinated Debt or (ii) commence judicial enforcement of any of the rights and remedies under the Subordinated Debt Documents or applicable law with respect to the Subordinated Debt, including, without limitation, the commencement of a Proceeding, (c) to accelerate the Subordinated Debt (if applicable), (d) to exercise any put option or to cause any Credit Party to honor any redemption or mandatory prepayment obligation under any Subordinated Debt Document, (e) to take any action under the provisions of any state or federal law, including, without limitation, the Uniform Commercial Code, or under any contract or agreement, to enforce, foreclose upon, take possession of or sell any property or assets of any Credit Party, including the Collateral, (f) to notify account debtors or directly collect accounts receivable or other payment rights of any Credit Party or (g) to exercise in any other manner any remedies with respect to the Subordinated Debt set forth in any Subordinated Debt Document or that otherwise might be available to Subordinated Creditor at law, in equity, pursuant to judicial proceeding or otherwise.

" Paid in Full " or " Payment in Full " shall mean the payment in full in cash of all Senior Debt and termination of all commitments to lend under the Senior Debt Documents.

" Permitted Refinancing " shall mean any refinancing of the Senior Debt under the Senior Loan Documents, provided that the financing documentation entered into by the Credit Parties in connection with such Permitted Refinancing constitutes Permitted Refinancing Senior Debt Documents.

" Permitted Refinancing Senior Debt Documents " shall mean any financing documentation which replaces the Senior Loan Documents and pursuant to which the Senior Debt under the Senior Loan Documents is refinanced, as such financing documentation may be amended, restated, supplemented or otherwise modified from time to time in compliance with this Agreement.

" Permitted Subordinated Debt Payments " shall mean all fees payable by Borrower to Subordinated Creditor under Section 3 of the Subordinated Support Agreement, each as and when due and payable, and all payments of expenses and fees in the ordinary course under the Subordinated Debt Documents, all in accordance with the terms of the Subordinated Debt Documents as in effect on the date hereof or as modified in accordance with the terms of this Agreement, and all subject to the restrictions set forth in Section 2.3(a) below.

" Person " shall mean any natural person, corporation, general or limited partnership, limited liability company, firm, trust, association, government, governmental agency or other entity, whether acting in an individual, fiduciary or other capacity.

" Proceeding " shall mean any voluntary or involuntary insolvency, bankruptcy, receivership, custodianship, liquidation, dissolution, reorganization, assignment for the benefit of creditors, appointment of a custodian, receiver, trustee or other officer with similar powers or any other proceeding for the liquidation, dissolution or other winding up of a Person, whether initiated under the Bankruptcy Code or any other similar federal or state statute.

" Reorganization Subordinated Security " shall mean any debt or equity securities of any Credit Party that are distributed to Subordinated Creditor in respect of the Subordinated Debt pursuant to a confirmed plan of reorganization or adjustment and that (a) are subordinated in right of payment to the Senior Debt (or any debt or equity securities issued in substitution of all or any portion of the Senior Debt) to at least the same extent as the Subordinated Debt is subordinated to the Senior Debt, (b) do not have the benefit of any obligation of any Person (whether as issuer, guarantor or otherwise) unless the Senior Debt has at least the same benefit of the obligation of such Person and (c) do not have any terms, and are not subject to or entitled to the benefit of any agreement or instrument that has terms, that are more burdensome to the issuer of or other obligor on such debt or equity securities than are the terms of the Senior Debt.

" Senior Debt " shall mean all obligations, liabilities and indebtedness of every nature of each Credit Party from time to time owed to Agent or any Senior Lender under the Senior Debt Documents, including, without limitation, the principal amount of all debts, claims and indebtedness, accrued and unpaid interest accruing thereon (including, without limitation, interest accruing after the commencement of a Proceeding, without regard to whether or not such interest is an allowed claim) and all fees, costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and from time to time hereafter owing, due or payable, whether before or after the filing of a Proceeding under the Bankruptcy Code.

" Senior Debt Documents " shall mean the Senior Loan Documents and, after the consummation of any Permitted Refinancing, the Permitted Refinancing Senior Debt Documents.

" Senior Default " shall mean any default or event of default under any Senior Debt Document.

" Senior Default Notice " shall mean a written notice from Agent to Subordinated Creditor pursuant to which Subordinated Creditor is notified of the occurrence of a Senior Default, which notice incorporates a reasonably detailed description of such Senior Default and states that such notice is a "Senior Default Notice" for purposes of this Agreement.

" Senior Lenders " shall mean the holders of the Senior Debt, and shall include, without limitation, the "Buyers", as such term is defined in each of the Senior Agreements.

" Senior Loan Documents " shall mean the Senior Agreements, the Senior Guaranty and all other agreements, documents and instruments executed from time to time in connection therewith, including, without limitation, the senior secured notes issued pursuant to the Senior Agreements, as the same may be amended, restated, supplemented or otherwise modified from time to time, as permitted hereunder.

" Subordinated Debt " shall mean all of the obligations, liabilities and indebtedness of each Credit Party to the Subordinated Creditor evidenced by or incurred pursuant to the Subordinated Debt Documents.

" Subordinated Debt Default " shall mean a default in the payment of the Subordinated Debt or in the performance of any term, covenant or condition contained in the Subordinated Debt Documents or any other occurrence permitting the Subordinated Creditor to accelerate the payment of, put or cause the redemption of (to the extent applicable), all or any portion of the Subordinated Debt or any Subordinated Debt Document.

" Subordinated Debt Default Notice " shall mean a written notice from Subordinated Creditor to Agent pursuant to which Agent is notified of the occurrence of a Subordinated Debt Default, which notice incorporates a reasonably detailed description of such Subordinated Debt Default and states that such notice is a "Subordinated Debt Default Notice" for purposes of this Agreement.

" Subordinated Debt Documents " shall mean the Subordinated Support Agreement any other guaranties with respect to the Subordinated Debt and all other documents, agreements and instruments now existing or hereinafter entered into evidencing or pertaining to all or any portion of the Subordinated Debt, excluding the Warrant (as defined in the Subordinated Support Agreement).

2.             Subordination .

2.1.          Subordination of Subordinated Debt to Senior Debt . Each Credit Party covenants and agrees, and the Subordinated Creditor hereby covenants and agrees and by the Subordinated Creditor's acceptance of the Subordinated Debt Documents (whether upon original issue or upon transfer or assignment) likewise covenants and agrees, notwithstanding anything to the contrary contained in any of the Subordinated Debt Documents, that the payment of any and all of the Subordinated Debt shall be subordinate and subject in right and time of payment, to the extent and in the manner hereinafter set forth, to the Payment in Full of all Senior Debt. Each holder of Senior Debt, whether now outstanding or hereafter created, incurred, assumed or guaranteed, shall be deemed to have acquired Senior Debt in reliance upon the provisions contained in this Agreement.

2.2.          Liquidation, Dissolution, Bankruptcy . In the event of any Proceeding involving any Credit Party:

(a)          All Senior Debt shall first be Paid in Full before any Distribution, whether in cash, securities or other property, shall be made to Subordinated Creditor on account of Subordinated Debt (other than a Distribution of Reorganization Subordinated Securities).

(b)          Any Distribution, whether in cash, securities or other property which would otherwise, but for the terms hereof, be payable or deliverable in respect of the Subordinated Debt (other than a Distribution of Reorganization Subordinated Securities) shall be paid or delivered directly to Agent (to be held and/or applied by Agent in accordance with the terms of the Senior Debt Documents) until all Senior Debt is Paid in Full. The Subordinated Creditor irrevocably authorizes, empowers and directs any debtor, debtor in possession, receiver, trustee, liquidator, custodian, conservator or other Person having authority, to pay or otherwise deliver all such Distributions to Agent, for the benefit of the Senior Lenders, for application to the Senior Debt until Payment in Full of all Senior Debt. The Subordinated Creditor also irrevocably authorizes and empowers Agent, in the name of Subordinated Creditor, to demand, sue for, collect and receive any and all such Distributions.

(c)          The Subordinated Creditor agrees not to initiate, prosecute or participate in any claim, action or other proceeding challenging the enforceability, validity, perfection or priority of the Senior Debt or any liens and security interests securing the Senior Debt.

(d)          The Subordinated Creditor hereby irrevocably authorizes, empowers and appoints Agent its agent and attorney-in-fact to execute, verify, deliver and file such proofs of claim in respect of the Subordinated Debt upon the failure of Subordinated Creditor promptly to do so prior to ten (10) days before the expiration of the time to file any such proof of claim. Agent shall have no obligation to execute, verify, deliver and/or file any such proof of claim.

(e)          The Subordinated Creditor will be deemed to have irrevocably, absolutely and unconditionally consented under Section 363 of the Bankruptcy Code (and otherwise) to any sale or other disposition of any Collateral (i) to a third party unaffiliated with any holder of the Senior Debt, or (ii) pursuant to an auction process or public sale process, and to have released its liens on any such Collateral. The Subordinated Creditor also irrevocably authorizes and empowers Agent, in the name of the Subordinated Creditor, to vote in favor of any such sale or other disposition.

(f)           The Senior Debt shall continue to be treated as Senior Debt and the provisions of this Agreement shall continue to govern the relative rights and priorities of Senior Lenders and Subordinated Creditor even if all or part of the Senior Debt or the security interests securing the Senior Debt are subordinated, set aside, avoided, invalidated or disallowed in connection with any such Proceeding, and this Agreement shall be reinstated if at any time any payment of any of the Senior Debt is rescinded or must otherwise be returned by any holder of Senior Debt or any representative of such holder.

2.3.          Subordinated Debt Payment Restrictions .

(a)          Notwithstanding the terms of the Subordinated Debt Documents, each Credit Party hereby agrees that it may not make, and the Subordinated Creditor hereby agrees that it will not accept, any Distribution with respect to the Subordinated Debt until the Senior Debt is Paid in Full, except as otherwise provided herein. Notwithstanding the immediately preceding sentence, subject to the terms of Section 2.2 , the Credit Parties may make, and the Subordinated Creditor may accept, Permitted Subordinated Debt Payments (or portion thereof); provided, however, that with respect to any Permitted Subordinated Debt Payment pursuant to Section 3(e) of the Subordinated Support Agreement (or portion thereof), each Credit Party and the Subordinated Creditor further agree that no such Permitted Subordinated Debt Payment may be made by any Credit Party or accepted by Subordinated Creditor if, either at the time of such payment or after giving effect thereto, both subclauses 2.3(a)(i) and 2.3(a) (ii) below are both not met; provided , further , that with respect to any Permitted Subordinated Debt Payment other than pursuant to Section 3(e) thereof, each Credit Party and the Subordinated Creditor further agree that no such Permitted Subordinated Debt Payment may be made by any Credit Party or accepted by Subordinated Creditor if, either at the time of such payment or after giving effect thereto, subclause 2.3(a)(i) below is not met. For purposes of this Section 2.3(a), subclauses (i) and (ii) are as follows, respectively:

(i)            a Senior Default exists and such Senior Default shall not have been cured or waived; or

(ii)           immediately after giving effect to such Permitted Subordinated Debt Payment (or portion thereof), Borrower shall not have cash on hand (as evidenced in a manner acceptable to Agent) in an amount equal to at least 110% of the amount of all remaining principal payments, interest payments and other payments that are or may become due and payable under the Senior Debt Documents (as such amounts are reasonably determined by the Agent).

(b)          The Credit Parties may resume Permitted Subordinated Debt Payments (and may make any Permitted Subordinated Debt Payments missed due to the application of paragraph (a) of this Section 2.3 ) in respect of the Subordinated Debt or any judgment with respect thereto:

(i)            in the case of a Senior Default referred to in clause (i) of paragraph (a) of this Section 2.3 , upon a cure or waiver thereof; or

(ii)           in the case of the failure of cash on hand to exceed the amount required in clause (ii) of paragraph (a) of this subsection 2.3, upon, immediately after giving effect to such Permitted Subordinated Debt Payment, Borrower shall have cash on hand (as evidenced in a manner acceptable to Agent) in an amount equal to the sum of (i) the amount of Permitted Subordinated Debt Payments contemplated to be paid and (ii) at least 110% of the amount of all remaining principal payments, interest payments and other payments that are or may become due and payable under the Senior Debt Documents.

(c)          No Senior Default shall be deemed to have been waived for purposes of this Section 2.3 unless and until the Credit Parties shall have received a written waiver from Agent or all Senior Lenders (or such lower percentage of Senior Lenders as is required under the Senior Debt Documents).

2.4.          Subordinated Debt Standstill Provisions .

(a)          Until the Senior Debt is Paid in Full, Subordinated Creditor shall not, without the prior written consent of Agent, take any Enforcement Action with respect to the Subordinated Debt, until the earliest to occur of the following:

(i)           the passage of ninety (90) days from the delivery of a Subordinated Debt Default Notice to Agent if any Subordinated Debt Default described therein shall not have been cured or waived within such period; provided, however, that Subordinated Creditor shall not deliver to Agent a Subordinated Debt Default Notice involving a failure by Borrower to pay fees due under one or more of Sections 3(a)-(d) and 3(f) of the Subordinated Support Agreement unless and until the unpaid outstanding fees are at least six months past due and total at least $100,000; and provided further, however, that Subordinated Creditor shall not deliver to Agent a Subordinated Debt Default Notice involving a failure by Borrower to make a payment due under Section 3(e) of the Subordinated Support Agreement unless and until the unpaid outstanding payments under such Section 3(e) total at least $500,000; or

(ii)           the commencement of any Proceeding under the Bankruptcy Code with respect to any Credit Party.

Notwithstanding the foregoing, (i) if Agent or any Senior Lender shall have commenced or joined any Enforcement Action, Subordinated Creditor shall not commence or continue any Enforcement Action with respect to any Collateral so long as Agent or such Senior Lender is pursuing such Enforcement Action in good faith, and (ii) subject to the provisions of Section 2.2(d) , the Subordinated Creditor may file proofs of claim against any Credit Party in any Proceeding involving such Credit Party. Any Distributions (other than Permitted Subordinated Debt Payments made in compliance with the terms hereof) or other proceeds of any Enforcement Action obtained by Subordinated Creditor shall in any event be held in trust by it for the benefit of Agent and Senior Lenders and promptly paid or delivered to Agent for the benefit of Senior Lenders in the form received until all Senior Debt is Paid in Full.

(b)          Notwithstanding anything contained herein to the contrary, at no time may Subordinated Creditor take any Enforcement Action with respect to any Permitted Subordinated Debt Payment that is not made when due pursuant to the Subordinated Debt Documents.

2.5.          Incorrect Payments . If any Distribution on account of the Subordinated Debt not permitted to be made by any Credit Party or accepted by Subordinated Creditor under this Agreement is made and received by Subordinated Creditor, such Distribution shall be held in trust by Subordinated Creditor for the benefit of Agent and Senior Lenders and shall be promptly paid over to Agent, with any necessary endorsement, for application (in accordance with the Senior Debt Documents) to the payment of the Senior Debt then remaining unpaid, until all of the Senior Debt is Paid in Full; provided that any such payment received by Subordinated Creditor may be retained by Subordinated Creditor if Subordinated Creditor does not receive written notice from any Credit Party, Agent or any Senior Lender within one hundred twenty days of receipt of such payment or Subordinated Creditor does not otherwise have actual knowledge that such payment has been received at a time during which it was prohibited by the terms of this Agreement.

2.6.          Subordination and Release of Liens and Security Interests; Agreement Not to Contest .

(a)          Until the Senior Debt has been Paid in Full, any liens and security interests of Subordinated Creditor in any Collateral which may exist in breach of Subordinated Creditor's agreement pursuant to Section 3.2 and Subordinated Creditor's representations and warranties pursuant to Section 5.1 , shall be and hereby are subordinated for all purposes and in all respects to the liens and security interests of Agent and Senior Lenders in such Collateral, regardless of the time, manner or order of perfection of any such liens and security interests. In the event that Subordinated Creditor obtains any liens or security interests in the Collateral or any portion thereof that are not subordinate to the liens and security interests of the Agent and Senior Lenders, (i) Agent shall be deemed authorized by Subordinated Creditor to file Uniform Commercial Code termination statements necessary to terminate such liens and security interests and (ii)  Subordinated Creditor shall promptly execute and deliver to Agent such releases and terminations as Agent shall reasonably request to effect the release of such liens, and security interests.

(b)          The Subordinated Creditor agrees that it will not at any time, including without limitation in connection with any Proceeding, contest the validity, perfection, priority or enforceability of the Senior Debt, the Senior Debt Documents, or the liens and security interests of Agent and Senior Lenders in the Collateral securing the Senior Debt.

2.7.          Sale, Transfer or other Disposition of Subordinated Debt .

(a)          Subordinated Creditor shall not sell, assign, pledge, dispose of or otherwise transfer all or any portion of the Subordinated Debt or any Subordinated Debt Document without the prior written consent of the Agent and the Senior Lenders.

(b)          Notwithstanding the failure of any transferee to execute or deliver an agreement substantially identical to this Agreement, the subordination effected hereby shall survive any sale, assignment, pledge, disposition or other transfer of all or any portion of the Subordinated Debt, and the terms of this Agreement shall be binding upon the successors and assigns of the Subordinated Creditor, as provided in Section 10 hereof.

2.8.          Application of Proceeds from Sale or other Disposition of the Collateral . In the event of any sale, transfer or other disposition (including a casualty loss or taking through eminent domain or expropriation) of any Collateral, the proceeds resulting therefrom (including insurance proceeds) shall be applied in accordance with the terms of the Senior Debt Documents (as in effect on the date hereof) until such time as the Senior Debt is Paid in Full, then any excess shall be paid to the Subordinate Creditor.

2.9.          Legends . Until the termination of this Agreement in accordance with Section 16 hereof, the Subordinated Creditor will cause to be clearly, conspicuously and prominently inserted on the face of each Subordinated Debt Document, as well as any renewals or replacements thereof, the following legend:

"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 (as the same may be amended or otherwise modified from time to time pursuant to the terms thereof, the " Subordination Agreement ") dated as of November 2, 2015, by and among Anthony Tang (the " Subordinated Creditor "), Ener-Core, Inc., a Delaware corporation (" Borrower ") and Empery Tax Efficient, LP in its capacity as collateral agent for the Senior Lender (as defined therein) (together with its successors and assigns, the " Agent "), to the indebtedness (including interest) owed by the Credit Parties pursuant to that securities purchase agreements among Borrower, Agent and the Senior Lenders from time to time party thereto, and certain guarantees of the indebtedness evidenced thereby, as such agreements and such guarantees have been and hereafter may be amended, restated, supplemented or otherwise modified from time to time; and each holder of this instrument, by its acceptance hereof, irrevocably agrees to be bound by the provisions of the Subordination Agreement."

3.             Modifications .

3.1.          Modifications to Senior Debt Documents . Senior Lenders may at any time and from time to time without the consent of or notice to the Subordinated Creditor, without incurring liability to Subordinated Creditor and without impairing or releasing the obligations of Subordinated Creditor under this Agreement, change the manner or place of payment or extend the time of payment of or renew or alter any of the terms of the Senior Debt, or amend or otherwise modify in any manner any agreement, note, guarantee or other instrument evidencing or securing or otherwise relating to the Senior Debt.

3.2.          Modifications to Subordinated Debt Documents . Until the Senior Debt has been Paid in Full, and notwithstanding anything to the contrary contained in the Subordinated Debt Documents, the Subordinated Creditor shall not, without the prior written consent of Agent, either (i) agree to any amendment, modification or supplement to the Subordinated Debt Documents the effect of which is to (a) increase the amount of fees under the Subordinate Support Agreement or add any interest payments thereto, (b) change the dates upon which such fees are due or terms upon which such fees are required to be paid, (c) change or add any event of default or any covenant with respect to the Subordinated Debt (other than any modifications or additions to reflect comparable changes made with respect to the corresponding provisions contained in the Senior Debt Documents so long as any applicable cushion is maintained), (d) add or change any redemption or prepayment provisions of the Subordinated Debt, (e) alter the subordination provisions with respect to the Subordinated Debt, including, without limitation, subordinating the Subordinated Debt to any other indebtedness, (f) change or amend any other term of the Subordinated Debt Documents if such change or amendment would result in a Senior Default or confer additional material rights on Subordinated Creditor or any other holder of the Subordinated Debt in a manner adverse to any Credit Party or Senior Lenders, or (g) obtain any guaranties or credit support from any Person other than the Credit Parties or (ii) take any liens or security interests in any assets of any Credit Party other than the liens and security interest that exist as of the date of this Agreement.

4.             Waiver of Certain Rights by Subordinated Creditor . The Subordinated Creditor hereby waives all notice of the acceptance by Agent and Senior Lenders of the subordination and other provisions of this Agreement, and Subordinated Creditor expressly consents to reliance by Agent and the Senior Lenders upon the subordination and other agreements as herein provided.

5.             Representations and Warranties .

5.1.          Representations and Warranties of Subordinated Creditor . To induce Agent to execute and deliver this Agreement, the Subordinated Creditor hereby represents and warrants to Agent that as of the date hereof: (a) he has the power and authority to enter into, execute, deliver and carry out the terms of this Agreement, all of which have been duly authorized by all proper and necessary action; (b) the execution of this Agreement by Subordinated Creditor will not violate or conflict with any material agreement binding upon Subordinated Creditor or any law, regulation or order or require any consent or approval which has not been obtained; (c) this Agreement is the legal, valid and binding obligation of Subordinated Creditor, enforceable against Subordinated Creditor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by equitable principles; and (d) he is the sole owner, beneficially and of record, of the Subordinated Debt Documents and the Subordinated Debt owned by him on the date hereof.

5.2.          Representations and Warranties of Agent . To induce the Subordinated Creditor to execute and deliver this Agreement, Agent hereby represents and warrants to the Subordinated Creditor that as of the date hereof: (a) Agent is a limited liability company duly formed and validly existing under the laws of the State of Delaware; (b) Agent has the power and authority to enter into, execute, deliver and carry out the terms of this Agreement, all of which have been duly authorized by all proper and necessary action; (c) the execution of this Agreement by Agent will not violate or conflict with the organizational documents of Agent, any material agreement binding upon Agent or any law, regulation or order or require any consent or approval which has not been obtained; and (d) this Agreement is the legal, valid and binding obligation of Agent, enforceable against Agent and each current and future Senior Lender in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally or by equitable principles.

6.             Subrogation . Subject to the Payment in Full of all Senior Debt, the Subordinated Creditor shall be subrogated to the extent of any Distributions made by Subordinated Creditor to Agent on behalf of the Senior Lenders, or otherwise applied to payment of such Senior Debt solely by reason of the provisions of this Agreement, to any rights of the Senior Lenders to receive payments and distributions of cash, securities and other property applicable to the Senior Debt, if any, until the Subordinated Debt shall have been paid in full. For purposes of such subrogation, no payments or distributions to the Senior Lenders of any cash, securities or other property to which Subordinated Creditor would have been entitled, except for the provisions of this Agreement, and no payments pursuant to the provisions of this Agreement to Agent on behalf of the Senior Lenders by Subordinated Creditor, shall be deemed to be a payment or distribution by any Credit Party to or on account of the Senior Debt, it being understood and agreed that the provisions of this Agreement are solely for the purpose of defining the relative rights of the Senior Lenders on the one hand, and the Subordinated Creditor on the other hand.

7.             Modification . Any modification or waiver of any provision of this Agreement, or any consent to any departure by any party from the terms hereof, shall not be effective in any event unless the same is in writing and signed by Agent and Subordinated Creditor, and then such modification, waiver or consent shall be effective only in the specific instance and for the specific purpose given. Any notice to or demand on any party hereto in any event not specifically required hereunder shall not entitle the party receiving such notice or demand to any other or further notice or demand in the same, similar or other circumstances unless specifically required hereunder.

8.             Further Assurances . Each party to this Agreement promptly will execute and deliver such further instruments and agreements and do such further acts and things as may be reasonably requested in writing by any other party hereto that may be necessary in order to effect fully the terms of this Agreement.

9.             Notices . Unless otherwise specifically provided herein, any notice delivered under this Agreement shall be in writing addressed to the respective party as set forth below and may be personally served, sent by facsimile or email transmission or sent by overnight courier service or certified or registered United States mail and shall be deemed to have been given (a) if delivered in person, when delivered; (b) if delivered by facsimile or email transmission, on the date of transmission if transmitted on a business day before 4:00 p.m. (New York time) or, if not, on the next succeeding business day; (c) if delivered by overnight courier, one business day after delivery to such courier properly addressed; or (d) if by United States mail, four (4) business days after deposit in the United States mail, postage prepaid and properly addressed.

Notices shall be addressed as follows:

If to Subordinated Creditor, as set forth below:

Anthony Tang

870 Orlando Road

San Marino, CA [zip]

Facsimile:        [               ]

Email:                [               ]

If to Agent:

Empery Tax Efficient, LP, as collateral agent

c/o Empery Asset Management, LP

1 Rockefeller Plaza, Suite 1205

New York, NY 10020

or in any case, to such other address as the party addressed shall have previously designated by written notice to the serving party, given in accordance with this Section 9 .

10.           Successors and Assigns . This Agreement shall inure to the benefit of, and shall be binding upon, the respective successors and assigns of Agent, Senior Lenders, Subordinated Creditor and the Credit Parties. To the extent permitted under the Senior Debt Documents, Senior Lenders may, from time to time, without notice to the Subordinated Creditor, assign or transfer any or all of the Senior Debt or any interest therein to any Person and, notwithstanding any such assignment or transfer, or any subsequent assignment or transfer, the Senior Debt shall, subject to the terms hereof, be and remain Senior Debt for purposes of this Agreement, and every permitted assignee or transferee of any of the Senior Debt or of any interest therein shall, to the extent of the interest of such permitted assignee or transferee in the Senior Debt, be entitled to rely upon and be the third party beneficiary of the subordination provided under this Agreement and shall be entitled to enforce the terms and provisions hereof to the same extent as if such assignee or transferee were initially a party hereto.

11.           Relative Rights . This Agreement shall define the relative rights of Agent, Senior Lenders and Subordinated Creditor. Nothing in this Agreement shall (a) impair, as among the Credit Parties, Agent and Senior Lenders and as between the Credit Parties and the Subordinated Creditor, the obligation of the Credit Parties with respect to the payment of the Senior Debt and the Subordinated Debt in accordance with their respective terms or (b) affect the relative rights of Agent, Senior Lenders or Subordinated Creditor with respect to any other creditors of the Credit Parties. The terms of this Agreement shall govern even if all or any part of the Senior Debt or the liens or security interests in favor of Agent or Senior Lenders are avoided, disallowed, unperfected, set aside or otherwise invalidated in any judicial proceeding or otherwise.

12.           Conflict . In the event of any conflict between any term, covenant or condition of this Agreement and any term, covenant or condition of any of the Subordinated Debt Documents or the Senior Debt Documents, the provisions of this Agreement shall control and govern.

13.           Headings . The paragraph headings used in this Agreement are for convenience only and shall not affect the interpretation of any of the provisions hereof.

14.           Counterparts . This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

15.           Severability . In the event that any provision of this Agreement is deemed to be invalid, illegal or unenforceable by reason of the operation of any law or by reason of the interpretation placed thereon by any court or governmental authority, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby, and the affected provision shall be modified to the minimum extent permitted by law so as most fully to achieve the intention of this Agreement.

16.           Continuation of Subordination; Termination of Agreement . This Agreement shall remain in full force and effect until Payment in Full of the Senior Debt, after which this Agreement shall terminate without further action on the part of the parties hereto.

17.           GOVERNING LAW; SUBMISSION TO JURISDICTION . THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES. THE SUBORDINATED CREDITOR, AGENT AND EACH CREDIT PARTY HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS. THE SUBORDINATED CREDITOR, AGENT AND EACH CREDIT PARTY EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. THE SUBORDINATED CREDITOR, AGENT AND EACH CREDIT PARTY HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO SUCH PERSON AT THEIR RESPECTIVE ADDRESSES SET FORTH IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.

18.           WAIVER OF JURY TRIAL . THE SUBORDINATED CREDITOR, EACH CREDIT PARTY AND AGENT HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OF THE SUBORDINATED DEBT DOCUMENTS OR ANY OF THE SENIOR DEBT DOCUMENTS AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THE SUBORDINATED CREDITOR, EACH CREDIT PARTY AND AGENT ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT, THE SUBORDINATED DEBT DOCUMENTS AND THE SENIOR DEBT DOCUMENTS AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. THE SUBORDINATED CREDITOR, EACH CREDIT PARTY AND AGENT WARRANTS AND REPRESENTS THAT EACH HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.

IN WITNESS WHEREOF , the Subordinated Creditor, the Credit Parties and Agent have caused this Agreement to be executed as of the date first above written.

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