x
|
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
WASHINGTON
(State or other jurisdiction of
incorporation or organization) |
|
26-2056298
(I.R.S. Employer
Identification No.) |
Title of each class
|
|
Name of each exchange on
which each is registered
|
Common Stock, par value $.0001
|
|
NASDAQ Capital Market
|
Large accelerated filer
¨
|
|
Accelerated filer
¨
|
Non-accelerated filer
¨
|
|
Smaller reporting company
x
|
(Do not check if a smaller reporting company)
|
|
|
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS REPORT
|
2
|
|
|
ITEM 1: BUSINESS
|
3
|
|
|
ITEM 1A: RISK FACTORS
|
11
|
|
|
ITEM 1B: UNRESOLVED STAFF COMMENTS
|
17
|
|
|
ITEM 2: PROPERTIES
|
17
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ITEM 3: LEGAL PROCEEDINGS
|
17
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|
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ITEM 4: MINE SAFETY DISCLOSURES
|
17
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ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
18
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|
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ITEM 6: SELECTED FINANCIAL DATA.
|
18
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ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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19
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ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
22
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ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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23
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ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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24
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ITEM 9A: CONTROLS AND PROCEDURES
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24
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ITEM 9B: OTHER INFORMATION
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25
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ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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25
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ITEM 11: EXECUTIVE COMPENSATION
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25
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ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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25
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ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
26
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ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
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26
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ITEM 15: EXHIBITS
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26
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1 | ||
|
· | our limited cash and our history of losses; |
· | our ability to achieve profitability; |
· | our limited operating history; |
· | emerging competition and rapidly advancing technology in our industry that may outpace our technology; |
· | customer demand for the products and services we develop; |
· | the impact of competitive or alternative products, technologies and pricing; |
· | our ability to manufacture any products we develop; |
· | general economic conditions and events and the impact they may have on us and our potential customers; |
· | our ability to obtain adequate financing in the future; |
· | our ability to continue as a going concern; |
· | our success at managing the risks involved in the foregoing items; and |
· | other factors discussed in this report. |
2 | ||
|
⋅ |
electrical power generation,
|
⋅ |
hydrocarbon and chemical processing industries,
|
⋅ |
petroleum refining,
|
⋅ |
gas utility turbines, and
|
⋅ |
all manner of industrial and commercial steam generation and industrial process heat.
|
3 | ||
|
• |
Scale-up to commercially relevant sizes.
We have finalized designs and built furnaces and burners at what we believe to be a commercially relevant scale. We have assembled a group of technical advisors comprised of subject matter experts in the areas of combustion, pollution control, physics, aeronautics, electrodynamics and chemistry. We have identified key potential development partners and customers with whom we are engaged in discussions to apply our technologies to their particular uses at commercially relevant scales, which can be 1 million BTUs or greater.
|
• |
Site demonstration at full scale.
We plan to demonstrate our technologies at one or more selected commercial sites. If achieved, these early site demonstrations will be aimed at retrofitting or replacing one or two burners in multi-burner systems with an eye toward evaluation of our technologies at full scale in one or more operating systems.
|
• |
First installation.
Assuming we can successfully demonstrate our technologies by retrofitting or replacing one or two burners in multi-burner systems, we plan to retrofit an entire furnace with our technology applied to all burners. We believe that such a demonstration would provide the impetus for commercial adoption within the applicable industry.
|
• |
Enhancement of our intellectual property portfolio.
We have generated inventions that we believe to be patentable subject matter and for which we have been seeking protection through patent application filings. As of December 31, 2013, we have filed 145 patent applications. We cannot predict when our patent applications may result in issued patents, if at all. Further, we may modify a patent application in the future as we develop additional information. As a result, we may create additional patent applications from an existing application, consolidate existing patent applications, abandon applications, or otherwise modify applications based upon our judgment in order to protect our intellectual property in a reasonably cost beneficial manner.
No patents have yet been issued to us.
|
4 | ||
|
5 | ||
|
⋅ |
process heaters for petroleum refining and petrochemical processing,
|
⋅ |
burners in packaged boilers, and
|
⋅ |
industrial solid fuel combustors.
|
⋅ |
Large OEMs interested in our technology;
|
⋅ |
End users of OEM products and services interested in advancing the development of our technology in order to address their operational needs;
|
⋅ |
Industry research groups, whose mission is the development and testing of new technologies for the eventual benefit of their member companies; and
|
⋅ |
Government entities such as the U.S. Department of Energy, who are chartered with the development of longer-range and potentially disruptive energy technologies.
|
6 | ||
|
⋅ |
Availability of trained technicians:
The number of technicians who are able to specify, install and operate our competitors’ products will be greater than those who have been trained on our technology.
|
⋅ |
Conservative choice:
Because our competitors' technologies are well understood and their performance has been proven over time, customers may perceive their offerings represent a safe, low-risk choice.
|
|
⋅ | Business relationships: Because our competitors have established long-standing personal relationships with their customers, they may prefer to continue to do business with one another. |
7 | ||
|
· | enhance mixing with none of the additional pressure drop or power requirements that swirlers demand; and |
· | reduce NO X without reducing turndown or narrowing the burner operating window as staged combustion does or requiring expensive post combustion treatments with chemical additives such as catalytic reduction requires. |
8 | ||
|
· | Aggressive invention and ideation. Thus far we have identified numerous specific inventions that we believe to be novel and patentable. We are pursuing a proven ideation process to enhance and continue these discoveries. |
· | Development of a strong patent portfolio. As of December 31, 2013, we have filed 145 patent applications. We cannot predict when our patent applications may result in issued patents, if at all. Further, we may modify a patent application in the future as we develop additional information. As a result, we may create additional patent applications from an existing application, consolidate existing patent applications, abandon applications, or otherwise modify applications based upon our judgment in order to protect our intellectual property in a reasonably cost beneficial manner. No patents have yet been issued to us. |
9 | ||
|
10 | ||
|
11 | ||
|
12 | ||
|
13 | ||
|
14 | ||
|
15 | ||
|
16 | ||
|
· | authorize our board of directors to issue preferred stock without shareholder approval and to designate the rights, preferences and privileges of each class; if issued, such preferred stock would increase the number of outstanding shares of our capital stock and could include terms that may deter an acquisition of us; |
· | limit who may call shareholder meetings; |
· | do not provide for cumulative voting rights; and |
· | provide that all vacancies may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum, unless the vacant office is to be held by a director elected by the holders of one or more classes or series of shares entitled to vote thereon, in which case the vacancy can be filled only by the vote of the holders of such class or series. |
17 | ||
|
|
|
2013
|
|
2012
|
|
||||||||
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
||||
First quarter
|
|
$
|
7.13
|
|
$
|
4.29
|
|
|
n/a
|
|
|
n/a
|
|
Second quarter
|
|
$
|
10.78
|
|
$
|
6.80
|
|
$
|
9.75
|
|
$
|
4.00
|
|
Third quarter
|
|
$
|
9.67
|
|
$
|
6.95
|
|
$
|
7.79
|
|
$
|
5.50
|
|
Fourth quarter
|
|
$
|
11.45
|
|
$
|
5.92
|
|
$
|
8.75
|
|
$
|
4.01
|
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
|
|
|
|
|
remaining available for
|
|
|
|
Number of securities
|
|
|
|
|
future issuance under
|
|
|
|
to be issued upon
|
|
|
Weighted-average
|
|
equity compensation
|
|
|
|
exercise of
|
|
|
exercise price of
|
|
plans (excluding
|
|
|
|
outstanding options,
|
|
|
outstanding options,
|
|
securities reflected in
|
|
|
|
warrants and rights
|
|
|
warrants and rights
|
|
column (a))
|
|
Plan category
|
|
(a)
|
|
|
(b)
|
|
(c)
|
|
Equity compensation plans approved
by security holders |
|
645,765
|
|
$
|
3.02
|
|
249,736
|
|
Equity compensation plans not approved
by security holders |
|
-
|
|
|
-
|
|
-
|
|
|
|
645,765
|
|
|
|
|
249,736
|
|
18 | ||
|
19 | ||
|
20 | ||
|
21 | ||
|
22 | ||
|
|
|
Page
No.
|
ANNUAL FINANCIAL INFORMATION
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
F-1
|
Balance Sheets at December 31, 2013 and 2012
|
|
F-2
|
Statements of Operations for the years ended December 31, 2013 and 2012 and for the period from Inception (January 23, 2008) to December 31, 2013
|
|
F-3
|
Statement of Stockholders’ Equity (Deficit) from Inception (January 23, 2008) to December 31, 2013
|
|
F-4
|
Statements of Cash Flows for the years ended December 31, 2013 and 2012 and for the period from Inception (January 23, 2008) to December 31, 2013
|
|
F-5
|
Notes to Financial Statements
|
|
F-6
|
23 | ||
|
F-1 | ||
|
|
|
December 31,
|
|
||||
|
|
2013
|
|
2012
|
|
||
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,688,000
|
|
$
|
8,027,000
|
|
Prepaid expenses
|
|
|
118,000
|
|
|
60,000
|
|
Total current assets
|
|
|
2,806,000
|
|
|
8,087,000
|
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
427,000
|
|
|
400,000
|
|
Patents and other intangible assets
|
|
|
1,459,000
|
|
|
618,000
|
|
Other assets
|
|
|
10,000
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
4,702,000
|
|
$
|
9,115,000
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
297,000
|
|
$
|
276,000
|
|
Accrued compensation and taxes
|
|
|
586,000
|
|
|
168,000
|
|
Total current liabilities
|
|
|
883,000
|
|
|
444,000
|
|
Deferred rent
|
|
|
31,000
|
|
|
35,000
|
|
Total liabilities
|
|
|
914,000
|
|
|
479,000
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, zero shares issued and outstanding
|
|
|
-
|
|
|
-
|
|
Common stock, $0.0001 par value, 8,810,674 and 8,752,015 shares issued and
outstanding at December 31, 2013 and 2012, respectively |
|
|
1,000
|
|
|
1,000
|
|
Additional paid-in capital
|
|
|
17,751,000
|
|
|
17,314,000
|
|
Deficit accumulated in the development stage
|
|
|
(13,964,000)
|
|
|
(8,679,000)
|
|
Total stockholders' equity
|
|
|
3,788,000
|
|
|
8,636,000
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
4,702,000
|
|
$
|
9,115,000
|
|
F-2 | ||
|
|
|
|
|
|
|
|
|
For the Period from
|
|
|
|
|
|
|
|
|
|
|
Inception
|
|
|
|
|
|
|
|
|
|
|
(January 23, 2008)
|
|
|
|
|
For the Year Ended December 31,
|
|
to
|
|
|||||
|
|
2013
|
|
2012
|
|
December 31, 2013
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
Co-development revenue
|
|
$
|
93,000
|
|
$
|
-
|
|
$
|
93,000
|
|
Cost of co-development revenue
|
|
|
88,000
|
|
|
-
|
|
|
88,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
5,000
|
|
|
-
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,851,000
|
|
|
1,184,000
|
|
|
3,559,000
|
|
General and administrative
|
|
|
3,450,000
|
|
|
3,026,000
|
|
|
10,446,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,301,000
|
|
|
4,210,000
|
|
|
14,005,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(5,296,000)
|
|
|
(4,210,000)
|
|
|
(14,000,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
11,000
|
|
|
22,000
|
|
|
37,000
|
|
Interest expense
|
|
|
-
|
|
|
(1,000)
|
|
|
(1,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
11,000
|
|
|
21,000
|
|
|
36,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(5,285,000)
|
|
$
|
(4,189,000)
|
|
$
|
(13,964,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss per share - basic and fully diluted
|
|
$
|
(0.60)
|
|
$
|
(0.55)
|
|
$
|
(3.02)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding - basic and fully diluted
|
|
|
8,795,810
|
|
|
7,596,962
|
|
|
4,618,583
|
|
F-3 | ||
|
For the period from Inception (January 23, 2008) to December 31, 2013
|
|
|||||||||||||||||||
|
|
Common Stock
|
|
Common Stock
Class B |
|
|
|
|
Deficit
Accumulated in the |
|
|
Total
|
|
|||||||
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional
Paid-In Capital |
|
|
Development
Stage |
|
|
Stockholders'
Equity (Deficit) |
|
|||
Shares issued to founders, at no cost
|
|
1,065,000
|
|
$
|
-
|
|
476,000
|
|
$
|
-
|
|
$
|
33,000
|
|
$
|
-
|
|
$
|
33,000
|
|
Shares issued for services ($0.02 per share)
|
|
125,000
|
|
|
-
|
|
-
|
|
|
-
|
|
|
2,000
|
|
|
-
|
|
|
2,000
|
|
Shares issued for cash ($0.02 per share)
|
|
-
|
|
|
-
|
|
384,000
|
|
|
-
|
|
|
10,000
|
|
|
-
|
|
|
10,000
|
|
Shares issued for cash ($1.80 per share)
|
|
467,310
|
|
|
-
|
|
-
|
|
|
-
|
|
|
841,000
|
|
|
-
|
|
|
841,000
|
|
Shares issued for services ($1.80 per share)
|
|
146,644
|
|
|
-
|
|
-
|
|
|
-
|
|
|
264,000
|
|
|
-
|
|
|
264,000
|
|
Conversion of shares
|
|
1,075,000
|
|
|
-
|
|
(860,000)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Shares issued for services ($2.20 per share)
|
|
733,523
|
|
|
-
|
|
-
|
|
|
-
|
|
|
1,614,000
|
|
|
-
|
|
|
1,614,000
|
|
Shares issued for cash ($2.20 per share)
|
|
1,363,364
|
|
|
-
|
|
-
|
|
|
-
|
|
|
2,999,000
|
|
|
-
|
|
|
2,999,000
|
|
Issuance costs
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
(813,000)
|
|
|
-
|
|
|
(813,000)
|
|
Share based payments of warrants
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
112,000
|
|
|
-
|
|
|
112,000
|
|
Share based compensation
|
|
177,375
|
|
|
-
|
|
-
|
|
|
-
|
|
|
302,000
|
|
|
-
|
|
|
302,000
|
|
Net loss
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,490,000)
|
|
|
(4,490,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2011
|
|
5,153,216
|
|
|
-
|
|
-
|
|
|
-
|
|
|
5,364,000
|
|
|
(4,490,000)
|
|
|
874,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued in initial public offering ($4.00 per share)
|
|
3,450,000
|
|
|
1,000
|
|
-
|
|
|
-
|
|
|
13,799,000
|
|
|
-
|
|
|
13,800,000
|
|
Issuance costs of initial public offering
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
(2,727,000)
|
|
|
-
|
|
|
(2,727,000)
|
|
Share based payments of warrants
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
128,000
|
|
|
-
|
|
|
128,000
|
|
Shares issued for services ($4.00 per share)
|
|
18,000
|
|
|
-
|
|
-
|
|
|
-
|
|
|
72,000
|
|
|
-
|
|
|
72,000
|
|
Shares issued to retire payable ($4.00 per share)
|
|
110,000
|
|
|
-
|
|
-
|
|
|
-
|
|
|
440,000
|
|
|
-
|
|
|
440,000
|
|
Shares issued for services ($4.94 per share)
|
|
20,799
|
|
|
-
|
|
-
|
|
|
-
|
|
|
103,000
|
|
|
-
|
|
|
103,000
|
|
Share based compensation
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
135,000
|
|
|
-
|
|
|
135,000
|
|
Net loss
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,189,000)
|
|
|
(4,189,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2012
|
|
8,752,015
|
|
|
1,000
|
|
-
|
|
|
-
|
|
|
17,314,000
|
|
|
(8,679,000)
|
|
|
8,636,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services ($5.00 per share)
|
|
30,000
|
|
|
-
|
|
-
|
|
|
-
|
|
|
150,000
|
|
|
-
|
|
|
150,000
|
|
Shares issued for services ($9.12 per share)
|
|
11,250
|
|
|
-
|
|
-
|
|
|
-
|
|
|
102,000
|
|
|
-
|
|
|
102,000
|
|
Shares issued upon exercise of warrant ($2.20
per share) |
|
17,409
|
|
|
-
|
|
-
|
|
|
-
|
|
|
39,000
|
|
|
-
|
|
|
39,000
|
|
Share based compensation
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
146,000
|
|
|
-
|
|
|
146,000
|
|
Net loss
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,285,000)
|
|
|
(5,285,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2013
|
|
8,810,674
|
|
$
|
1,000
|
|
-
|
|
$
|
-
|
|
$
|
17,751,000
|
|
$
|
(13,964,000)
|
|
$
|
3,788,000
|
|
F-4 | ||
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
|
|
|
|
|
|
|
from Inception
|
|
|
|
|
|
|
|
|
|
|
(January 23, 2008)
|
|
|
|
|
For the Year Ended December 31,
|
|
to
|
|
|||||
|
|
2013
|
|
2012
|
|
December 31, 2013
|
|
|||
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,285,000)
|
|
$
|
(4,189,000)
|
|
$
|
(13,964,000)
|
|
Adjustments to reconcile net loss to net cash used
|
|
|
|
|
|
|
|
|
|
|
in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Common stock issued or issuable for services
|
|
|
252,000
|
|
|
175,000
|
|
|
1,781,000
|
|
Share based payments
|
|
|
146,000
|
|
|
135,000
|
|
|
468,000
|
|
Depreciation
|
|
|
209,000
|
|
|
99,000
|
|
|
366,000
|
|
Abandonment of capitalized patent
|
|
|
4,000
|
|
|
-
|
|
|
4,000
|
|
Deferred rent
|
|
|
(4,000)
|
|
|
17,000
|
|
|
31,000
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(58,000)
|
|
|
377,000
|
|
|
(118,000)
|
|
Other assets
|
|
|
-
|
|
|
10,000
|
|
|
(10,000)
|
|
Accounts payable
|
|
|
21,000
|
|
|
274,000
|
|
|
791,000
|
|
Accrued compensation
|
|
|
418,000
|
|
|
(86,000)
|
|
|
701,000
|
|
Net cash used in operating activities
|
|
|
(4,297,000)
|
|
|
(3,188,000)
|
|
|
(9,950,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Acquisition of fixed assets
|
|
|
(236,000)
|
|
|
(337,000)
|
|
|
(772,000)
|
|
Disbursements for patents and other intangible assets
|
|
|
(845,000)
|
|
|
(531,000)
|
|
|
(1,463,000)
|
|
Net cash used in investing activities
|
|
|
(1,081,000)
|
|
|
(868,000)
|
|
|
(2,235,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock for cash,
|
|
|
|
|
|
|
|
|
|
|
net of offering costs
|
|
|
39,000
|
|
|
11,201,000
|
|
|
14,921,000
|
|
Proceeds from issuance of short term promissory note
|
|
|
-
|
|
|
98,000
|
|
|
98,000
|
|
Principal payments on promissory notes
|
|
|
-
|
|
|
(146,000)
|
|
|
(146,000)
|
|
Net cash provided by financing activities
|
|
|
39,000
|
|
|
11,153,000
|
|
|
14,873,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(5,339,000)
|
|
|
7,097,000
|
|
|
2,688,000
|
|
Cash and cash equivalents, beginning of period
|
|
|
8,027,000
|
|
|
930,000
|
|
|
-
|
|
Cash and cash equivalents, end of period
|
|
$
|
2,688,000
|
|
$
|
8,027,000
|
|
$
|
2,688,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
-
|
|
$
|
1,000
|
|
$
|
1,000
|
|
|
•
|
issued
30,000
shares of common stock valued at $
150,000
to directors for services performed in 2013, and
|
|
•
|
issued
11,250
shares of common stock valued at $
102,000
to a consultant for services performed from April to December 2013.
|
|
•
|
issued warrants to purchase
345,000
shares of common stock valued at $
128,000
as part of an underwriting fee related to the initial public offering,
|
|
•
|
issued
110,000
shares of common stock valued at $
440,000
in partial satisfaction of an account payable,
|
|
•
|
issued
20,799
shares of common stock valued at $
103,000
to directors for services performed from April to December 2012, and
|
|
•
|
issued
18,000
shares of common stock valued at $
72,000
to a consultant for services performed in 2012.
|
|
•
|
issued
263,637
shares of common stock valued at $
580,000
and warrants to purchase
136,368
shares of common stock valued at $
64,000
for issuance costs related to a common stock offering,
|
|
•
|
issued
454,547
shares of common stock valued at $
1,000,000
to MDB Capital Group LLC for consulting services in 2011,
|
|
•
|
issued
52,375
shares of common stock valued at $
115,000
to certain employees to partially satisfy compensation accrued at December 31, 2010,
|
|
•
|
issued
68,091
shares of common stock valued at $
126,000
in order to discharge $
99,000
of common stock to be issued at December 31, 2010 and pay rent for the eight months ended August 31, 2011,
|
|
•
|
issued
49,728
shares of common stock valued at $
90,000
in order to discharge the common stock to be issued at December 31, 2010,
|
|
•
|
canceled
5,825
shares valued at $
10,000
in order to partially discharge common stock to be issued at December 31, 2010,
|
|
•
|
made stock grants of
50,000
and
75,000
shares to an employee valued at $
275,000
which is to be earned from July 2011 to September 2016,
|
|
•
|
swapped
860,000
shares of Class B common stock held by its founding shareholders for
1,075,000
shares of common stock,
|
|
•
|
converted a $
46,000
account payable to a vendor and acquired a fixed asset valued at $
2,000
through a $
48,000
interest-bearing promissory note retired in 2012,
|
|
•
|
issued
3,555
shares of common stock valued at $
8,000
in partial satisfaction of an account payable,
|
|
•
|
issued
10,834
shares of common stock valued at $
20,000
in exchange for equipment, and
|
|
•
|
issued
2,000
shares of common stock valued at $
4,000
to a consultant for services performed in 2011.
|
F-5 | ||
|
F-6 | ||
|
F-7 | ||
|
F-8 | ||
|
|
|
December 31,
|
|
||||
|
|
2013
|
|
2012
|
|
||
Machinery and equipment
|
|
$
|
633,000
|
|
$
|
444,000
|
|
Office furniture and equipment
|
|
|
95,000
|
|
|
71,000
|
|
Leasehold improvements
|
|
|
62,000
|
|
|
29,000
|
|
Accumulated depreciation
|
|
|
(366,000)
|
|
|
(157,000)
|
|
|
|
|
424,000
|
|
|
387,000
|
|
Construction in progress
|
|
|
3,000
|
|
|
13,000
|
|
|
|
$
|
427,000
|
|
$
|
400,000
|
|
|
|
2013
|
|
2012
|
|
||
Expected tax benefit at 34%
|
|
$
|
(1,797,000)
|
|
$
|
(1,424,000)
|
|
Change in valuation allowance
|
|
|
1,720,000
|
|
|
1,675,000
|
|
Other
|
|
|
77,000
|
|
|
(251,000)
|
|
Provision for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
F-9 | ||
|
|
|
2013
|
|
2012
|
|
||
Net operating loss carry forwards
|
|
$
|
4,800,000
|
|
$
|
3,020,000
|
|
Accrued liabilities
|
|
|
(25,000)
|
|
|
(20,000)
|
|
Stock compensation
|
|
|
(65,000)
|
|
|
(15,000)
|
|
Depreciation
|
|
|
75,000
|
|
|
80,000
|
|
Prepaid expenses
|
|
|
20,000
|
|
|
20,000
|
|
Deferred rent
|
|
|
(10,000)
|
|
|
(10,000)
|
|
Deferred tax assets, net
|
|
|
4,795,000
|
|
|
3,075,000
|
|
Valuation allowance
|
|
|
(4,795,000)
|
|
|
(3,075,000)
|
|
Net deferred tax asset
|
|
$
|
-
|
|
$
|
-
|
|
F-10 | ||
|
|
|
2013
|
|
2012
|
|
Reserved but unissued shares under the Equity Incentive Plan, beginning of year
|
|
480,260
|
|
140,625
|
|
Increases in the number of authorized shares under the Equity Incentive Plan
|
|
5,866
|
|
360,434
|
|
Grants of stock options
|
|
(206,390)
|
|
-
|
|
Stock option forfeitures
|
|
-
|
|
-
|
|
Stock grants
|
|
(30,000)
|
|
(83,299)
|
|
Stock grant forfeitures
|
|
-
|
|
62,500
|
|
Reserved but unissued shares under the Equity Incentive Plan, end of year
|
|
249,736
|
|
480,260
|
|
Expected life
|
|
6.25 years
|
|
Weighted average volatility
|
|
33
|
%
|
Forfeiture rate
|
|
13
|
%
|
Weighted average risk-free interest rate
|
|
1.31
|
%
|
Expected dividend rate
|
|
-
|
|
F-11 | ||
|
|
|
2013
|
|
2012
|
|
||||||||||
|
|
Common
Stock |
|
Weighted
Average Exercise Price |
|
Weighted
Average Remaining Contractual Life (in years) |
|
Common
Stock |
|
Weighted
Average Exercise Price |
|
Weighted
Average Remaining Contractual Life (in years) |
|
||
Outstanding at January 1
|
|
359,375
|
|
$
|
2.20
|
|
8.75
|
|
359,375
|
|
$
|
2.20
|
|
9.75
|
|
Granted
|
|
206,390
|
|
$
|
4.91
|
|
9.01
|
|
-
|
|
|
-
|
|
-
|
|
Exercised
|
|
-
|
|
|
-
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
Forfeited/Expired/Exchanged
|
|
-
|
|
|
-
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
Outstanding at December 31
|
|
565,765
|
|
$
|
3.19
|
|
8.21
|
|
359,375
|
|
$
|
2.20
|
|
8.75
|
|
Exercisable at December 31
|
|
317,354
|
|
$
|
2.44
|
|
7.87
|
|
242,188
|
|
$
|
2.20
|
|
8.75
|
|
|
|
2013
|
|
|
2012
|
|
||||||
|
|
|
|
Weighted
Average |
|
|
|
|
Weighted
Average |
|
||
|
|
Number of
Options |
|
|
Grant Date
Fair Value |
|
|
Number of
Options |
|
|
Grant Date
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested stock options at January 1
|
|
117,188
|
|
$
|
2.20
|
|
|
234,375
|
|
$
|
2.20
|
|
Granted
|
|
206,390
|
|
$
|
4.91
|
|
|
-
|
|
|
-
|
|
Vested
|
|
(75,167)
|
|
$
|
3.21
|
|
|
(117,188)
|
|
$
|
2.20
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Forfeited/Expired/Exchanged
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Non-vested stock options at December 31
|
|
248,411
|
|
$
|
4.15
|
|
|
117,188
|
|
$
|
2.20
|
|
2014
|
|
$
|
116,000
|
|
2015
|
|
|
97,000
|
|
2016
|
|
|
76,000
|
|
2017
|
|
|
1,000
|
|
|
|
$
|
290,000
|
|
|
|
2013
|
|
2012
|
|
For the Period
from Inception (January 23, 2008) to December 31, 2013 |
|
|||
Research and development
|
|
$
|
42,000
|
|
$
|
16,000
|
|
$
|
66,000
|
|
General and administrative
|
|
|
73,000
|
|
|
23,000
|
|
|
199,000
|
|
Effect on net loss
|
|
$
|
115,000
|
|
$
|
39,000
|
|
$
|
265,000
|
|
Effect on net loss per share
|
|
$
|
0.01
|
|
$
|
0.01
|
|
$
|
0.06
|
|
F-12 | ||
|
2014
|
|
$
|
27,000
|
|
2015
|
|
|
26,000
|
|
2016
|
|
|
20,000
|
|
|
|
$
|
73,000
|
|
Reserved but unissued shares under the Consultant Plan at May 2, 2013
|
|
75,000
|
|
Increases in the number of authorized shares under the Plan
|
|
287
|
|
Stock grants
|
|
(11,250)
|
|
Stock grant forfeitures
|
|
-
|
|
Reserved but unissued shares under the Consultant Plan at December 31, 2013
|
|
64,037
|
|
F-13 | ||
|
Expected life (in years)
|
|
2.5
|
|
Weighted average volatility
|
|
27
|
%
|
Weighted average risk-free interest rate
|
|
0.33
|
%
|
Expected dividend rate
|
|
-
|
|
|
|
2013
|
|
2012
|
|
||||||
|
|
Warrants
|
|
Weighted Average
Exercise Price |
|
Warrants
|
|
Weighted Average
Exercise Price |
|
||
Outstanding at beginning of year
|
|
561,368
|
|
$
|
3.86
|
|
216,368
|
|
$
|
3.25
|
|
Granted
|
|
-
|
|
|
-
|
|
345,000
|
|
$
|
5.00
|
|
Exercised
|
|
(17,409)
|
|
$
|
2.20
|
|
-
|
|
|
-
|
|
Forfeited/Expired
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
Outstanding at end of year
|
|
543,959
|
|
$
|
3.92
|
|
561,368
|
|
$
|
3.86
|
|
|
|
|
Total Outstanding Warrants
|
|
|||||
Exercise Price
|
|
Warrants
|
|
Weighted Average
Exercise Price |
|
Life
(in years) |
|
||
$
|
1.80
|
|
80,000
|
|
$
|
1.80
|
|
7.13
|
|
$
|
2.20
|
|
118,959
|
|
$
|
2.20
|
|
2.36
|
|
$
|
5.00
|
|
345,000
|
|
$
|
5.00
|
|
3.32
|
|
|
|
|
543,959
|
|
$
|
3.92
|
|
|
|
F-14 | ||
|
2014
|
|
$
|
120,000
|
|
2015
|
|
|
137,000
|
|
2016
|
|
|
141,000
|
|
2017
|
|
|
24,000
|
|
|
|
$
|
422,000
|
|
F-15 | ||
|
2014
|
|
$
|
208,000
|
|
2015
|
|
|
189,000
|
|
2016
|
|
|
169,000
|
|
2017
|
|
|
93,000
|
|
|
|
$
|
659,000
|
|
Reserved but unissued shares under the Equity Incentive Plan, January 1, 2014
|
|
249,736
|
|
Increases in the number of authorized shares under the Equity Incentive Plan
|
|
1,818
|
|
Grants of stock options
|
|
(122,880)
|
|
Stock grants
|
|
(14,625)
|
|
Reserved but unissued shares under the Equity Incentive Plan, February 28, 2014
|
|
114,049
|
|
F-16 | ||
|
· | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
· | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and |
· | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
24 | ||
|
25 | ||
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
|
|
|
|
|
remaining available for
|
|
|
|
Number of securities
|
|
|
|
|
future issuance under
|
|
|
|
to be issued upon
|
|
Weighted-average
|
|
equity compensation
|
|
|
|
|
exercise of
|
|
exercise price of
|
|
plans (excluding
|
|
|
|
|
outstanding options,
|
|
outstanding options,
|
|
securities reflected in
|
|
|
|
|
warrants and rights
|
|
warrants and rights
|
|
column (a))
|
|
|
Plan category
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
Equity compensation plans approved
by security holders |
|
645,765
|
|
$
|
3.02
|
|
249,736
|
|
Equity compensation plans not approved
by security holders |
|
-
|
|
|
-
|
|
-
|
|
|
|
645,765
|
|
|
|
|
249,736
|
|
26 | ||
|
Exhibit
No.
|
|
Description of Document
|
3.1
|
|
Articles of Incorporation of ClearSign Combustion Corporation, amended on February 2, 2011 (1)
|
3.1.1
|
|
Articles of Amendment to Articles of Incorporation of ClearSign Combustion Corporation filed on December 22, 2011 (1)
|
3.2
|
|
Bylaws of ClearSign Combustion Corporation (1)
|
4.1
|
|
Form of Common Stock Certificate (1)
|
4.2
|
|
Underwriter’s Warrant (1)
|
4.3
|
|
Form of Common Stock Purchase Warrant issued on February 16, 2011 to various consultants (1)
|
10.3.1
|
|
Form of Lock-Up Agreement (1)
|
10.3.2
|
|
Form of Lock-Up Agreement executed by MDB Capital Group, LLC (1)
|
10.3.3
|
|
Form of Lock-Up Agreement executed by Integrated Surgical Systems, Inc. (1)
|
10.5
|
|
Office Lease Agreement (1)
|
10.6
|
|
Form of Employee Intellectual Property Assignment and Nondisclosure Agreement (1)
|
10.7
|
|
ClearSign Combustion Corporation 2011 Equity Incentive Plan (1)
|
10.18
|
|
Form of Director and Officer Indemnification Agreement (1)+
|
10.21
|
|
Employment Agreement dated December 27, 2011 between the registrant and Richard Rutkowski (1)+
|
10.22
|
|
Amended and Restated Consulting Agreement dated December 22, 2011 between the registrant and John McFarland (1)
|
10.23
|
|
ClearSign Combustion Corporation 2013 Consultant Stock Plan (2)
|
10.24
|
|
Amendment dated March 10, 2014 to Employment Agreement between the registrant and Richard F. Rutkowski*+
|
10.25
|
|
Placement Agency Agreement dated February 27, 2014 between the registrant and Brean Capital, LLC (3)
|
10.26
|
|
Form of Subscription Agreement dated March 5, 2014 (3)
|
10.27
|
|
Warrant issued to Brean Capital LLC dated March 5, 2014*
|
10.28
|
|
Form of Lock-Up Agreement dated March 5, 2014*
|
10.29
|
|
First Amendment to Office Lease Agreement dated December 17, 2013*
|
23.1
|
|
Consent of Gumbiner Savett Inc., Independent Registered Public Accounting Firm*
|
101
|
|
The following financial statements from the registrant’s Annual Report on Form 10-K for 2013, formatted in XBRL: (i) Balance Sheets; (ii) Statements of Operations; (iii) Statement of Stockholders’ Equity; (iv) Statements of Cash Flows; (v) Notes to Financial Statements.*
|
(1) | Incorporated by reference from the registrant’s registration statement on Form S-1, as amended, file number 333-177946, originally filed with the Securities and Exchange Commission on November 14, 2011. |
27 | ||
|
(2) | Incorporated by reference from the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, filed with the Securities and Exchange Commission on May 6, 2013. |
(3) | Incorporated by reference from the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 28, 2014. |
|
CLEARSIGN COMBUSTION CORPORATION
|
||
|
|
|
|
|
By:
|
/s/ Richard F. Rutkowski
|
|
|
|
Richard F. Rutkowski
|
|
|
|
Chief Executive Officer
|
|
|
|
|
|
|
By:
|
/s/ James N. Harmon
|
|
|
|
James N. Harmon
|
|
|
|
Chief Financial Officer
|
|
Dated: March 11, 2014
|
|
/s/ Richard F. Rutkowski
|
|
|
|
Richard F. Rutkowski
|
|
|
|
Chief Executive Officer and
Director
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
Dated: March 11, 2014
|
|
/s/ James N. Harmon
|
|
|
|
James N. Harmon
|
|
|
|
Chief Financial Officer
|
|
|
|
(Principal Financial and
Accounting Officer)
|
|
|
|
|
|
Dated: March 11, 2014
|
|
/s/ David B. Goodson
|
|
|
|
David B. Goodson, Director
|
|
|
|
|
|
Dated: March 11, 2014
|
|
/s/ Stephen E. Pirnat
|
|
|
|
Stephen E. Pirnat, Director
|
|
|
|
|
|
Dated: March 11, 2014
|
|
/s/ Scott P. Isaacson
|
|
|
|
Scott P. Isaacson, Director
|
|
|
|
|
|
Dated: March 11, 2014
|
|
/s/ Lon E. Bell
|
|
|
|
Lon E. Bell, Ph.D., Director
|
|
28 | ||
|
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This FIRST AMENDMENT to the EMPLOYMENT AGREEMENT , which is dated March 10, 2014 (the “ Amendment ”), is made by and between ClearSign Combustion Corporation (the “ Company ”) and Richard F. Rutkowski (the “ Executive ”).
RECITALS
WHEREAS, the Company and the Executive previously executed an Employment Agreement dated January 1, 2012 (the “ Agreement ”) for the Company to retain the services of the Executive, and the Executive to render services to the Company, as its Chief Executive Officer; and
WHEREAS, the Agreement had a term of three (3) years along with a provision to extend the term by an additional two (2) years.
THEREFORE, in consideration of the foregoing and of the mutual promises contained in this Amendment, Company and Executive agree as follows:
Section 1 of the Agreement is amended and restated as follows:
1. | TERM . |
Company hereby employs Executive as Company’s Chief Executive Officer pursuant to the terms of this Agreement and Executive hereby accepts employment with Company pursuant to the terms of this Agreement. This Agreement is effective on January 1, 2012, and will continue until January 1, 2017 unless terminated earlier pursuant to Section 12 or 13 below. Company and Executive shall work together during the 12 month period prior to the last year of each Renewal Period to determine whether this Agreement shall be renewed. If renewed, the term of such renewal will be two years. In this Agreement the word “Term” shall, depending on the context used, refer to the initial three year term or to any subsequent Renewal Period.
[Signature Page Follows]
1 |
IN WITNESS WHEREOF , the parties have executed this Agreement.
Company: | ||
ClearSign Combustion Corporation | ||
By: | /s/ James N. Harmon | |
James N. Harmon | ||
Chief Financial Officer |
Executive : | |
/s/ Richard F. Rutkowski | |
Richard F. Rutkowski |
2 |
THE REGISTERED HOLDER OF THIS PURCHASE WARRANT BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE WARRANT EXCEPT AS HEREIN PROVIDED AND THE REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES THAT IT WILL NOT SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE WARRANT FOR A PERIOD OF ONE HUNDRED EIGHTY DAYS FOLLOWING THE COMMENCEMENT DATE (DEFINED BELOW) TO ANYONE OTHER THAN (I) BREAN CAPITAL, LLC, OR (II) A BONA FIDE OFFICER OR PARTNER OF BREAN CAPITAL, LLC.
THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO SEMPTEMBER 5, 2014. VOID AFTER 5:00 P.M., EASTERN TIME, MARCH 5, 2019.
COMMON STOCK PURCHASE WARRANT #D-1
For the Purchase of 20,313 Shares of Common Stock
of
CLEARSIGN COMBUSTION CORPORATION
1. Purchase Warrant . THIS CERTIFIES THAT, in consideration of funds duly paid by or on behalf of Brean Capital, LLC (“ Holder ”), as registered owner of this Purchase Warrant, to ClearSign Combustion Corporation, a Washington corporation (the “ Company ”), Holder is entitled, at any time or from time to time from March 5, 2014 (the “ Commencement Date ”), and at or before 5:00 p.m., Eastern time, March 5, 2019 (the ” Expiration Date ”), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to 20,313 shares of common stock of the Company, par value $0.0001 per share (the “ Shares ”), subject to adjustment as provided in Section 6 hereof. If the Expiration Date is a day on which banking institutions are authorized by law to close, then this Purchase Warrant may be exercised on the next succeeding day which is not such a day in accordance with the terms herein. During the period ending on the Expiration Date, the Company agrees not to take any action that would terminate the Purchase Warrant. This Purchase Warrant is initially exercisable at $10.00 per Share (125% of the price of the Shares sold in the Offering); provided , however , that upon the occurrence of any of the events specified in Section 6 hereof, the rights granted by this Purchase Warrant, including the exercise price per Share and the number of Shares to be received upon such exercise, shall be adjusted as therein specified. The term “ Exercise Price ” shall mean the initial exercise price or the adjusted exercise price, depending on the context.
2. Exercise .
2.1 Exercise Form . In order to exercise this Purchase Warrant, the exercise form attached hereto must be duly executed and completed and delivered to the Company, together with this Purchase Warrant and payment of the Exercise Price for the Shares being purchased payable in cash by wire transfer of immediately available funds to an account designated by the Company or by certified check or official bank check. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date, this Purchase Warrant shall become and be void without further force or effect, and all rights represented hereby shall cease and expire.
2.2 Cashless Exercise . If at any time after the Commencement Date there is no effective registration statement registering, or no current prospectus available for, the resale of the Shares by the Holder, then in lieu of exercising this Purchase Warrant by payment of cash or check payable to the order of the Company pursuant to Section 2.1 above, Holder may elect to receive the number of Shares equal to the value of this Purchase Warrant (or the portion thereof being exercised), by surrender of this Purchase Warrant to the Company, together with the exercise form attached hereto, in which event the Company shall issue to Holder, Shares in accordance with the following formula:
X | = | Y(A-B) | |
A |
Where, | X | = | The number of Shares to be issued to Holder; |
Y | = | The number of Shares for which the Purchase Warrant is being exercised; | |
A | = | The fair market value of one Share; and | |
B | = | The Exercise Price. |
For purposes of this Section 2.2, the fair market value of a Share is defined as follows:
(i) | if the Company’s common stock is traded on a securities exchange, the value shall be deemed to be the closing price on such exchange prior to the exercise form being submitted in connection with the exercise of the Purchase Warrant; or |
(ii) | if the Company’s common stock is actively traded over-the-counter, the value shall be deemed to be the closing bid prior to the exercise form being submitted in connection with the exercise of the Purchase Warrant; if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Company’s Board of Directors. |
2.3 Legend . Each certificate for the securities purchased under this Purchase Warrant shall bear a legend as follows unless such securities have been registered under the Securities Act of 1933, as amended (the “ Securities Act ”):
“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “ Securities Act ”), or applicable state law. Neither the securities nor any interest therein may be offered for sale, sold or otherwise transferred except pursuant to an effective registration statement under the Securities Act, or pursuant to an exemption from registration under the Securities Act and applicable state law which, in the opinion of counsel to the Company, is available.”
3. Transfer .
3.1 General Restrictions . The registered Holder of this Purchase Warrant agrees by his, her or its acceptance hereof, that such Holder will not: (a) sell, transfer, assign, pledge or hypothecate this Purchase Warrant for a period of one hundred eighty (180) days following the Effective Date to anyone other than: (i) Brean Capital, LLC (“ Brean ”) or a placement agent or a selected dealer participating in the Offering, or (ii) a bona fide officer or partner of Brean or of any such placement agent or selected dealer, in each case in accordance with FINRA Conduct Rule 5110(g)(1), or (b) cause this Purchase Warrant or the securities issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of this Purchase Warrant or the securities hereunder, except as provided for in FINRA Rule 5110(g)(2). On and after 180 days after the Effective Date, transfers to others may be made subject to compliance with or exemptions from applicable securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached hereto duly executed and completed, together with the Purchase Warrant and payment of all transfer taxes, if any, payable in connection therewith. The Company shall within five (5) business days transfer this Purchase Warrant on the books of the Company and shall execute and deliver a new Purchase Warrant or Purchase Warrants of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the aggregate number of Shares purchasable hereunder or such portion of such number as shall be contemplated by any such assignment.
3.2 Restrictions Imposed by the Securities Act . The securities evidenced by this Purchase Warrant shall not be transferred unless and until: (i) the Company has received an opinion of Company counsel that the securities may be transferred pursuant to an exemption from registration under the Securities Act and applicable state securities laws, the availability of which is established to the reasonable satisfaction of the Company, or (ii) a registration statement or a post-effective amendment to the Registration Statement relating to the offer and sale of such securities has been filed by the Company and declared effective by the U.S. Securities and Exchange Commission (the “ Commission ”) and compliance with applicable state securities law has been established.
4. Registration Rights .
4.1 Demand Registration .
4.1.1 Grant of Right . The Company, upon written demand (a “ Demand Notice ”) of the Holder(s) of at least 51% of the Purchase Warrants and/or the underlying Shares (“ Majority Holders ”), agrees to register, on one occasion, all or any portion of the Shares underlying the Purchase Warrants (collectively, the “ Registrable Securities ”). On such occasion, the Company will file a registration statement with the Commission covering the Registrable Securities within sixty (60) days after receipt of a Demand Notice and use its reasonable best efforts to have the registration statement declared effective promptly thereafter, subject to compliance with review by the Commission; provided , however , that the Company shall not be required to comply with a Demand Notice if the Company has filed a registration statement with respect to which the Holder is entitled to piggyback registration rights pursuant to Section 4.2 hereof and either: (i) the Holder has elected to participate in the offering covered by such registration statement or (ii) if such registration statement relates to an underwritten primary offering of securities of the Company, until the offering covered by such registration statement has been withdrawn or until thirty (30) days after such offering is consummated. The demand for registration may be made at any time during a period of four (4) years beginning one (1) year after the Effective Date. The Company covenants and agrees to give written notice of its receipt of any Demand Notice by any Holder(s) to all other registered Holders of the Purchase Warrants and/or the Registrable Securities within ten (10) days after the date of the receipt of any such Demand Notice.
4.1.2 Terms . The Company shall bear all fees and expenses attendant to the registration of the Registrable Securities pursuant to Section 4.1.1, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. The Company agrees to use its reasonable best efforts to cause the filing required herein to become effective promptly and to qualify or register the Registrable Securities in such states as are reasonably requested by the Holder(s); provided , however , that in no event shall the Company be required to register the Registrable Securities in a State in which such registration would cause: (i) the Company to be obligated to register or license to do business in such State or submit to general service of process in such State, or (ii) the principal shareholders of the Company to be obligated to escrow their shares of capital stock of the Company. The Company shall cause any registration statement filed pursuant to the demand right granted under Section 4.1.1 to remain effective for a period of at least twelve (12) consecutive months after the date that the Holders of the Registrable Securities covered by such registration statement are first given the opportunity to sell all of such securities. The Holders shall only use the prospectuses provided by the Company to sell the shares covered by such registration statement, and will immediately cease to use any prospectus furnished by the Company if the Company advises the Holder that such prospectus may no longer be used due to a material misstatement or omission. Notwithstanding the provisions of this Section 4.1.2, the Holder shall be entitled to a demand registration under this Section 4.1.2 on only one (1) occasion and such demand registration right shall terminate on the fifth anniversary of the Commencement Date.
4.2 “Piggy-Back” Registration .
4.2.1 Grant of Right . In addition to the demand right of registration described in Section 4.1 hereof, the Holder shall have the right, until such right terminates on the fourth anniversary of the Commencement Date, to include the Registrable Securities as part of any other registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145 (a) promulgated under the Securities Act or pursuant to Form S-8, Form S-4 or any equivalent forms); provided , however , that if, solely in connection with any primary underwritten public offering for the account of the Company, the managing underwriter(s) thereof shall, in its reasonable discretion, exclude entirely or impose a limitation on the number of shares of Common Stock which may be included in the Registration Statement because, in such underwriter(s)’ judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be able to exclude entirely or be obligated only to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which the Holder requested inclusion hereunder as the underwriter shall reasonably permit. Any exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Holders; provided , however , that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities.
4.2.2 Terms . The Company shall bear all fees and expenses attendant to registering the Registrable Securities pursuant to Section 4.2.1 hereof, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. In the event of such a proposed registration, the Company shall furnish the then Holders of outstanding Registrable Securities with not less than twenty (20) days written notice prior to the proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for each registration statement filed by the Company until such time as all of the Registrable Securities have been sold by the Holder. The holders of the Registrable Securities shall exercise the “piggy-back” rights provided for herein by giving written notice within ten (10) days of the receipt of the Company’s notice of its intention to file a registration statement. Except as otherwise provided in this Purchase Warrant, there shall be no limit on the number of times the Holder may request registration under this Section 4.2.2; provided , however , that such registration rights shall terminate on the fourth anniversary of the Commencement Date.
4.3 General Terms .
4.3.1 Indemnification . The Company shall indemnify the Holder(s) of the Registrable Securities to be sold pursuant to any registration statement hereunder and each person, if any, who controls such Holders within the meaning of Section 15 of the Securities Act or Section 20 (a) of the Securities Exchange Act of 1934, as amended (“ Exchange Act ”), against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Placement Agent contained in Section 8(a) of the Placement Agency Agreement between the Placement Agent and the Company, dated as of February 27, 2014. The Holder(s) of the Registrable Securities to be sold pursuant to such registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Securities Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, in writing, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 8(b) of the Placement Agency Agreement pursuant to which the Placement Agent has agreed to indemnify the Company.
4.3.2 Exercise of Purchase Warrants . Nothing contained in this Purchase Warrant shall be construed as requiring the Holder(s) to exercise their Purchase Warrants prior to or after the initial filing of any registration statement or the effectiveness thereof.
4.3.3 Documents to be Delivered by Holder(s) . Each of the Holder(s) participating in any of the foregoing offerings shall furnish to the Company a completed and executed questionnaire provided by the Company requesting information customarily sought of selling security holders.
5. New Purchase Warrants to be Issued .
5.1 Partial Exercise or Transfer . Subject to the restrictions in Section 3 hereof, this Purchase Warrant may be exercised or assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Warrant for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price and/or transfer tax if exercised pursuant to Section 2.1 hereto, the Company shall cause to be delivered to the Holder without charge a new Purchase Warrant of like tenor to this Purchase Warrant in the name of the Holder evidencing the right of the Holder to purchase the number of Shares purchasable hereunder as to which this Purchase Warrant has not been exercised or assigned.
5.2 Lost Certificate . Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Purchase Warrant and of reasonably satisfactory indemnification or the posting of a bond, the Company shall execute and deliver a new Purchase Warrant of like tenor and date. Any such new Purchase Warrant executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute a substitute contractual obligation on the part of the Company.
6. Adjustments .
6.1 Adjustments to Exercise Price and Number of Securities . The Exercise Price and the number of Shares underlying the Purchase Warrant shall be subject to adjustment from time to time as hereinafter set forth:
6.1.1 Share Dividends; Splits . If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is increased by a stock dividend payable in Shares or by a split up of Shares or other similar event, then, on the effective day thereof, the number of Shares purchasable hereunder shall be increased in proportion to such increase in outstanding Shares, and the Exercise Price shall be proportionately decreased.
6.1.2 Aggregation of Shares . If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is decreased by a consolidation, combination or reclassification of Shares or other similar event, then, on the effective date thereof, the number of Shares purchasable hereunder shall be decreased in proportion to such decrease in outstanding Shares, and the Exercise Price shall be proportionately increased.
6.1.3 Replacement of Securities upon Reorganization, etc . In case of any reclassification or reorganization of the outstanding Shares other than a change covered by Section 6.1.1 or 6.1.2 hereof or that solely affects the par value of such Shares, or in the case of any share reconstruction or amalgamation or consolidation of the Company with or into another corporation (other than a consolidation or share reconstruction or amalgamation in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding Shares), or in the case of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Holder of this Purchase Warrant shall have the right thereafter (until the expiration of the right of exercise of this Purchase Warrant) to receive upon the exercise hereof, for the same aggregate Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, share reconstruction or amalgamation, or consolidation, or upon a dissolution following any such sale or transfer, by a Holder of the number of Shares of the Company obtainable upon exercise of this Purchase Warrant immediately prior to such event; and if any reclassification also results in a change in Shares covered by Section 6.1.1 or 6.1.2, then such adjustment shall be made pursuant to Sections 6.1.1, 6.1.2 and this Section 6.1.3. The provisions of this Section 6.1.3 shall similarly apply to successive reclassifications, reorganizations, share reconstructions or amalgamations, or consolidations, sales or other transfers.
6.1.4 Changes in Form of Purchase Warrant . This form of Purchase Warrant need not be changed because of any change pursuant to this Section 6.1, and Purchase Warrants issued after such change may state the same Exercise Price and the same number of Shares as are stated in the Purchase Warrants initially issued pursuant to this Agreement. The acceptance by any Holder of the issuance of new Purchase Warrants reflecting a required or permissive change shall not be deemed to waive any rights to an adjustment occurring after the Commencement Date or the computation thereof.
6.2 Reserved.
6.3 Elimination of Fractional Interests . The Company shall not be required to issue certificates representing fractions of Shares upon the exercise of the Purchase Warrant, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up or down, as the case may be, to the nearest whole number of Shares or other securities, properties or rights.
7. Reservation and Listing . The Company shall at all times reserve and keep available out of its authorized Shares, solely for the purpose of issuance upon exercise of the Purchase Warrants, such number of Shares or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Purchase Warrants and payment of the Exercise Price therefor, in accordance with the terms hereby, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any shareholder. The Company further covenants and agrees that upon exercise of the Purchase Warrants and payment of the exercise price therefor, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any shareholder. As long as the Purchase Warrants shall be outstanding, the Company shall use its commercially reasonable efforts to cause all Shares issuable upon exercise of the Purchase Warrants to be listed (subject to official notice of issuance) on all national securities exchanges (or, if applicable, on the OTC Bulletin Board or any successor trading market) on which the Shares issued to the public in the Offering may then be listed and/or quoted.
8. Certain Notice Requirements .
8.1 Holder’s Right to Receive Notice . Nothing herein shall be construed as conferring upon the Holders the right to vote or consent or to receive notice as a shareholder for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any time prior to the expiration of the Purchase Warrants and their exercise, any of the events described in Section 8.2 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least ten days prior to the date fixed as a record date or the effective date the transfer books for the determination of the shareholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of the closing of the transfer books, as the case may be. Notwithstanding the foregoing, the Company shall deliver to each Holder a copy of each notice given to the other shareholders of the Company at the same time and in the same manner that such notice is given to the shareholders.
8.2 Events Requiring Notice . The Company shall be required to give the notice described in this Section 8 upon one or more of the following events: (i) if the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company, (ii) the Company shall offer to all the holders of its Shares any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor, or (iii) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or share reconstruction or amalgamation) or a sale of all or substantially all of its property, assets and business shall be proposed.
8.3 Notice of Change in Exercise Price . The Company shall, promptly after an event requiring a change in the Exercise Price pursuant to Section 6 hereof, send notice to the Holders of such event and change (“ Price Notice ”). The Price Notice shall describe the event causing the change and the method of calculating same and shall be certified as being true and accurate by the Company’s Chief Financial Officer.
8.4 Transmittal of Notices . All notices, requests, consents and other communications under this Purchase Warrant shall be in writing and shall be deemed to have been duly made when hand delivered, or mailed by express mail or private courier service: (i) if to the registered Holder of the Purchase Warrant, to the following address of the Holder or to such other address as the Holder may designate by notice to the Company, or (ii) if to the Company, to following address or to such other address as the Company may designate by notice to the Holders:
If to the Holder:
Brean Capital, LLC
1345 Avenue of the Americas, 29
th
Floor
New York, New York 10105
Attn: Mr. William McCluskey, Senior Managing Director
Fax No.: (212) 702-6548
with a copy (which shall not constitute notice) to:
Sichenzia Ross Friedman Ference LLP
61 Broadway, 32 nd Floor
New York, NY 10006
Attention: Jay Kapowitz, Esq.
Fax No: (212) 935-9725
If to the Company:
ClearSign Combustion Corp.
12870 Interurban Avenue South
Seattle, Washington 98168
Attention: James N. Harmon, Chief Financial Officer
Fax No: (206) 299-3553
with a copy (which shall not constitute notice) to:
Richardson & Patel, LLP
The Chrysler Building,
405 Lexington Avenue, 49th Floor
New York, NY 10174
Attention: Kevin Friedmann, Esq.
Fax No: (917) 591-6898
9. Miscellaneous .
9.1 Amendments . The Company and Brean may from time to time supplement or amend this Purchase Warrant without the approval of any of the Holders in order to cure any ambiguity, to correct or supplement any provision contained herein that may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder that the Company and Brean may deem necessary or desirable and that the Company and Brean deem shall not adversely affect the interest of the Holders. All other modifications or amendments shall require the written consent of and be signed by the party against whom enforcement of the modification or amendment is sought.
9.2 Headings . The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Purchase Warrant.
9.3. Entire Agreement . This Purchase Warrant (together with the other agreements and documents being delivered pursuant to or in connection with this Purchase Warrant) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.
9.4 Binding Effect . This Purchase Warrant shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their permitted assignees, respective successors, legal representative and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Warrant or any provisions herein contained.
9.5 Governing Law; Submission to Jurisdiction; Trial by Jury . This Purchase Warrant shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Purchase Warrant shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 8 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company and the Holder agree that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and the Holder hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
9.6 Waiver, etc . The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Warrant shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Warrant or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Warrant. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Purchase Warrant shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.
9.7 Execution in Counterparts . This Purchase Warrant may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Such counterparts may be delivered by facsimile transmission or other electronic transmission.
9.8 Exchange Agreement . As a condition of the Holder’s receipt and acceptance of this Purchase Warrant, Holder agrees that, at any time prior to the complete exercise of this Purchase Warrant by Holder, if the Company and Brean enter into an agreement (“ Exchange Agreement ”) pursuant to which they agree that all outstanding Purchase Warrants will be exchanged for securities or cash or a combination of both, then Holder shall agree to such exchange and become a party to the Exchange Agreement.
[ Signature Page Follows ]
IN WITNESS WHEREOF, the Company has caused this Purchase Warrant to be signed by its duly authorized officer as of the 5th day of March, 2014.
CLEARSIGN COMBUSTION CORPORATION | ||
By: | /s/ James N. Harmon | |
Name: James N. Harmon | ||
Title: Chief Financial Officer |
[ Form to be used to exercise Purchase Warrant ]
Date: __________, 20___
The undersigned hereby elects irrevocably to exercise the Purchase Warrant for ______ shares of common stock, par value $0.0001 per share (the “ Shares ”), of ClearSign Combustion Corporation, a Washington corporation (the “ Company ”), and hereby makes payment of $____ (at the rate of $____ per Share) in payment of the Exercise Price pursuant thereto. Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been exercised.
or
The undersigned hereby elects irrevocably to convert its right to purchase ___ Shares of the Company under the Purchase Warrant for ______ Shares, as determined in accordance with the following formula:
X | = | Y(A-B) | ||
A |
Where, | X | = | The number of Shares to be issued to Holder; |
Y | = | The number of Shares for which the Purchase Warrant is being exercised; | |
A | = | The fair market value of one Share which is equal to $_____; and | |
B | = |
The Exercise Price which is equal to $______ per share
The undersigned agrees and acknowledges that the calculation set forth above is subject to confirmation by the Company and any disagreement with respect to the calculation shall be resolved by the Company in its sole discretion.
Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been converted.
Signature |
Signature Guaranteed |
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name: | ||
(Print in Block Letters) | ||
Address: | ||
NOTICE: The signature to this form must correspond with the name as written upon the face of the Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.
[ Form to be used to assign Purchase Warrant ]
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of the within Purchase Warrant):
FOR VALUE RECEIVED, __________________ does hereby sell, assign and transfer unto the right to purchase shares of common stock, par value $0.0001 per share, of ClearSign Combustion Corporation, a Washington corporation (the “ Company ”), evidenced by the Purchase Warrant and does hereby authorize the Company to transfer such right on the books of the Company.
Dated: __________, 20__
Signature |
Signature Guaranteed |
NOTICE: The signature to this form must correspond with the name as written upon the face of the within Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.
March 5, 2014
Brean Capital LLC
1345 Avenue of the Americas, 29
th
Floor
New York, NY 10105
Ladies and Gentlemen:
As an inducement to the Placement Agent to execute the Placement Agency Agreement (the “ Placement Agency Agreement ”), with respect to a public offering of shares of common stock, par value $0.0001 par value per share (the “ Securities ”), of ClearSign Combustion Corporation, and any successor (by merger or otherwise) thereto, (the “ Company ”), the undersigned hereby agrees that during the period specified in the following paragraph (the “ Lock-Up Period ”), the undersigned will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any Securities or securities convertible into or exchangeable or exercisable for any Securities, enter into a transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of the Securities, whether any such aforementioned transaction is to be settled by delivery of the Securities or such other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter into any such transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Brean Capital LLC (“ Brean ”). In addition, the undersigned agrees that, without the prior written consent of Brean, it will not, during the Lock-Up Period, make any demand for or exercise any right with respect to, the registration of any Securities or any security convertible into or exercisable or exchangeable for the Securities.
The initial Lock-Up Period will commence on the date of this Lock-Up Agreement and continue and include the date two months after the public offering date set forth on the final prospectus used to sell the Securities (the “ Public Offering Date ”) pursuant to the Placement Agency Agreement, to which you are or expect to become parties; provided, however, that if (1) during the last 17 days of the initial Lock-Up Period, the Company releases earnings results or material news or a material event relating to the Company occurs or (2) prior to the expiration of the initial Lock-Up Period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the initial Lock-Up Period, then in each case the Lock-Up Period will be extended until the expiration of the 18-day period beginning on the date of release of the earnings results or the occurrence of the material news or material event, as applicable, unless Brean waives, in writing, such extension. Notwithstanding the forgoing, during the Lock-Up Period, the Company may close any offering or offerings of its securities (the “ Subsequent Offering ”) at a price or prices that equal or exceed 115% of the price at which the Securities are sold provided that (1) any Subsequent Offering will not exceed the aggregate purchase price of the Securities and (2) such Subsequent Offering will not occur until at least 30 days after the closing of the sale of the Securities.
The undersigned agrees that, prior to engaging in any transaction or taking any other action that is subject to the terms of this Lock-Up Agreement during the period from the date of this Lock-Up Agreement to and including the 34th day following the expiration of the initial Lock-Up Period, it will give notice thereof to the Company and will not consummate such transaction or take any such action unless it has received written confirmation from the Company that the Lock-Up Period (as may have been extended pursuant to the previous paragraph) has expired.
The restrictions set forth above shall not apply to:
(1) if the undersigned is a natural person, any transfers made by the undersigned (a) as a bona fide gift to any member of the immediate family (as defined below) of the undersigned or to a trust the beneficiaries of which are exclusively the undersigned or members of the undersigned’s immediate family, (b) by will or intestate succession upon the death of the undersigned or (c) as a bona fide gift to a charity or educational institution;
(2) if the undersigned is a corporation, partnership, limited liability company or other business entity, any transfers to any shareholder, partner or member of, or owner of a similar equity interest in, the undersigned, as the case may be;
(3) the exercise by the undersigned of any stock option(s) issued pursuant to the Company’s existing stock option plans, including any exercise effected by the delivery of shares of Common Stock of the Company held by the undersigned; provided, that, the Common Stock received upon such exercise shall remain subject to the restrictions provided for in this Lock Up Agreement;
(4) the exercise by the undersigned of any warrant(s) issued by the Company prior to the date of this Lock-Up Agreement, including any exercise effected by the delivery of shares of Common Stock of the Company held by the undersigned; provided, that, the Common Stock received upon such exercise shall remain subject to the restrictions provided for in this Lock-Up Agreement; and
provided, however, that (A) in the case of any transfer described in clause (1) or (2) above, it shall be a condition to the transfer that the transferee executes and delivers to Brean, acting on behalf of the Placement Agents, not later than one business day prior to such transfer, a written agreement, in substantially the form of this Lock-Up Agreement (it being understood that any references to “immediate family” in the agreement executed by such transferee shall expressly refer only to the immediate family of the undersigned and not to the immediate family of the transferee); (B) in the case of clauses (1) and (2) above, such transfer shall not involve a disposition for value; and (C) in the case of any transfer described above, no filing under Section 16(a) of the Exchange Act (other than a filing on Form 5 made after the expiration of the Lock-Up Period) shall be required or shall be voluntarily made in connection with such transfer or distribution.
Notwithstanding anything herein to the contrary, the undersigned may enter into a written trading plan established pursuant to Rule 10b5-1 of the Exchange Act during the Lock-Up Period, and the Company may announce the establishment of such a plan, provided that no direct or indirect offers, pledges, sales, contracts to sell, sales of any option or contract to purchase, purchases of any option or contract to sell, grants of any option, right or warrant to purchase, loans, or other transfers or disposals of any Securities or any securities convertible into or exercisable or exchangeable for Securities may be effected pursuant to such plan during the Lock-Up Period.
In furtherance of the foregoing, the Company and its transfer agent and registrar are hereby authorized to decline to make any transfer of shares of Securities if such transfer would constitute a violation or breach of this Lock-Up Agreement.
If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing restrictions in this Lock-Up Agreement shall be equally applicable to any issuer-directed Securities the undersigned may purchase in the above-referenced offering.
This Lock-Up Agreement shall be binding on the undersigned and the successors, heirs, personal representatives and assigns of the undersigned. This Lock-Up Agreement shall lapse and become null and void if the Public Offering Date shall not have occurred on or before March __, 2014. This agreement shall be governed by, and construed in accordance with, the laws of the State of New York .
Very truly yours, | ||
By: | ||
Name: |
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE, dated as of the 17th day of December, 2013, is entered into by and between RREEF AMERICA REIT II CORP. MMMM7 WASHINGTON, a Maryland corporation ("Landlord"), and CLEARSIGN COMBUSTION CORPORATION, a Washington corporation ("Tenant")-
RECITALS
A. Landlord and Tenant entered into that certain lease dated August 19, 2011, as amended by that certain Commencement Date Memorandum dated November 1. 2011 (collectively, the "Lease"),
B. The Lease pertains to approximately 6,950 square feet of space located in Building 1 of Gateway Corporate Center, having an address of 12870 Interurban Avenue South, Seattle, King County, Washington (the "Existing Premises"), as more fully described in the Lease.
C. Landlord and 1'eiant desire to expand the area of the Premises, change the Rent Schedule, and otherwise amend the Lease as more fully set forth below,
AMENDMENT
NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein and other good and valuable consideration, the receipt and .sufficiency of which is hereby acknowledged, the parties agree as follows;
1. Definitions . Unless otherwise specifically set forth herein, all capitalized terms used shall have the meanings attributed to them in the Lease.
2. Notice Address is hereby changed to the following:
RREEF America REIT II Corp. MMMM7 Washington
c/o CB Richard Ellis | Asset Services
20415 - 72nd Avenue South. Suite 210
Kent. Washington 98032
3. Expansion of Premises . Commencing on February 1, 2014, the Existing Premises shall be expanded by approximately 2,250 square feet (the "Expansion Space'), such that the Existing Premises plus the Expansion Space shall thereafter be comprised of approximately 9,200 square feet (the "Premises") shown on Exhibit A-1 attached hereto, which shall supersede Exhibit A attached to the Lease. Tenant accepts the Premises in its "as-is" condition, without any obligation by Iandlord to make any improvements, repairs or modifications thereto.
4. Rent Schedule . The Rent Schedule for the period from January 1, 2014 through February 28, 2017 shall be as follows:
5. Rent Adjustments; Tenant's Proportionate Share . Effective as of February 1, 2014, Tenant's Proportionate Share of Expenses and Taxes shall be 2.12% of Gateway Corporate Center (having a total NRA of 433.864 square feet).
6. Relocation of Premises; Tenant's Option for Early Termination of Lease. Paragraph 4 of the Addendum to l -ease is hereby deleted in its entirety.
7. Effect of Amendment; Incorporation . Except as expressly modified herein, all terms and conditions of the lease remain in full force and effect and are hereby ratified and confirmed.
IN WITNESS WHEREOF, Landlord and Tenant have executed this l-irsl Amendment as of the day and year first written above.
LANDLORD: | TENANT: | |||
RREEF AMERICA REIT II CORP> MMMM7 | CLEARSIGN COMBUSTION | |||
WASHINGTON, a Maryland corporation | CORPORATION, a Washington corporation | |||
By: | /s/ Cathleen Meyer | By: | /s/ James N. Harmon | |
Cathleen Meyer, Vice President | James N. Harmon | |||
Chief Financial Officer | ||||
Date: 12/23/13 | Date: 12/18/2013 | |||
CONSENT OF INDEPENDENT PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the S-3 registration statement (File No. 333-188381) and the S-8 registration statement (File No. 333-184884) of ClearSign Combustion Corporation of our report dated March 11, 2014 with respect to the audited financial statements of ClearSign Combustion Corporation for the year ended December 31, 2013.
March 11, 2014
Santa Monica, California
Exhibit 31.1
CERTIFICATION
I, Richard F. Rutkowski, certify that:
1. | I have reviewed this annual report on Form 10-K of ClearSign Combustion Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 11, 2014
/s/ Richard F. Rutkowski | |
Richard F. Rutkowski | |
Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, James N. Harmon, certify that:
1. | I have reviewed this annual report on Form 10-K of ClearSign Combustion Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 11, 2014
/s/ James N. Harmon | |
James N. Harmon | |
Chief Financial Officer (Principal Financial and Accounting
Officer) |
Exhibit 32.1
CERTIFICATION
In connection with the periodic report of ClearSign Combustion Corporation (the “Company”) on Form 10-K for the year ending December 31, 2013 as filed with the Securities and Exchange Commission (the “Report”), we, Richard F. Rutkowski, Chief Executive Officer (Principal Executive Officer) and James N. Harmon, Chief Financial Officer (Principal Financial and Accounting Officer) of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of our knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
Date: March 11, 2014 | |
/s/ Richard F. Rutkowski | |
Richard F. Rutkowski | |
Chief Executive Officer (Principal Executive Officer) | |
/s/ James N. Harmon | |
James N. Harmon | |
Chief Financial Officer (Principal Financial and Accounting
Officer) |