CONTRIBUTION AGREEMENT


 


THIS CONTRIBUTION AGREEMENT
(this “Agreement”) is entered into as of November 12, 2012 (the “Effective Date”), by and
among FlexEnergy, Inc., a Delaware corporation (“FlexEnergy”), FlexEnergy Energy Systems, Inc., a Delaware corporation
(“FEES”; FEES and FlexEnergy individually and collectively referred to as “Flex”), and Flex
Power Generation, Inc. (“FPG”).


 


WHEREAS, FlexEnergy
currently owns all of the issued and outstanding equity securities in FEES and FPG;


 


WHEREAS, in addition
to the microturbine business acquired from Ingersoll-Rand and owned, operated and further developed primarily through FEES (the
“Microturbine Business”), FlexEnergy has owned and operated a business (initially acquired in 2008 by FlexEnergy
from FlexEnergy, Inc., a California corporation (“FIC”), and continued after the acquisition of the Microturbine
Business) to develop and commercialize the use of flameless combustion or oxidation reactions (the “Oxidizer Business”);
and


 


WHEREAS, FlexEnergy
desires to contribute to FPG certain specific assets related to the Oxidizer Business (as compared to the Microturbine Business)
and other assets solely or primarily used as of the Effective Date in, or intended as of the Effective Date solely or primarily
for use in, the Oxidizer Business (as compared to the Microturbine Business), and FPG desires to receive and assume such assets;
and


 


WHEREAS, FlexEnergy,
FEES and FPG intend to separately enter into a transition agreement relating to the commercial terms of the provision (i) by FlexEnergy
and/or FEES to FPG of certain products and services primarily relating to the Microturbine Business, and (ii) by FPG to FlexEnergy
and/or FEES of certain services by FPG personnel (a “Transition Agreement”); and


 


NOW, THEREFORE,
in consideration of the foregoing, the mutual covenants and agreements herein contained and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:


 


1.           Contribution.


 


1.1          Contributed
Assets. Effective as of the Effective Date, Flex hereby transfers, contributes, conveys, grants and assigns to FPG and FPG
hereby accepts and assumes all of Flex’s right, title and interest in and to the assets set forth on Schedule 1 (the
“Fixed Assets”), the agreements set forth on Schedule 2 (the “Agreements”), and the
Intellectual Property, including that Intellectual Property set forth on Schedule 3 (collectively, the Intellectual Property,
the Fixed Assets, and Agreements are referred to herein as the “Contributed Assets”).


 




    	 



    	 



    

 


1.1.1       Definition
of Intellectual Property.


 


(a)          “Intellectual
Property” shall mean all intellectual property rights that Flex owns or in which Flex has an interest solely or primarily
used as of the Effective Date in, or intended as of the Effective Date solely or primarily for use in, the Oxidizer Business (as
compared to the Microturbine Business), which the parties agree includes the following: (A) (i) Patents (but not Trademarks)
set forth on Schedule 3, but not any other Patents, (ii)  trade secrets, confidential business and technical information
and any other confidential information and proprietary information (including research and development, prototypes, models, production
and other designs, formulae, technology and other processes and techniques, schematics, technical data, business methods, customer
lists and supplier lists, and any other information meeting the definition of a trade secret under the Uniform Trade Secrets Act
or similar laws in any jurisdiction) (“Trade Secrets”) solely or primarily used as of the Effective Date in,
or intended as of the Effective Date solely or primarily for use in, the Oxidizer Business (as compared to the Microturbine Business),
(iii) other proprietary technology, intellectual property, industrial or similar proprietary rights, whether arising under common
law, state law, federal law or laws of foreign countries or jurisdictions therein solely or primarily used as of the Effective
Date in, or intended as of the Effective Date solely or primarily for use in, the Oxidizer Business (as compared to the Microturbine
Business); (B) rights to apply for or register any of the rights described in subsections (A)(i-iii) above; (C) licenses and
other arrangements to use the intellectual property that are owned by others but that Flex is using under a license or other arrangement
with the owner(s) of such intellectual property as of the Effective Date and which intellectual property is solely or primarily
used as of the Effective Date in, or intended as of the Effective Date solely or primarily for use in, the Oxidizer Business (as
compared to the Microturbine Business); (D) know-how, software and other information, whether the same is owned by Flex, either
alone or with others, or is owned by others but that Flex is using as of the Effective Date under a license or other arrangement
with the owner(s) of the intellectual property rights solely or primarily used as of the Effective Date in, or intended as
of the Effective Date solely or primarily for use in, the Oxidizer Business (as compared to the Microturbine Business); and (E)
claims against third parties arising solely from such Intellectual Property, whether past, present, or future, choate or inchoate,
known or unknown, or contingent or non-contingent.


 


(b)          “Intellectual
Property” also includes, but is not limited to, the Patents and patent applications expressly identified on Schedule 3
to this Agreement, including any United States or foreign utility or design patent to issue therefrom, together with any extensions,
reexaminations and reissues of such patents, patents of addition, divisions, continuations, continuations-in-part, and any subsequent
filings in any country or jurisdiction claiming priority therefrom.


 


(c)          “Intellectual
Property” also includes the intellectual property rights (of the nature described in Section 1.1.1(a)(A)-(E) above) that
Flex may otherwise own or have an interest in any oxidizer systems, including associated interfaces, modules, processes and controls,
and any enhancements, improvements and derivations thereof, hereafter developed, invented, or otherwise derived by FlexEnergy or
FEES, or any of their directors, officers, employees or agents on behalf of FlexEnergy or FEES, to the extent developed, invented
or otherwise derived in connection with performing engineering or other services for FPG (i) pursuant to a Transition Agreement,
service agreement or other substitute or successor written agreement, and (ii) for which FlexEnergy or FEES, as applicable, is
monetarily compensated for such services pursuant to such agreement (provided that FPG has paid in full all amounts owed to FlexEnergy
and FEES under such agreements).


 




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1.1.2      “Patent”
or “Patents” shall mean any United States or foreign utility or design patents, together with any extensions,
reexaminations and reissues of such patents, patents of addition, patent applications, divisions, continuations, continuations-in-part,
and any subsequent filings in any country or jurisdiction claiming priority therefrom, owned by, or subject to assignment to, Flex.


 


1.2          Trademark
License. FlexEnergy hereby grants to FPG a worldwide, royalty-free, fully-paid up right and license to use the trademarks and
service marks identified on Schedule 3 (the “Licensed Trademarks”), provided that (a) such license shall
terminate upon the written request of FPG or a failure by FPG to promptly (in any event not to exceed five (5) business days following
notice thereof) reimburse FlexEnergy for any registration maintenance costs and other out-of-pocket costs of ownership with respect
to the Licensed Trademarks, (b) the permitted scope of use of the Licensed Trademark shall be for use in the Oxidizer Business
but not for any use that causes confusion with the Microturbine Business (as reasonably determined by FlexEnergy), and (c) such
license shall not be assigned or sublicensed by FPG without the prior written consent of FlexEnergy in its absolute discretion.


 


1.3          Liabilities.


 


1.3.1      Assumed
Liabilities. Effective as of the Effective Date, FPG hereby assumes, and agrees to pay, perform and discharge all liabilities
and obligations arising out of, relating to or otherwise in respect of the Contributed Assets and the Oxidizer Business (in its
present form or as previously conducted), specifically including, without limitation, (a) the liabilities and obligations identified
on Schedule 4, (b) all liabilities and obligations of Flex acquired from FIC, regardless of whether or not the corresponding
assets are no longer currently used by the Oxidizer Business, and (c) all liabilities and obligations of Flex arising out of, relating
to or otherwise in respect of activities of FIC, regardless of whether or not such FIC activities have been continued by the Oxidizer
Business (collectively, the “Assumed Liabilities”); provided that, for clarity, specific liabilities and obligations
for which FPG already has reimbursement obligations pursuant to Section 1.3.2 below shall not be further included as Assumed Liabilities
subject to this Section 1.3.1. As between Flex and FPG, the Retained Liabilities shall remain the sole responsibility of, and shall
be retained, paid, performed and discharged solely by, Flex. “Retained Liabilities” shall mean every liability
and obligation of Flex other than the Assumed Liabilities. FlexEnergy or FEES may pay or discharge any Assumed Liability if it
provides (i) evidence to FPG that such Assumed Liability is subject to a notice of default, demand or claim and or is otherwise
due and owing (ii) three business days advance written notice to FPG of its intention to pay or discharge such Assumed Liability
prior to such payment or discharge, in which chase FPG shall reimburse FlexEnergy or FEES, as applicable, for the full cost of
such payment or performance within five business days after receipt of evidence by FPG of Flex’s payment of such Assumed
Liability.


 


1.3.2      Reimbursement
Obligations. Effective as of the Effective Date, FPG hereby agrees to reimburse Flex for the portion of those liabilities and
obligations identified on Schedule 5 as being the responsibility of FPG, provided that the amount of FPG reimbursement obligations
under this Section 1.3.2 shall not exceed $635,702.56 (collectively, the “Reimbursement Obligations”), pursuant
to the following terms. Flex must provide three business days advance written notice to FPG of its intention to pay a liability
that is subject to a Reimbursement Obligation prior to such payment. Upon receipt of evidence of Flex’s payment of the corresponding
liability or obligation, FPG shall promptly (in any event not to exceed five business days following notice thereof) pay to Flex
the proportionate Reimbursement Obligation amount corresponding to such liability or obligation paid.


 




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1.3.3      Termination.
For purposes of clarity, upon the reimbursement to Flex of $653,702.56 for Reimbursement Obligations (either through direct payment
by FPG or drawing upon the Letter of Credit (as defined in the Credit Support Agreement, which is described in Section 1.3.4 below),
FPG’s obligation to pay Reimbursement Obligations under Section 1.3.2 shall terminate.


 


1.3.4      Security.
As support for FPG’s obligations under this Section 1.3, FPG, Flex and SAIL Venture Partners II, L.P. are simultaneously
entering into to a Credit Support Agreement.


 


1.4          Third
Party Consents; Non-Assignment of Certain Assets. Notwithstanding the foregoing, in the event that the legal interest in any
of the Contributed Assets to be transferred, assigned or conveyed pursuant to this Agreement, or any claim, right, benefit or obligation
arising thereunder or resulting therefrom, cannot be transferred, assigned or conveyed hereunder as of the Effective Date because
any waiting or notice period has not expired or any consents or approvals required for such transfer have not been obtained or
waived, then FlexEnergy or FEES, as applicable, shall hold such legal interest in the Contributed Assets for the benefit and risk
of FPG until such time as such waiting or notice period expires or the requisite consent or approval for transfer is obtained,
at which time the parties will effect the legal transfer. Pending completion of such transfer, each of Flex and FPG shall cooperate
with each other in any lawful and reasonable arrangements designed to provide the benefits and obligations of ownership thereof
to FPG, and FPG shall make appropriate arrangements so that FPG promptly bears the full economic costs thereof to the same extent
such costs would have been borne by FPG upon an actual transfer, contribution, conveyance, grant or assignment to FPG on the Effective
Date (and further to the extent Flex bears any economic costs for such Contributed Asset after the Effective Date). Each party
shall, at its own expense, use commercially reasonable efforts to cooperate in obtaining such consents and/or approvals as may
be necessary to complete such transfers as soon as practicable.


 


1.5          License
of Control-Related IP. FPG hereby grants to Flex a worldwide, perpetual, irrevocable, royalty-free, fully-paid up right and
license to non-exclusively use (a) controls-related Intellectual Property to the extent that such controls-related Intellectual
Property was used in the Microturbine Business as of the Effective Date, and (b) controls-related Intellectual Property hereafter
developed, invented, or otherwise derived by FlexEnergy, FEES, or any of their directors, officers, employees or agents, as dual-use
technology for use in both the Microturbine Business and the Oxidizer Business and contributed, transferred, assigned or conveyed
to FPG pursuant to Section 1.1.1(c) above, provided that the permitted scope of use of the Intellectual Property licenses pursuant
to this Section 1.5 shall be for use in the Microturbine Business only.


 




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2.           Representations
and Warranties of Flex. Each of FlexEnergy and FEES, jointly and severally, hereby represents and warrants to FPG that, as
of the Effective Date:


 


2.1          Binding
Obligation. Flex has full power and authority to enter into this Agreement. This Agreement has been duly authorized, executed
and delivered by Flex (and assuming the due authorization and delivery hereof and thereof by the other parties hereto) constitutes
the legal, valid and binding obligation of Flex enforceable against Flex in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors’
rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding
at law or in equity).


 


2.2          Authorization;
No Contravention. The execution, delivery and performance by Flex of this Agreement and the consummation by Flex of the transactions
contemplated thereby (i) have been duly authorized, if necessary, by all necessary action of Flex and no further action is required
of Flex in connection therewith, and (ii) do not and will not conflict with, contravene or constitute a default or breach under
(A) any provision of any law, regulation or governmental requirement applicable to Flex or (B) any of Flex’s organizational
documents.


 


2.3          Litigation.
There is no Proceeding (defined below) pending or currently threatened against Flex that questions the validity of this Agreement
or the right of Flex to enter into it, or to consummate the transactions contemplated by this Agreement. “Proceeding”
shall mean an action, claim, suit, investigation or proceeding (including, without limitation, an investigation), whether commenced
or overtly threatened.


 


3.           Representations
and Warranties of FPG. FPG hereby represents and warrants to Flex that, as of the Effective Date:


 


3.1          Binding
Obligation. FPG has full power and authority to enter into this Agreement. This Agreement has been duly authorized, executed
and delivered by FPG (and assuming the due authorization and delivery hereof and thereof by the other parties hereto) constitutes
the legal, valid and binding obligation of FPG enforceable against FPG in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors’
rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding
at law or in equity).


 


3.2          Authorization;
No Contravention. The execution, delivery and performance by FPG of this Agreement and the consummation by FPG of the transactions
contemplated thereby (i) have been duly authorized, if necessary, by all necessary action of FPG and no further action is required
of FPG in connection therewith, and (ii) do not and will not conflict with, contravene or constitute a default or breach under
any (A) provision of any law, regulation or governmental requirement applicable to FPG, or (B) FPG’s organizational documents.


 


3.3          Litigation.
There is no Proceeding pending or currently threatened against FPG that questions the validity of this Agreement or the right of
FPG to enter into it, or to consummate the transactions contemplated by this Agreement.


 




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4.           Disclaimer
of Warranties. FPG ACKNOWLEDGES THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SPECIFICALLY SET FORTH IN THIS AGREEMENT,
THE CONTRIBUTED ASSETS ARE BEING CONVEYED “AS IS, WHERE IS” AND “WITH ALL FAULTS,” AND FLEX HAS NOT MADE,
AND FPG HEREBY EXPRESSLY DISCLAIMS AND NEGATES, ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF ANY KIND OR NATURE
WHATSOEVER, RELATING TO THE CONTRIBUTED ASSETS (INCLUDING ANY IMPLIED OR EXPRESSED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE).


 


5.           Indemnification.


 


5.1          Flex,
jointly and severally, shall indemnify, defend and hold FPG and its directors, officers, shareholders, partners, employees and
agents (each, a “FPG Indemnified Party”) harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements (with the approval of Flex, which
shall not be unreasonably withheld), court costs and reasonable attorneys’ fees and costs of investigation that any such
FPG Indemnified Party suffers or incurs to the extent arising or resulting from (a) any misrepresentation, breach or inaccuracy
of any of the representations, warranties, covenants or agreements made by Flex in this Agreement; or (b) any Retained Liability.


 


5.2          FPG
shall indemnify, defend and hold FlexEnergy, FEES and their respective directors, officers, shareholders, partners, employees and
agents (each, a “Flex Indemnified Party”) harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements (with the approval of FPG, which
shall not be unreasonably withheld), court costs and reasonable attorneys’ fees and costs of investigation that any such
Flex Indemnified Party suffers or incurs to the extent arising or resulting from (a) any misrepresentation, breach or inaccuracy
of any of the representations, warranties, covenants or agreements made by FPG in this Agreement; or (b) any Assumed Liability.


 


6.           Covenants


 


6.1          FlexEnergy,
FEES and FPG each agrees to use commercially reasonable efforts to work together in good faith to prepare and enter into a Transition
Agreement within a reasonable time following the execution of this Agreement.


 


6.2          Flex
agrees to supply to FPG and its affiliates for a period of three years from the Effective Date the following at the Best Price
(defined below): (a) MT250 EX turbines, (b) MT333 EX turbines, and (c) other turbines as may reasonably be supplied by Flex. Such
supply shall be on commercially reasonable terms generally available to other customers with similar credit ratings/risks ordering
similar units in similar quantities. “Best Price” means, with respect to the applicable proposed sale of products
to FPG, the lowest price at which such products (or similar products) were sold in the preceding six-month period in similar quantities
to customers with similar credit ratings/risks, provided that FPG shall be charged generally applicable rates for any special engineering
or product specialization required for such sales of products except to the extent Flex specifically otherwise agrees in writing.


 




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7.           Miscellaneous


 


7.1          Further
Assurances.  The parties shall each use commercially reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things reasonably necessary, proper or advisable under applicable laws and regulations, and to
cooperate with each other as is reasonably required for such purpose, to make effective the transactions contemplated by this Agreement
and the other documents contemplated hereby. To that end, each party agrees that it shall execute and deliver, or cause to be executed
and delivered from time to time, such instruments, documents, agreements, consents and assurances (such as bills of sale, assumption
agreements, patent assignments, trademark licenses and other intellectual property instruments), and that it shall take such other
actions as may be reasonably required to more effectively (i) convey, transfer to and vest in FPG, and to put FPG in possession
of, the Contributed Assets, and (ii) assign the Assumed Liabilities to FPG. In the event of any conflict of conflict or inconsistency
between the terms of this Agreement and the terms of any such instruments, documents, agreements, consents and assurances (other
than an agreement clearly titled as an “Amendment to Contribution Agreement”), the terms of this Agreement shall prevail.


 


7.2          Successors
and Assigns. The rights under this Agreement may not be assigned by any party hereto. The terms and conditions of this Agreement
inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors
and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly
provided herein.


 


7.3          Governing
Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of law.


 


7.4          Counterparts;
Facsimile. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This Agreement may also be executed and delivered by facsimile or
electronically delivered signature and in two or more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.


 


7.5          Titles
and Subtitles. The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing
or interpreting this Agreement.


 


7.6          Notices.
All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively
given upon the earlier of actual receipt or: (i) personal delivery to the party to be notified; (ii) when sent, if sent by electronic
mail or facsimile during the recipient’s normal business hours, and if not sent during normal business hours, then on the
recipient’s next business day (only if written notification of receipt is received by sender); (iii) five (5) days after
having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) business day after
the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with
written verification of receipt.


 




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7.7          Amendments
and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance, and either retroactively or prospectively) only with the written consent of all the parties
hereto.


 


7.8          Severability.
In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and such
invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to
the maximum extent permitted by law.


 


7.9          Entire
Agreement. This Agreement (including any Schedule and Exhibits hereto), together with the other Transaction Agreement, constitutes
the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written
or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled.


 


7.10        Dispute
Resolution. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the federal and state courts
located within the geographic boundaries of the United States District Court for the Central District of California for the purpose
of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action
or other proceeding arising out of or based upon this Agreement except in the federal and state courts located within the geographic
boundaries of the United States District Court for the Central District of California, and (c) hereby waive, and agree not
to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that
the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper
or that this Agreement or the subject matter hereof may not be enforced in or by such court. Each party will bear its own costs
in respect of any disputes arising under this Agreement, except as set forth in Section 5 of this Agreement.


 


[Signature Page Follows]


 




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


 


	 	FLEXENERGY, INC.,
	 	a Delaware corporation
	 	 	 
	 	By:	 
	 	Name:	James M. Mitchell
	 	Title:	President/CEO
	 	 	 
	 	FLEXENERGY ENERGY SYSTEMS, INC.,
	 	a Delaware corporation
	 	 	 
	 	By:	 
	 	Name:	James M. Mitchell
	 	Title:	CEO
	 	 	 
	 	FLEX POWER GENERATION, INC.,
	 	a Delaware corporation
	 	 	 
	 	By:	 
	 	Name:	Boris Maslov
	 	Title:	President


 





[Signature Page to Contribution Agreement]


 






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SCHEDULE 1


 


Assets


 




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SCHEDULE 2


 


Agreements


 




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SCHEDULE 3


 


Intellectual Property


 




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SCHEDULE 4


 


Certain Assumed Liabilities


 




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SCHEDULE 5


 


Reimbursement Obligations


 




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