Exhibit 10.1

 

Execution Version

 

STOCK PURCHASE AGREEMENT

 

STOCK PURCHASE AGREEMENT (the “Agreement”), dated as of April 11, 2016, by and
among Ener-Core, Inc., a Delaware corporation, with headquarters located at 9400
Toledo Way, Irvine, California 92618 (the “Company”), and the investors
identified in their respective “Buyer Signature Page” attached hereto
(individually, a “Buyer” and collectively, the “Buyers”).

 

WHEREAS:

 

A.          The Company and each Buyer is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”),
and/or Rule 506 of Regulation D (“Regulation D”) as promulgated by the United
States Securities and Exchange Commission (the “SEC”) under the 1933 Act.

 

B.           Each Buyer wishes to purchase, and the Company wishes to sell, upon
the terms and conditions stated in this Agreement, that aggregate number of
shares of the Company’s Common Stock, par value $0.0001 per share (the “Common
Stock”), as set forth opposite such Buyer’s name in column (3) on the schedule
of Buyers attached hereto as Exhibit A (the “Schedule of Buyers”) (which
aggregate amount for all Buyers together shall be 696,056 shares of Common Stock
and shall collectively be referred to herein as the “Shares”).

 

NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

 

1.            PURCHASE AND SALE OF COMMON SHARES.

 

(a)           Purchase of Shares. Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6 and 7 below, the Company shall issue and sell
to each Buyer, and each Buyer severally, but not jointly, agrees to purchase
from the Company on the Closing Date (as defined below), the number of Shares
set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers
(the “Closing”).

 

(b)           Closing. The date and time of the Closing (the “Closing Date”)
shall be the Trading Day on which all of the Transaction Documents have been
executed and delivered by the applicable parties thereto in connection with the
Closing, and all conditions precedent to the Closing set forth in Sections 6 and
7 below have been satisfied or waived, or at such other time or on such other
date as the Company and each Buyer may mutually agree upon, at the offices of
K&L Gates LLP, 1 Park Plaza, 12th Floor, Irvine, California 92614.

 

(c)           Purchase Price. The aggregate purchase price for the Shares to be
purchased by each Buyer at the Closing (the “Purchase Price”) shall be the
amount set forth opposite each Buyer’s name in column (4) on the Schedule of
Buyers.

 

(d)           Form of Payment. On the Closing Date, (i) each Buyer shall pay its
Purchase Price to the Company for the Shares to be issued and sold to such Buyer
at the Closing, by wire transfer of immediately available funds in accordance
with the Company’s written wire instructions and (ii) the Company shall deliver
to each Buyer one or more stock certificates, evidencing the number of Shares
such Buyer is purchasing, which certificate(s) shall be duly executed on behalf
of the Company and registered in the name of such Buyer or its designee.

 

 

 

 

2.           BUYER’S REPRESENTATIONS AND WARRANTIES. Each Buyer, severally and
not jointly, represents and warrants with respect to only itself that:

 

(a)           No Public Sale or Distribution. Such Buyer is acquiring the Shares
for its own account and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the Shares for
any minimum or other specific term and reserves the right to dispose of the
Shares at any time in accordance with or pursuant to a registration statement or
an exemption under the 1933 Act. Such Buyer is acquiring the Shares hereunder in
the ordinary course of its business. Such Buyer does not presently have any
agreement or understanding, directly or indirectly, with any Person (as defined
below) to distribute any of the Shares. For purposes of this Agreement, “Person”
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a government
or any department or agency thereof.

 

(b)           Accredited Investor Status. Such Buyer is an “accredited investor”
as that term is defined in Rule 501(a) of Regulation D. Such Buyer has executed
and delivered to the Company a questionnaire (the “Investor Questionnaire”),
substantially in the form attached hereto as Exhibit B, which such Buyer
represents and warrants is true, correct and complete.

 

(c)           Reliance on Exemptions. Such Buyer understands that the Shares are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Shares.

 

(d)           Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company, including but not limited to the Company’s filings under the
Securities Exchange Act of 1934, as amended (the “1934 Act”), and materials
relating to the offer and sale of the Shares that have been requested by such
Buyer. Such Buyer and its advisors, if any, have been afforded the opportunity
to ask questions of the Company. Neither such inquiries nor any other due
diligence investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer’s right to rely on the
Company’s representations and warranties contained herein. Such Buyer
understands that its investment in the Shares involves a high degree of risk and
is able to afford a complete loss of such investment. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Shares. Such
Buyer confirms and agrees that (i) it has independently evaluated the merits of
its decision to purchase the Shares, (ii) it has not relied on the advice of, or
any representations by, any other Person, other than the Company and its
officers and directors, in making such decision, and (iii) no Person, other than
the Company and its officers and directors, has any responsibility with respect
to the completeness or accuracy of any information or materials furnished to
such Buyer in connection with the transactions contemplated hereby.

 

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(e)           No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Shares or the
fairness or suitability of the investment in the Shares nor have such
authorities passed upon or endorsed the merits of the offering of the Shares.

 

(f)           Transfer or Resale. Such Buyer understands that: (i) the Shares
have not been and are not being registered under the 1933 Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (A) subsequently registered thereunder, (B) such Buyer shall have
delivered to the Company an opinion of counsel, in form and substance reasonably
acceptable to the Company, to the effect that such Shares to be sold, assigned
or transferred may be sold, assigned or transferred pursuant to an exemption
from such registration, or (C) such Buyer provides the Company with reasonable
assurance that such Shares can be sold, assigned or transferred pursuant to Rule
144 promulgated under the 1933 Act (“Rule 144”) or Rule 144A promulgated under
the 1933 Act (“Rule 144A”) (or successor rules thereto) (collectively, “Resale
Exemptions”); (ii) any sale of the Shares made in reliance on the Resale
Exemptions may be made only in accordance with the terms of Rule 144 or Rule
144A, as applicable, and further, if a Resale Exemption is not applicable, any
resale of the Shares under circumstances in which the seller (or the Person)
through whom the sale is made) may be deemed to be an underwriter (as that term
is defined in the 1933 Act) may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other Person is under any obligation to register the
Shares under the 1933 Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder. Notwithstanding the foregoing,
the Shares may be pledged in connection with a bona fide margin account or other
loan or financing arrangement secured by the Shares and such pledge of Shares
shall not be deemed to be a transfer, sale or assignment of the Shares
hereunder, and no Buyer effecting a pledge of Shares shall be required to
provide the Company with any notice thereof or otherwise make any delivery to
the Company pursuant to this Agreement or any other Transaction Document (as
defined in Section 3(b)), including, without limitation, this Section 2(f).

 

(g)           Legends. Such Buyer understands that the certificates or other
instruments representing the Shares shall bear any legend as required by the
“blue sky” laws of any state and a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates or other instruments):

 

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

 

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The legend set forth above shall be removed and the Company shall issue a
certificate or other instrument without such legend to the holder of the Shares
upon which it is stamped or issue to such holder by electronic delivery at the
applicable balance account at The Depository Trust Company (“DTC”), if, unless
otherwise required by state securities laws, (i) such Shares are registered for
resale under the 1933 Act (in which case an alternate prospectus delivery legend
may apply), (ii) in connection with a sale, assignment or other transfer, such
holder provides the Company with an opinion of counsel, in form and substance
reasonably acceptable to the Company, to the effect that such sale, assignment
or transfer of the Shares may be made without registration under the applicable
requirements of the 1933 Act, or (iii) the Shares can be sold, assigned or
transferred pursuant to Rule 144 or Rule 144A. The Company shall be responsible
for the fees of its transfer agent and all DTC fees associated with such
issuance. If the Company shall fail for any reason or for no reason (other than
failure of a Buyer to comply with Section 2(g)) to issue to the holder of the
Shares within three (3) Trading Days after the occurrence of any of (i) through
(iii) above, a certificate without such legend to the holder or to issue such
Shares to such holder by electronic delivery at the applicable balance account
at DTC, and if on or after such Trading Day the holder purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the holder of such Shares that the holder anticipated
receiving without legend from the Company (a “Buy-In”), then the Company shall,
within three (3) Business Days after the holder’s request and in the holder’s
discretion, either (i) pay cash to the holder in an amount equal to the holder’s
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the “Buy-In Price”), at which point the Company’s
obligation to deliver such unlegended Shares shall terminate, or (ii) promptly
honor its obligation to deliver to the holder such unlegended Shares as provided
above and pay cash to the holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (A) such number of shares of Common Stock,
times (B) the Closing Bid Price on the date of the occurrence of any of clauses
(i) through (iii), as applicable. As used herein, (i) “Trading Day” means any
day on which the Common Stock is traded on the Principal Market (as defined in
Section 3(d)), or, if the Principal Market is not the principal trading market
for the Common Stock, then on the principal securities exchange or securities
market on which the Common Stock is then traded; provided that “Trading Day”
shall not include any day on which the Common Stock is scheduled to trade on
such exchange or market for less than 4.5 hours or any day that the Common Stock
is suspended from trading during the final hour of trading on such exchange or
market (or if such exchange or market does not designate in advance the closing
time of trading on such exchange or market, then during the hour ending at 4:00
p.m., New York time); (ii) “Closing Bid Price” means, for any security as of any
date, the last closing bid price for such security on the Principal Market, as
reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price, then the last
bid price of such security prior to 4:00 p.m., New York time, as reported by
Bloomberg, or, if the Principal Market is not the principal securities exchange
or trading market for such security, the last closing bid price of such security
on the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not apply, the
last closing bid price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
closing bid price is reported for such security by Bloomberg, the average of the
bid prices of any market makers for such security as reported in the OTC Link or
“pink sheets” by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.). If the
Closing Bid Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Bid Price of such security on such date
shall be the fair market value as mutually determined by the Company and such
holder of Shares. All such determinations to be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction
during the applicable calculation period; and (iii) “Bloomberg” means Bloomberg
Financial Markets.

 

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(h)          Validity; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of such Buyer and shall constitute
the legal, valid and binding obligations of such Buyer enforceable against such
Buyer in accordance with their respective terms, except as such enforceability
may be limited by general principles of equity or to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies.

 

(i)            No Conflicts. The execution, delivery and performance by such
Buyer of this Agreement and the consummation by such Buyer of the transactions
contemplated hereby and thereby will not (i) result in a violation of the
organizational documents of such Buyer or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
such Buyer is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws) applicable to such Buyer, except in the case of clauses (ii) and (iii)
above, for such conflicts, defaults, rights or violations which would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of such Buyer to perform its obligations
hereunder.

 

(j)            Short Sales. Between the time such Buyer learned about the
offering contemplated by this Agreement and the public announcement of the
offering, such Buyer has not engaged in any short sales or similar transactions
with respect to the Common Stock, nor has such Buyer, directly or indirectly,
caused any Person to engage in any short sales or similar transactions with
respect to the Common Stock. Such Buyer shall not engage in any short sales
involving the Shares in violation of the 1933 Act. Notwithstanding the
foregoing, in the case of a Buyer that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Buyer’s
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such Buyer’s
assets, the representation set forth above shall apply only with respect to the
portion of assets managed by the portfolio managers that have knowledge about
the financing transaction contemplated by this Agreement.

 

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(k)           No General Solicitation and Advertising; Prior Relationship. Such
Buyer represents and acknowledges, to its knowledge, that it has not been
solicited to offer to purchase or to purchase any Shares by means of any general
solicitation or advertising within the meaning of Regulation D. The Buyer
represents that its interest in the purchase of the Shares is the result of its
substantive, pre-existing relationship with the Company.

 

(l)            Rule 506(d) Representation. Such Buyer represents that it is not
a person of the type described in Section 506(d) of Regulation D that would
disqualify the Company from engaging in a transaction pursuant to Section 506 of
Regulation D.

 

(m)          Residency. Such Buyer is a resident of that jurisdiction specified
below its address on the Schedule of Buyers.

 

3.            REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each of the Buyers that:

 

(a)           Organization and Qualification. Each of the Company and its
“Subsidiaries” (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns any of the capital stock or holds an
equity or similar interest) are entities duly organized and validly existing in
good standing under the laws of the jurisdiction in which they are formed, and
have the requisite power and authorization to own their properties and to carry
on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign entity to do business and is in good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not
reasonably be expected to have a Material Adverse Effect. As used in this
Agreement, “Material Adverse Effect” means any material adverse effect on the
business, properties, assets, operations, results of operations, condition
(financial or otherwise) or prospects of the Company and its Subsidiaries, taken
as a whole, or on the transactions contemplated hereby or on the other
Transaction Documents or by the agreements and instruments to be entered into in
connection herewith or therewith, or on the authority or ability of the Company
to perform its obligations under the Transaction Documents. The Company has no
Subsidiaries except as set forth on Schedule 3(a).

 

(b)           Authorization; Enforcement; Validity. The Company has the
requisite power and authority to enter into and perform its obligations under
this Agreement, the Irrevocable Transfer Agent Instructions (as defined in
Section 5) and each of the other agreements entered into by the parties hereto
in connection with the transactions contemplated by this Agreement
(collectively, the “Transaction Documents”) and to issue the Shares in
accordance with the terms hereof and thereof. The execution and delivery of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby, including, without limitation, the
issuance of the Shares, have been duly authorized by the Company’s Board of
Directors and (other than filings as may be required by state securities
agencies) no further filing, consent, or authorization is required by the
Company, its Board of Directors or its stockholders. This Agreement and the
other Transaction Documents have been duly executed and delivered by the
Company, and constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies.

 

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(c)           Issuance of Shares. The Shares are duly authorized and, upon
issuance, shall be validly issued and free from all from all preemptive or
similar rights, taxes, liens and charges with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of Common Stock.
As of the date hereof, there are 196,910,840 shares of Common Stock authorized
and unissued. Assuming the accuracy of each of the representations and
warranties set forth in Section 2 of this Agreement, the offer and issuance by
the Company of the Shares is exempt from registration under the 1933 Act.

 

(d)           No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Shares) will not (i) result in a violation of the Certificate of
Incorporation (as defined in Section 3(p)) or Bylaws (as defined in Section
3(p)), any memorandum of association, certificate of incorporation, certificate
of formation, bylaws, any certificate of designations or other constituent
documents of the Company or any of its Subsidiaries, any capital stock of the
Company or any of its Subsidiaries or the articles of association or bylaws of
the Company or any of its Subsidiaries or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) in any respect under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including other foreign, federal and state securities laws and regulations and
the rules and regulations of the OTCQB (the “Principal Market”) and including
all applicable laws of the State of Delaware and any foreign, federal and state
laws, rules and regulations) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected.

 

(e)           Consents. Neither the Company nor any of its Subsidiaries is
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof, other
than the filings or registration required by Sections 4(b) and 4(h) of this
Agreement and as may be required under the rules and regulations of the
Financial Industry Regulatory Authority, Inc. The Company is not in violation of
the requirements of the Principal Market and has no knowledge of any facts that
would reasonably lead to delisting or suspension of the Common Stock in the
foreseeable future. The issuance by the Company of the Shares shall not have the
effect of delisting or suspending the Common Stock from the Principal Market.

 

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(f)           Acknowledgment Regarding Buyer’s Purchase of Shares. The Company
acknowledges and agrees that each Buyer is acting solely in the capacity of an
arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that no Buyer is acting as a financial advisor or fiduciary of the Company or
any of its Subsidiaries (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated hereby and thereby, and
any advice given by a Buyer or any of its representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to such Buyer’s purchase of the Shares.
The Company further represents to each Buyer that the Company’s decision to
enter into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.

 

(g)           No General Solicitation; Fees and Commissions. Neither the
Company, nor any of its Subsidiaries or affiliates, nor any Person acting on its
or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the offer or
sale of the Shares. The Company shall be responsible for the payment of any
placement agent’s fees, financial advisory fees, or broker’s commissions (other
than for persons engaged by any Buyer or its investment advisor) relating to or
arising out of the transactions contemplated hereby. The Company shall pay, and
hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, attorney’s fees and out-of-pocket expenses) arising in
connection with any such claim.

 

(h)           No Integrated Offering. None of the Company, its Subsidiaries, any
of their affiliates, and any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Shares under the 1933 Act, whether through integration with prior offerings
or otherwise. None of the Company, its Subsidiaries, their affiliates and any
Person acting on their behalf will take any action or steps referred to in the
preceding sentence that would require registration of any of the Shares under
the 1933 Act.

 

(i)            Application of Takeover Protections; Rights Agreement. The
Company and its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Certificate of Incorporation
or the laws of the jurisdiction of its formation which is or could become
applicable to any Buyer as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company’s issuance of the Shares
and any Buyer’s ownership of the Shares. The Company has not adopted a
stockholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.

 

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(j)            SEC Documents; Financial Statements. During the one (1) year
prior to the date hereof, the Company has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the 1934 Act (all of the foregoing
filed prior to the date hereof, and all exhibits included therein and financial
statements, notes and schedules thereto and documents incorporated by reference
therein being hereinafter referred to as the “SEC Documents”). The Company has
delivered to the Buyers or their respective representatives true, correct and
complete copies of the SEC Documents not available on the EDGAR system. As of
their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents, and none of the
SEC Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of
their respective filing dates, the financial statements of the Company included
in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (“GAAP”) (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may exclude footnotes or may be
condensed or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).

 

(k)           Absence of Certain Changes. Except as disclosed in Schedule 3(k)
or as set forth in the SEC Documents, since September 30, 2015, there has been
no event that would, to the Company’s knowledge, reasonably be expected to
result in a Material Adverse Effect. Except as disclosed in Schedule 3(k), since
September 30, 2015, neither the Company nor any of its Subsidiaries has (i)
declared or paid any dividends, (ii) sold any assets, individually or in the
aggregate, in excess of $100,000 outside of the ordinary course of business or
(iii) had capital expenditures, individually or in the aggregate, in excess of
$100,000.

 

(l)           Conduct of Business; Regulatory Permits. Neither the Company nor
any of its Subsidiaries is in violation of any term of or in default under any
certificate of designations of any outstanding series of preferred stock of the
Company (if any), its Certificate of Incorporation or Bylaws or their
organizational charter or memorandum of association or certificate of
incorporation or articles of association or bylaws, respectively. Neither the
Company nor any of its Subsidiaries is in violation of any judgment, decree or
order or any statute, ordinance, rule or regulation applicable to the Company or
any of its Subsidiaries, and neither the Company nor any of its Subsidiaries
will conduct its business in violation of any of the foregoing, except for
possible violations which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Without limiting the
generality of the foregoing, the Company is not in violation of any of the
rules, regulations or requirements of the Principal Market and has no knowledge
of any facts or circumstances that would reasonably lead to delisting or
suspension of the Common Stock by the Principal Market in the foreseeable
future. Except as set forth in Schedule 3(l), during the one (1) year prior to
the date hereof, the Common Stock has been designated for quotation on the
Principal Market. Except as set forth in Schedule 3(l), during the one (1) year
prior to the date hereof, (i) trading in the Common Stock has not been suspended
by the SEC or the Principal Market and (ii) the Company has received no
communication, written or oral, from the SEC or the Principal Market regarding
the suspension or delisting of the Common Stock from the Principal Market. The
Company and its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, except where the
failure to possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.

 

 - 9 - 

 

 

(m)          Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.

 

(n)           Sarbanes-Oxley Act. The Company is in material compliance with any
and all applicable requirements of the Sarbanes-Oxley Act of 2002, as amended,
that are effective as of the date hereof, and any and all applicable rules and
regulations promulgated by the SEC thereunder that are effective as of the date
hereof.

 

(o)           Transactions With Affiliates. Except as set forth in the SEC
Documents, none of the officers, directors or employees of the Company or any of
its Subsidiaries is presently a party to any transaction with the Company or any
of its Subsidiaries (other than for ordinary course services as employees,
officers or directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
such officer, director or employee or, to the knowledge of the Company or any of
its Subsidiaries, any corporation, partnership, trust or other entity in which
any such officer, director, or employee has a substantial interest or is an
officer, director, trustee or partner.

 

 - 10 - 

 

 

(p)           Equity Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 200,000,000 shares of Common Stock,
of which as of the date hereof, 3,089,160 shares are issued and outstanding,
608,464 shares are reserved for issuance pursuant to the Company’s stock option
and purchase plans and 1,325,543 shares are reserved for issuance pursuant to
securities (other than the aforementioned options) exercisable or exchangeable
for, or convertible into, Common Stock, (ii) 50,000,000 shares of preferred
stock, par value $0.0001 per share, none of which are issued and outstanding as
of the date hereof and (iii) 2,445,240 shares of Common Stock held by
non-affiliates of the Company. All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable. Except as
set forth in the SEC Documents: (i) none of the Company’s capital stock is
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company; (ii) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any shares of capital stock of the Company or
any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any shares of capital
stock of the Company or any of its Subsidiaries; (iii) there are no outstanding
debt securities, notes, credit agreements, credit facilities or other
agreements, documents or instruments evidencing Indebtedness (as defined below)
of the Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company or any of its Subsidiaries; (v) there are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933 Act;
(vi) there are no outstanding securities or instruments of the Company or any of
its Subsidiaries that contain any redemption or similar provisions, and there
are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries; (vii) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Shares; and (viii) the Company does not have
any stock appreciation rights or “phantom stock” plans or agreements or any
similar plan or agreement. The Company and its Subsidiaries have no liabilities
or obligations required to be disclosed in the SEC Documents but not so
disclosed in the SEC Documents, other than those incurred in the ordinary course
of the Company’s or any of its Subsidiaries’ respective businesses and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect. The Company has furnished or made available to the Buyers true, correct
and complete copies of the Company’s Certificate of Incorporation, as amended
and as in effect on the date hereof (the “Certificate of Incorporation”), and
the Company’s Bylaws, as amended and as in effect on the date hereof (the
“Bylaws”), and the terms of all securities convertible into, or exercisable or
exchangeable for shares of Common Stock and the material rights of the holders
thereof in respect thereto.

 

 - 11 - 

 

 

(q)           Indebtedness and Other Contracts. Except as set forth in the SEC
Documents, neither the Company nor any of its Subsidiaries (i) has any
outstanding Indebtedness, (ii) is a party to any contract, agreement or
instrument, the violation of which, or default under which, by the other
party(ies) to such contract, agreement or instrument could reasonably be
expected to result in a Material Adverse Effect, (iii) is in violation of any
term of or in default under any contract, agreement or instrument relating to
any Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect. Schedule 3(q) provides a detailed
description of the material terms of any such outstanding Indebtedness. For
purposes of this Agreement: (x) “Indebtedness” of any Person means, without
duplication (A) all indebtedness for borrowed money, (B) all obligations issued,
undertaken or assumed as the deferred purchase price of property or services,
including, without limitation, “capital leases” in accordance with GAAP (other
than trade payables entered into in the ordinary course of business consistent
with past practice), (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with GAAP, consistently
applied for the periods covered thereby, is classified as a capital lease,
(G) all indebtedness referred to in clauses (A) through (F) above secured by (or
for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; and (y) “Contingent Obligation” means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
Indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.

 

(r)           Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by the Principal Market, any court, public
board, government agency, self-regulatory organization or body pending or, to
the knowledge of the Company, threatened against or affecting the Company or any
of its Subsidiaries, the Common Stock or any of the Company’s Subsidiaries or
any of the Company’s or its Subsidiaries’ officers or directors, whether of a
civil or criminal nature or otherwise, in their capacities as such, except as
set forth in Schedule 3(r). The matters set forth in Schedule 3(r) would not
reasonably be expected to have a Material Adverse Effect.

 

(s)           Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.

 

 - 12 - 

 

 

(t)           Employee Relations.

 

(i)          Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or employs any member of a union. The Company
and its Subsidiaries believe that their relations with their employees are good.
No executive officer (as defined in Rule 501(f) under the 1933 Act) of the
Company or any of its Subsidiaries has notified the Company or any such
Subsidiary that such officer intends to leave the Company or any such Subsidiary
or otherwise terminate such officer’s employment with the Company or any such
Subsidiary. No executive officer of the Company or any of its Subsidiaries, to
the knowledge of the Company or any of its Subsidiaries, is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.

 

(ii)         The Company and its Subsidiaries are in compliance with all
federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.

 

(u)          Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them that is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except for Permitted Liens that do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the Company and any of its Subsidiaries. Any real property and
facilities held under lease by the Company and any of its Subsidiaries are held
by them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not materially interfere with the use made and proposed
to be made of such property and buildings by the Company and its Subsidiaries.

 

(v)           Intellectual Property Rights. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, original works of
authorship, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property
rights and all applications and registrations therefor (“Intellectual Property
Rights”) necessary to conduct their respective businesses as now conducted. None
of the Company’s Intellectual Property Rights have expired or terminated or have
been abandoned or are expected to expire or terminate or are expected to be
abandoned, within three years from the date of this Agreement. The Company does
not have any knowledge of any infringement by the Company or its Subsidiaries of
Intellectual Property Rights of others. There is no claim, action or proceeding
being made or brought, or to the knowledge of the Company or any of its
Subsidiaries, being threatened, against the Company or any of its Subsidiaries
regarding its Intellectual Property Rights. Neither the Company nor any of its
Subsidiaries is aware of any facts or circumstances that might give rise to any
of the foregoing infringements or claims, actions or proceedings. The Company
and its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their Intellectual Property Rights.

 

 - 13 - 

 

 

(w)          Environmental Laws. Except as would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect: (i) neither
the Company nor its Subsidiaries is in violation of any Environmental Laws (as
hereinafter defined), (ii) the Company and its Subsidiaries have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) the Company
and its Subsidiaries are in compliance with all terms and conditions of any such
permit, license or approval. The term “Environmental Laws” means all federal,
state, local or foreign laws relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.

 

(x)           Subsidiary Rights. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.

 

(y)           Investment Company Status. Neither the Company nor any Subsidiary
is, and upon consummation of the sale of the Shares, and for so long any Buyer
holds any Shares, will be, an “investment company,” a company controlled by an
“investment company” or an “affiliated person” of, or “promoter” or “principal
underwriter” for, an “investment company” as such terms are defined in the
Investment Company Act of 1940, as amended.

 

(z)           Tax Status. The Company and each of its Subsidiaries (i) has made
or filed all U.S. federal, state and foreign income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim.

 

(aa)         Internal Accounting and Disclosure Controls. Except as set forth in
Schedule 3(aa) or as set forth in the SEC Documents, the Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management’s general or
specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference. Except
as set forth in Schedule 3(aa) or as set forth in the SEC Documents, the Company
maintains disclosure controls and procedures (as such term is defined in Rule
13a-15 under the 1934 Act) that are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
1934 Act is accumulated and communicated to the Company’s management, including
its principal executive officer or officers and its principal financial officer
or officers, as appropriate, to allow timely decisions regarding required
disclosure.

 

 - 14 - 

 

 

(bb)         Off Balance Sheet Arrangements. There is no transaction,
arrangement, or other relationship between the Company and an unconsolidated or
other off balance sheet entity that is required to be disclosed by the Company
in its 1934 Act filings and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.

 

(cc)         Transfer Taxes. On the Closing Date, all stock transfer or other
taxes (other than income or similar taxes) that are required to be paid in
connection with the sale and transfer of the Shares to be sold to each Buyer
hereunder will be, or will have been, fully paid or provided for by the Company,
and all laws imposing such taxes will be or will have been complied with.

 

(dd)         Manipulation of Price. The Company has not, and to its knowledge no
one acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result, or that could reasonably be expected to cause or
result, in the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Shares, (ii) sold, bid
for, purchased, or paid any compensation for soliciting purchases of, any of the
Shares, or (iii) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.

 

(ee)         Acknowledgement Regarding Buyers’ Trading Activity. The Company
acknowledges and agrees that (i) none of the Buyers has been asked to agree, nor
has any Buyer agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or “derivative” securities based on securities issued
by the Company or to hold the Shares for any specified term; (ii) any Buyer, and
counter-parties in “derivative” transactions to which any such Buyer is a party,
directly or indirectly, presently may have a “short” position in the Common
Stock, and (iii) each Buyer shall not be deemed to have any affiliation with or
control over any arm’s length counter-party in any “derivative” transaction. The
Company further understands and acknowledges that one or more Buyers may engage
in hedging and/or trading activities at various times during the period that the
Shares are outstanding, and (b) such hedging and/or trading activities, if any,
can reduce the value of the existing stockholders’ equity interest in the
Company both at and after the time the hedging and/or trading activities are
being conducted. Subject to the provisions of Section 2(j), the Company
acknowledges that such aforementioned hedging and/or trading activities do not
constitute a breach of this Agreement or any of the documents executed in
connection herewith.

 

 - 15 - 

 

 

(ff)          U.S. Real Property Holding Corporation. The Company is not, has
never been, and so long as any Shares remain outstanding, shall not become, a
U.S. real property holding corporation within the meaning of Section 897 of the
Internal Revenue Code of 1986, as amended, and the Company shall so certify upon
any Buyer’s request.

 

(gg)        Bank Holding Company Act. Neither the Company nor any of its
Subsidiaries or affiliates is subject to the Bank Holding Company Act of 1956,
as amended (the “BHCA”) and to regulation by the Board of Governors of the
Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of
its Subsidiaries or affiliates owns or controls, directly or indirectly, five
percent (5%) or more of the outstanding shares of any class of voting securities
or twenty-five percent (25%) or more of the total equity of a bank or any entity
that is subject to the BHCA and to regulation by the Federal Reserve. Neither
the Company nor any of its Subsidiaries or affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.

 

(hh)        No Additional Agreements. Neither the Company nor any of its
Subsidiaries has any agreement or understanding with any Buyer with respect to
the transactions contemplated by the Transaction Documents other than as
specified in the Transaction Documents.

 

(ii)           Disclosure. Except for the transaction contemplated herein, the
Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Buyers or their agents or counsel with any information that
constitutes or could reasonably be expected to constitute material, nonpublic
information. The Company understands and confirms that each of the Buyers will
rely on the foregoing representations in effecting transactions in securities of
the Company. All disclosure provided to the Buyers regarding the Company, or any
of its Subsidiaries, their business and the transactions contemplated hereby,
including the disclosure schedules to this Agreement, furnished by or on behalf
of the Company is true and correct and does not contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading. Each press release issued by the Company or any of
its Subsidiaries during the twelve (12) months preceding the date of this
Agreement did not at the time of release contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. No event or
circumstance has occurred or information exists with respect to the Company or
any of its Subsidiaries or its or their business, properties, prospects,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed. The Company acknowledges and
agrees that no Buyer makes or has made any representations or warranties with
respect to the transactions contemplated hereby other than those specifically
set forth in Section 2.

 

 - 16 - 

 

 

(jj)           Stock Option Plans. Each stock option granted by the Company was
granted (i) in accordance with the terms of the applicable stock option plan of
the Company and (ii) with an exercise price at least equal to the fair market
value of the Common Stock on the date such stock option would be considered
granted under GAAP and applicable law. No stock option granted under the
Company’s stock option plan has been backdated. The Company has not knowingly
granted, and there is no and has been no policy or practice of the Company to
knowingly grant, stock options prior to, or otherwise knowingly coordinate the
grant of stock options with, the release or other public announcement of
material information regarding the Company or its Subsidiaries or their
financial results or prospects.

 

(kk)          No “Bad Actor” Disqualification Events. No “bad actor”
disqualifying event described in Rule 506(d)(1)(i)–(viii) of the 1933 Act (a
“Disqualification Event”) is applicable to the Company or, to the Company’s
knowledge, any Company Covered Person (as defined below), except for a
Disqualification Event as to which Rule 506(d)(2)(ii–iv) or (d)(3), is
applicable. “Company Covered Person” means, with respect to the Company as an
“issuer” for purposes of Rule 506 promulgated under the 1933 Act, any Person
listed in the first paragraph of Rule 506(d)(1).

 

(ll)           Other Covered Persons. The Company is not aware of any Person
that has been or will be paid (directly or indirectly) remuneration for
solicitation of Buyers or potential purchasers in connection with the sale of
any Shares.

 

4.           COVENANTS.

 

(a)           Best Efforts. Each party shall use its best efforts timely to
satisfy each of the covenants and the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.

 

(b)           Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Shares as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Shares for sale to the Buyers at the Closing pursuant to this Agreement under
applicable securities or “Blue Sky” laws of the states of the United States (or
to obtain an exemption from such qualification), and shall provide evidence of
any such action so taken to the Buyers on or prior to the Closing Date. The
Company shall make all filings and reports relating to the offer and sale of the
Shares required under applicable securities or “Blue Sky” laws of the states of
the United States following the Closing Date.

 

(c)           Reporting Status. For so long as the Company is required to file
reports under the 1934 Act, the Company shall timely file all such reports
required to be filed with the SEC pursuant to the 1934 Act.

 

(d)          Use of Proceeds. The Company will use the proceeds from the sale of
the Shares for working capital and general corporate purposes.

 

(e)           Financial Information. The Company agrees to send the following
items to each Buyer for a period of three months after the date of this
Agreement, unless the following are filed with the SEC through EDGAR and are
available to the public through the EDGAR system: (i) within one (1) Business
Day after the filing thereof with the SEC, a copy of its Annual Reports on Form
10-K, any Quarterly Reports on Form 10-Q, any Current Reports on Form 8 K (or
any analogous reports under the 1934 Act) and any registration statements (other
than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) within four
(4) Business Days of release, facsimile or e-mailed copies of all press releases
issued by the Company or any of its Subsidiaries, and (iii) copies of any
notices and other information made available or given to the stockholders of the
Company generally, contemporaneously with the making available or giving thereof
to the stockholders. As used herein, “Business Day” means any day other than
Saturday, Sunday or other day on which commercial banks in The City of New York
are authorized or required by law to remain closed.

 

 - 17 - 

 

 

(f)           Fees. The Company shall be responsible for the payment of any
placement agent’s fees, financial advisory fees, or broker’s commissions (other
than for Persons engaged by any Buyer) relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
reasonable attorney’s fees and out-of-pocket expenses) arising in connection
with any claim relating to any such payment. Except as otherwise set forth in
the Transaction Documents, each party to this Agreement shall bear its own
expenses in connection with the sale of the Shares to the Buyers.

 

(g)          Pledge of Shares. The Company acknowledges and agrees that the
Shares may be pledged by a Buyer in connection with a bona fide margin agreement
or other loan or financing arrangement that is secured by the Shares. The pledge
of Shares shall not be deemed to be a transfer, sale or assignment of the Shares
hereunder, and no Buyer effecting a pledge of Shares shall be required to
provide the Company with any notice thereof or otherwise make any delivery to
the Company pursuant to this Agreement or any other Transaction Document,
including, without limitation, Section 2(f) hereof; provided that a Buyer and
its pledgee shall be required to comply with the provisions of Section 2(f)
hereof in order to effect a sale, transfer or assignment of Shares to such
pledgee. The Company hereby agrees to execute and deliver such documentation as
a pledgee of the Shares may reasonably request in connection with a pledge of
the Shares to such pledgee by a Buyer.

 

(h)          Disclosure of Transactions and Other Material Information. On or
before 8:30 a.m., New York City time, on the first Business Day after the date
hereof, the Company shall issue a press release reasonably acceptable to the
Buyers (the “Press Release”) and file a Current Report on Form 8-K describing
the terms of the transactions contemplated by the Transaction Documents in the
form required by the 1934 Act and attaching the material Transaction Documents
(including, without limitation, this Agreement, as an exhibit to such filing
(including all attachments)). From and after the issuance of the Press Release,
no Buyer shall be in possession of any material, nonpublic information received
from the Company, any of its Subsidiaries or any of their respective officers,
directors, affiliates, employees or agents that is not disclosed in the Press
Release. In addition, effective upon the issuance of the Press Release, the
Company acknowledges and agrees that any and all confidentiality or similar
obligations under any agreement, whether written or oral, between the Company,
any of its Subsidiaries or any of their respective officers, directors,
affiliates, employees or agents, on the one hand, and any of the Buyers or any
of their affiliates, on the other hand, shall terminate. The Company shall not,
and shall cause each of its Subsidiaries and its and each of their respective
officers, directors, affiliates, employees and agents, not to, provide any Buyer
with any material, nonpublic information regarding the Company or any of its
Subsidiaries from and after the date hereof with the SEC without the express
prior written consent of such Buyer. If a Buyer has, or believes it has,
received any such material, nonpublic information regarding the Company or any
of its Subsidiaries from the Company, any of its Subsidiaries or any of their
respective officers, directors, affiliates, employees or agents, it may provide
the Company with written notice thereof. The Company shall, within two (2)
Trading Days of receipt of such notice, make public disclosure of such material,
nonpublic information. No Buyer shall have any liability to the Company, its
Subsidiaries, or any of its or their respective officers, directors, affiliates,
employees, shareholders or agents for any such disclosure. To the extent that
the Company delivers any material, non-public information to a Buyer without
such Buyer’s consent, the Company hereby covenants and agrees that such Buyer
shall not have any duty of confidentiality to the Company, any of its
Subsidiaries or any of their respective officers, directors, employees,
affiliates or agents with respect to, or a duty not to trade on the basis of,
such material, non-public information. Subject to the foregoing, neither the
Company, its Subsidiaries nor any Buyer shall issue any press releases or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure with
respect to such transactions (i) in substantial conformity with the Press
Release and contemporaneously therewith and (ii) as is required by applicable
law and regulations (provided that in the case of clause (i) each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release). Except as required by applicable law,
without the prior written consent of any applicable Buyer, neither the Company
nor any of its Subsidiaries or affiliates shall disclose the name of such Buyer
in any filing, announcement, release or otherwise.

 

 - 18 - 

 

 

(i)          Corporate Existence. So long as any Buyer beneficially owns any
Shares, the Company shall maintain its corporate existence.

 

(j)          Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.

 

(k)          Public Information. At any time during the period commencing from
the six (6) month anniversary of the Closing Date and ending at such time that
all of the Shares, if a registration statement is not available for the resale
of all of the Shares, may be sold without restriction or limitation pursuant to
Rule 144 and without the requirement to be in compliance with Rule 144(c)(1), if
the Company shall (i) fail for any reason to satisfy the requirements of Rule
144(c)(1), including, without limitation, the failure to satisfy the current
public information requirement under Rule 144(c) or (ii) if the Company has ever
been an issuer described in Rule 144(i)(1)(i) or becomes such an issuer in the
future, and the Company shall fail to satisfy any condition set forth in Rule
144(i)(2) (a “Public Information Failure”) then, as partial relief for the
damages to any holder of Shares by reason of any such delay in or reduction of
its ability to sell the Shares (which remedy shall not be exclusive of any other
remedies available at law or in equity), the Company shall pay to each such
holder an amount in cash equal to two percent (2.0%) of the Purchase Price of
such holder’s Shares on the day of a Public Information Failure and on every
thirtieth day (pro rated for periods totaling less than thirty days) thereafter
until the earlier of (i) the date such Public Information Failure is cured and
(ii) such time that such public information is no longer required pursuant to
Rule 144. The payments to which a holder shall be entitled pursuant to this
Section 4(k) are referred to herein as “Public Information Failure Payments.”
Public Information Failure Payments shall be paid on the earlier of (i) the last
day of the calendar month during which such Public Information Failure Payments
are incurred and (ii) the third Business Day after the event or failure giving
rise to the Public Information Failure Payments is cured. In the event the
Company fails to make Public Information Failure Payments in a timely manner,
such Public Information Failure Payments shall bear interest at the rate of 1.5%
per month (prorated for partial months) until paid in full.

 

 - 19 - 

 

 

(l)           Short Sales. Starting on the date hereof and ending on the 45th
day following the Closing Date, no Buyer shall engage in any short sales or
similar transactions with respect to the Common Stock, nor cause any Person to
engage in any short sales or similar transactions with respect to the Common
Stock.

 

(m)          Notice of Disqualification Events. The Company will notify the
Buyers in writing, prior to the Closing Date of (i) any Disqualification Event
relating to any Company Covered Person and (ii) any event that would, with the
passage of time, become a Disqualification Event relating to any Company Covered
Person.

 

(n)          Closing Documents. On or prior to fourteen (14) calendar days after
the Closing Date, the Company agrees to deliver, or cause to be delivered, to
each Buyer a complete closing set of the executed Transaction Documents, Shares
and any other documents required to be delivered to any party pursuant to
Section 7 hereof or otherwise.           

 

5.           TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, in the
form of Exhibit C attached hereto (the “Irrevocable Transfer Agent
Instructions”) to issue certificates or credit shares to the applicable balance
accounts at DTC, registered in the name of each Buyer or its respective
nominee(s), for the Shares issued at the Closing. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(f)
hereof, will be given by the Company to its transfer agent with respect to the
Shares, and that the Shares shall otherwise be freely transferable on the books
and records of the Company as and to the extent provided in this Agreement and
the other Transaction Documents. If a Buyer effects a sale, assignment or
transfer of the Shares in accordance with Section 2(f), the Company shall permit
the transfer and shall promptly instruct its transfer agent to issue one or more
certificates or credit shares to the applicable balance accounts at DTC in such
name and in such denominations as specified by such Buyer to effect such sale,
transfer or assignment. In the event that such sale, assignment or transfer
involves the Shares sold, assigned or transferred pursuant to an effective
registration statement or pursuant to Rule 144, the transfer agent shall issue
such Shares to the Buyer, assignee or transferee, as the case may be, without
any restrictive legend. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to a Buyer. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5, that a
Buyer shall be entitled, in addition to all other available remedies, to seek an
order and/or injunction restraining any breach and requiring immediate issuance
and transfer, without the necessity of showing economic loss and without any
bond or other security being required.

 

 - 20 - 

 

 

6.            CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

The obligation of the Company hereunder to issue and sell the Shares to each
Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for the Company’s sole benefit and may be waived by the Company at any time in
its sole discretion by providing each Buyer with prior written notice thereof:

 

(i)          Such Buyer shall have executed each of the Transaction Documents to
which it is a party and the Investor Questionnaire and delivered each of the
same to the Company.

 

(ii)         Such Buyer shall have delivered its Purchase Price to the Company,
for the Shares being purchased by such Buyer at the Closing by wire transfer of
immediately available funds pursuant to the wire instructions provided by the
Company.

 

(iii)        The representations and warranties of such Buyer shall be true and
correct in all material respects (except for those representations and
warranties that are qualified by materiality or Material Adverse Effect, which
shall be true and correct in all respects) as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date, which shall be true and correct as
of such specified date), and such Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by such
Buyer at or prior to the Closing Date.

 

7.            CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

 

The obligation of each Buyer hereunder to purchase the Shares at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for each Buyer’s sole
benefit and may be waived by such Buyer at any time in its sole discretion by
providing the Company with prior written notice thereof:

 

(i)          The Company shall have duly executed and delivered to such Buyer
each of the following documents to which it is a party: (A) each of the
Transaction Documents and (B) the Shares (in such amounts as such Buyer shall
request) being purchased by such Buyer at the Closing pursuant to this
Agreement.

 

(ii)         [Intentionally omitted]

 

(iii)        The Company shall have delivered to such Buyer a copy of the
Irrevocable Transfer Agent Instructions, in the form of Exhibit C attached
hereto, which instructions shall have been delivered to and acknowledged in
writing by the Company’s transfer agent.

 

 - 21 - 

 

 

(iv)        The Company shall have delivered to such Buyer a certificate
evidencing the good standing of the Company in the Company’s jurisdiction of
incorporation issued by the Secretary of State (or comparable office) of such
jurisdiction, as of a date within ten (10) days of the Closing Date.

 

(v)         The Company shall have delivered to such Buyer a certificate
evidencing the Company’s qualification as a foreign corporation and good
standing issued by the Secretary of State (or comparable office) of each
jurisdiction in which the Company and its Subsidiaries conduct business, as of a
date within ten (10) days of the Closing Date.

 

(vi)        The Company shall have delivered to such Buyer a certificate,
executed by the Secretary of the Company and dated as of the Closing Date, as to
(i) the resolutions consistent with Section 3(b) as adopted by the Company’s
Board of Directors in a form reasonably acceptable to such Buyer, (ii) the
Certificate of Incorporation and (iii) the Bylaws, as in effect at the Closing,
in the form attached hereto as Exhibit D.

 

(vii)       The representations and warranties of the Company shall be true and
correct in all material respects (except for those representations and
warranties that are qualified by materiality or Material Adverse Effect, which
shall be true and correct in all respects) as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date which shall be true and correct as
of such specified date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Closing Date. Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the Company,
dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer in the form attached hereto
as Exhibit E.

 

(viii)      The Common Stock (i) shall be designated for quotation or listed on
the Principal Market and (ii) shall not have been suspended, as of the Closing
Date, by the SEC or the Principal Market from quotation on the Principal Market
nor shall suspension by the SEC or the Principal Market have been threatened, as
of the Closing Date, either (A) in writing by the SEC or the Principal Market or
(B) by falling below the minimum listing maintenance requirements, if any, of
the Principal Market.

 

(ix)        The Company shall have obtained all governmental, regulatory or
third party consents and approvals, if any, necessary for the sale of the
Shares.

 

(x)         The Company shall have delivered to such Buyer such other documents
relating to the transactions contemplated by this Agreement as such Buyer or its
counsel may reasonably request.

 

8.           TERMINATION. In the event that the Closing shall not have occurred
with respect to a Buyer on or before five (5) Business Days from the date hereof
due to the Company’s or such Buyer’s failure to satisfy the conditions set forth
in Sections 6 and 7 above (and the nonbreaching party’s failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date by delivering a written notice to that effect to each
other party to this Agreement and without liability of any party to any other
party.

 

 - 22 - 

 

 

9.            MISCELLANEOUS.

 

(a)          Governing Law; Jurisdiction; Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of New York. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(b)          Counterparts. This Agreement and any amendments hereto may be
executed and delivered in two or more counterparts, and by the different parties
hereto in separate counterparts, each of which when executed shall be deemed to
be an original, but all of which taken together shall constitute one and the
same agreement, and shall become effective when counterparts have been signed by
each party hereto and delivered to the other parties hereto, it being understood
that all parties need not sign the same counterpart. In the event that any
signature to this Agreement or any amendment hereto is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, 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 or “.pdf” signature page were an original thereof. No party hereto
shall raise the use of a facsimile machine or e-mail delivery of a “.pdf” format
data file to deliver a signature to this Agreement or any amendment hereto or
the fact that such signature was transmitted or communicated through the use of
a facsimile machine or e-mail delivery of a “.pdf” format data file as a defense
to the formation or enforceability of a contract and each party hereto forever
waives any such defense.

 

(c)          Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

 

 - 23 - 

 

 

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

 

(e)          Entire Agreement; Amendments. This Agreement and the other
Transaction Documents supersede all other prior oral or written agreements
between the Buyers, the Company, their affiliates and Persons acting on their
behalf with respect to the matters discussed herein, and this Agreement, the
other Transaction Documents and the instruments referenced herein and therein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. Provisions of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
at least a majority of the amount of Shares issued hereunder (as adjusted for
any stock dividend, stock split, stock combination, reclassification or similar
transaction occurring after the date thereof) (the “Required Holders”); provided
that any such amendment or waiver that complies with the foregoing but that
disproportionately, materially and adversely affects the rights and obligations
of any Buyer relative to the comparable rights and obligations of the other
Buyers shall require the prior written consent of such adversely affected Buyer.
Any amendment or waiver effected in accordance with this Section 9(e) shall be
binding upon each Buyer and holder of Shares and the Company. No such amendment
shall be effective to the extent that it applies to less than all of the Buyers
or holders of Shares. No consideration shall be offered or paid to any Person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration (other than the
reimbursement of legal fees) also is offered to all of the parties to the
Transaction Documents, holders of Shares. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents. Without limiting the foregoing, the
Company confirms that, except as set forth in this Agreement, no Buyer has made
any commitment or promise or has any other obligation to provide any financing
to the Company or otherwise.

 

(f)          Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party), (iii) when sent, if sent by electronic mail;
or (iv) one Business Day after deposit with an overnight courier service, in
each case properly addressed to the party to receive the same. The addresses,
facsimile numbers and e-mail addresses for such communications shall be:

 

If to the Company:

 

 

Ener-Core, Inc.

9400 Toledo Way

Irvine, California 92618

  Telephone: (949) 616-3300   Facsimile: (949) 616-3399   Attention: Domonic J.
Carney   Email: DJ.Carney@ener-core.com

 

 - 24 - 

 

 

With a copy to:

 

 

K&L Gates LLP 

1 Park Plaza, 12th Floor

Irvine, California 92614

  Telephone:  (949) 253-0900   Facsimile: (949) 253-0902    Attention:
Shoshannah D. Katz   E-mail: shoshannah.katz@klgates.com

  

If to the Transfer Agent:

 

 

VStock Transfer, LLC.

18 Lafayette Place

Woodmere, New York 11598

  Telephone: (212) 828-8436   Facsimile: (646) 536-3179   Attention: Yoel
Goldfeder   E-mail: yoel@vstocktransfer.com

 

If to Buyer, to its address, facsimile number and e-mail address set forth on
the Buyer Signature Page, or to such other address, facsimile number and/or
e-mail address and/or to the attention of such other Person as the recipient
party has specified by written notice given to each other party five (5)
Business Days prior to the effectiveness of such change. Written confirmation of
receipt (A) given by the recipient of such notice, consent, waiver or other
communication, (B) mechanically or electronically generated by the sender’s
facsimile machine or e-mail containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided by an
overnight courier service shall be rebuttable evidence of personal service,
receipt by facsimile, receipt by e-mail or receipt from an overnight courier
service in accordance with clause (i), (ii) (iii) or (iv) above, respectively.

 

 - 25 - 

 

 

(g)          Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Shares. The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Required Holders. A Buyer may assign some or all of its rights
hereunder without the consent of the Company, in which event such assignee shall
be deemed to be a Buyer hereunder with respect to such assigned rights.

 

(h)          No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except that each Indemnitee shall have the right to
enforce the obligations of the Company with respect to Section 9(o).

 

(i)          [Intentionally omitted]

 

(j)          [Intentionally omitted]

 

(k)          Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, and the agreements and covenants set forth in Sections 4, 5
and 9 shall survive the Closing. Each Buyer shall be responsible only for its
own representations, warranties, agreements and covenants hereunder.

 

(l)           Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

 

 - 26 - 

 

 

(m)          Indemnification.          

 

(i)          In consideration of each Buyer’s execution and delivery of the
Transaction Documents and acquiring the Shares thereunder and in addition to all
of the Company’s other obligations under the Transaction Documents, the Company
shall defend, protect, indemnify and hold harmless each Buyer and each other
holder of the Shares and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
Persons’ agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the “Indemnitees”) from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements
(collectively, “Claims”), incurred by any Indemnitee as a result of, or arising
out of, or relating to (a) any misrepresentation or breach of any representation
or warranty made by the Company in the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company contained in the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby or (c) any cause of action, suit or claim brought
or made against such Indemnitee by a third party (including for these purposes a
derivative action brought on behalf of the Company) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Shares, or (iii) the status of such Buyer or holder of the Shares as an
investor in the Company pursuant to the transactions contemplated by the
Transaction Documents, except, in each case, with respect to any Claims that
resulted from any Indemnitee’s gross negligence, willful misconduct or fraud. To
the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Claims that is permissible under applicable law.
Subject to Section 9(m)(ii) and Section 9(m)(iii), the Company shall reimburse
the Indemnitees promptly as such expenses are incurred and are due and payable,
for any reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification contained in this
Section 9(m)(i) shall not apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld or delayed.

 

(ii)         Promptly after receipt by an Indemnitee under this Section 9(m) of
notice of the commencement of any action or proceeding (including any
governmental action or proceeding) involving a Claim, such Indemnitee shall, if
a Claim in respect thereof is to be made against the Company under this Section
9(m), deliver to the Company a written notice of the commencement thereof, and
the Company shall have the right to participate in, and, to the extent it so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the Company
and the Indemnitee; provided, however, that an Indemnitee shall have the right
to retain its own counsel with the fees and expenses of not more than one
counsel for all such Indemnitees to be paid by the Company, if, in the
reasonable opinion of counsel retained by the Indemnitee, the representation by
such counsel of the Indemnitee and the Company would be inappropriate due to
actual or potential differing interests between such Indemnitee and any other
party represented by such counsel in such proceeding. In the case of an
Indemnitee, legal counsel referred to in the immediately preceding sentence
shall be selected by the Investors holding at least a majority in interest of
the Shares purchased hereunder. The Indemnitee shall reasonably cooperate with
the Company in connection with any negotiation or defense of any such action or
proceeding or Claim by the Company and shall furnish to the Company all
information reasonably available to the Indemnitee that relates to such action
or proceeding or Claim. The Company shall keep the Indemnitee reasonably
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. The Company shall not be liable for any
settlement of any action, claim or proceeding effected without its prior written
consent; provided, however, that the Company shall not unreasonably withhold,
delay or condition its consent. The Company shall not, without the prior written
consent of the Indemnitee, consent to entry of any judgment or enter into any
settlement or other compromise that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnitee of a release
from all liability in respect to such Claim or litigation and such settlement
shall not include any admission as to fault on the part of the Indemnitee.
Following indemnification as provided for hereunder, the Company shall be
subrogated to all rights of the Indemnitee with respect to all third parties,
firms or corporations relating to the matter for which indemnification has been
made. The failure to deliver written notice to the Company within a reasonable
time of the commencement of any such action or proceeding shall not relieve the
Company of any liability to the Indemnitee under this Section 9(m), except to
the extent that the Company is prejudiced in its ability to defend such action
or proceeding as a result of such failure.

 

 - 27 - 

 

 

(iii)        The indemnification required by this Section 9(m) shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received.

 

(n)          No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

 

(o)          Remedies. Each Buyer and each holder of the Shares shall have all
rights and remedies set forth in the Transaction Documents and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.

 

(p)          Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Buyer exercises a right, election, demand or
option under a Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then such Buyer may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.

 

(q)          Payment Set Aside. To the extent that the Company makes a payment
or payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.

 

 - 28 - 

 

 

(r)          Independent Nature of Buyers’ Obligations and Rights. The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as, and the Company acknowledges that the Buyers
do not so constitute, a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group, and the Company shall not assert any such claim
with respect to such obligations or the transactions contemplated by the
Transaction Documents and the Company acknowledges that the Buyers are not
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
and each Buyer confirms that it has independently participated in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Buyer shall be entitled to independently protect and
enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Documents, and it shall not be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose.

 

[Signature Pages Follow]

 

 - 29 - 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Stock Purchase Agreement to be duly executed as of the
date first written above.

 

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

 

[Company Signature Page to Stock Purchase Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Stock Purchase Agreement to be duly executed as of the
date first written above.

 

BUYER:

 

 

          Please print above the exact name(s) in which the Shares are to be
held

 

Date:                                                      

 

Number of Shares Purchased: 696,056

Purchase Price: $4.31

 

INDIVIDUAL INVESTOR:

 

  PARTNERSHIP, CORPORATION, TRUST, LIMITED LIABILITY COMPANY, CUSTODIAL ACCOUNT,
OR OTHER INVESTOR:             (print name)   (print name of entity)          
By: (signature)     (signature of person signing on behalf of entity)     Name:
              Title:  

 

SSN/Tax I.D. No.:     Tax I.D. No.   Address for Notice:     Address for Notice:
                               

 

Tel:     Tel:             Fax:     Fax:             Email:     Email:  

 

[Buyer Signature Page to Stock Purchase Agreement]

 

 

 

 

EXHIBITS

 

Exhibit A Schedule of Buyers Exhibit B Investor Questionnaire Exhibit C Form of
Irrevocable Transfer Agent Instructions Exhibit D Form of Secretary’s
Certificate Exhibit E Form of Compliance Certificate

 

SCHEDULES

 

Schedule 3(a) Subsidiaries Schedule 3(h) No Integrated Offering Schedule 3(j)
SEC Documents Schedule 3(k) Absence of Certain Changes Schedule 3(l) Regulatory
Permits Schedule 3(n) Sarbanes-Oxley Act Schedule 3(p) Equity Capitalization
Schedule 3(q) Indebtedness and Other Contracts Schedule 3(r) Absence of
Litigation Schedule 3(aa) Internal Accounting and Disclosure Controls