Exhibit 10.1

 

Execution Copy

 

STOCK PURCHASE AGREEMENT

 

This Stock Purchase Agreement (“Agreement”) is made as of July 12, 2018 (the
“Effective Date”), by and between ClearSign Combustion Corporation, a Washington
corporation (the “Company”), and CLIRSPV, LLC, a Delaware limited liability
company (the “Purchaser”).

 

AGREEMENT

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchaser agree
as follows:

 

SECTION 1.

AUTHORIZATION OF SALE OF STOCK

 

The Company has authorized the sale and issuance of 5,213,543 shares (the
“Shares”) of its Common Stock, par value $0.0001 per share (the “Common Stock”),
on the terms and subject to the conditions set forth in this Agreement.

 

SECTION 2.

AGREEMENT TO SELL AND PURCHASE THE STOCK

 

2.1         Sale of Stock.  At the Closing (as defined in Section 3.1), the
Company will sell to the Purchaser, and the Purchaser will purchase from the
Company, the Shares at a purchase price of $2.25 per Share for an aggregate
purchase price of $11,730,471.75.

 

SECTION 3.

CLOSING AND DELIVERY

 

3.1         Closing.  The closing of the purchase and sale of the Shares
pursuant to this Agreement (the “Closing”) shall be held on July 20, 2018 or on
such other date and place as may be agreed to by the Company and the Purchaser
and shall take place by the electronic delivery of documents.  At or prior to
the Closing, the Purchaser shall execute any related agreements or other
documents required to be executed hereunder, dated as of the date of the Closing
(the “Closing Date”).

 

3.2         Issuance of the Shares at the Closing.  At the Closing, the Company
shall issue or deliver to the Purchaser evidence of a book entry position
evidencing the Shares purchased by the Purchaser hereunder, registered in the
name of the Purchaser, or in such nominee name(s) as designated by the
Purchaser, representing the number of Shares to be purchased by the Purchaser at
the Closing against payment of the purchase price for such Shares.  The name in
which the shares are to be issued to the Purchaser are set forth in the
Purchaser Questionnaire in the form attached hereto as Appendix I (the
“Purchaser Questionnaire”), as completed by the Purchaser, which shall be
provided to the Company prior to the Closing Date.

 

3.3         Delivery of the Registration Rights Agreement.  At the Closing, the
Company and the Purchaser shall execute and deliver the Registration Rights
Agreement in the form attached hereto as Appendix II (the “Registration Rights
Agreement”), with respect to the registration of the Shares and any Additional
Shares under the Securities Act of 1933, as amended (the “Securities Act”).

 

3.4         Delivery of the Voting Agreement.  At the Closing, the Company and
the Purchaser shall execute and deliver the Voting Agreement in the form
attached hereto as Appendix III (the “Voting Agreement”).

 

 

 

 

Execution Copy 

 

SECTION 4.

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY

 

Except as set forth on the Schedule of Exceptions delivered to the Purchaser
concurrently with the execution of this Agreement (the “Schedule of Exceptions”)
or, solely with respect to Sections 4.1, 4.6 (excluding the 7th sentence
thereof), 4.10, 4.14, 4.15, 4.18, 4.19, 4.23, 4.25, 4.26, 4.29, 4.30 and 4.34,
as otherwise described in the SEC Documents (as defined below), which
disclosures qualify these representations and warranties in their entirety, the
Company hereby represents and warrants as of the date hereof to, and covenants
with, the Purchaser as follows:

 

4.1         Subsidiaries.  The Company has no direct or indirect Subsidiaries
(as defined below) other than those listed in Exhibit 21 to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2017. The Company owns,
directly or indirectly, all of the capital stock or comparable equity interests
of each Subsidiary free and clear of any and all liens, charges, claims,
encumbrances, security interests, rights of first refusal, preemptive rights or
other restrictions of any kind (collectively, “Liens”), and all the issued and
outstanding shares of capital stock or comparable equity interest of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase securities. 
“Subsidiary” means any entity in which the Company, directly or indirectly, owns
sufficient capital stock or holds a sufficient equity or similar interest such
that it is consolidated with the Company in the financial statements of the
Company.

 

4.2         Organization and Standing.  The Company and each of its Subsidiaries
(i) has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with full corporate power and authority to own or lease, as the
case may be, and to operate its properties and conduct its business as presently
conducted, and (ii) is duly qualified to do business as a foreign corporation
and is in good standing under the laws of each jurisdiction which requires such
qualification, except in the case of clause (ii) above, to the extent that the
failure to be so qualified or be in good standing would not reasonably be
expected to result in (i) a material adverse effect on the validity or
enforceability of this Agreement, (ii)  a material adverse effect on the
condition (financial or otherwise), earnings, business, results of operations,
assets or properties of the Company and its Subsidiaries, taken as a whole, or
(iii) a material adverse effect on the Company’s ability to perform in any
material respect its obligations under this Agreement (any of (i), (ii) or
(iii)) (a “Material Adverse Effect”).

  

4.3         Corporate Power; Authorization.  The Company has all requisite
corporate power and authority, and has taken all requisite corporate action, to
execute and deliver this Agreement, the Registration Rights Agreement and the
Voting Agreement (collectively, the “Transaction Documents”), sell and issue the
Shares and Additional Shares and carry out and perform all of its obligations
under the Transaction Documents.  Each Transaction Document constitutes the
legal, valid and binding obligation of the Company, enforceable in accordance
with its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting the
enforcement of creditors’ rights generally, (ii) as limited by equitable
principles generally, including any specific performance and (iii) with respect
to the Registration Rights Agreement, as rights to indemnity or contribution may
be limited by state or federal laws or public policy underlying such laws.

 

4.4         Issuance and Delivery of the Shares.  The Shares and Additional
Shares have been duly authorized and, when issued and paid for in compliance
with the provisions of this Agreement, will be validly issued, fully paid and
nonassessable and free and clear of all Liens, other than restrictions on
transfer imposed by applicable securities laws, and shall not be subject to
preemptive or similar rights.  Assuming the accuracy of the representations made
by the Purchaser in Section 5, the offer and issuance by the Company of the
Shares and Additional Shares is exempt from registration under the Securities
Act.

 

 

 

 

Execution Copy

 

4.5         SEC Documents; Financial Statements.  The Company has filed in a
timely manner all documents that the Company was required to file with the
Securities and Exchange Commission (the “Commission”) under Sections 13,
14(a) and 15(d) the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), since January 1, 2016 (collectively with all exhibits, schedules and
annexes thereto, the “SEC Documents”).  As of their respective filing dates (or,
if amended prior to the date of this Agreement, when amended), all SEC Documents
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission promulgated thereunder.  None of the
SEC Documents as of their respective dates contained any untrue statement of
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.  The consolidated financial
statements of the Company included in the SEC Documents (the “Financial
Statements”) present fairly the consolidated financial condition, results of
operations and cash flows of the Company and its Subsidiaries, taken as a whole,
as of the dates and for the periods indicated, comply in all material respects
with applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing and have been
prepared in conformity with generally accepted accounting principles (“GAAP”)
applied on a consistent basis throughout the periods involved (except as
otherwise noted therein). Gumbiner Savett Inc., who have audited certain
financial statements of the Company, delivered their report with respect to the
audited consolidated financial statements and schedules included in the SEC
Documents, are independent public accountants with respect to the Company within
the meaning of the Exchange Act and the applicable published rules and
regulations thereunder.  There is no transaction, arrangement, or other
relationship between the Company (or any Subsidiary) and any unconsolidated or
other off balance sheet entity that is required to be disclosed by the Company
in its Exchange Act filings that is not so disclosed.

  

4.6         Capitalization.  The authorized capital stock of the Company
consists of 62,000,000 shares of Common Stock and 2,000,000 shares of
undesignated Preferred Stock.  As of the Effective Date, there are no shares of
Preferred Stock issued and outstanding and there are 21,417,909 shares of Common
Stock issued and outstanding, of which no shares are owned by the Company. 
There are no other shares of any other class or series of capital stock of the
Company issued or outstanding.  The Company has no capital stock reserved for
issuance, except that, as of March 31, 2018, there were (i) 1,185,256 shares of
Common Stock reserved for issuance pursuant to the Company’s 2011 Equity
Incentive Plan, of which 969,384 shares are issuable upon the exercise of stock
options outstanding on March 31, 2018, (ii) 116,883 shares of Common Stock
reserved for issuance pursuant to the Company’s 2013 Consultant Stock Plan and
2,495,784 Warrants outstanding, including Warrants for the purchase of 2,395,471
shares of Common Stock with an exercise price of $4.00 per share, Warrants for
the purchase of 80,000 shares of Common Stock with an exercise price of $1.80
per share and a Warrant for the purchase of 20,313 shares of Common Stock with
an exercise price of $10.00 per share.  There are no bonds, debentures, notes or
other indebtedness having general voting rights (or convertible into securities
having such rights) (“Voting Debt”) of the Company issued and outstanding. 
Except as stated above and included in Schedule 4.6, there are no existing
options, warrants, calls, subscriptions or other rights, agreements,
arrangements or commitments relating to the issued or unissued capital stock of
the Company, obligating the Company to issue, transfer, sell, redeem, purchase,
repurchase or otherwise acquire or cause to be issued, transferred, sold,
redeemed, purchased, repurchased or otherwise acquired any capital stock or
Voting Debt of, or other equity interest in, the Company or securities or rights
convertible into or exchangeable for such shares or equity interests or
obligations of the Company to grant, extend or enter into any such option,
warrant, call, subscription or other right, agreement, arrangement or
commitment.  The issuance of Common Stock and the grant of stock purchase
pursuant to any provision of this Agreement will not give rise to any preemptive
rights or rights of first refusal on behalf of any Person (as defined below) or
result in the triggering of any anti-dilution or price adjustment rights.  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 Securities Act.  “Person” means an individual, corporation, partnership,
limited liability company, trust, business trust, association, joint stock
company, joint venture, sole proprietorship, unincorporated organization,
governmental authority or any other form of entity not specifically listed
herein.

 

4.7         Litigation.  No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or any of its Subsidiaries or their respective properties is pending or, to the
best knowledge of the Company, threatened that would have or reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect,
whether or not arising from transactions in the ordinary course of business. 
Neither the Company nor any Subsidiary, nor to the Company’s knowledge any
director or officer thereof, is or has been the subject of any action, suit or
proceeding involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty.  There has not been, and
to the Company’s knowledge there is not pending or contemplated, any
investigation by the Commission involving the Company or, to the Company’s
knowledge, any current or former director or officer of the Company.  The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any of its
Subsidiaries under the Exchange Act or the Securities Act.  There are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against the Company or, to the
Company’s knowledge, any executive officers or directors of the Company in their
capacities as such, which individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect.

  

 

 

 

Execution Copy

 

4.8         Governmental Consents.  No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state, or local governmental authority on the part of the Company or
any of its Subsidiaries is required in connection with the consummation of the
transactions contemplated by the Transaction Documents except for (a) the filing
of a Form D with the Commission under the Securities Act and compliance with the
securities and blue sky laws in the states and other jurisdictions in which
shares of Common Stock are offered and/or sold, which compliance will be
effected in accordance with such laws, (b) the filing of a Notification Form:
Listing of Additional Shares with The Nasdaq Stock Market (“NASDAQ”) for the
listing of the Shares (which has been made and must be approved prior to the
Closing) and (c) the filing of one or more registration statements and all
amendments thereto with the Commission as contemplated by the Registration
Rights Agreement.

 

4.9         No Default or Consents.  Neither the execution, delivery or
performance of the Transaction Documents by the Company nor the consummation of
any of the transactions contemplated thereby (including, without limitation, the
issuance and sale by the Company of the Shares or the Additional Shares) will
conflict with, result in a breach or violation of, or imposition of any lien,
charge or encumbrance upon any property or assets of the Company pursuant to,
(i) the charter or by-laws of the Company or any of its Subsidiaries, (ii) the
terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which the Company or any of its Subsidiaries is a party or bound
or to which its or their property is subject, or (iii)  any statute, law, rule,
regulation, judgment, order or decree applicable to the Company or any of its
Subsidiaries of any court, regulatory body, administrative agency, governmental
body, arbitrator or other authority having jurisdiction over the Company or any
of its Subsidiaries or any of their respective properties, except in the case of
clauses (ii) and (iii) above, for any conflict, breach or violation of, or
imposition that would not, individually or in the aggregate, have or reasonably
be expected to have a Material Adverse Effect.

 

4.10      No Material Adverse Change.  Since March 31, 2018, (i) there have not
been any changes in the authorized capital, assets, liabilities, financial
condition, business, Material Contracts (as defined below) or operations of the
Company from that reflected in the Financial Statements except changes in the
ordinary course of business which have not had or would not reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect, (ii) the Company has not incurred any material liabilities (contingent
or otherwise) other than (A) trade payables, accrued expenses and other
liabilities incurred in the ordinary course of business consistent with past
practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered materially its
method of accounting or the manner in which it keeps its accounting books and
records, (iv) the Company has not declared or made any dividend or distribution
of cash or other property to its shareholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock, and (v) the
Company has not issued any equity securities to any officer, director or
Affiliate (as defined below), except Common Stock issued pursuant to existing
Company stock option or stock purchase plans or executive and director
arrangements disclosed in the SEC Documents.  Neither the Company nor any of its
Subsidiaries has taken any steps to seek protection pursuant to any law or
statute relating to bankruptcy, insolvency, reorganization, receivership,
liquidation or winding up, nor does the Company or any Subsidiary have any
knowledge or reason to believe that any of their respective creditors intend to
initiate involuntary bankruptcy proceedings or any actual knowledge of any fact
which would reasonably lead a creditor to do so. The Company and its
Subsidiaries, individually and on a consolidated basis, are not as of the date
hereof, and after giving effect to the transactions contemplated hereby to occur
at the Closing, will not be insolvent.  Neither the Company nor any of its
Subsidiaries has engaged in any business or in any transaction, and is not about
to engage in any business or in any transaction, for which the Company’s or such
Subsidiary’s remaining assets constitute unreasonably small capital.  For
purposes of this Agreement, “Affiliate” shall have the same meaning ascribed to
such term in the Voting Agreement.

 

4.11      No General Solicitation.  Neither the Company nor any Person acting on
its behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D promulgated under the Securities
Act) in connection with the offer or sale of the Shares.

 

 

 

 

Execution Copy

 

4.12      No Integrated Offering.  Neither of the Company or any Person acting
on its behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any Company security, under
circumstances that would adversely affect reliance by the Company on
Section 4(a)(2) of the Securities Act or require registration of any of the
Shares or any Additional Shares under the Securities Act or cause this offering
of the Shares and Additional Shares to be integrated with prior offerings by the
Company (i) for purposes of the Securities Act or (ii) for purposes of the
rules and regulations of NASDAQ such that it would require stockholder approval
prior to the Closing.

 

4.13      Sarbanes-Oxley Act.  There is and has been no failure on the part of
the Company and, to the knowledge of the Company, any of the Company’s directors
or officers, in their capacities as such, to comply with any applicable
provision of the Sarbanes-Oxley Act of 2002 and the rules and regulations
promulgated in connection therewith, including, without limitation, Section 402
relating to loans.

 

4.14      Intellectual Property.  The Company and its Subsidiaries collectively
own, possess, license or have other rights to use, on reasonable terms, all
patents, patent applications, trade and service marks, trade and service mark
registrations, trade names, copyrights, licenses, inventions, trade secrets,
technology, know-how and other intellectual property (collectively, the
“Intellectual Property”) necessary for the conduct of the Company’s and its
Subsidiaries’ business, taken as a whole, as now conducted or as proposed in the
SEC Documents to be conducted (the “Company Intellectual Property”). To the
knowledge of the Company, there are no rights of third parties to any Company
Intellectual Property, other than as licensed by the Company. To the knowledge
of the Company, there is no infringement by third parties of any Company
Intellectual Property. There is no pending or, to the Company’s knowledge,
threatened action, suit, proceeding or claim by others challenging the Company’s
rights in or to any Company Intellectual Property. There is no pending or, to
the Company’s knowledge, threatened action, suit, proceeding or claim by others
challenging the validity or scope of any Company Intellectual Property. There is
no pending or, to the Company’s knowledge, threatened action, suit, proceeding
or claim by others that the Company infringes or otherwise violates any patent,
trademark, copyright, trade secret or other proprietary rights of others. The
Company is not aware of any facts required to be disclosed to the U.S. Patent
and Trademark Office (“USPTO”) which have not been disclosed to the USPTO and
which would preclude the grant of a patent in connection with any patent
application of the Company Intellectual Property or could form the basis of a
finding of invalidity with respect to any issued patents of the Company
Intellectual Property.  The Company and its Subsidiaries collectively have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of the Company Intellectual Property, except where the failure to do so
would not, individually or in the aggregate, have or reasonably be expected to
have a Material Adverse Effect.

 

4.15      Compliance with NASDAQ Continued Listing Requirements.  The Company’s
Common Stock is registered pursuant to Section 12(b) of the Exchange Act, and
the Company has taken no action designed to terminate the registration of the
Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such registration.
The Company is in compliance with applicable NASDAQ continued listing
requirements. There are no proceedings pending or, to the Company’s knowledge,
threatened against the Company relating to the continued listing of the Common
Stock on NASDAQ and the Company has not received any notice of, nor to the
Company’s knowledge is there any reasonable basis for, the delisting of the
Common Stock from NASDAQ.

 

4.16      Disclosure.  The Company understands and confirms that the Purchaser
will rely on the foregoing representations in effecting transactions in
securities of the Company.  To the knowledge of the executive officers of the
Company, all due diligence materials regarding the Company, its business and the
transactions contemplated hereby, furnished by or on behalf of the Company to
the Purchaser upon its request are, when taken together with the SEC Documents
and the Schedule of Exceptions, true and correct in all material respects and do
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 light
of the circumstances under which they were made, not misleading.

 

4.17      Contracts.  Each franchise, contract or other document of a character
required to be described in the SEC Documents or to be filed as an exhibit to
the SEC Documents under the Securities Act and the rules and regulations
promulgated thereunder (collectively, the “Material Contracts”) is so described
or filed.  Neither the Company nor any of its Subsidiaries is in default under
or in violation of (and to the Company’s knowledge no event has occurred that
has not been waived that, with notice or lapse of time or both, would result in
a default by the Company or any of its Subsidiaries under), nor has the Company
or any of its Subsidiaries received written notice of a claim that it is in
default under or that it is in violation of, any Material Contract (whether or
not such default or violation has been waived).

 

 

 

 

Execution Copy

 

4.18      Properties and Assets.  The Company and its Subsidiaries have good and
marketable title to all real property and tangible personal property owned by
them which is material to the business of the Company and its Subsidiaries,
taken as a whole, in each case free and clear of all Liens except such as do not
materially affect the value of such property or do not materially interfere with
the use made and proposed to be made of such property by the Company and any of
its Subsidiaries or relate to indebtedness of the Company in existence as of the
Effective Date. Except as would not have or reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect, 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.

 

4.19      Compliance.  Except as (A) set forth herein or (B) would not (1) have
or reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect or (2) materially and adversely affect the validity or
enforceability of, or the authority or the ability of the Company to perform its
obligations under, the Transaction Documents: (i)  the Company and each of its
Subsidiaries are in compliance with statutes, laws, ordinances, rules and
regulations applicable to the Company and its Subsidiaries (collectively,
“Applicable Laws”); (ii)  the Company and each of its Subsidiaries possess all
licenses, certificates, approvals, authorizations, permits and supplements or
amendments thereto required by any Applicable Laws and/or for the ownership of
their respective properties or the conduct of their respective businesses,
including without limitation as it relates to a Company Product and as described
in the SEC Documents (collectively, “Authorizations”) and such Authorizations
are valid and in full force and effect and the Company is not in violation of
any term of any such Authorizations; (iii) neither the Company nor any of its
Subsidiaries has received any written notice of adverse finding or warning
letter from any governmental entity alleging or asserting noncompliance with any
Applicable Laws or Authorizations relating to a Company Product; (iv) neither
the Company nor any of its Subsidiaries has received written notice of any
ongoing claim, action, suit, proceeding, hearing, enforcement, investigation,
arbitration or other action from any governmental entity or third party alleging
that any Company Product, operation or activity related to a Company Product is
in violation of any Applicable Laws or Authorizations or has any knowledge that
any such governmental entity or third party is considering any such claim,
litigation, arbitration, action, suit, investigation or proceeding; (v) neither
the Company nor any of its Subsidiaries has received written notice that any
governmental entity has taken, is taking or intends to take action to limit,
suspend, modify or revoke any Authorizations or has any knowledge that any such
governmental entity has threatened or is considering such action with respect to
a Company Product; and (vi) the Company and each of its Subsidiaries have filed,
obtained, maintained or submitted all reports, documents, forms, notices,
applications, records, claims, submissions and supplements or amendments as
required by any Applicable Laws or Authorizations and that all such reports,
documents, forms, notices, applications, records, claims, submissions and
supplements or amendments were complete, correct and not misleading on the date
filed (or were corrected or supplemented by a subsequent submission). To the
Company’s knowledge, neither the Company nor any of its Subsidiaries, directors,
officers, employees or agents, has made, or caused the making of, any false
statements on, or material omissions from, any other records or documentation
prepared or maintained to comply with the requirements of any governmental
entity.

 

4.20      Taxes; Section 1202 Stock. 

 

(a)          The Company and each of its Subsidiaries has filed all material tax
returns that are required to be filed or has requested valid extensions thereof.
All such tax returns are correct and complete in all material respects for the
periods to which such tax returns relate, and the Company and each of its
Subsidiaries has paid all taxes required to be paid by them and any other
assessment, fine or penalty levied against it, to the extent that any of the
foregoing is due and payable, except for any such assessment, fine or penalty
that is currently being contested in good faith or as would not have or
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, whether or not arising from transactions in the ordinary course
of business.  There are in effect no waivers of applicable statutes of
limitations with respect to taxes for any year.

 

 

 

 

Execution Copy

 

(b)          As of and immediately following the Closing: (i) the Company
will meet all of the active business requirements described in Section 1202 of
the Internal Revenue Code; (ii) the Company will not have made any purchases of
its own stock described in Section 1202(c)(3)(B) of the Internal Revenue Code 
during the one-year period preceding the Closing, except for purchases that are
disregarded for such purposes under Treasury Regulations Section 1.1202-2; and
(iii) the Company's aggregate gross assets, as defined by Section 1202(d)(1) of
the Internal Revenue Code, at no time between incorporation and through the
Closing have exceeded $50 million, taking into account the assets of any
corporation required to be aggregated with the Company in accordance with
Section 1202(d)(1) of the Internal Revenue Code.

 

4.21      Transfer Taxes.  There are no transfer taxes or other similar fees or
charges under Federal law or the laws of any state, or any political subdivision
thereof, required to be paid in connection with the execution and delivery of
this Agreement or the issuance by the Company or sale by the Company of the
Shares.

 

4.22      Investment Company.  The Company is not and, after giving effect to
the offering and sale of the Shares, will not be an “investment company” as
defined in the Investment Company Act of 1940, as amended.

 

4.23      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 are reasonable and customary in the business in which it
is engaged; all policies of insurance and fidelity or surety bonds insuring the
Company and each of its Subsidiaries or their respective businesses, assets,
employees, officers and directors are in full force and effect; the Company and
each of its Subsidiaries is in compliance with the terms of such policies and
instruments in all material respects; and there are no claims by the Company or
any of its Subsidiaries under any such policy or instrument as to which any
insurance company is denying liability or defending under a reservation of
rights clause; neither the Company nor any of its Subsidiaries has been refused
any insurance coverage sought or applied for; and the Company has no 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 or
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, whether or not arising from transactions in the ordinary course
of business.

 

4.24      Price of Common Stock.  The Company has not, and to the Company’s
knowledge no one acting on its behalf has, taken, directly or indirectly, any
action designed to cause or result in, or that has constituted or that might
reasonably be expected to constitute the stabilization or manipulation of the
price of any securities of the Company to facilitate the sale or resale of the
Shares.

 

4.25      Governmental Permits, Etc.  The Company and each of its Subsidiaries
possess all licenses, certificates, permits and other authorizations issued by
all applicable authorities necessary to conduct their respective businesses, and
neither the Company nor any of its Subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have or reasonably be expected to
have a Material Adverse Effect, whether or not arising from transactions in the
ordinary course of business.

 

4.26      Internal Control over Financial Reporting; Sarbanes-Oxley Matters. 
The Company maintains 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
accountability; (iii) access to assets is permitted only in accordance with
management’s general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company’s internal controls over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act) are effective to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles and the Company is not aware of any material
weakness in its internal controls over financial reporting.  The Company
maintains “disclosure controls and procedures” (as such term is defined in
Rule 13a-15(e) under the Exchange Act); such disclosure controls and procedures
are effective.

 

 

 

 

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4.27      Foreign Corrupt Practices.  Neither the Company nor any of its
Subsidiaries nor, to the knowledge of the Company, any director, officer, agent,
or employee of the Company, has taken any action, directly or indirectly, that
would result in a violation by the Company or such persons of the Foreign
Corrupt Practices Act of 1977, as amended, and the rules and regulations
thereunder (the “FCPA”), including, without limitation, making use of the mails
or any means or instrumentality of interstate commerce corruptly in furtherance
of an offer, payment, promise to pay or authorization of the payment of any
money, or other property, gift, promise to give, or authorization of the giving
of anything of value to any “foreign official” (as such term is defined in the
FCPA) or any foreign political party or official thereof or any candidate for
foreign political office, in contravention of the FCPA.

 

4.28      Labor.  No labor problem or dispute with the employees of the Company
or any of its Subsidiaries exists or, to the knowledge of the Company, is
threatened, and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers or contractors,
that could have a Material Adverse Effect, whether or not arising from
transactions in the ordinary course of business.

 

4.29      ERISA.  None of the following events has occurred or exists: (i) a
failure to fulfill the obligations, if any, under the minimum funding standards
of Section 302 of the United States Employee Retirement Income Security Act of
1974, as amended (“ERISA”), and the regulations and published interpretations
thereunder with respect to a Plan that is required to be funded, determined
without regard to any waiver of such obligations or extension of any
amortization period; (ii) an audit or investigation by the Internal Revenue
Service, the U.S. Department of Labor, the Pension Benefit Guaranty Corporation
or any other federal or state governmental agency or any foreign regulatory
agency with respect to the employment or compensation of employees by any of the
Company that could have a Material Adverse Effect; (iii) any breach of any
contractual obligation, or any violation of law or applicable qualification
standards, with respect to the employment or compensation of employees by the
Company that would reasonably be expected to have a Material Adverse Effect.
None of the following events has occurred or is reasonably likely to occur:
(i) a material increase in the aggregate amount of contributions required to be
made to all Plans in the current fiscal year of the Company compared to the
amount of such contributions made in the most recently completed fiscal year of
the Company; (ii) a material increase in the “accumulated post-retirement
benefit obligations” (within the meaning of Statement of Financial Accounting
Standards 106) of the Company compared to the amount of such obligations in the
most recently completed fiscal year of the Company; (iii) any event or condition
giving rise to a liability under Title IV of ERISA that could have a Material
Adverse Effect; or (iv) the filing of a claim by one or more employees or former
employees of the Company related to their employment that could have a Material
Adverse Effect. For purposes of this paragraph, the term “Plan” means a plan
(within the meaning of Section 3(3) of ERISA) subject to Title IV of ERISA with
respect to which the Company may have any liability.

 

4.30      Environmental Laws.  The Company and each of its Subsidiaries (i) are
in compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants (“Environmental Laws”), (ii) have received and are in compliance
with all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct its business and (iii) have not received notice of
any actual or potential liability under any environmental law, except where such
non-compliance with Environmental Laws, failure to receive required permits,
licenses or other approvals, or liability would not, individually or in the
aggregate, have or reasonably be expected to have a Material Adverse Effect,
whether or not arising from transactions in the ordinary course of business.
Neither the Company nor any of its Subsidiaries has been named as a “potentially
responsible party” under the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended.

 

4.31      Money Laundering Laws. The operations of the Company and its
Subsidiaries are and have been conducted at all times in compliance with
applicable financial recordkeeping and reporting requirements and the money
laundering statutes and the rules and regulations thereunder and any related or
similar rules, regulations or guidelines, issued, administered or enforced by
any governmental agency (collectively, the “Money Laundering Laws”) and no
action, suit or proceeding by or before any court or governmental agency,
authority or body or any arbitrator involving the Company or any of its
Subsidiaries with respect to the Money Laundering Laws is pending or, to the
knowledge of the Company, threatened.

 

 

 

 

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4.32      OFAC. Neither the Company nor any of its Subsidiaries nor, to the
knowledge of the Company, any director, officer, agent or employee of the
Company or any of its Subsidiaries (i) is currently subject to any sanctions
administered or imposed by the United States (including any administered or
enforced by the Office of Foreign Assets Control of the U.S. Treasury
Department, the U.S. Department of State, or the Bureau of Industry and Security
of the U.S. Department of Commerce), the United Nations Security Council, the
European Union, or the United Kingdom (including sanctions administered or
controlled by Her Majesty’s Treasury) (collectively, “Sanctions” and such
persons, “Sanction Persons”) or (ii) will, directly or indirectly, use the
proceeds of this offering, or lend, contribute or otherwise make available such
proceeds to any subsidiary, joint venture partner or other person in any manner
that will result in a violation of any economic Sanctions by, or could result in
the imposition of Sanctions against, any person (including any person
participating in the offering, whether as underwriter, advisor, investor or
otherwise). Neither the Company nor any of its Subsidiaries nor, to the
knowledge of the Company, any director, officer, agent, or employee of the
Company or any of its Subsidiaries, is a person that is, or is 50% or more owned
or otherwise controlled by a person that is: (i) the subject of any Sanctions;
or (ii) located, organized or resident in a country or territory that is, or
whose government is, the subject of Sanctions that broadly prohibit dealings
with that country or territory (currently, Cuba, Iran, North Korea, Sudan, and
Syria) (collectively, “Sanctioned Countries” and each, a “Sanctioned Country”).
Neither the Company nor any of its Subsidiaries has engaged in any dealings or
transactions with or for the benefit of a Sanctioned Person, or with or in a
Sanctioned Country, in the preceding three years, nor does the Company or its
Subsidiaries have any plans to increase their respective dealings or
transactions with Sanctioned Persons, or with or in Sanctioned Countries.

 

4.33      Rights Agreements; Approval of Transaction Documents.  The Company
does not have in effect any stockholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of Common Stock or a change in
control of the Company.  The Company’s Board has approved the transactions
contemplated by the Transaction Documents, including the issuance of the Shares
to the Purchaser (including, without limitation, for purposes of RCW Section
23B.19.040).

 

4.34      Transactions With Affiliates and Employees.  Except as set forth in
the SEC Documents, to the Company’s knowledge, none of the executive officers or
directors of the Company is presently a party to any transaction with the
Company or to a presently contemplated transaction (other than for services as
officers and directors) that would be required to be disclosed pursuant to
Item 404 of Regulation S-K promulgated under the Securities Act.

 

4.35      No “Bad Actor” Disqualification.  The Company has conducted a factual
inquiry including the procurement of relevant questionnaires from each Covered
Person (as defined below) or other means to determine whether any Covered Person
(as defined below) is subject to any of the “bad actor” disqualifications
described in Rule 506(d)(1)(i) to (viii) under the Securities Act
(“Disqualification Events”). To the Company’s knowledge, after conducting such
factual inquiries, no Covered Person is subject to a Disqualification Event,
except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3) under
the Securities Act. The Company has complied, to the extent applicable, with any
disclosure obligations under Rule 506(e) under the Securities Act. “Covered
Persons” are those persons specified in Rule 506(d)(1) under the Securities Act,
including the Company; any predecessor or affiliate of the Company; any
director, executive officer, other officer participating in the offering,
general partner or managing member of the Company; any beneficial owner of 20%
or more of the Company’s outstanding voting equity securities, calculated on the
basis of voting power; any promoter (as defined in Rule 405 under the Securities
Act) connected with the Company in any capacity at the time of the sale of the
Shares; and any person that has been or will be paid (directly or indirectly)
remuneration for solicitation of purchasers in connection with the sale of the
Shares (a “Solicitor”), any general partner or managing member of any Solicitor,
and any director, executive officer or other officer participating in the
offering of any Solicitor or general partner or managing member of any
Solicitor.

 

4.36      Registration Eligibility.  To the Company’s knowledge, the Company is
eligible to register the resale of the Shares by the Purchasers using Form S-3
promulgated under the Securities Act.

 

4.37      Shell Company Status.  The Company is not, and has never been, an
issuer identified in Rule 144(i)(1).

 

 

 

 

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SECTION 5.

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER

 

5.1         The Purchaser represents and warrants to and covenants with the
Company that:

 

(a)           The Purchaser is a validly existing company and has all requisite
corporate power and authority to enter into and consummate the transactions
contemplated by the Transaction Documents and to carry out its obligations
hereunder and thereunder, and to invest in the Shares pursuant to this
Agreement.

 

(b)           The Purchaser acknowledges that it can bear the economic risk and
complete loss of its investment in the Shares and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment contemplated hereby. The Purchaser has had an
opportunity to receive, review and understand all information related to the
Company requested by it and to ask questions of and receive answers from the
Company regarding the Company, its business and the terms and conditions of the
offering of the Shares, and has conducted and completed its own independent due
diligence. The Purchaser acknowledges that the Company has made available the
SEC Documents. Based on the information the Purchaser has deemed appropriate,
and without reliance upon any placement agent, it has independently made its own
analysis and decision to enter into the Transaction Documents.  Neither such
inquiries nor any other investigation conducted by or on behalf of the Purchaser
or its representatives or counsel shall modify, amend or affect the Purchaser’s
right to rely on the truth, accuracy and completeness of the SEC Documents, the
Company’s representations and warranties contained in the Transaction Documents
and the Schedule of Exceptions.

 

(c)           The Shares to be received by the Purchaser hereunder will be
acquired for the Purchaser’s own account, not as nominee or agent, and not with
a view to the resale or distribution of any part thereof in violation of the
Securities Act, and the Purchaser has no present intention of selling, granting
any participation in, or otherwise distributing the same in violation of the
Securities Act without prejudice, however, to the Purchaser’s right at all
times, subject to the terms and conditions of the Transaction Documents, to sell
or otherwise dispose of all or any part of such Shares in compliance with
applicable federal and state securities laws. The Purchaser understands that the
Shares are characterized as “restricted securities” under the U.S. federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act only in certain limited circumstances. Purchaser will not,
directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) any of the securities purchased hereunder except in compliance with the
Securities Act, applicable blue sky laws, the rules and regulations promulgated
thereunder.

 

(d)           The Purchaser is an “accredited investor” within the meaning of
Rule 501(a) under the Securities Act.  The Purchaser has determined based on its
own independent review and such professional advice as it deems appropriate that
its purchase of the Shares and participation in the transactions contemplated by
the Transaction Documents (i) are fully consistent with its financial needs,
objectives and condition, (ii) comply and are fully consistent with all
investment policies, guidelines and other restrictions applicable to the
Purchaser, (iii) have been duly authorized and approved by all necessary action,
(iv) do not and will not violate or constitute a default under the Purchaser’s
certificate of formation or limited liability company agreement or under any
law, rule, regulation, agreement or other obligation by which the Purchaser is
bound and (v) are a fit, proper and suitable investment for the Purchaser,
notwithstanding the substantial risks inherent in investing in or holding the
Shares.

 

(e)           The execution, delivery and performance by the Purchaser of the
Transaction Documents have been duly authorized and each has been duly executed
and when delivered will constitute the valid and legally binding obligation of
the Purchaser, enforceable against the Purchaser in accordance with their
respective terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting the
enforcement of creditors’ rights generally, (ii) as limited by equitable
principles generally, including any specific performance and (iii) with respect
to the Registration Rights Agreement, as rights to indemnity or contribution may
be limited by state or federal laws or public policy underlying such laws.

 

 

 

 

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(f)            The Purchaser is not a broker or dealer registered pursuant to
Section 15 of the Exchange Act (a “registered broker-dealer”) and is not
affiliated with a registered broker dealer.  The Purchaser is not party to any
agreement for distribution of any of the Shares.

 

(g)           The Purchaser shall have completed and delivered to the Company no
later than the Closing Date, the Purchaser Questionnaire for use in preparation
of the Registration Statement (as such term is defined in the Registration
Rights Agreement), and the answers to the Purchaser Questionnaire are true and
correct in all material respects as of the date of this Agreement and will be
true and correct as of the Closing Date and the effective date of the
Registration Statement; provided that the Purchaser shall be entitled to update
such information by providing notice thereof to the Company before the effective
date of such Registration Statement.

 

(h)           The Purchaser understands that no United States federal or state
agency, or similar agency of any other country, has reviewed, approved, passed
upon, or made any recommendation or endorsement of the Company or the purchase
of the Shares.

 

(i)            The Purchaser has no present intent to effect a “change of
control” of the Company as such term is understood under the rules promulgated
pursuant to Section 13(d) of the Exchange Act.

 

(j)            The Purchaser has not taken any of the actions set forth in, and
is not subject to, the disqualification provisions of Rule 506(d)(1) of the
Securities Act.

 

(k)           The Purchaser did not learn of the investment in the Shares as a
result of any general solicitation or general advertising.

 

(l)            The Purchaser’s offices in which its investment decision with
respect to the Shares was made are located at the address immediately below such
Purchaser’s name in Section 12 hereof.

 

(m)          The Purchaser (including any person controlling, controlled by, or
under common control with such Purchaser, as the term “control” is defined
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and its implementing regulations (the “HSR Act”)) in connection with
the consummation of the transactions contemplated by this Agreement will not be
required to and will not complete a filing with the U.S. government pursuant to
the HSR Act.

 

(n)           As of immediately prior to the closing of the transactions
contemplated hereby, neither the Purchaser nor any of its Affiliates
beneficially owns any shares of Common Stock of the Company to the extent such
beneficial ownership would, as a result of the transactions contemplated hereby,
(i) require approval of the Company’s shareholders under NASDAQ Listing
Rule 5635(b) of the transactions contemplated hereby or (ii) result in required
disclosure under Section 13 of the Exchange Act by the Purchaser or any of its
Affiliates of beneficial ownership of shares of Common Stock of the Company in
excess of the Shares plus any other shares held by Affiliates of the Company.

 

5.2         Other than consummating the transactions contemplated hereunder, the
Purchaser has not, nor has any person acting on behalf of or pursuant to any
understanding with the Purchaser, directly or indirectly executed any purchases
or sales, including all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or
reservation of borrowable shares of Common Stock) (“Short Sales”), of the
securities of the Company during the period commencing as of March 28, 2018 and
ending immediately prior to the Effective Date.  The Purchaser has maintained
the confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).
Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein
shall constitute a representation or warranty, or preclude any actions, with
respect to the identification of the availability of, or securing of, available
shares to borrow in order to effect Short Sales or similar transactions in the
future.

 

5.3         The Purchaser understands that nothing in this Agreement or any
other materials presented to the Purchaser in connection with the purchase and
sale of the Shares constitutes legal, tax or investment advice.  The Purchaser
has consulted such legal, tax and investment advisors as it, in its sole
discretion, has deemed necessary or appropriate in connection with its purchase
of the Shares.

 

 

 

 

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5.4         Legends.

 

(a)           The Purchaser understands that, until such time as the Shares or
any Additional Shares have been sold pursuant to the Registration Statement or
the Shares or Additional Shares may be sold pursuant to Rule 144 under the
Securities Act (“Rule 144”) without any restriction as to the number of
securities as of a particular date that can then be immediately sold, the any
certificate or book entry notations evidencing the Shares or Additional Shares
may bear one or more legends in substantially the following form and substance:

 

“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 OF THE SECURITIES ACT.”

 

In addition, the stock certificate or any book entry notations representing the
Shares or Additional Shares may contain:

 

(i)            Any legend required by the blue sky laws of any state to the
extent such laws are applicable to the sale of such Shares or Additional Shares
hereunder.

 

(ii)           A legend regarding affiliate status of the Purchaser set forth in
Schedule 1 hereto, in the form included therein.

 

(b)           The Company agrees that at such time as such legend is no longer
required under this Section, it will, following the delivery by the Purchaser to
the Company or the Company’s transfer agent of a certificate representing the
Shares, as applicable and if such Shares are certificated, issued with a
restrictive legend, together with such representations and covenants of the
Purchaser or the Purchaser’s executing broker as the Company may reasonably
require in connection therewith, promptly deliver or cause to be delivered to
the Purchaser a book entry position representing such Shares that is free from
any legend referring to the Securities Act.  The Company shall not make any
notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section. 
Certificates for Shares subject to legend removal hereunder shall be transmitted
by the transfer agent of the Company to the Purchaser by crediting the account
of the Purchaser’s prime broker with the Depository Trust Company (“DTC”).  All
costs and expenses related to the removal of the legends and the reissuance of
any Shares shall be borne by the Company; provided, however, that the Purchaser
shall be responsible for the costs of its counsel and advisors.

 

(c)           The restrictive legend set forth in this section above shall be
removed and the Company shall issue a certificate or book entry position without
such restrictive legend or any other restrictive legend to the holder of the
applicable shares upon which it is stamped or issue to such holder by electronic
delivery with the applicable balance account at DTC or in physical certificated
shares, if appropriate, if (i) such Shares are registered for resale under the
Securities Act (provided that, if the Purchaser is selling pursuant to the
effective registration statement registering the Shares for resale, the
Purchaser agrees to only sell such Shares during such time that such
registration statement is effective and the Purchaser is not aware or has not
been notified by the Company that such registration statement has been withdrawn
or suspended, and only as permitted by such registration statement); (ii) such
Shares are sold or transferred pursuant to Rule 144 (if the transferor is not an
affiliate of the Company); or (iii) such Shares are eligible for sale without
the requirement for the Company to be in compliance with the current public
information required under Rule 144 as to such securities and without volume or
manner-of-sale restrictions.  Subject to receipt of such representations, and
covenants as are contemplated hereby, following the earlier of (i) the effective
date of the Registration Statement or (ii) Rule 144 becoming available for the
resale of the Shares, without the requirement for the Company to be in
compliance with the current public information required under Rule 144 as to the
Shares and without volume or manner-of-sale restrictions, the Company shall
promptly issue to the Company’s transfer agent, if required by the transfer
agent, the instructions with respect to legend removal consistent with this
Section and shall cause its counsel to deliver any legend removal opinion
required by the transfer agent.  Any fees associated with the issuance of such
opinion or the removal of such legend shall be borne by the Company; provided,
however, that the Purchaser shall be responsible for the costs of its counsel
and advisors.

 

 

 

 

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5.5         Restricted Securities.  The Purchaser understands that the Shares
are characterized as “restricted securities” under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such Shares may be resold without registration under the Securities Act only in
certain limited circumstances.  In this connection, the Purchaser represents
that it is familiar with Rule 144, as presently in effect, and understands the
resale limitations imposed thereby and by the Securities Act.

 

SECTION 6.

CONDITIONS TO COMPANY’S OBLIGATIONS AT THE CLOSING

 

The Company’s obligation to complete the sale and issuance of the Shares and
deliver Shares to the Purchaser at the Closing shall be subject to the following
conditions to the extent not waived by the Company:

 

6.1         Receipt of Payment.  The Company shall have received payment, by
wire transfer of immediately available funds, in the full amount of the purchase
price for the Shares being purchased by the Purchaser at the Closing.

 

6.2         Representations and Warranties.  The representations and warranties
made by the Purchaser in Section 5 hereof shall be true and correct when made,
and shall be true and correct on the Closing Date with the same force and effect
as if they had been made on and as of said date. The Purchaser shall have
performed in all material respects all obligations and covenants herein required
to be performed by it on or prior to the Closing Date.

 

6.3         Receipt of Executed Documents.  The Purchaser shall have executed
and delivered to the Company the Registration Rights Agreement, the Voting
Agreement, and the Purchaser Questionnaire.

 

 

SECTION 7.

CONDITIONS TO PURCHASER’S OBLIGATIONS AT THE CLOSING

 

The Purchaser’s obligation to accept delivery of the Shares and to pay for the
Shares shall be subject to the following conditions to the extent not waived by
the Purchaser:

 

7.1         Representations and Warranties Correct.  The representations and
warranties made by the Company in Section 4 hereof shall be true and correct as
of, and as if made on, the date of this Agreement and the Closing Date, except
to the extent any such representation or warranty expressly speaks as of an
earlier date, in which case such representation or warranty shall be true and
correct as of such earlier date. The Company shall have performed in all
material respects all obligations and covenants herein required to be performed
by it on or prior to the Closing Date.

 

7.2         Receipt of Executed Registration Rights Agreement.  The Company
shall have executed and delivered to the Purchaser the Registration Rights
Agreement.

 

7.3         Receipt of Executed Voting Agreement.  The Company shall have
executed and delivered to the Purchaser the Voting Agreement.

 

7.4         Certificate.  The Purchaser shall have received a certificate signed
by the Chief Executive Officer or the Chief Financial Officer to the effect that
the representations and warranties of the Company in Section 4 hereof are true
and correct in all material respects as of, and as if made on, the date of this
Agreement and as of the Closing Date and that the Company has satisfied in all
material respects all of the conditions set forth in this Section 7.

 

7.5         Good Standing.  The Company is validly existing as a corporation in
good standing under the laws of Washington.

 

 

 

 

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7.6         Judgments.  No judgment, writ, order, injunction, award or decree of
or by any court, or judge, justice or magistrate, including any bankruptcy court
or judge, or any order of or by any governmental authority, shall have been
issued, and no action or proceeding shall have been instituted by any
governmental authority, enjoining or preventing the consummation of the
transactions contemplated hereby.

 

7.7         Stop Orders.  No stop order or suspension of trading shall have been
imposed by NASDAQ, the SEC or any other governmental regulatory body with
respect to public trading in the Common Stock.

 

SECTION 8.

TERMINATION OF OBLIGATIONS TO EFFECT CLOSING; EFFECTS

 

8.1         The obligations of the Company, on the one hand, and the Purchaser,
on the other hand, to effect the Closing shall terminate as follows:

 

(a)            upon the mutual written consent of the Company and the Purchaser;

 

(b)           by the Company if any of the conditions set forth in Section 6
shall have become incapable of fulfillment, and shall not have been waived by
the Company; or

 

(c)            by the Purchaser if any of the conditions set forth in Section 7
shall have become incapable of fulfillment, and shall not have been waived by
the Purchaser.

 

8.2          Nothing in this Section 8 shall be deemed to release any party from
any liability for any breach by such party of the terms and provisions of this
Agreement or the other Transaction Documents or to impair the right of any party
to compel specific performance by any other party of its obligations under this
Agreement or the other Transaction Documents.

 

SECTION 9.

NO BROKER’S FEES

 

The Company and the Purchaser hereby represent that there are no brokers or
finders entitled to compensation in connection with the sale of the Shares, and
shall indemnify each other for any such fees for which they are responsible.

 

SECTION 10.

ADDITIONAL AGREEMENTS OF THE PARTIES

 

10.1        NASDAQ Listing. Prior to the Closing, the Company shall file with
NASDAQ a Notification Form: Listing of Additional Shares for the listing of the
Shares and the Company shall use commercially reasonable efforts to cause such
filing to be approved by NASDAQ and, in accordance, therewith, will use
commercially reasonable efforts to comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of such market
or exchange, as applicable.

 

10.2       Access to Information. From the date hereof until the Closing, the
Company will make reasonably available to the Purchaser’s representatives,
consultants and their respective counsels for inspection, such information and
documents as the Purchaser reasonably requests, and will make available at
reasonable times and to a reasonable extent officers and employees of the
Company to discuss the business and affairs of the Company.

 

10.3       Termination of Covenants.  The provisions of Section 10.1-10.2 shall
terminate and be of no further force and effect on the date on which the
Company’s obligations under the Registration Rights Agreement to register or
maintain the effectiveness of any registration covering the Registrable
Securities (as such term is defined in the Registration Rights Agreement) shall
terminate.

 

 

 

 

Execution Copy

 

10.4       Form D; Blue Sky Filings. The Company agrees to timely file a Form D
with respect to the Shares and to provide a copy thereof, promptly upon request
of the Purchaser. The Company shall 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 Purchaser at the Closing under applicable
securities or “Blue Sky” laws of the states of the United States, and shall
provide evidence of such actions promptly upon request of the Purchaser.

 

10.5       Integration. The Company shall not, and shall use its commercially
reasonable efforts to ensure that no affiliate of the Company shall, sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in Section 2 of the Securities Act) that will be integrated
with the offer or sale of the Shares in a manner that would require the
registration under the Securities Act of the sale of the Shares to the
Purchaser, or that will be integrated with the offer or sale of the Shares for
purposes of the rules and regulations of any trading market such that it would
require stockholder approval prior to the closing of such other transaction
unless stockholder approval is obtained before the closing of such subsequent
transaction.

 

10.6       Short Sales and Confidentiality After the Date Hereof. The Purchaser
covenants that neither it nor any affiliates acting on its behalf or pursuant to
any understanding with it will execute any Short Sales during the period from
the date hereof until the earlier of such time as (i) after the transactions
contemplated by this Agreement are first publicly announced or (ii) this
Agreement is terminated in full. The Purchaser covenants that until such time as
the transactions contemplated by this Agreement are publicly disclosed in
accordance with Section 10.6, the Purchaser will maintain the confidentiality of
all disclosures made to it in connection with this transaction (including the
existence and terms of this transaction). The Purchaser understands and
acknowledges that the SEC currently takes the position that coverage of short
sales of shares of the Common Stock “against the box” prior to effectiveness of
a resale registration statement with securities included in such registration
statement would be a violation of Section 5 of the Securities Act, as set forth
in Item 239.10 of the Securities Act Rules Compliance and Disclosure
Interpretations compiled by the Office of Chief Counsel, Division of Corporation
Finance.

 

10.7       Securities Laws Disclosure; Publicity.  By 9:00 a.m., New York City
time, on the third (3rd) business day immediately following the date of this
Agreement, each of the Company and the Purchaser shall issue a press release, in
each case, reasonably acceptable to the other party, disclosing the transactions
contemplated hereby.  On or before the fourth trading day immediately following
the execution of this Agreement, the Company will file a Current Report on
Form 8-K (the “8-K”) with the Commission describing the terms of the Transaction
Documents (and including as exhibits to such Current Report on Form 8-K the
agreements required to be filed in connection therewith).  Notwithstanding the
foregoing, the Company shall not publicly disclose the name of the Purchaser, or
include the name of the Purchaser in any public filing with the Commission or
any regulatory agency with the exception of NASDAQ, without the prior written
consent of the Purchaser, which consent shall not be unreasonably withheld,
conditioned or delayed, except: (a) as required by federal securities law in
connection with (i) any registration statement contemplated by the Registration
Rights Agreement and (ii) the filing of final Transaction Documents with the
Commission; (b) the filing of a Form D with the Commission under the Securities
Act and (c) to the extent such disclosure is required by law or NASDAQ
regulations (other than the submission of a listing of additional shares form),
in which case the Company shall provide the Purchaser with prior notice of such
disclosure permitted under this clause (c). As of the time of the filing of the
8-K, the Purchaser shall not be in possession of any material, non-public
information received from the Company, any subsidiary of the Company or any of
their respective officers, directors, employees or agents, pursuant to the
transactions contemplated by this Agreement that is not disclosed in the 8-K,
press release or other disclosure by the Company that complies with the
requirements of Regulation FD.

 

10.8       Additional Share Purchase Rights. The Company grants to Purchaser the
right to purchase additional shares of Common Stock (the “Additional Shares”) on
the terms set forth in Appendix IV.

 

 

 

 

Execution Copy

 

SECTION 11.
INDEMNIFICATION

 

11.1       Indemnification by the Company.  The Company agrees to indemnify and
hold harmless the Purchaser and its directors, officers, shareholders, members,
partners, employees and agents, and each Person, if any, who controls any
Purchaser (within the meaning of Section 15 of the Securities Act and Section 20
of the Exchange Act), and the directors, officers, shareholders, agents,
members, partners, employees or agents of such controlling Person (each, a
“Purchaser Indemnified Party”), against any losses, claims, damages, liabilities
or expenses, joint or several, to which such Purchaser Indemnified Party may
become subject under the Securities Act, the Exchange Act, or any other federal
or state statutory law or regulation, or at common law (including in settlement
of any litigation, if such settlement is effected with the written consent of
the Company), insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof as contemplated below) arise out of or are based
in whole or in part on (i) any inaccuracy in the representations and warranties
of the Company contained in this Agreement or (ii) any failure of the Company to
perform its obligations hereunder, and will reimburse each Purchaser Indemnified
Party for legal and other expenses reasonably incurred as such expenses are
reasonably incurred by such Purchaser Indemnified Party in connection with
investigating, defending, settling, compromising or paying such loss, claim,
damage, liability, expense or action; provided, however, that the Company will
not be liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon (1) the failure of such
Purchaser Indemnified Party to comply with the covenants and agreements
contained in Section 5, Section 6 and Section 10.6 above respecting sale of the
Shares, or (2) the inaccuracy of any representations made by such Purchaser
Indemnified Party herein.

 

11.2       Indemnification by the Purchaser.  The Purchaser shall indemnify and
hold harmless the Company and its directors, officers, shareholders, members,
partners, employees and agents, and each Person, if any, who controls the
Company (within the meaning of Section 15 of the Securities Act and Section 20
of the Exchange Act), and the directors, officers, shareholders, agents,
members, partners, employees or agents of such controlling Person (each, a
“Company Indemnified Party”) against any losses, claims, damages, liabilities or
expenses to which such Company Indemnified Party may become subject, under the
Securities Act, the Exchange Act, or any other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Purchaser) insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof as contemplated below) arise out of or are based upon
(i) any failure by the Purchaser to comply with the covenants and agreements
contained in Section 5, Section 6 and Section 10.6 above or (ii) the inaccuracy
of any representation made by the Purchaser herein, and will reimburse such
Company Indemnified Party for any legal and other expense reasonably incurred,
as such expenses are reasonably incurred by such Company Indemnified Party in
connection with investigating, defending, settling, compromising or paying any
such loss, claim, damage, liability, expense or action.

 

SECTION 12.

NOTICES

 

All notices, requests, consents and other communications hereunder shall be in
writing, shall be sent by confirmed facsimile or electronic mail, or mailed by
first-class registered or certified airmail, or nationally recognized overnight
express courier, postage prepaid, and shall be deemed given when so sent in the
case of facsimile or electronic mail transmission, or when so received in the
case of mail or courier, and addressed as follows:

 

if to the Company, to: ClearSign Combustion Corporation   12870 Interurban
Avenue South   Seattle, WA 98168   Attention:  Chief Executive Officer  
E-Mail:  Steve.Pirnat@clearsign.com   Facsimile:  206.673.4848

 

with a copy (which shall not constitute notice) to: Mitchell Silberberg & Knupp
LLP   12 East 49th Street, 30th Floor   New York, NY 10017   Attn.:  Melanie
Figueroa, Esq.   E-Mail:  mxf@msk.com   Facsimile:  212.509.7239

 

 

 

 

Execution Copy

 

if to the Purchaser, to: CLIRSPV LLC   119 Warren Ave   3rd Floor   Spring Lake,
NJ 07762   Attention: Robert T. Hoffman Sr.   E-Mail:  rhoffman@princetonopp.com

 

with copies (which shall not constitute notice) to: Bressler, Amery & Ross   325
Columbia Turnpike   Florham Park, NJ 07932   Attention:  Kim Larsen   E-Mail:
Klarsen@bressler.com

 

    , or to such other person, at such other place or in such manner as one
party shall designate to other party in writing.

 

SECTION 13.

MISCELLANEOUS

 

13.1       Payment of Fees and Expenses.  Each of the Company and the Purchaser
shall bear its own expenses and legal fees incurred on its behalf with respect
to this Agreement and the transactions contemplated hereby, provided, however,
that the Company shall pay Purchaser at Closing $75,000 on a non-accountable
basis for its expenses incurred in connection with this Agreement. Should the
Company refuse to enter into the Transaction Documents or to close the sale of
the Shares pursuant to the Transaction Documents, in each case through no fault
of the Purchaser, the Company shall pay Princeton Opportunity Management LLC a
break-up fee of $75,000.   If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorney’s fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.

 

13.2       Waivers and Amendments.  Neither this Agreement nor any provision
hereof may be changed, waived, discharged, terminated, modified or amended
except upon the written consent of the Company and the Purchaser.

 

13.3       Replacement of Shares.  If the Shares are certificated and any
certificate or instrument evidencing any Shares is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company and the Company’s transfer agent of such
loss, theft or destruction and the execution by the holder thereof of a
customary lost certificate affidavit of that fact and an agreement to indemnify
and hold harmless the Company and the Company’s transfer agent for any losses in
connection therewith or, if required by the transfer agent, a bond in such form
and amount as is required by the transfer agent.  The applicants for a new
certificate or instrument under such circumstances shall also pay any reasonable
third-party costs associated with the issuance of such replacement Shares.  If a
replacement certificate or instrument evidencing any Shares is requested due to
a mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.

 

13.4       Governing Law; Submission to Jurisdiction.  All questions concerning
the construction, validity, enforcement and interpretation of the Transaction
Documents shall be governed by and construed and enforced in accordance with the
internal laws of the State of New York, without regard to the principles of
conflicts of law thereof.  Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement and any other Transaction Documents (whether
brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the County of New York, in the State of
New York. Each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in the County of New York, in the State of
New York, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents),
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 improper or is an
inconvenient venue for such proceeding.  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 via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law.

 

 

 

 

Execution Copy

 

13.5       Successors and Assigns.  Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto. This Agreement, or any rights or obligations hereunder, may not
be assigned by either party without the prior written consent of the other.

 

13.6       Headings.  The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be part of this Agreement.

 

13.7       Severability.  In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.

 

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

 

13.9       Entire Agreement.  This Agreement and other documents delivered
pursuant hereto, including the exhibits and the Schedule of Exceptions,
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof.

  

13.10     Survival.  The representations, warranties, covenants and agreements
made in this Agreement shall survive any investigation made by the Company or
the Purchaser and the Closing.

 

[Signature pages follow.]

 

 

 

 

Execution Copy

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives as of the day and year first above
written.

 

  COMPANY:       CLEARSIGN COMBUSTION CORPORATION       By: /s/ Stephen E.
Pirnat   Name: Stephen E. Pirnat   Title: Chief Executive Officer      
PURCHASER:       CLIRSPV LLC             By: /s/ Robert T. Hoffman Sr.   Name:
Robert T. Hoffman Sr.   Title: Managing Member

 

 

 

 

Execution Copy

 

APPENDIX I

 

PURCHASER QUESTIONNAIRE

 

To: ClearSign Combustion Corporation

 

This Purchaser Questionnaire (“Questionnaire”) must be completed by each
potential investor in connection with the offer and sale of the shares of the
common stock, par value $0.0001 per share (the “Securities”), of ClearSign
Combustion Corporation, a Washington corporation (the “Corporation”).  The
Securities are being offered and sold by the Corporation without registration
under the Securities Act of 1933, as amended (the “Securities Act”), and the
securities laws of certain states, in reliance on the exemptions contained in
Section 4(a)(2) of the Securities Act and on Regulation D promulgated thereunder
and in reliance on similar exemptions under applicable state laws.  The
Corporation must determine that a potential investor meets certain suitability
requirements before offering or selling the Securities to such investor.  The
purpose of this Questionnaire is to assure the Corporation that each investor
will meet the applicable suitability requirements.  The information supplied by
you will be used in determining whether you meet such criteria, and reliance
upon the private offering exemptions from registration is based in part on the
information herein supplied.

 

This Questionnaire does not constitute an offer to sell or a solicitation of an
offer to buy any security.  By signing this Questionnaire, you will be
authorizing the Corporation to provide a completed copy of this Questionnaire to
such parties as the Corporation deems appropriate in order to ensure that the
offer and sale of the Securities will not result in a violation of the
Securities Act or the securities laws of any state and that you otherwise
satisfy the suitability standards applicable to purchasers of the Securities. 
All potential investors must answer all applicable questions and complete, date
and sign this Questionnaire.  Please print or type your responses and attach
additional sheets of paper if necessary to complete your answers to any item.

 

PART A. BACKGROUND INFORMATION

 

Name of Beneficial Owner of the Securities:  clirSPV LLC

 

Business Address:  119 Warren Avenue, 3rd Floor

 

City: Spring Lake State: NJ Zip Code: 07762

 

Telephone Number: 732 282 0743

 

If a corporation, partnership, limited liability company, trust or other entity:

 

Type of entity: LLC

 

State of formation:  Delaware Approximate Date of formation: Feb 16 2018

 

Were you formed for the purpose of investing in the securities being
offered?     Yes  x               No  ¨

 

If an individual:

Residence Address:     (Number and Street)

 

City:                   State:                  Zip Code:              
Telephone Number:                        Age:                   
Citizenship:              Where registered to vote:                

 

 

 

 

Execution Copy

 

Set forth in the space provided below the state(s), if any, in the United States
in which you maintained your residence during the past two years and the dates
during which you resided in each state:

 

Are you a director or executive officer of the Corporation?       Yes 
¨                 No  ¨

 

Social Security or Taxpayer Identification No.:     82-5195800       

 

PART B. ACCREDITED INVESTOR QUESTIONNAIRE

 

In order for the Corporation to offer and sell the Securities in conformance
with state and federal securities laws, the following information must be
obtained regarding your investor status. Please initial each category applicable
to you as a purchaser of Securities of the Corporation.

 

  ¨  (1) A bank as defined in Section 3(a)(2) of the Securities Act, or any
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity;         ¨  (2) A broker or dealer registered pursuant to Section 15 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”);         ¨
 (3) An insurance company as defined in Section 2(a)(13) of the Securities Act;
        ¨  (4) An investment company registered under the Investment Company Act
of 1940 or a business development company as defined in Section 2(a)(48) of that
act;         ¨  (5) A Small Business Investment Company licensed by the U.S.
Small Business Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958;         ¨  (6) A plan established and maintained by a
state, its political subdivisions, or any agency or instrumentality of a state
or its political subdivisions, for the benefit of its employees, if such plan
has total assets in excess of $5,000,000;         ¨  (7) An employee benefit
plan within the meaning of the Employee Retirement Income Security Act of 1974,
if the investment decision is made by a plan fiduciary, as defined in Section
3(21) of such act, which is either a bank, savings and loan association,
insurance company or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors;      
  ¨  (8) A private business development company as defined in Section 202(a)(22)
of the Investment Advisers Act of 1940;         ¨  (9) An organization described
in Section 501(c)(3) of the Internal Revenue Code, a corporation, Massachusetts
or similar business trust, or partnership, not formed for the specific purpose
of acquiring the Securities, with total assets in excess of $5,000,000;        
¨  (10) A trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Securities, whose purchase is directed by a
sophisticated person who has such knowledge and experience in financial and
business matters that such person is capable of evaluating the merits and risks
of investing in the Corporation;

 

 

 

 

Execution Copy

 

  ¨  (11) A natural person whose individual net worth, or joint net worth with
that person’s spouse, at the time of his purchase exceeds $1,000,000 (exclusive
of the value of that person’s primary residence);         ¨  (12) A natural
person who had an individual income in excess of $200,000 in each of the two
most recent years, or joint income with that person’s spouse in excess of
$300,000, in each of those years, and has a reasonable expectation of reaching
the same income level in the current year;         ¨  (13) An executive officer
or director of the Corporation;         x  (14) An entity in which all of the
equity owners qualify under any of the above subparagraphs.

 

PART C. BAD ACTOR QUESTIONNAIRE

 

1.During the past ten years, have you been convicted of any felony or
misdemeanor that is related to any securities matter?

 

Yes   ¨          (If yes, please continue to Question 1.a)

 

No    x          (If no, please continue to Question 2)

 

a)           If your answer to Question 1 was “yes”, was the conviction related
to: (i) the purchase or sale of any security; (ii) the making of any false
filing with the Securities and Exchange Commission (the “SEC”); or (iii) the
conduct of an underwriter, broker, dealer, municipal securities dealer,
investment adviser or paid solicitor of purchasers of securities?

 

Yes  ¨          No  ¨

 

2.Are you subject to any court injunction or restraining order entered during
the past five years that is related to any securities matter?

 

Yes   ¨          (If yes, please continue to Question 2.a)

 

No    x          (If no, please continue to Question 3)

 

a)            If your answer to Question 2 was “yes”, does the court injunction
or restraining order currently restrain or enjoin you from engaging or
continuing to engage in any conduct or practice related to: (i) the purchase or
sale of any security; (ii) the making of any false filing with the SEC; or
(iii) the conduct of an underwriter, broker, dealer, municipal securities
dealer, investment adviser or paid solicitor of purchasers of securities?

 

Yes  ¨          No  ¨

 

3.Are you subject to any final order(1) of any governmental commission,
authority, agency or officer(2) related to any securities, insurance or banking
matter?

 

 

(1)  A “final order” is defined under Rule 501(g) as a written directive or
declaratory statement issued by a federal or state agency described in
Rule 506(d)(1)(iii) under applicable statutory authority that provides for
notice and an opportunity for a hearing, and that constitutes a final
disposition or action by such federal or state agency.

(2)  You may limit your response to final orders of: (i) state securities
commissions (or state agencies/officers that perform a similar function);
(ii) state authorities that supervise or examine banks, savings associations or
credit unions; (iii) state insurance commissions (or state agencies/officers
that perform a similar function); (iv) federal banking agencies; (v) the U.S.
Commodity Futures Trading Commission; or (vi) the U.S. National Credit Union
Administration.

 

 

 

 

Execution Copy

 

Yes   ¨          (If yes, please continue to Question 3.a)

 

No    x         (If no, please continue to Question 4)

 

a)If your answer to Question 3 was “yes”:

 

i)Does the order currently bar you from: (i) associating with an entity
regulated by such commission, authority, agency or officer; (ii) engaging in the
business of securities, insurance or banking; or (iii) engaging in savings
association or credit union activities?

 

Yes  ¨             No  ¨

 

ii)Was the order (i) entered within the past ten years and (ii) based on a
violation of any law or regulation that prohibits fraudulent, manipulative or
deceptive conduct?

 

Yes  ¨             No  ¨

 

4.Are you subject to any SEC disciplinary order?(3)

 

Yes   ¨          (If yes, please continue to Question 4.a)

 

No    x          (If no, please continue to Question 5)

 

a)If your answer to Question 4 was “yes”, does the order currently: (i) suspend
or revoke your registration as a broker, dealer, municipal securities dealer or
investment adviser; (ii) place limitations on your activities, functions or
operations; or (iii) bar you from being associated with any particular entity or
class of entities or from participating in the offering of any penny stock?

 

5.Are you subject to any SEC cease and desist order entered within the past five
years?

 

Yes   ¨          (If yes, please continue to Question 5.a)

 

No    x          (If no, please continue to Question 6)

 

a)If your answer to Question 5 was “yes”, does the order currently require you
to cease and desist from committing or causing a violation or future violation
of (i) any knowledge-based anti-fraud provision of the U.S. federal securities
laws(4) or (ii) Section 5 of the Securities Act?

 

Yes  ¨          No  ¨

 

6.Have you been suspended or expelled from membership in, or suspended or barred
from association with a member of, a registered national securities exchange or
a registered national or affiliated securities association?

 

 

(3)  You may limit your response to disciplinary orders issued pursuant to
Sections 15(b) or 15B(c) of the Exchange Act or Section 203(e) or (f) of the
Investment Advisers Act of 1940 (the “Advisers Act”).

(4)  Including (but not limited to) Section 17(a)(1) of the Securities Act,
Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, Section 15(c)(1) of
the Exchange Act, and Section 206(1) of the Advisers Act or any other rule or
regulation thereunder.

 

 

 

 

Execution Copy

 

Yes   ¨          (If yes, please describe the basis of any such suspension or
expulsion and any related details in the space provided under Question 10
below)(5)

 

No    x          (If no, please continue to Question 7)

 

7.Have you registered a securities offering with the SEC, made an offering under
Regulation A or been named as an underwriter in any registration statement or
Regulation A offering statement filed with the SEC?

 

Yes   ¨          (If yes, please continue to Question 7.a)

 

No    x          (If no, please continue to Question 8)

 

a)If your answer to Question 7 was “yes”:

 

i)During the past five years, was any such registration statement or Regulation
A offering statement the subject of a refusal order, stop order or order
suspending the Regulation A exemption?

 

Yes  ¨          No  ¨

 

ii)Is any such registration statement or Regulation A offering statement
currently the subject of an investigation or proceeding to determine whether a
stop order or suspension order should be issued?

 

Yes  ¨          No  ¨

 

8.Are you subject to a U.S. Postal Service false representation order entered
within the past five years?

 

Yes  ¨          No  x

 

9.Are you currently subject to a temporary restraining order or preliminary
injunction with respect to conduct alleged by the U.S. Postal Service to
constitute a scheme or device for obtaining money or property through the mail
by means of false representations?

 

Yes  ¨          No  x

 

10.In the space provided below, describe any facts or circumstances that caused
you to answer “yes” to any Question (indicating the corresponding Question
number).   Attach additional pages if necessary.

 

 

(5)  In providing additional information, please explain whether or not the
suspension or expulsion resulted from “any act or omission to act constituting
conduct inconsistent with just and equitable principles of trade.”

 

 

 

 

Execution Copy

 

A. FOR EXECUTION BY AN INDIVIDUAL:                   By:                 Print
Name:             Date             B. FOR EXECUTION BY AN ENTITY:              
    Entity Name:  clirSPV LLC                             By: /s/ Robert T.
Hoffman Sr.               Print Name: Robert T. Hoffman Sr.               Title:
Managing Member           July 12, 2018       Date             C. ADDITIONAL
SIGNATURES (if required by partnership, corporation or trust document):        
      Entity Name:                 By:                 Print Name:              
  Title:                     Date                   Entity Name:                
By:                 Print Name:                 Title:                     Date
   

 

 

 

 

Execution Copy

 

APPENDIX II

 

VOTING AGREEMENT

 

This Voting Agreement (this “Agreement”) is dated as of July __, 2018, by and
between ClearSign Combustion Corporation, a Washington corporation (the
“Company”) and CLIRSPV, LLC, a Delaware limited liability Company (“Investor”).

 

RECITALS

 

A.       The Stock Purchase Agreement, dated as of July __, 2018, by and between
the Company and the Investor (the “Purchase Agreement”), provides for the
issuance and sale by the Company to the Investor, and the purchase by the
Investor, of shares (collectively, the “Purchased Shares”) of the Company’s
common stock, par value $0.0001 per share (the “Common Stock”); and

 

B.       As a condition to consummating the transactions contemplated by the
Purchase Agreement, the Investor and the Company have agreed upon certain rights
and obligations as set forth herein, and it is a condition to the closing under
the Purchase Agreement that this Agreement be executed and delivered by the
Investor and the Company.

 

AGREEMENT

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Investor agree
as follows:

 

SECTION 1.

DEFINITIONS

 

As used in this Agreement, the following terms shall have the following
meanings:

 

 

“Affiliate” shall mean, with respect to any Person, any other Person directly or
indirectly Controlling, Controlled by, or under common Control with such Person;
provided, however, that the Company, any of its subsidiaries or any of the
Company’s other Controlled Affiliates, in each case, will not be deemed
Affiliates of the Investor for purposes of this Agreement.

 

“Agreement” shall have the meaning set forth in the Preamble to this Agreement.

 

“beneficial owner,” “beneficially owns,” “beneficial ownership” and terms of
similar import used in this Agreement shall, with respect to a Person, have the
meaning set forth in Rule 13d-3 under the Exchange Act (a) assuming the full
conversion into, and exercise and exchange for, shares of Common Stock of all
Common Stock Equivalents beneficially owned by such Person and (b) determined
without regard for the number of days in which such Person has the right to
acquire such beneficial ownership.

 

“Board of Directors” shall mean the Board of Directors of the Company.

  

“Change in Control” shall mean, with respect to the Company, any of the
following events: (a) any Person or Group is or becomes the beneficial owner,
directly or indirectly, of a majority of the total voting power represented by
all Shares of Then Outstanding Common Stock; (b) the Company consolidates with
or merges into another corporation or entity, or any corporation or entity
consolidates with or merges into the Company, other than (i) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof) a majority of the
combined voting power of the voting securities of the Company or such surviving
entity or any parent thereof outstanding immediately after such merger or
consolidation, or (ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no Person
becomes the beneficial owner, directly or indirectly, of a majority of the total
voting power of all Shares of Then Outstanding Common Stock; (c) the Company
conveys, transfers or leases all or substantially all of its assets to any
Person other than a wholly owned Affiliate of the Company or (d) individuals who
constitute Continuing Directors cease for any reason to constitute at least a
majority of the Board of Directors.

 

 

 

 

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“Closing Date” shall have the meaning set forth in the Purchase Agreement.

 

“Common Stock” shall have the meaning set forth in the Preamble to this
Agreement.

 

“Common Stock Equivalents” shall mean any options, warrants or other securities
or rights convertible into or exercisable or exchangeable for, whether directly
or following conversion into or exercise or exchange for other options, warrants
or other securities or rights, shares of Common Stock.

 

“Company” shall have the meaning set forth in the Preamble to this Agreement.

  

“Continuing Directors” shall mean the directors of the Company on the date
hereof, and each other director, if in each case, such other director’s
nomination for election to the Board of Directors was recommended by, or whose
appointment to the Board of Directors was approved by, at least a majority of
the other Continuing Directors.

 

“Control” (including the correlative terms “Controlled by,” “Controlling,” and
“under common Control with”), as applied to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Person, whether through the
ownership or voting of securities, by contract or otherwise.

 

“Controlled Affiliate” shall mean, with respect to a Person, an Affiliate of
such Person Controlled by such Person.

   

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.

 

“Governmental Authority” shall mean any court, agency, authority, department,
regulatory body or other instrumentality of any government or country or of any
national, federal, state, provincial, regional, county, city or other political
subdivision of any such government or country or any supranational organization
of which any such country is a member.

 

“Group” shall mean two or more Persons acting as a partnership, limited
partnership, syndicate or other group within the meaning of Section 13(d) of the
Exchange Act.

 

“Initial Designee” shall have the meaning set forth in Section 2.

 

“Investor” shall have the meaning set forth in the Preamble to this Agreement.

 

“Investor Designee” shall have the meaning set forth in Section 2.

 

“Law” or “Laws” shall mean all laws, statutes, rules, regulations, orders,
judgments, injunctions and/or ordinances of any Governmental Authority.

 

“Modified Clause” shall have the meaning set forth in Section 5.8.

  

“Non-Controlled Affiliate” shall mean, with respect to a Person, an Affiliate of
such Person that is not a Controlled Affiliate of such Person.

   

“Person” shall mean any individual, partnership, firm, corporation, association,
trust, unincorporated organization, government or any department or agency
thereof or other entity.

 

 

 

 

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“Purchase Agreement” shall have the meaning set forth in the Preamble to this
Agreement, and shall include all appendices, exhibits and schedules attached
thereto.

 

“Purchased Shares” shall have the meaning set forth in the Preamble to this
Agreement, and shall be adjusted for (a) any stock split, stock dividend, share
exchange, merger, consolidation or similar recapitalization and (b) any Common
Stock issued as (or issuable upon the exercise of any warrant, right or other
security that is issued as) a dividend or other distribution with respect to, or
in exchange or in replacement of, the Purchased Shares.

 

“Qualified Investor Designee” shall have the meaning set forth in Section 2.

  

“Registration Rights Agreement” shall mean the Registration Rights Agreement by
and between the Company and the Investor of even date herewith.

 

“Replacement Designee” shall have the meaning set forth in Section 2.

 

“SEC” shall mean the United States Securities and Exchange Commission.

 

“Shares of Then Outstanding Common Stock” shall mean, at any time, the issued
and outstanding shares of Common Stock at such time.

 

“Third Party” shall mean any Person other than the Investor, the Company or any
of their respective Affiliates.

 

SECTION 2.

ADDITIONAL AGREEMENTS

 

Board Nomination Right.  For so long as the Investor beneficially owns at least
three million (3,000,000) shares of Common Stock (as adjusted for any stock
split, stock dividend or any subdivision of the Common Stock, or any other
reclassification or other similar recapitalization after the date hereof), or
such lesser number of shares of Common Stock which then constitute at least 10%
of the Shares of Then Outstanding Common Stock, at each annual meeting of the
stockholders of the Company or at any meeting of the stockholders of the Company
at which members of the Board of Directors are to be elected, or whenever such
action is to be taken by written consent for such purposes, the Company agrees
to nominate for election one individual designated by the Investor (an “Investor
Designee”) who shall be reasonably acceptable to the nominating and corporate
governance committee of the Board of Directors (an Investor Designee who
satisfied such requirements, a “Qualified Investor Designee”).  The Investor’s
initial designee under this Agreement shall be Robert T. Hoffman Sr. (the
“Initial Designee”), whom the Company agrees is a Qualified Investor Designee. 
On or prior to the Closing Date, the Company shall take all actions necessary
(including, if necessary, by approving an enlargement of its Board of Directors
to create a vacancy thereon) to cause the appointment to the Board of Directors
of the Initial Designee effective as of the Closing Date, and thereafter, for so
long as the Investor’s board nomination right under this Section 2 continues,
the Company will use its commercially reasonable efforts to cause the election
and reelection of such individual to the Board of Directors for so long as he or
she is a Qualified Investor Designee (including recommending that the Company’s
stockholders vote in favor of the election of such an individual and otherwise
supporting him for election in a manner no less rigorous and favorable than the
manner in which the Company supports its other nominees), provided that if the
Investor determines to designate a different individual (“Replacement Designee”)
as its Investor Designee, and such Replacement Designee is a Qualified Investor
Designee, such obligation shall instead apply to the Replacement Designee.  If
any Investor Designee vacates the Board of Directors, the Company shall take all
actions necessary to cause the appointment to the Board of Directors of a
Qualified Investor Designee nominated by the Investor to fill the vacancy and
thereafter the Company will use its commercially reasonable efforts to cause the
election of such an individual to the Board of Directors, subject to the same
conditions and limitations as set forth in the foregoing sentence.  For
avoidance of doubt, the Investor shall be limited to only one designee serving
on the Board at any time pursuant to this Section 2.  Such designee shall be
entitled to the same level of directors’ and officers’ indemnity insurance
coverage and indemnity and exculpation protection (including under any
indemnification agreement) as the other members of the Board of Directors.  For
so long as an Investor Designee serves on the Board of Directors, the Company
shall maintain in place directors’ and officers’ indemnity insurance coverage in
an amount deemed appropriate by the Board of Directors.  Any Investor Designee
shall be subject to the same Company policies and procedures as the other
directors on the Board of Directors, including with respect to conflicts of
interest and recusal from deliberations and voting.

 

 

 

 

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SECTION 3.

TERMINATION OR SURVIVAL OF CERTAIN RIGHTS AND OBLIGATIONS

 

Except as otherwise provided in this Agreement, this Agreement shall terminate
in its entirety upon the earlier to occur of (a) the mutual written agreement of
the parties; (b) the occurrence of a Change in Control; and (c) a decline,
whether as a result of the Company’s issuance of additional shares of Common
Stock or as a result of the Investor’s sale of shares of the Company’s Common
Stock, in the Investor’s ownership of the Company’s Common Stock to less than
10% of Shares of Then Outstanding Common Stock.  Notwithstanding the foregoing,
the rights and obligations provided in Section 4, and Section 5 shall survive
termination of this Agreement.

 

SECTION 4.

NOTICES

 

All notices, requests, consents and other communications hereunder shall be in
writing, shall be sent by confirmed facsimile or electronic mail, or mailed by
first-class registered or certified airmail, or nationally recognized overnight
express courier, postage prepaid, and shall be deemed given when so sent in the
case of facsimile or electronic mail transmission, or when so received in the
case of mail or courier, and addressed as follows:

 

if to the Company, to: ClearSign Combustion Corporation   12870 Interurban
Avenue South   Seattle, WA 98168   Attention:  Chief Executive Officer  
E-Mail:  Steve.Pirnat@clearsign.com   Facsimile:  206.673.4848

 

with a copy (which shall not constitute notice) to: Mitchell Silberberg & Knupp
LLP   12 East 49th Street, 30th Floor   New York, NY 10017   Attn.:  Melanie
Figueroa, Esq.   E-Mail:  mxf@msk.com   Facsimile:  212.509.7239

 

if to the Investor, to: GPclirSPV LLC   119 Warren Ave   3rd Floor   Spring
Lake, NJ 07762   Attention: Robert T. Hoffman Sr.  
E-Mail:  rhoffman@princetonopp.com

 

with copies (which shall not constitute notice) to: Bressler, Amery & Ross   325
Columbia Turnpike   Florham Park, NJ 07932   Attention:  Kim Larsen   E-Mail:
Klarsen@bressler.com

 

          , or to such other person, at such other place or in such manner as
one party shall designate to other party in writing.

 

 

 

 

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SECTION 5.

MISCELLANEOUS

 

5.1        Waivers and Amendments.  Waiver by a party of a breach hereunder by
another party shall not be construed as a waiver of any subsequent breach of the
same or any other provision.  No delay or omission by a party in exercising or
availing itself of any right, power or privilege hereunder shall preclude the
later exercise of any such right, power or privilege by such party.  Neither
this Agreement nor any provision hereof may be changed, waived, discharged,
terminated, modified or amended except upon the written consent of the Company
and the Investor.

 

5.2       Governing Law; Submission to Jurisdiction.  This Agreement shall be
governed by and construed in accordance with the Laws of the State of New York,
without regard to the conflict of laws principles thereof that would require the
application of the Law of any other jurisdiction.  The parties irrevocably and
unconditionally submit to the exclusive jurisdiction of the state and federal
courts sitting in the County of New York, in the State of New York, solely and
specifically for the purposes of any action or proceeding arising out of or in
connection with this Agreement.

 

5.3       Remedies.  The rights, powers and remedies of the parties under this
Agreement are cumulative and not exclusive of any other right, power or remedy
which such parties may have under any other agreement or Law.  No single or
partial assertion or exercise of any right, power or remedy of a party hereunder
shall preclude any other or further assertion or exercise thereof.

 

5.4        Specific Performance.  The parties hereby acknowledge and agree that
the rights of the parties hereunder are special, unique and of extraordinary
character, and that if any party refuses or otherwise fails to act, or to cause
its Affiliates to act, in accordance with the provisions of this Agreement, such
refusal or failure would result in irreparable injury to the Company or the
Investor, as the case may be, the exact amount of which would be difficult to
ascertain or estimate and the remedies at law for which would not be reasonable
or adequate compensation.  Accordingly, if any party refuses or otherwise fails
to act, or to cause its Affiliates to act, in accordance with the provisions of
this Agreement, then, in addition to any other remedy which may be available to
any damaged party at law or in equity, such damaged party will be entitled to
seek specific performance and injunctive relief, without posting bond or other
security, and without the necessity of proving actual or threatened damages,
which remedy such damaged party will be entitled to seek in any court of
competent jurisdiction.  Notwithstanding this Section 5.4, except as otherwise
provided herein, if any act or failure to act by a Non-Controlled Affiliate of
the Investor contravenes this Agreement (or would contravene this Agreement to
the extent it was binding on such Non-Controlled Affiliate, notwithstanding that
it is not binding on such Non-Controlled Affiliate), upon written notice by the
Company, the Investor shall use its best efforts to take or cause such
Non-Controlled Affiliate to take appropriate measures to remedy such inaction to
the reasonable satisfaction of the Company.

 

5.5        Successors and Assigns.  Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.  Except as otherwise expressly provided herein, this Agreement,
or any rights or obligations hereunder, may not be assigned by either party
without the prior written consent of the other.

 

5.6       Headings.  The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be
part of this Agreement.

 

5.7       Severability.  If, under applicable Laws, any provision hereof is
invalid or unenforceable, or otherwise directly or indirectly affects the
validity of any other material provision(s) of this Agreement in any
jurisdiction (“Modified Clause”), then, it is mutually agreed that this
Agreement shall endure and that the Modified Clause shall be enforced in such
jurisdiction to the maximum extent permitted under applicable Laws in such
jurisdiction; provided that the parties shall consult and use all reasonable
efforts to agree upon, and hereby consent to, any valid and enforceable
modification of this Agreement as may be necessary to avoid any unjust
enrichment of either party and to match the intent of this Agreement as closely
as possible, including the economic benefits and rights contemplated herein.

 

 

 

 

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

 

5.9         Entire Agreement.  This Agreement, the Purchase Agreement and the
Registration Rights Agreement contain the entire agreement among the parties
with respect to the subject matter hereof and thereof and supersede all prior
and contemporaneous arrangements or understandings, whether written or oral,
with respect hereto and thereto.

 

5.10       Third Party Beneficiaries.  None of the provisions of this Agreement
shall be for the benefit of or enforceable by any Third Party.  No Third Party
shall obtain any right under any provision of this Agreement or shall by reason
of any such provision make any claim in respect of any debt, liability or
obligation (or otherwise) against any party hereto.

 

5.11       No Conflicting Agreements.  The Investor hereby represents and
warrants to the Company that neither it nor any of its Affiliates is, as of the
date of this Agreement, a party to, and agrees that, on or after the date of
this Agreement, the Investor shall not (and shall cause its Controlled
Affiliates and use commercially reasonable efforts to cause any Non-Controlled
Affiliates not to) enter into any agreement that conflicts with the rights
granted to the Company in this Agreement.

 

(Signature Page Follows)

 

 

 

 

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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first above written.

 

  COMPANY:       CLEARSIGN COMBUSTION CORPORATION       By:     Name:     Title:
        INVESTOR:        CLIRSPV, LLC       By:     Name:     Title:  

 

 

 

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APPENDIX III

  

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “Agreement”) is made and entered into
as of July __, 2018 by and between ClearSign Combustion Corporation (the
“Company”), and CLIRSPV, LLC, a Delaware limited liability company (the
“Purchaser”).

 

RECITAL

 

This Agreement is made pursuant to the Stock Purchase Agreement, dated as of
July __, 2018, between the Company and the Purchaser (the “Purchase Agreement”).

 

AGREEMENT

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchaser agree
as follows:

 

SECTION 1.

DEFINITIONS

 

Capitalized terms used and not otherwise defined herein that are defined in the
Purchase Agreement shall have the meanings given such terms in the Purchase
Agreement.  As used in this Agreement, the following terms shall have the
respective meanings set forth in this Section 1:

 

“Advice” shall have the meaning set forth in Section 7(b).

 

“Affiliate” means, with respect to any Person, any other Person that, directly
or indirectly through one or more intermediaries, Controls, is controlled by or
is under common control with such Person, as such terms are used in and
construed under Rule 405 under the Securities Act.

  

“Control” (including the terms “controlling”, “controlled by” or “under common
control with”) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.

 

“Commission” means the United States Securities and Exchange Commission, or any
successor entity or entities, including, if applicable, the staff of the
Commission.

 

“Common Stock” means the common stock, par value $0.0001 per share, of the
Company.

 

“Effectiveness Date” means: (a) with respect to the Initial Registration
Statement required to be filed hereunder, the date of that is six months after
the date of this Agreement and (b) with respect to any additional Registration
Statements which may be required pursuant to Section 2, the earlier to occur of
(i) the 90th day following the date on which the Company first knows, or
reasonably should have known, that such additional Registration Statement is
required under such Section (or the 120th day following such date in the event
such additional Registration Statement is reviewed by the Commission) and
(ii) the 5th Trading Day after the date the Company is notified (orally or in
writing, whichever is earlier) by the Commission that such Registration
Statement will not be “reviewed” or will not be subject to further review. If
the Effectiveness Date falls on a Saturday, Sunday or other date that the
Commission is closed for business, the Effectiveness Date shall be extended to
the next day on which the Commission is open for business.  The Effectiveness
Date for a Registration Statement shall be extended without default hereunder in
the event that the Company’s failure to obtain the effectiveness of the
Registration Statement on a timely basis results from the failure of the Holder
to timely provide the Company with information requested by the Company and
necessary to complete the Registration Statement in accordance with the
requirements of the Securities Act (in which the Effectiveness Date would be
extended with respect to Registrable Securities held by such Holder).

 

 

 

 

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“Effectiveness Period” shall have the meaning set forth in Section 2(a).

 

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

 

“Filing Date” means: (a) with respect to the Initial Registration Statement, the
3 month anniversary of the Closing Date, and (b) with respect to any additional
Registration Statements that may be required pursuant to Section 2 hereof, the
45th day following the date on which the Company first knows, or reasonably
should have known, that such additional Registration Statement is required under
such Section.

 

“Holder” or “Holders” means a holder from time to time of Registrable
Securities, but only if such holder is the Purchaser or any assignee thereof in
accordance with Section 7(j).

 

“Indemnified Party” shall have the meaning set forth in Section 6(c).

 

“Indemnifying Party” shall have the meaning set forth in Section 6(c).

 

“Initial Registration Statement” shall mean the initial Registration Statement
required to be filed to cover the resale by the Purchaser of the Registrable
Securities pursuant to Section 2(a).

 

“Losses” shall have the meaning set forth in Section 6(a).

  

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

  

“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.

 

“Prospectus” means the prospectus included in a Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A or Rule 430B promulgated by the Commission
pursuant to the Securities Act), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.

 

“Reduction Securities” shall have the meaning set forth in Section 2(b).

 

“Registrable Securities” means (i) the Shares issued pursuant to the Purchase
Agreement including any shares issued pursuant to the Purchase Right and, in the
case of the Participation Right only, so long as the shares purchased by other
investors in the offering subject to the Participation Right are also required
to be registered and (ii) any other shares of Common Stock issued as (or
issuable upon conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, in
exchange for or in replacement of the Shares; provided, however, that any such
Registrable Securities shall cease to be Registrable Securities (and the Company
shall not be required to maintain the effectiveness of any, or file another,
Registration Statement hereunder with respect thereto) for so long as (a) a
Registration Statement with respect to the sale of such Registrable Securities
is declared effective by the Commission under the Securities Act and such
Registrable Securities have been disposed of by the Holder in accordance with
such effective Registration Statement, (b) such Registrable Securities have been
previously sold in accordance with Rule 144, (c) such Registrable Securities
become eligible for resale without volume or manner-of-sale restrictions and
without current public information pursuant to Rule 144, as reasonably
determined by the Company, based upon the advice of counsel to the Company,
(d) such Registrable Securities have been sold, transferred or otherwise
disposed of by a Person in a transaction in which its rights under this
Agreement were not assigned in accordance with Section 7(j), or (e) such
Registrable Securities cease to be outstanding.

 

 

 

 

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“Registration Statement” means each of the following: (i) an initial
registration statement which is required to register the resale of the
Registrable Securities, and (ii) each additional registration statement, if any,
contemplated by Section 2, and including, in each case, the Prospectus,
amendments and supplements to each such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto, and all
material incorporated by reference or deemed to be incorporated by reference in
such registration statement.

 

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

 

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

  

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

 

“SEC Guidance” means (i) any publicly-available written guidance of the
Commission staff, (ii) any oral guidance, comments, requirements or requests of
the Commission staff, in each case given or directed specifically to the
Company, and (iii) the Securities Act.

 

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

 

“Shares” shall have the meaning set forth in the Purchase Agreement and shall
include shares of Common Stock purchased by the Purchaser pursuant to the
Purchase Right and the Participation Right, and, in the case of the
Participation Right only, so long as the shares purchased by other investors in
the offering subject to the Participation Right are also required to be
registered.

 

“Trading Day” means any day on which the Common Stock is traded on the Nasdaq
Capital Market, or, if the Nasdaq Capital 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.

 

“Transaction Documents” shall have the meaning set forth in the Purchase
Agreement.

  

SECTION 2.

REGISTRATION

 

(a)        On or prior to each Filing Date, the Company shall prepare and file
with the Commission a Registration Statement covering the resale of all of the
Registrable Securities that are not then registered on an existing and effective
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415.  The Registration Statement filed hereunder shall be on Form S-3
(except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall be on
another appropriate form in accordance herewith) and shall contain (except if
otherwise required pursuant to written comments received from the Commission
upon a review of such Registration Statement) the “Plan of Distribution” in
substantially the form attached hereto as Annex A.  The Company shall use its
commercially reasonable efforts to cause a Registration Statement filed under
this Agreement to be declared effective under the Securities Act no later than
the Effectiveness Date for such Registration Statement, and shall, subject
Section 7(b) hereof, use its commercially reasonable efforts to keep the
Registration Statement continuously effective under the Securities Act until the
date on which all securities under such Registration Statement have ceased to be
Registrable Securities (the “Effectiveness Period”).  It is agreed and
understood that the Company shall, from time to time, be obligated to file one
or more additional Registration Statements to cover any Registrable Securities
which are not registered for resale pursuant to a pre-existing Registration
Statement.

 

 

 

 

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(b)       Notwithstanding anything contained herein to the contrary, in the
event that the Commission limits the amount of Registrable Securities that may
be included and sold by the Holder in any Registration Statement, including the
Initial Registration Statement, pursuant to Rule 415 or any other basis (and
notwithstanding that the Company used commercially reasonable efforts to
advocate with the Commission where practicable for the registration of all or a
greater number of Registrable Securities), the Company may reduce the number of
Registrable Securities included in such Registration Statement on behalf of such
Holder in whole or in part (in case of an exclusion as to a portion of such
Registrable Securities, such portion shall be allocated pro rata among multiple
Holders in proportion to the respective numbers of Registrable Securities
represented by Shares requested to be registered by each such Holder over the
total amount of Registrable Securities represented by Shares) (such Registrable
Securities, the “Reduction Securities”).  Any reduction of Registrable
Securities pursuant to this Section 2(b) shall occur only after all securities
that are not Registrable Securities, if any, are first removed from such
Registration Statement where permitted under contractual arrangements between
the Company and the holders of such other securities (provided that the Company
first uses commercially reasonable efforts (which efforts shall not require the
Company to pay money or issue additional securities to the holders) to obtain
waivers under such contractual arrangements of stockholders’ rights to have such
securities included in such Registration Statement).  In such event, the Company
shall give the Holder prompt notice of the number of such Reduction Securities
excluded and the Company will not be liable for any damages under this Agreement
in connection with the exclusion of such Reduction Securities.  The Company
shall use its commercially reasonable efforts at the first opportunity that is
permitted by the Commission to register for resale the Reduction Securities. 
Such new Registration Statement shall be on Form S-3 (except if the Company is
not then eligible to register for resale the Reduction Securities on Form S-3,
in which case such registration shall be on another appropriate form for such
purpose) and shall contain (except if otherwise required pursuant to written
comments received from the Commission upon a review of such Registration
Statement) the “Plan of Distribution” in substantially the form attached hereto
as Annex A.  The Company shall use its commercially reasonable efforts to cause
each such Registration Statement to be declared effective under the Securities
Act as soon as possible but, in any event, no later than the Effectiveness Date,
and shall use its commercially reasonable efforts to keep such Registration
Statement continuously effective under the Securities Act during the entire
Effectiveness Period, subject to Section 7(b) hereof.

 

(c)       No Holder shall be named as an “underwriter” in any Registration
Statement without such Holder’s prior written consent, except if required
pursuant to written comments received from the Commission upon a review of such
Registration Statement; provided, however, that prior to naming a Holder as an
underwriter in any Registration Statement, (i) the Company shall use its
commercially reasonable efforts to advocate with the Commission against naming
such Holder as an underwriter in accordance with Commission rules and
regulations and SEC Guidance and (ii) if, despite the Company’s commercially
reasonable efforts to advocate with the Commission against naming such Holder as
an underwriter, the Commission continues to require that such Holder be named as
an underwriter in any Registration Statement, such Holder shall have the right
(but not the obligation), prior to being so named, without any penalty to the
Company, to either (A) remove itself from such Registration Statement or
(B) reduce its number of Registrable Securities included in such Registration
Statement such that it shall no longer be required to be named as an underwriter
in such Registration Statement.

 

(d)       Unless contractually obligated to do so (provided that the Company
first uses commercially reasonable efforts (which efforts shall not require the
Company to pay money or issue additional securities to the holders) to obtain
waivers under such contractual arrangements of stockholders’ rights to have such
securities included in such Registration Statement), in no event shall the
Company include any securities other than the Registrable Securities on any
Registration Statement without the prior written consent of Holders of a
majority of the Registrable Securities.

 

(e)       The disposition of Registrable Securities from any Registration
Statement may occur in one or more underwritten offerings, block transactions,
broker transactions, at-market transactions or in such other manner or manners
as may be specified by the Holders in accordance with applicable law.

 

(f)       In the event that Form S-3 is not available for the registration of
the resale of Registrable Securities hereunder, the Company shall (i) register
the resale of the Registrable Securities on another appropriate form and
(ii) undertake to register the Registrable Securities on Form S-3 promptly after
such form is available, provided that the Company shall maintain the
effectiveness of the Registration Statement then in effect until such time as a
Registration Statement on Form S-3 covering the Registrable Securities has been
declared effective by the Commission.

 

 

 

 

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SECTION 3.

REGISTRATION PROCEDURES

 

In connection with the Company’s registration obligations hereunder, the Company
shall:

 

(a)        Not less than three Trading Days prior to the filing of a
Registration Statement or any related Prospectus or any amendment or supplement
thereto, the Company shall furnish to the Holder copies of all such documents
proposed to be filed (other than those incorporated by reference). 
Notwithstanding the foregoing, the Company shall not be required to furnish to
the Holder any prospectus supplement being prepared and filed solely to name new
or additional selling securityholders unless such Holder is named in such
prospectus supplement.  In addition, in the event that any Registration
Statement is on a form which does not permit incorporation by reference), the
Company shall not be required to furnish to the Holder any prospectus supplement
containing information included in a report or proxy statement filed under the
Exchange Act that would be incorporated by reference in such Registration
Statement if such Registration Statement were on Form S-3 (or other form which
permits incorporation by reference).  The Company shall duly consider any
comments made by the Holder and received by the Company not later than two
Trading Days prior to the filing of the Registration Statement, but shall not be
required to accept any such comments to which it reasonably objects.

 

(b)       (i)  Prepare and file with the Commission such amendments, including
post-effective amendments, to each Registration Statement and the Prospectus
used in connection therewith as may be necessary to keep such Registration
Statement continuously effective as to the applicable Registrable Securities for
its Effectiveness Period and prepare and file with the Commission such
additional Registration Statements in order to register for resale under the
Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424;
(iii) respond as promptly as reasonably possible to any comments received from
the Commission with respect to each Registration Statement or any amendment
thereto and, as promptly as reasonably possible notify the Holder of such
comments and, upon the request of such Holder, provide the Holder true and
complete copies of all correspondence from and to the Commission relating to
such Registration Statement that pertains to the Holder as a Selling
Stockholder; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the Registration Statements
and the disposition of all Registrable Securities covered by each Registration
Statement.

 

(c)        Notify the Holder as promptly as reasonably possible (and, in the
case of (i)(A) below, not less than three Trading Days prior to such filing) and
(if requested by any such Person) confirm such notice in writing no later than
one Trading Day following the day: (i)(A) when a Prospectus or any prospectus
supplement (but only to the extent notice is required under Section 3(a) above)
or post-effective amendment to a Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a “review” of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement (in which case the Company shall provide true and
complete copies thereof and all written responses thereto to each of the Holders
that pertain to such Holder as a Selling Stockholder or to the Plan of
Distribution upon the request of such Holder); and (C) with respect to each
Registration Statement or any post-effective amendment, when the same has been
declared effective; (ii) of any request by the Commission or any other Federal
or state governmental authority for amendments or supplements to a Registration
Statement or Prospectus or for additional information that pertains to the
Holder as a Selling Stockholder or the Plan of Distribution; (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of a
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; (v) of the occurrence of any event or passage of time that makes the
financial statements included or incorporated by reference in a Registration
Statement ineligible for inclusion or incorporation by reference therein or any
statement made in such Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to such Registration Statement,
Prospectus or other documents so that, in the case of such Registration
Statement or the Prospectus, as the case may be, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and (vi) of the
occurrence or existence of any pending corporate development with respect to the
Company that the Company in good faith believes may be material and that, in the
determination of the Company, makes it not in the best interest of the Company
to allow continued availability of a Registration Statement or Prospectus.

 

 

 

 

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(d)        Use its reasonable best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of a
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.

 

(e)        Furnish to the Holder, without charge, at least one conformed copy of
each Registration Statement and each amendment thereto and all exhibits to the
extent reasonably requested by such Person (including those previously furnished
or incorporated by reference) promptly after the filing of such documents with
the Commission; provided, that the Company shall have no obligation to provide
any document pursuant to this clause that is available on the EDGAR system.

 

(f)        Promptly deliver to the Holder, without charge, as many copies of
each Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Person may reasonably request.  Subject
to Section 7(b) hereof, the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.

 

(g)        Prior to any public offering of Registrable Securities, use its
commercially reasonable efforts to register or qualify or cooperate with the
selling Holder in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of those
jurisdictions within the United States as such Holder reasonably requests in
writing to keep each such registration or qualification (or exemption therefrom)
effective during the Effectiveness Period and to do any and all other acts or
things necessary or advisable to enable the disposition in such jurisdictions of
the Registrable Securities covered by the Registration Statements; provided,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.

 

(h)        Cooperate with the Holder to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to the Registration Statements, which certificates shall
be free, to the extent permitted by the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as the Holder may request.

 

(i)        Upon the occurrence of any event contemplated by Section 3(c)(v), as
promptly as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the affected Registration Statements or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, no Registration Statement nor any Prospectus will
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.

 

(j)        The Company may require the selling Holder to furnish to the Company
a certified statement as to the number of shares of Common Stock beneficially
owned by such Holder and any Affiliate thereof, the natural persons, if any,
thereof that have voting and dispositive control over the shares and any other
information with respect to such Holder as the Commission requests.

  

 

 

 

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(k)        Make available at reasonable times for inspection by any Holder, any
managing underwriter participating in any disposition of such Registrable
Securities pursuant to a Registration Statement, Holders’ legal counsel and any
attorney, accountant or other agent retained by any such Holder or any managing
underwriter (each, an “Inspector” and collectively, the “Inspectors”), all
financial and other records, pertinent corporate documents and properties of the
Company and its subsidiaries (collectively, the “Records”) as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company’s and its subsidiaries’ officers,
directors and employees, and the independent public accountants of the Company,
to supply all information reasonably requested by any such Inspector in
connection with such Registration Statement. Notwithstanding the foregoing,
Records and other information that the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors or used for any purpose other than as necessary or
appropriate for the purpose of such inspection (and the Inspectors shall confirm
their agreement in writing in advance to the Company if the Company shall so
request) unless (i) the disclosure of such Records is necessary, in the
Company’s judgment, to avoid or correct a misstatement or omission in the
Registration Statement, (ii) the release of such Records is ordered pursuant to
a subpoena or other order from a court of competent jurisdiction after
exhaustion of all appeals therefrom or (iii) the information in such Records was
known to the Inspectors on a non-confidential basis prior to its disclosure by
the Company or has been made generally available to the public. Each Holder
agrees that it shall promptly, upon learning that disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the Company and
allow the Company, at the Company’s expense, to undertake appropriate action to
prevent disclosure of the Records deemed confidential, and such Holder shall
reasonably cooperate with the Company in connection therewith.

 

(l)       If such sale is pursuant to an underwritten offering, (i) obtain
“comfort” letters dated the pricing and closing dates of such offering under the
underwriting agreement from the Company’s independent public accountants in
customary form and covering such matters of the type customarily covered by
“comfort” letters as Holders’ legal counsel or the managing underwriter
reasonably requests; (ii) enter into a customary underwriting agreement with the
underwriter containing customary representations and warranties, covenants and
legal opinions addressed to the underwriters; (iii) take other such actions as
reasonably required in order to expedite or facilitate the disposition of such
Registrable Securities, including causing its officers to participate in “road
shows” and other information meetings organized by the underwriters, if
applicable, of reasonable and customary duration and frequency (but not to
exceed three days in each instance); or (iv) deliver such documents and
certificates as may be reasonably requested and as are customarily delivered in
similar offerings.

 

(m)        Comply with all applicable rules and regulations of the SEC, and make
generally available to its security holders, as soon as reasonably practicable
but no later than fifteen (15) months after the effective date of the
Registration Statement, an earnings statement covering a period of twelve (12)
months beginning after the effective date of the Registration Statement, in a
manner which satisfies the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder.

 

(n)        Cause all such Registrable Securities to be listed on each securities
exchange on which similar securities issued by the Company are then listed.

  

(o)        Provide reasonable cooperation to each seller of Registrable
Securities and each underwriter participating in the disposition of such
Registrable Securities and their respective counsel in connection with any
filings required to be made with the Financial Industry Regulatory Authority
(“FINRA”) pursuant to FINRA Rule 5110 as requested by such Holder.

 

SECTION 4.

HOLDER’S OBLIGATIONS

 

The Holder agrees, by acquisition of the Registrable Securities, that the Holder
shall not be entitled to sell any of such Registrable Securities pursuant to a
Registration Statement or to receive a Prospectus relating thereto, unless such
Holder has furnished the Company with all material information required to be
set forth in the Purchaser Questionnaire and Selling Stockholder Questionnaire
attached hereto as Annex B .  Any sale of any Registrable Securities by any
Holder shall constitute a representation and warranty by such Holder that the
information regarding such Holder is as set forth in the Prospectus delivered by
such Holder in connection with such disposition, and that such Prospectus does
not as of the time of such sale contain any untrue statement of a material fact
regarding such Holder or omit to state any material fact regarding such Holder
necessary to make the statements in such Prospectus, in the light of the
circumstances under which they were made, not misleading, solely to the extent
such facts are based upon information regarding such Holder furnished in writing
to the Company by such Holder for use in such Prospectus.

 

 

 

 

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SECTION 5.

REGISTRATION EXPENSES

 

All fees and expenses incident to the Company’s performance of or compliance
with its obligations under this Agreement shall be borne by the Company whether
or not any Registrable Securities are sold pursuant to a Registration
Statement.  The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to be
made with the principal trading market on which the Common Stock is then listed
for trading, (B) in compliance with applicable state securities or Blue Sky
laws) and (C) if not previously paid by the Company in connection with an issuer
filing, with respect to any filing that may be required to be made by any broker
through which a Holder intends to make sales of Registrable Securities with
FINRA pursuant to FINRA Rule 5110, so long as the broker is receiving no more
than a customary brokerage commission in connection with such sale,
(ii) printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is reasonably requested by the holders of a majority of
the Registrable Securities included in the Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) reasonable fees and
disbursements of counsel for the Company, (v) Securities Act liability
insurance, if the Company so desires such insurance, and (vi) reasonable fees
and expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement.  In addition,
the Company shall be responsible for all of its internal expenses incurred in
connection with the consummation of the transactions contemplated by this
Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit and the fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange as required
hereunder.  The Holder shall bear the cost of all underwriting discounts and
selling commissions associated with any sale of Registrable Securities and shall
pay all of its own costs and expenses, including, without limitation, all fees
and disbursements to counsel (and any other advisors) of the Holder and any
stock transfer taxes.  In no event shall the Company be responsible for any
broker or similar commissions of any Holder.

 

SECTION 6.

INDEMNIFICATION

 

(a)        Indemnification by the Company.  The Company shall, notwithstanding
any termination of this Agreement, indemnify and hold harmless the Holder, the
officers, directors, agents, partners, members, stockholders and employees of
such Holder, each Person who controls such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents, partners, members, stockholders and employees of
each such controlling Person, to the fullest extent permitted by applicable law,
from and against any and all losses, claims, damages, liabilities, costs
(including, without limitation, reasonable costs of preparation and reasonable
attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out
of or relating to any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto (it being understood that
the Holder has approved Annex A hereto for this purpose), or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that (1) such untrue statements, alleged untrue
statements, omissions or alleged omissions are based solely upon information
regarding such Holder furnished in writing to the Company by such Holder
expressly for use therein, or to the extent that such information relates to
such Holder or such Holder’s proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement thereto (it being understood that
the Holder has approved Annex A hereto for this purpose) or (2) in the case of
an occurrence of an event of the type specified in Section 3(c)(ii)-(v), the use
by such Holder of an outdated or defective Prospectus after the Company has
validly notified such Holder in writing (in accordance with Section 7(b) below)
that the Prospectus is outdated or defective and prior to the receipt by such
Holder of an Advice (as defined below) or an amended or supplemented Prospectus,
but only if and to the extent that following the receipt of the Advice or the
amended or supplemented Prospectus the misstatement or omission giving rise to
such Loss would have been corrected.  The Company shall notify the Holder
promptly of the institution, threat or assertion of any Proceeding of which the
Company is aware in connection with the transactions contemplated by this
Agreement.

 

 

 

 

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(b)        Indemnification by Holder.  The Holder shall, notwithstanding any
termination of this Agreement, severally and not jointly, indemnify and hold
harmless the Company, its directors, officers, agents and employees, each Person
who controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents,
partners, members, stockholders or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon: (x) for so long as the
prospectus delivery requirements of the Securities Act apply to sales by such
Holder, such Holder’s failure to comply with the prospectus delivery
requirements of the Securities Act or (y) any untrue statement of a material
fact contained in any Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto, or arising solely out of
or based solely upon any omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any
Prospectus, or any form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading to the extent, but only
to the extent that, (1) such untrue statements or omissions are based solely
upon information regarding such Holder furnished in writing to the Company by
such Holder expressly for use therein, or to the extent that such information
relates to such Holder or such Holder’s proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing by
such Holder expressly for use in the Registration Statement, such Prospectus or
such form of Prospectus or in any amendment or supplement thereto (it being
understood that the Holder has approved Annex A hereto for this purpose) or
(2) in the case of an occurrence of an event of the type specified in
Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective
Prospectus after the Company has validly notified such Holder in writing (in
accordance with Section 7(b) below) that the Prospectus is outdated or defective
and prior to the receipt by such Holder of an Advice or an amended or
supplemented Prospectus, but only if and to the extent that following the
receipt of the Advice or the amended or supplemented Prospectus the misstatement
or omission giving rise to such Loss would have been corrected.  In no event
shall the liability of any selling Holder hereunder be greater in amount than
the dollar amount of the net proceeds received by such Holder upon the sale of
the Registrable Securities giving rise to such indemnification obligation.

 

(c)        Conduct of Indemnification Proceedings.  If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
“Indemnified Party”), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the “Indemnifying Party”) in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.

 

An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless:  (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
by counsel that a conflict of interest is likely to exist if the same counsel
were to represent such Indemnified Party and the Indemnifying Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing that
it elects to employ separate counsel at the expense of the Indemnifying Party,
the Indemnifying Party shall not have the right to assume the defense thereof
and such counsel shall be at the expense of the Indemnifying Party); provided,
that the Indemnifying Party shall not be liable for the fees and expenses of
more than one separate firm of attorneys at any time for all Indemnified Parties
pursuant to this Section 6(c).  The Indemnifying Party shall not be liable for
any settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld.  No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom.

 

 

 

 

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All fees and expenses of the Indemnified Party (including reasonable fees and
expenses to the extent incurred in connection with investigating or preparing to
defend such Proceeding in a manner not inconsistent with this Section) shall be
paid to the Indemnified Party, as incurred, within ten Trading Days of written
notice thereof to the Indemnifying Party (regardless of whether it is ultimately
determined that an Indemnified Party is not entitled to indemnification
hereunder; provided, that the Indemnifying Party may require such Indemnified
Party to undertake to reimburse all such fees and expenses to the extent it is
finally judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).

 

(d)        Contribution.  If a claim for indemnification under Section 6(a) or
Section 6(b) is unavailable to an Indemnified Party (by reason of public policy
or otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations. 
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission.  The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 6(c), any reasonable attorneys’ or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.

 

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 6(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph. 
Notwithstanding the provisions of this Section 6(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.  No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.

 

The indemnity and contribution agreements contained in this Section 6 are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties and are not in diminution or limitation of the
indemnification provisions under the Purchase Agreement.

 

SECTION 7.

MISCELLANEOUS

 

(a)        Piggy-Back Registrations.  If at any time during the Effectiveness
Period, except as contemplated by Section 2(b) hereof, there is not an effective
Registration Statement covering all of the Registrable Securities and the
Company shall determine to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities, other than on Form S-4
or Form S-8 (each as promulgated under the Securities Act) or their then
equivalents relating to equity securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with the stock option or other employee benefit plans, then the
Company shall send to each Holder a written notice of such determination and, if
within 15 days after the date of such notice, any such Holder shall so request
in writing, the Company shall include in such registration statement all or any
part of such Registrable Securities such Holder requests to be registered;
provided, however, that the Company shall not be required to register any
Registrable Securities pursuant to this Section 7(a) that are eligible for
resale pursuant to Rule 144 promulgated under the Securities Act without volume
limitation and without current public information or that are the subject of a
then effective Registration Statement; provided, further, however, if there is
not an effective Registration Statement covering all of the Registrable
Securities during the Effectiveness Period, the Company may file a registration
statement with the Commission to register equity securities of the Company to be
sold on a primary basis, provided that the Company does not sell any such shares
until there is an effective Registration Statement covering all of the
Registrable Securities. The Company shall have the right to terminate or
withdraw any registration initiated by it under this Section 7(a) prior to the
effectiveness of such registration whether or not the Holder has elected to
include securities in such registration.

 

 

 

 

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(b)        Discontinued Disposition.  The Holder agrees by its acquisition of
such Registrable Securities that, upon receipt of a notice from the Company of
the occurrence of any event of the kind described in Section 3(c)(ii)-(vi), such
Holder will forthwith discontinue disposition of such Registrable Securities
under the Registration Statement until such Holder’s receipt of the copies of
the supplemented Prospectus and/or amended Registration Statement or until it is
advised in writing (the “Advice”) by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement; provided
that, with respect to the events described in Sections 3(c)(v) and 3(c)(vi), the
Company shall not be entitled to suspend the effectiveness or use of such
Registration Statement for an aggregate of more than 45 consecutive Trading Days
or an aggregate of 90 Trading Days (which need not be consecutive) in any given
360-day period. The Company may provide appropriate stop orders to enforce the
provisions of this paragraph.

 

(c)        Compliance.  The Holder covenants and agrees that it will comply with
the prospectus delivery requirements of the Securities Act as applicable to it
in connection with sales of Registrable Securities pursuant to the Registration
Statement.

 

(d)        Furnishing of Information.  The Holder shall furnish in writing to
the Company such information regarding itself, the Registrable Securities held
by it and the intended method of disposition of the Registrable Securities held
by it, as shall be reasonably requested by the Company to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request.

 

(e)        Termination of Registration Rights.  For the avoidance of doubt, it
is expressly agreed and understood that (i) in the event that there are no
Registrable Securities outstanding as of a Filing Date, then the Company shall
have no obligation to file, caused to be declared effective or to keep effective
any Registration Statement hereunder (including any Registration Statement
previously filed pursuant to this Agreement) and (ii) all registration rights
granted to the Holders hereunder (including the rights set forth in
Section 7(a)), shall terminate in their entirety effective on the first date on
which there shall cease to be any Registrable Securities outstanding.

 

(f)        Waivers and Amendments.  No provision of this Agreement may be waived
or amended except in a written instrument signed by the Company and the Holder
or Holders (as applicable) of no less than a majority of the then outstanding
Registrable Securities.  The Company shall provide prior notice to the Holder of
any proposed waiver or amendment.  No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.

 

(g)        Governing Law; Submission to Jurisdiction.  All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by and construed and enforced in accordance with the internal
laws of the State of New York, without regard to the principles of conflicts of
law thereof.  Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the County of New York, in the State of New York. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the County of New York, in the State of New York, for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), 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 improper or is an inconvenient venue for such
proceeding.  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 via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof.  Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other
manner permitted by law.

 

 

 

 

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(h)        Remedies.  In the event of a breach by the Company or by the Holder
of any of their obligations under this Agreement, such Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement.  The Company and the
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agree that, in the event of any action for specific
performance in respect of such breach, it shall waive the defense that a remedy
at law would be adequate.  The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.

 

(i)        Notices.  All notices, requests, consents and other communications
hereunder shall be in writing, shall be sent by confirmed facsimile or
electronic mail, or mailed by first-class registered or certified airmail, or
nationally recognized overnight express courier, postage prepaid, and shall be
deemed given when so sent in the case of facsimile or electronic mail
transmission, or when so received in the case of mail or courier, and addressed
as follows:

 

if to the Company, to: ClearSign Combustion Corporation   12870 Interurban
Avenue South   Seattle, WA 98168   Attention: Chief Executive Officer   E-Mail:
Steve.Pirnat@clearsign.com   Facsimile: 206.673.4848     with a copy (which
shall not constitute notice) to: Mitchell Silberberg & Knupp LLP   12 East 49th
Street, 30th Floor   New York, NY 10017   Attn.: Melanie Figueroa, Esq.  
E-Mail: mxf@msk.com   Facsimile: 212.509.7239     if to the Investor, to:
GPclirSPV LLC   119 Warren Ave   3rd Floor   Spring Lake, NJ 07762   Attention:
Robert T. Hoffman Sr.   E-Mail: rhoffman@princetonopp.com     with copies (which
shall not constitute notice) to: Bressler, Amery & Ross   325 Columbia Turnpike
  Florham Park, NJ 07932   Attention: Kim Larsen   E-Mail: Klarsen@bressler.com

 

             , or to such other person, at such other place or in such manner as
one party shall designate to other party in writing.

 

 

 

 

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(j)        Successors and Assigns.  This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of the Holder.  The Company may not assign its
rights or obligations hereunder without the prior written consent of the Holder
or Holders (as applicable) of a majority of the then outstanding Registrable
Securities (other than by merger or consolidation or to an entity which acquires
the Company including by way of acquiring all or substantially all of the
Company’s assets). The rights of the Holder hereunder, including the right to
have the Company register Registrable Securities pursuant to this Agreement, may
be assigned by the Holder to a transferee of such Holder, but only if (i) such
Holder agrees in writing with such transferee to assign such rights and related
obligations under this Agreement, and for such transferee to assume such
obligations, and a copy of such agreement is furnished to the Company, (ii) the
Company is furnished with written notice of the name and address of such
transferee and the securities with respect to which such registration rights are
being transferred or assigned, (iii) such transferee agrees in writing with the
Company to be bound by all of the provisions contained herein, and (iv) such
transferee is an “accredited investor,” as that term is defined in Rule 501 of
Regulation D.

 

(k)       Headings.  The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

 

(l)        Severability.  If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction.  It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.

 

(m)        Counterparts.  This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement.

 

(n)        Use of Terms.  The parties agree and acknowledge that when, in this
Agreement, the Company is required to use its reasonable best efforts to perform
any covenant under this Agreement, such requirement shall not obligate the
Company, in the reasonable judgment of the disinterested members of its Board of
Directors, to perform any act that will have a material adverse effect on the
Company.

 

[signature page follows]

 

 

 

 

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

  COMPANY:       CLEARSIGN COMBUSTION CORPORATION       By:     Name:     Title:
                                              INVESTOR:       CLIRSPV LLC      
By:     Name:     Title:  

 

REGISTRATION RIGHTS AGREEMENT

 

 

 

 

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ANNEX A

 

PLAN OF DISTRIBUTION

 

The selling stockholder and any of its pledgees, donees, transferees, assignees
or other successors-in-interest may, from time to time, sell, transfer or
otherwise dispose of any or all of their shares of common stock or interests in
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions.  These dispositions may
be at fixed prices, at prevailing market prices at the time of sale, at prices
related to the prevailing market price, at varying prices determined at the time
of sale, or at negotiated prices.  The selling stockholder may use one or more
of the following methods when disposing of the shares or interests therein:

 

·ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;

 

·block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;

 

·through brokers, dealers or underwriters that may act solely as agents;

 

·purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;

 

·an exchange distribution in accordance with the rules of the applicable
exchange;

 

·privately negotiated transactions;

 

·through the writing or settlement of options or other hedging transactions
entered into after the effective date of the registration statement of which
this prospectus is a part, whether through an options exchange or otherwise;

 

·broker-dealers may agree with the selling stockholder to sell a specified
number of such shares at a stipulated price per share;

 

·one or more underwritten offerings on a firm commitment or best efforts basis;

 

·a combination of any such methods of disposition; and

 

·any other method permitted pursuant to applicable law.

 

The selling stockholder may also sell shares under Rule 144 under the Securities
Act of 1933, as amended, or Securities Act, if available, rather than under this
prospectus.

 

Broker-dealers engaged by the selling stockholder may arrange for other
broker-dealers to participate in sales.  Broker-dealers may receive commissions
or discounts from the selling stockholder (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated.  The selling stockholder does not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.

 

The selling stockholder may from time to time pledge or grant a security
interest in some or all of the shares of common stock owned by its and, if it
defaults in the performance of its secured obligations, the pledgees or secured
parties may offer and sell shares of common stock from time to time under this
prospectus, or under a supplement or amendment to this prospectus under
Rule 424(b)(3) or other applicable provision of the Securities Act amending the
list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this prospectus.

 

 

 

 

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Upon being notified in writing by the selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of common
stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, we will file a
supplement to this prospectus, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of such selling stockholder and of the
participating broker-dealer(s), (ii) the number of shares involved, (iii) the
price at which such shares of common stock were sold, (iv) the commissions paid
or discounts or concessions allowed to such broker-dealer(s), where applicable,
(v) that such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus, and
(vi) other facts material to the transaction.  In addition, upon being notified
in writing by the selling stockholder that a donee or pledge intends to sell
more than 500 shares of common stock, we will file a supplement to this
prospectus if then required in accordance with applicable securities law.

 

The selling stockholder also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.

 

In connection with the sale of the shares of common stock or interests in shares
of common stock, the selling stockholder may enter into hedging transactions
after the effective date of the registration statement of which this prospectus
is a part with broker-dealers or other financial institutions, which may in turn
engage in short sales of the common stock in the course of hedging the positions
they assume.  The selling stockholder may also sell shares of common stock short
after the effective date of the registration statement of which this prospectus
is a part and deliver these securities to close out their short positions, or
loan or pledge the common stock to broker-dealers that in turn may sell these
securities.  The selling stockholder may also enter into option or other
transactions after the effective date of the registration statement of which
this prospectus is a part with broker-dealers or other financial institutions or
the creation of one or more derivative securities which require the delivery to
such broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).

 

The selling stockholder and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales.  In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.  The maximum commission or discount to be
received by any member of the Financial Industry Regulatory Authority (FINRA) or
independent broker-dealer will not be greater than 8% of the initial gross
proceeds from the sale of any security being sold.

 

We have advised the selling stockholder that it is required to comply with
Regulation M promulgated under the Securities Exchange Act during such time as
it may be engaged in a distribution of the shares.  The foregoing may affect the
marketability of the common stock.

 

The aggregate proceeds to the selling stockholder from the sale of the common
stock offered by it will be the purchase price of the common stock less
discounts or commissions, if any.  The selling stockholder reserves the right to
accept and, together with its agents from time to time, to reject, in whole or
in part, any proposed purchase of common stock to be made directly or through
agents.  We will not receive any of the proceeds from this offering.

 

We are required to pay all fees and expenses incident to the registration of the
shares.  We have agreed to indemnify the selling stockholder against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act or otherwise.

 

We have agreed with the selling stockholder to keep the registration statement
of which this prospectus constitutes a part effective until the earlier of
(a) such time as all of the shares covered by this prospectus have been disposed
of pursuant to and in accordance with the registration statement, and (b) the
date on which the shares of common stock covered by this prospectus may be sold
by non-affiliates without any volume or manner of sale restrictions or current
public information pursuant to Rule 144 of the Securities Act.

 

 

 

 

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APPENDIX II

 

SELLING STOCKHOLDER QUESTIONNAIRE

 

 

 

 

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SELLING STOCKHOLDER NOTICE AND QUESTIONNAIRE

 

      Name of Selling Stockholder (please print)

 

CLEARSIGN COMBUSTION CORPORATION

QUESTIONNAIRE FOR SELLING STOCKHOLDERS

 

IMPORTANT:  IMMEDIATE ATTENTION REQUIRED

 

This Questionnaire is being furnished to all persons or entities (the
“Purchasers”) who purchased shares of Common Stock (“Common Stock”) of ClearSign
Combustion Corporation (the “Company”) pursuant to the Stock Purchase Agreement
by and among the Company and the Purchaser (the “Purchase Agreement”).  This
Questionnaire relates to certain information required to be disclosed in the
Registration Statement on Form S-3 (the “Registration Statement”) to be prepared
by the Company for filing with the United States Securities and Exchange
Commission (the “SEC”) pursuant to the Registration Rights Agreement entered
into by and among the Company and the Purchaser (the “Registration Rights
Agreement”) in connection with the Purchase Agreement.  The Company must receive
a completed Questionnaire from each Purchaser in order to include such
Purchaser’s shares of Common Stock in the Registration Statement.

 

The furnishing of accurate and complete responses to the questions posed in this
Questionnaire is an extremely important part of the registration process.  The
inclusion of inaccurate or incomplete disclosures in the Registration Statement
can result in potential liabilities, both civil and criminal, to the Company and
to the individuals who furnish the information.  Accordingly, Purchaser is
advised to consult its own securities law counsel regarding the consequences of
being named or not being named as a selling securityholder in the Registration
Statement and related prospectus.

 

PLEASE GIVE A RESPONSE TO EVERY QUESTION, indicating “None” or “Not Applicable”
where appropriate.  Please complete, sign, and return one copy of this
Questionnaire by facsimile, email or overnight courier as soon as possible.

 

Unless stated otherwise, answers should be given as of the date you complete
this Questionnaire.  However, it is your responsibility to inform us of any
changes that may occur to your situation.  If there is any situation about which
you have any doubt, or if you are uncertain as to the meaning of any terms used
in this Questionnaire, please contact [                      ]

 

PART I - STOCK OWNERSHIP

 

Item 1.  Beneficial Ownership.

 

a.  Deemed Beneficial Ownership.  Please state the amount of securities of the
Company you own on the date you complete this Questionnaire.  (If none, please
so state in each case.)

 

 

 

 

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    Number of Shares of Amount Beneficially Owned(1)   Common Stock Owned      
Please state the number of shares owned by you or by family members, trusts and
other organizations with which you have a relationship, and any other shares of
which you may be deemed to be the “beneficial owner”(1):           Total Shares:
          Of such shares:           Shares as to which you have sole voting
power:           Shares as to which you have shared voting power:          
Shares as to which you have sole investment power:           Shares as to which
you have shared investment power:           Shares which you will have a right
to acquire before 60 days after the date you complete this questionnaire through
the exercise of options, warrants or otherwise:    

 

Do you have any present plans to exercise options or otherwise acquire, dispose
of or to transfer shares of Common Stock of the Company between the date you
complete this Questionnaire and the date which is 60 days after the date in
which the Registration Statement is filed?

 

Answer:

 

If so, please describe.

 

b.              Pledged Securities.  If any of such securities have been pledged
or otherwise deposited as collateral or are the subject matter of any voting
trust or other similar agreement or of any contract providing for the sale or
other disposition of such securities, please give the details thereof.

 

Answer:

 

c.              Disclaimer of Beneficial Ownership.  Do you wish to disclaim
beneficial ownership(1) of any of the shares reported in response to Item 1(a)?

 

Answer:

 

If the answer is “Yes”, please furnish the following information with respect to
the person or persons who should be shown as the beneficial owner(s)(1) of the
shares in question.

 

Name and Address of   Relationship of   Number of Shares Actual Beneficial Owner
  Such Person To You   Beneficially Owned                              

 

d.              Shared Voting or Investment Power over Securities.  Will any
person be deemed to have beneficial ownership over any of the Securities
purchased by you pursuant to the Purchase Agreement?

 

Answer:

 

If the answer is “Yes”, please furnish the following information with respect to
the person or persons who should be shown as the beneficial owner(s)(1) of the
Securities in question.

 

Name and Address of   Relationship of   Number of Shares Beneficial Owner  
Such Person To You   Beneficially Owned                              

 

 

 

 

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Item 2.  Major Shareholders.  Please state below the names of persons or groups
known by you to own beneficially(1) more than 5% of the Company’s Common Stock.

 

Answer:

 

Item 3.  Change of Control.  Do you know of any contractual arrangements,
including any pledge of securities of the Company, the operation of which may at
a subsequent date result in a change of control of the Company?

 

Answer:

 

Item 4.  Relationship with the Company.  Please state the nature of any
position, office or other material relationship you have, or have had within the
past three years, with the Company or its affiliates.

 

    Nature of Name   Relationship                  

 

Item 5.  Broker-Dealer Status.  Is the Purchaser a broker-dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)?

 

o Yes.

 

o No.

 

If so, please answer the remaining questions under this Item 5.

 

Note that the Company will be required to identify any registered broker-dealer
as an underwriter in the Registration Statement and related prospectus.

 

a.              If the Purchaser is a registered broker-dealer, please indicate
whether the Purchaser purchased its Common Stock for investment or acquired them
as transaction-based compensation for investment banking or similar services.

 

Answer:

 

Note that if the Purchaser is a registered broker-dealer and received its Common
Stock other than as transaction-based compensation, the Company is required to
identify the Purchaser as an underwriter in the Registration Statement and
related prospectus.

 

b.              Is the Purchaser an affiliate of a registered broker-dealer? For
purposes of this Question, an “affiliate” of a specified person or entity means
a person or entity that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
the person or entity specified.

 

o Yes.

 

o No.

 

If so, please answer questions (i)-(iii) below under this Item 5(b).

 

i.              Please describe the affiliation between the Purchaser and any
registered broker-dealers:

 

 

 

 

Execution Copy

 

ii.               If the Common Stock was received by the Purchaser other than
in the ordinary course of business, please describe the circumstances:

 

iii.              If the Purchaser, at the time of its receipt of Common Stock,
has had any agreements or understandings, directly or indirectly, with any
person to distribute the Common Stock, please describe such agreements or
understandings:

 

Note that if the Purchaser is an affiliate of a broker-dealer and did not
receive its Common Stock in the ordinary course of business or at the time of
receipt had any agreements or understandings, directly or indirectly, to
distribute the securities, the Company must identify the Purchaser as an
underwriter in the Registration Statement and related prospectus.

 

Item 6.  Nature of Beneficial Holding.  The purpose of this question is to
identify the ultimate natural person(s) or publicly held entity that
exercise(s) sole or shared voting or dispositive power over the Registrable
Securities (as defined in the Registration Rights Agreement).

 

a.           Is the Purchaser a natural person?

 

o Yes.

 

o No.

 

b.           Is the Purchaser required to file, or is it a wholly owned
subsidiary of a company that is required to file, periodic and other reports
(for example, Form 10-K, 10-Q, 8-K) with the SEC pursuant to Section 13(a) or
15(d) of the Exchange Act?

 

o Yes.

 

o No.

 

c.           Is the Purchaser an investment company, or a subsidiary of an
investment company, registered under the Investment Company Act of 1940, as
amended?

 

o Yes.

 

o No.

 

If a subsidiary, please identify the publicly held parent entity:

 

d.           If you answered “no” to questions (a), (b) and (c) above, please
identify the controlling person(s) of the Purchaser (the “Controlling Entity”).
If the Controlling Entity is not a natural person or a publicly held entity,
please identify each controlling person(s) of such Controlling Entity. This
process should be repeated until you reach natural persons or a publicly held
entity that exercises sole or shared voting or dispositive power over the
Registrable Securities:

 

***PLEASE NOTE THAT THE SEC REQUIRES THAT THESE NATURAL PERSONS BE NAMED IN THE
PROSPECTUS***

 

PART II - CERTAIN TRANSACTIONS

 

Item 7.  Transactions with the Company.  If you, any of your associates(2), or
any member of your immediate family(3) had or will have any direct or indirect
material interest in any transactions(4) or series of transactions to which the
Company or any of its subsidiaries was a party at any time since January 1,
2015, or in any currently proposed transactions or series of transactions in
which the Company or any of its subsidiaries will be a party, in which the
amount involved exceeds $120,000, please specify (a) the names of the parties to
the transaction(s) and their relationship to you, (b) the nature of the interest
in the transaction, (c) the amount involved in the transaction, and (d) the
amount of the interest in the transaction.  If the answer is “none”, please so
state.

 

 

 

 

Execution Copy

 

Answer:

  

Item 8.  Third Party Payments.  Please describe any compensation paid to you by
a third party pursuant to any arrangement between the Company and any such third
party.

 

Answer:

 

PART III — PLAN OF DISTRIBUTION

 

The selling stockholder and any of its pledgees, donees, transferees, assignees
or other successors-in-interest may, from time to time, sell, transfer or
otherwise dispose of any or all of their shares of common stock or interests in
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions.  These dispositions may
be at fixed prices, at prevailing market prices at the time of sale, at prices
related to the prevailing market price, at varying prices determined at the time
of sale, or at negotiated prices.  The selling stockholder may use one or more
of the following methods when disposing of the shares or interests therein:

 

·ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;

 

·block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;

 

·through brokers, dealers or underwriters that may act solely as agents;

 

·purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;

 

·an exchange distribution in accordance with the rules of the applicable
exchange;

 

·privately negotiated transactions;

 

·through the writing or settlement of options or other hedging transactions
entered into after the effective date of the registration statement of which
this prospectus is a part, whether through an options exchange or otherwise;

 

·broker-dealers may agree with the selling stockholder to sell a specified
number of such shares at a stipulated price per share;

 

·one or more underwritten offerings on a firm commitment or best efforts basis;

 

·a combination of any such methods of disposition; and

 

·any other method permitted pursuant to applicable law.

 

 

 

 

Execution Copy

 

The selling stockholder may also sell shares under Rule 144 under the Securities
Act of 1933, as amended, or Securities Act, if available, rather than under this
prospectus.

 

Broker-dealers engaged by the selling stockholder may arrange for other
broker-dealers to participate in sales.  Broker-dealers may receive commissions
or discounts from the selling stockholder (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated.  The selling stockholder does not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.

 

The selling stockholder may from time to time pledge or grant a security
interest in some or all of the shares of common stock owned by its and, if it
defaults in the performance of its secured obligations, the pledgees or secured
parties may offer and sell shares of common stock from time to time under this
prospectus, or under a supplement or amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act amending the list
of selling stockholders to include the pledgee, transferee or other successors
in interest as selling stockholders under this prospectus.

 

Upon being notified in writing by the selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of common
stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, we will file a
supplement to this prospectus, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of such selling stockholder and of the
participating broker-dealer(s), (ii) the number of shares involved, (iii) the
price at which such shares of common stock were sold, (iv) the commissions paid
or discounts or concessions allowed to such broker-dealer(s), where applicable,
(v) that such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus, and (vi)
other facts material to the transaction.  In addition, upon being notified in
writing by the selling stockholder that a donee or pledge intends to sell more
than 500 shares of common stock, we will file a supplement to this prospectus if
then required in accordance with applicable securities law.

 

The selling stockholder also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.

 

In connection with the sale of the shares of common stock or interests in shares
of common stock, the selling stockholder may enter into hedging transactions
after the effective date of the registration statement of which this prospectus
is a part with broker-dealers or other financial institutions, which may in turn
engage in short sales of the common stock in the course of hedging the positions
they assume.  The selling stockholder may also sell shares of common stock short
after the effective date of the registration statement of which this prospectus
is a part and deliver these securities to close out their short positions, or
loan or pledge the common stock to broker-dealers that in turn may sell these
securities.  The selling stockholder may also enter into option or other
transactions after the effective date of the registration statement of which
this prospectus is a part with broker-dealers or other financial institutions or
the creation of one or more derivative securities which require the delivery to
such broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).

 

The selling stockholder and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales.  In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.  The maximum commission or discount to be
received by any member of the Financial Industry Regulatory Authority (FINRA) or
independent broker-dealer will not be greater than 8% of the initial gross
proceeds from the sale of any security being sold.

 

We have advised the selling stockholder that it is required to comply with
Regulation M promulgated under the Securities Exchange Act during such time as
it may be engaged in a distribution of the shares.  The foregoing may affect the
marketability of the common stock.

 

 

 

 

Execution Copy

 

The aggregate proceeds to the selling stockholder from the sale of the common
stock offered by it will be the purchase price of the common stock less
discounts or commissions, if any.  The selling stockholder reserves the right to
accept and, together with its agents from time to time, to reject, in whole or
in part, any proposed purchase of common stock to be made directly or through
agents.  We will not receive any of the proceeds from this offering.

 

We are required to pay all fees and expenses incident to the registration of the
shares.  We have agreed to indemnify the selling stockholder against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act or otherwise.

 

We have agreed with the selling stockholder to keep the registration statement
of which this prospectus constitutes a part effective until the earlier of (a)
such time as all of the shares covered by this prospectus have been disposed of
pursuant to and in accordance with the registration statement, and (b) the date
on which the shares of common stock covered by this prospectus may be sold by
non-affiliates without any volume or manner of sale restrictions or current
public information pursuant to Rule 144 of the Securities Act.

 

*         *         *

 

The undersigned has reviewed the Plan of Distribution set forth above and does
not have a present intention of effecting a sale in a manner not described
therein.

 

  o Agree o Disagree       (If left blank, response will be deemed to be
“Agree”.)  

 

The undersigned hereby represents that the undersigned understands, pursuant to
Securities Act Sections Compliance and Disclosure Interpretations Section
239.10, a copy of which is attached hereto as Exhibit 1, that the undersigned
may not make any short sale of the Common Stock prior to the effectiveness of
the Registration Statement, and further covenants to the Company that the
undersigned will not engage in any short sales of such stock to be registered
under the Registration Statement prior to its effectiveness.

 

SIGNATURE

 

The undersigned understands that the Company anticipates filing the Registration
Statement within the time frame set forth in the Registration Rights Agreement. 
If at any time any of the information set forth in my responses to this
Questionnaire has materially changed due to passage of time (other than due to
the receipt of the Common Stock set forth opposite the undersigned’s name in the
Schedule of Purchasers in the Purchase Agreement), or any development occurs
which requires a change in any of my answers, or has for any other reason become
incorrect, the undersigned agrees to furnish as soon as practicable to the
individual to whom a copy of this Questionnaire is to be sent, as indicated and
at the address shown on the first page hereof, any necessary or appropriate
correcting information.  Otherwise, the Company is to understand that the above
information continues to be, to the best of my knowledge, information and
belief, complete and correct.

 

Upon any sale of Common Stock pursuant to the Registration Statement, the
undersigned hereby agrees to deliver to the Company and the Company’s transfer
agent the Certificate of Subsequent Sale set forth in Exhibit I hereto.

 

The undersigned understands that the information that the undersigned is
furnishing to the Company herein will be used by the Company in the preparation
of the Registration Statement.

 

  Name of Purchaser:           Date:                                   , 201_
Signature:             Print Name:             Title (if applicable):
                      Address:

 

 

 

 

Execution Copy

 

FOOTNOTES

 

1.Beneficial Ownership.  You are the beneficial owner of a security, as defined
in Rule 13d-3 under the Securities Exchange Act of 1934 (the “Exchange Act”), if
you, directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise have or share: (1) voting power, which includes the
power to vote, or to direct the voting of, such security, and/or (2) investment
power, which includes the power to dispose, or to direct the disposition of,
such security.  You are also the beneficial owner of a security if you, directly
or indirectly, create or use a trust, proxy, power of attorney, pooling
arrangement or any other contract, arrangement or device with the purpose or
effect of divesting yourself of beneficial ownership of a security or preventing
the vesting of such beneficial ownership.

 

You are deemed to be the beneficial owner of a security if you have the right to
acquire beneficial ownership of such security at any time within 60 days
including, but not limited to, any right to acquire such security (a) through
the exercise of any option, warrant or right, (b) through the conversion of a
security, or (c) pursuant to the automatic termination of, or the power to
revoke a trust, discretionary account, or similar arrangement.

 

Ordinarily, shares held in the name of your spouse or minor child should be
considered as beneficially owned by you absent special circumstances to indicate
that you do not have, as a practical matter, voting power or investment power
over such shares.  Similarly, absent countervailing facts, securities held in
the name of relatives who share your home are to be reported as being
beneficially owned by you.  In addition, securities held for your benefit in the
name of others, such as nominees, trustees and other fiduciaries, securities
held by a partnership of which you are a partner, and securities held by a
corporation controlled by you should be regarded as beneficially owned by you.

 

This definition of beneficial ownership is very broad; therefore, even though
you may not actually have or share voting or investment power with respect to
securities owned by persons in your family or living in your home, you should
include such shares in your beneficial ownership disclosure and may then
disclaim beneficial ownership of such securities.

 

2.Associate.  The term “associate”, as defined in Rule 14a-1 under the Exchange
Act, means (a) any corporation or organization (other than the Company or any of
its majority owned subsidiaries) of which you are an officer or partner or are,
directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities, (b) any trust or other estate in which you have a substantial
beneficial interest or as to which you serve as trustee or in a similar
capacity, and (c) your spouse, or any relative of yours or relative of your
spouse living in your home or who is a director or officer of the Company or of
any subsidiary.  The term “relative of yours” as used in this Questionnaire
refers to any relative or spouse of yours, or any relative of such spouse, who
has the same home as you or who is a director or officer of any subsidiary of
the Company.

 

Please identify your associate referred to in your answer and indicate your
relationship.

 

3.Immediate Family.  The members of your “immediate family” are deemed to
include the following:  your spouse; your parents; your children; your siblings;
your mother-in-law or father-in-law; your sons- and daughters-in-law; and your
brothers- and sisters-in-law.

 

4.Transactions.  The term “transaction” is to be understood in its broadest
sense, and includes the direct or indirect receipt of anything of value.  Please
note that indirect as well as direct material interests in transactions are to
be disclosed.  Transactions in which you would have a direct interest would
include your purchasing or leasing anything (stock in a business acquired by the
Company, office space, plants, Company apartments, computers, raw materials,
finished goods, etc.) from or selling or leasing anything to, or borrowing or
lending cash or other property from or to, the Company, or any subsidiary.]

 

 

 

 

Execution Copy

 

Exhibit I

 

CERTIFICATE OF SUBSEQUENT SALE

 

[Transfer Agent]

 

RE:Sale of Shares of Common Stock of ClearSign Combustion Corporation (the
“Company”) pursuant to the Company’s Prospectus dated
                             , (the “Prospectus”)

 

Dear Sir/Madam:

 

The undersigned hereby certifies, in connection with the sale of shares of
Common Stock of the Company included in the table of Selling Stockholders in the
Prospectus, that the undersigned has sold the shares pursuant to the Prospectus
and in a manner described under the caption “Plan of Distribution” in the
Prospectus and that such sale complies with all securities laws applicable to
the undersigned, including, without limitation, the Prospectus delivery
requirements of the Securities Act of 1933, as amended.

 

Selling Stockholder (the beneficial owner):   

 

Record Holder (e.g., if held in name of nominee):   

 

Book Entry Position or Restricted Stock Certificate No.(s):   

 

Number of Shares Sold:  

 

Date of Sale:    

 

In the event that you receive a stock certificate(s) or evidence of a book entry
position representing more shares of Common Stock than have been sold by the
undersigned, then you should return to the undersigned a newly issued
certificate or book entry position for such excess shares in the name of the
Record Holder and BEARING A RESTRICTIVE LEGEND.  Further, you should place a
stop transfer on your records with regard to such certificate.  Notwithstanding
the foregoing, in the event that the undersigned executes and delivers to you
and to the Company the certification set forth on Annex I, upon instructions
from the Company, you should return to the undersigned a newly issued
certificate or book entry position for such excess shares of Common Stock in the
name of the Record Holder without any restrictive legend.  In addition, no
subsequent certification will be required to be delivered to you by the
undersigned provided that the representations and warranties set forth on Annex
I have been delivered to you and continue to be accurate.

 

    Very truly yours,       Dated:      By:             Print Name:             
Title:  

 

cc:ClearSign Combustion Corporation

[Address]

Attention:

 

 

 

 

Execution Copy

 

Annex I

 

In connection with any excess shares to be returned to the Selling Stockholder
upon a sale of shares of Common Stock of ClearSign Combustion Corporation (the
“Company”) included in the table of Selling Stockholders in the Prospectus, the
undersigned hereby certifies to the Company and [Transfer Agent], that:

 

1.            In connection with the sale by the undersigned stockholder of any
of the shares of Common Stock pursuant to the Prospectus, the undersigned
stockholder will deliver a copy of the Prospectus included in the Registration
Statement to the purchaser directly or through the undersigned stockholder’s
broker-dealer in compliance with the requirements of the Securities Act of 1933
and the Securities Exchange Act of 1934.

 

2.            Any such sale will be made only in the manner described under
“Plan of Distribution” in the Prospectus.

 

3.            The undersigned stockholder will only sell the shares of Common
Stock while the Registration Statement is effective, unless another exemption
from registration is available.

 

4.            The Company and its attorneys may rely on this letter to the same
extent as if it were addressed to them.

 

5.            The undersigned stockholder agrees to notify you immediately of
any development or occurrence which to his, her or its knowledge would render
any of the foregoing representations and agreements inaccurate.

 

All terms not defined herein are as defined in the Stock Purchase Agreement
entered into in _______ 2018 between the Company and the Purchaser.

 

    Very truly yours,       Dated:      By:             Print Name:             
Title:  

 

 ]

  

 

 

 

Execution Copy

 

APPENDIX IV

 

1.          Purchase Rights with Respect to Outstanding $4.00 Warrants. As it
relates solely to, and in conjunction with, the exercise of the warrants issued
by the Company on January 25, 2017, (the “Warrants”) and the issuance of the
Common Stock subject to the Warrants (the “Warrant Shares”) for a period
beginning on the Closing and ending seven days following the Expiration Date
under the Warrant Agreement, as defined below, as the Expiration Date may be
extended (the “Purchase Period”), the Purchaser will have the right (the
"Purchase Right"), as Warrants are exercised and Warrant Shares are issued, to
purchase from the Company a number of shares of Common Stock sufficient to
maintain a percentage ownership of 19.99% of the Company’s outstanding Common
Stock, up to a total of 478,854 shares of Common Stock, on the same terms and
conditions as if such right had been granted pursuant to the Warrant Agreement
between the Company and VStock Transfer, LLC dated December 7, 2016 (the
"Warrant Agreement"). The price for the purchase of such Common Stock shall be
the Warrant Price. Such shares of Common Stock shall be issued by the Company
directly to the Purchaser upon payment to the Company, by certified or bank
check or wire transfer of immediately available funds, of the Warrant Price per
share of Common Stock. The number of shares of Common Stock for which the
Purchase Right may be exercised and the Warrant Price are both subject to
adjustment as provided in the Warrant Agreement as if the Purchase Right were
granted as Warrants pursuant to the terms of such Warrant Agreement. The
Purchaser may exercise the Purchase Right in full or in part at any time during
the Purchase Period by (i) providing notice to the Company of the number of
shares of Common Stock to be purchased, and (ii) paying the Warrant Price for
each such share of Common Stock. In no event, however, may the Purchase Right be
exercised to the extent it would cause Purchaser or any of its Affiliates to
beneficially own 20% or more of the Company’s then outstanding Common Stock or
hold shares with 20% or more of the voting power of the Company. Until the
expiration of the Purchase Period, the Purchase Right may subsequently be
exercised for any shares of Common Stock for which the Purchase Right had not
previously been exercised. The Company shall represent and warrant to the
Purchaser that shares purchased by the Purchaser pursuant to the Purchase Right
shall be, upon issuance thereof to the Purchaser and after payment therefor,
duly authorized, validly issued, fully paid and non-assessable. As soon as
possible after the termination date of the Exercise Period, the Company shall
inform Purchaser of the number of shares of Common Stock issued pursuant to the
exercise of rights under the Warrant Agreement, but in in no event later than
four days after the expiration of the Exercise Period. Capitalized terms in this
Section not otherwise defined are used as defined in the Warrant Agreement.

 

2.          Issuance of Additional Equity Securities.

 

a.           Participation Right. The Company hereby grants to the Purchaser the
right (the “Participation Right”) to purchase, on terms and conditions no
different from those offered to other purchasers, its Purchaser Pro Rata Portion
of any new Equity Securities (other than any Excluded Securities) (the "New
Securities") that the Company may from time to time propose to issue or sell for
the purpose of raising capital. In no event, however, may the Participation
Right be exercised to the extent it would cause Purchaser to own 20% or more of
the Company’s then outstanding Common Stock or hold shares with 20% or more of
the voting power of the Company. This right shall expire on December 31, 2023.

 

b.           Additional Issuance Notices. The Company shall give the Purchaser
written notice (an "Issuance Notice") of any proposed issuance or sale described
in subsection (a) above within five Business Days following any meeting of the
Board at which any such issuance or sale is approved. If the proposed issuance
will be exempt from registration pursuant to Section 4(a)(2) of the Securities
Act, the Issuance Notice, if applicable, shall be accompanied by a written offer
from any prospective purchaser seeking to purchase New Securities and shall set
forth the material terms and conditions of the proposed issuance, including:

 

i.          the number and description of the New Securities proposed to be
issued and the percentage of the Company's outstanding Equity Securities such
issuance would represent;

 

ii.         the proposed issuance date, which shall be at least 20 days from the
date of the Issuance Notice; and

 

iii.         the proposed purchase price per share.

 

 

 

 

Execution Copy

 

c.           Exercise of Participation Rights. The Purchaser shall for a period
of 15 days following the receipt of an Issuance Notice (the "Exercise Period")
have the right to elect irrevocably to exercise its Participation Right to
purchase its Purchaser Pro Rata Portion of the New Securities at the purchase
price set forth in the Issuance Notice by delivering a written notice to the
Company. The closing of any purchase by the Purchaser shall be consummated
concurrently with the consummation of the issuance or sale described in the
Issuance Notice.

 

d.           Sales to the Prospective Buyer. If the Purchaser fails to purchase
its Purchaser Pro Rata Portion of the New Securities within the time period
described in subsection (c), the Company shall be free to complete the proposed
issuance or sale of New Securities described in the Issuance Notice with respect
to which the Purchaser failed to exercise the option set forth in this Section 2
on terms no less favorable to the Company than those set forth in the Issuance
Notice (except that the amount of New Securities to be issued or sold by the
Company may be reduced); provided, that (x) such issuance or sale is closed
within 60 Business Days after the expiration of the Exercise Period (subject to
the extension of such 60 Business Day period for a reasonable time not to exceed
60 Business Days to the extent reasonably necessary to obtain any approval from
NASDAQ or any approval required by state or federal securities laws) and (y) for
the avoidance of doubt, the price at which the New Securities are sold is at
least equal to or higher than the purchase price described in the Issuance
Notice. In the event the Company has not sold such New Securities within such
time period, the Company shall not thereafter issue or sell any New Securities
without first again offering such securities to the Purchaser in accordance with
the procedures set forth in this Section 2.

 

e.           Closing of the Issuance. Upon the issuance of any New Securities in
accordance with this Section 2, the Company shall deliver to the Purchaser
certificates (if any) evidencing the New Securities purchased by the Purchaser
pursuant to the Participation Right, which New Securities shall be issued free
and clear of any liens (other than those arising hereunder and those
attributable to the actions of the purchasers thereof), and the Company shall so
represent and warrant to the Purchaser, and further represent and warrant to the
Purchaser that such New Securities shall be, upon issuance thereof to the
Purchaser and after payment therefor, duly authorized, validly issued, fully
paid and non-assessable. The Purchaser shall deliver to the Company the purchase
price for the New Securities purchased by it by certified or bank check or wire
transfer of immediately available funds. Each party to the purchase and sale of
New Securities shall take all such other actions as may be reasonably necessary
to consummate the purchase and sale including, without limitation, entering into
such additional agreements as may be necessary or appropriate.

 

f.            Definitions for this Exhibit. The following terms shall apply to
this Section 2:

 

“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.

 

“Equity Securities” means only the Company’s Common Stock and warrants to
purchase the Company’s Common Stock.

 

"Excluded Securities" means Equity Securities issued in connection with: (i)
shares of Common Stock issued pursuant to the exercise of currently outstanding
warrants or options issued pursuant to equity incentive plans or other
compensation arrangements; (ii) securities issued in debt financing transactions
with any financial institution or company; (iii) securities issued in
transactions with strategic partners such as customers, suppliers or
distributors; (iv) securities issued in rights or other securities offerings
made to all stockholders; and (v) securities issued pursuant to
stockholder-approved transactions including any transaction resulting in a
change of control. Transactions with strategic partners shall include, but shall
not be limited to, (A) the consolidation or merger by the Company (or its
subsidiaries or affiliates) with or into (whether or not the Company is the
surviving corporation) another entity; (B) the sale, assignment, transfer,
conveyance or disposition of all or substantially all of the properties or
assets of the Company or any of its significant subsidiaries; (C) allowing one
or more entities to make, or allowing the Company to be subject to or have its
Common Stock be subject to, a purchaser, tender or exchange offer; (D) the
consummation of a stock or share purchase agreement with a strategic partner; or
(E) the consummation with a strategic partner of any other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement).

 

"Purchaser Pro Rata Portion" means the number of New Securities sufficient to
permit Purchaser to maintain ownership of 19.99% of the Company’s outstanding
Common Stock following the issuance of the New Securities.

 

 

 

 

Execution Copy

 

SCHEDULE OF EXCEPTIONS

July 11, 2018

 

This Schedule of Exceptions is being furnished by ClearSign Combustion
Corporation, a Washington corporation, (the “Company”), to the Purchaser party
to that certain Stock Purchase Agreement of even date herewith by and among the
Company and such Purchaser (the “Agreement”) in connection with the execution
and delivery of the Agreement, pursuant to Section 4 of the Agreement.  Unless
the context otherwise requires, all capitalized terms used in this Schedule of
Exceptions shall have the respective meanings ascribed to such terms in the
Agreement.

 

This Schedule of Exceptions and the information, descriptions and disclosures
included herein is intended to set forth exceptions to the representations and
warranties of the Company contained in the Agreement.  The contents of all
agreements and other documents referred to in a particular section of this
Schedule of Exceptions are incorporated by reference into such particular
section as though fully set forth in such section.

 

 

 

 

Execution Copy

 

SCHEDULE 1

 

Form of Affiliate Legend

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE HELD BY AN AFFILIATE OF THE
ISSUER AS DEFINED IN RULE 144 PROMULGATED UNDER THE SECURITIES ACT OF 1933 AND
MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IN COMPLIANCE WITH THE REQUIREMENTS OF
RULE 144 OR PURSUANT TO A REGISTRATION STATEMENT UNDER SAID ACT OR AN EXEMPTION
FROM SUCH REGISTRATION.”

 

 

 

 

Execution Copy

 

SCHEDULE 4.6

 

1.          The Company has an agreement with Three Part Advisors, LLC pursuant
to which it issues to this entity, from the Company’s 2013 Consultant Stock
Plan, shares of Common Stock in partial payment for services rendered.

 

2.          The Company intends to issue options to purchase shares of its
Common Stock to certain employees and directors. The options will be issued from
the Company’s 2011 Equity Incentive Plan (the “2011 Plan”).

 

3.          Each quarter the shares of Common Stock included in the 2011 Plan
are increased as follows:

 

The maximum aggregate number of Shares that may be granted under the 2011 Plan
will be increased effective the first day of each of the Company’s fiscal
quarters, beginning with the fiscal quarter commencing October 1, 2011, (the
“Adjustment Date”) by an amount equal to the lesser of:

 

(i) 10% of the difference between the number of shares of Common Stock
outstanding on the applicable Adjustment Date and the number of shares of Common
Stock outstanding at the beginning of the fiscal quarter immediately preceding
the Adjustment Date; or

 

(ii) such lesser number of Shares as may be determined by the Board.

 

The shares included in the 2013 Consultant Stock Plan are increased in the same
manner, at a rate of 1% of the difference between the number of shares of Common
Stock outstanding on the applicable Adjustment Date and the number of shares of
Common Stock outstanding at the beginning of the fiscal quarter immediately
preceding the Adjustment date.

 

4.          Brean Capital, LLC was issued a warrant for the purchase of 20,313
shares of Common Stock at an exercise price of $10.00 per share. The warrant
will expire on March 5, 2019. Brean Capital LLC will continue to have demand
registration rights until March 5, 2019.

 

5.          The Company intends on filing a registration statement on Form S-8
to cover additional shares of Common Stock included in the 2011 Equity Incentive
Plan.

 

6.          On April 1, 2018, in accordance with the quarterly increases
permitted under the 2011 Plan as described at paragraph 3 above, the number of
shares of Common Stock reserved for issuance was increased by 575,250 shares.

 

7.          On April 1, 2018, in accordance with the quarterly increases
permitted under the 2013 Consultant Stock Plan as described in paragraph 3
above, the number of shares of Common Stock reserved for issuance was increased
by 57,525 shares.

 

8.          On April 12, 2018, the Compensation Committee of the Board of
Directors authorized the issuance from the 2011 Plan of long term incentive
compensation to employees by granting options for the purchase of 169,000 shares
of Common Stock at an exercise price of $1.90 per share. The stock options vest
over 4 years and will be completely vested in 2022. Of this amount, options for
the purchase of 75,000 shares of Common Stock were granted to officers of the
Company and were disclosed in the Company’s DEF 14A filed with the Securities
and Exchange Commission on April 18, 2018.

 

9.          On May 3, 2018 the Compensation Committee of the Board of Directors
authorized the issuance from the 2011 Plan of long term incentive compensation
to employees by granting options for the purchase of 5,000 shares of Common
Stock at an exercise price of $1.85 per share. These awards vest over the 4
years and will be completely vested in 2022.

 

10.         On May 3, 2018 the Board of Directors approved annual compensation
for the independent directors. As partial compensation for services provided to
the Company during 2018, each independent director was granted 27,027 shares of
common stock having a per share value of $1.85, the closing price of the
Company’s common stock on the date of grant. The common stock is earned in
quarterly increments and is issued on the last business day of each calendar
quarter. The shares of common stock are issued from the Company's 2011 Equity
Incentive Plan. Because the grants were approved in the second quarter, the
shares of common stock for both the first and second quarters of 2018 were
issued on June 29, 2018.

 

11.         If the Company extends the expiration date of the publicly traded
warrants to January 25, 2020, it will be required to file a prospectus
supplement to the S-3 registration statement, number 333-208784, and to file a
new registration statement that includes a current prospectus prior to the
exercise of the warrants. (See SEC C&DI Securities Act Sections 203.01.)