UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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Preliminary
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to §240.14a-12
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ENER-CORE,
INC.
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(Name
of Registrant as Specified in Its Charter)
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(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
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number of securities to which transaction applies:
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Per
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the filing fee is calculated and state how it was determined):
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ENER-CORE,
INC.
9400
Toledo Way
Irvine,
California 92618
Telephone:
(949) 616-3300
August
29, 2016
Dear
Stockholder:
You
are cordially invited to attend Ener-Core, Inc.’s 2016 Annual Meeting of Stockholders, which will be held on Monday, September
26, 2016, at 10:00 a.m., Pacific Daylight Time, at our principal executive offices located at 9400 Toledo Way, Irvine, California
92618. The formal Notice of Annual Meeting of Stockholders and Proxy Statement accompanying this letter describe the business to
be acted upon at the annual meeting.
Your
vote is important to us and your shares should be represented at the annual meeting whether or not you are personally able to
attend. Accordingly, I encourage you to mark, sign, date and return the accompanying Proxy Card promptly using the postage-paid
envelope provided by the Company, or by using Internet or telephone voting as described in the accompanying Proxy Statement.
On
behalf of the Board of Directors, thank you for your continued support of Ener-Core, Inc.
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Sincerely,
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/s/
Alain J. Castro
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Alain
J. Castro
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Chief
Executive Officer
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ENER-CORE,
INC.
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held
at 10:00 a.m., Pacific Daylight Time, on Monday, September 26, 2016
The annual meeting
of stockholders of Ener-Core, Inc., a Delaware corporation (the “Company”), will be held on Monday, September 26, 2016,
at 10:00 a.m., Pacific Daylight Time, at our principal executive offices located at 9400 Toledo Way, Irvine, California 92618,
for the purpose of considering and acting upon the following:
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1.
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To
elect six directors named in this Proxy Statement to hold office until their respective successors are duly elected and qualified
or until their respective earlier resignation or removal;
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2.
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To
ratify the appointment of SingerLewak LLP as our independent registered public accounting firm for the fiscal year ending
December 31, 2016;
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3.
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To
approve an amendment to the Ener-Core, Inc. 2015 Omnibus Incentive Plan;
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4.
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To
hold an advisory vote to approve executive compensation; and
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5.
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To
consider and act upon other business which may properly come before the annual meeting or any postponement or adjournment
thereof.
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The
proposals referred to above are more fully described in the accompanying Proxy Statement. An annual report to stockholders
outlining our Company’s operations during our 2015 fiscal year accompanies this notice of annual meeting and Proxy Statement.
Your
vote is important. You are entitled to vote only if you were a stockholder of our Company at the close of business on August 26,
2016, the record date for the annual meeting. We hope that you will attend the annual meeting, but if you cannot do so, please
complete, date, and sign the enclosed Proxy Card and return it in the accompanying envelope as promptly as possible. The
Proxy Card also provides instructions on voting by telephone or electronically over the Internet. Returning the Proxy Card (or
voting electronically or via telephone) will not affect your right to vote in person if you attend the annual meeting.
Dated:
August 29, 2016
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BY
ORDER OF THE BOARD OF DIRECTORS,
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/s/
Domonic J. Carney
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Domonic
J. Carney,
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Chief
Financial Officer and Secretary
Irvine, California
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TABLE
OF CONTENTS
As
used in this Proxy Statement, references to “Ener-Core,” the “Company,” “we,” “us,”
“our” and similar references refer to Ener-Core, Inc. and our consolidated subsidiaries. All share and per share amounts
have been adjusted to reflect the 30-for-1 forward split of outstanding capital stock effective May 6, 2013 and the 1-for-50 reverse
split of outstanding capital stock effective July 8, 2015.
ENER-CORE,
INC.
9400
Toledo Way
Irvine,
California 92618
Telephone:
(949) 616-3300
PROXY
STATEMENT
ANNUAL
MEETING OF STOCKHOLDERS
TO
BE HELD ON SEPTEMBER 26, 2016
GENERAL
The enclosed proxy
is solicited on behalf of the Board of Directors (the “Board”) of Ener-Core, Inc., a Delaware corporation (the “Company”),
for use at the 2016 annual meeting of stockholders to be held on
September
26, 2016
, at
10:00 a.m.
(Pacific
Daylight Time) (the “annual meeting”), or at any postponement or adjournment of the annual meeting, for the purposes
set forth in this Proxy Statement and in the accompanying Notice of Annual Meeting of Stockholders. The annual meeting will
be held at our principal executive offices located at 9400 Toledo Way, Irvine, California 92618. The Company intends to commence
mailing this Proxy Statement, the accompanying Proxy Card and the Notice of Annual Meeting of Stockholders on or about August 29,
2016, to all stockholders entitled to vote at the annual meeting.
ABOUT
THE ANNUAL MEETING
Why
did I receive this Proxy Statement?
You
received this Proxy Statement because you held shares of the Company’s common stock on August 26, 2016 (the “Record
Date”) and are entitled to vote at the annual meeting. The Board is soliciting your proxy to vote at the annual meeting.
Who
is entitled to vote at the annual meeting?
Only
stockholders of record at the close of business on the Record Date are entitled to receive notice of and to vote at the annual
meeting. If you were a stockholder of record on the Record Date, you will be entitled to vote all of the shares that you held
on that date at the annual meeting or at any postponement or adjournment of the annual meeting.
What
proposals will be voted on at the annual meeting?
Stockholders
will vote on the following proposals (the “Proposals”) at the annual meeting:
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1.
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To
elect six directors named in this Proxy Statement to hold office until their respective successors are duly elected and qualified
or until their respective earlier resignation or removal;
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2.
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To
ratify the appointment of SingerLewak LLP as our independent registered public accounting firm for the fiscal year ending
December 31, 2016;
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3.
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To
approve an amendment to the Ener-Core, Inc. 2015 Omnibus Incentive Plan;
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4.
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To
hold an advisory vote to approve executive compensation; and
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5.
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To
consider and act upon other business which may properly come before the annual meeting or any postponement or adjournment
thereof.
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If
any other matter is properly brought before the annual meeting, your signed Proxy Card would authorize Alain J. Castro and Domonic
J. Carney to vote on such matters in their discretion.
How
do I vote?
Stockholders
of Record—Shares Registered in Your Name
If
your shares are registered directly in your name with the Company’s transfer agent, VStock Transfer, LLC, on the Record
Date, then you are a stockholder of record.
If
you are a stockholder of record, there are three ways to vote:
1. If
you received a Proxy Card, by completing, signing, dating and returning your Proxy Card in the postage-paid envelope provided
by the Company;
2. By
following the instructions for electronic voting using the Internet or by telephone, which are printed on your Proxy Card. If
you vote via the Internet or by telephone, your electronic vote authorizes the named proxies in the same manner as if you signed,
dated and returned your Proxy Card.
If you vote via the Internet or by telephone, please do not also mail a Proxy Card
;
or
3. By
voting in person at the annual meeting.
Beneficial
Owners—Shares Registered in the Name of a Broker, Bank or Other Agent
If
your shares are held, not in your name, but rather in an account at a brokerage firm, bank, dealer or other similar organization,
then you are the beneficial owner of shares held in “street name.” The organization holding your shares is considered
to be the stockholder of record for purposes of voting at the annual meeting. As a beneficial owner, you have the right to direct
your broker or other agent regarding how to vote the shares in your account. However, since you are not the stockholder of record,
you may not vote your shares in person at the annual meeting unless you request and obtain a valid proxy from your broker or other
agent.
If
your shares are held in street name, you must instruct your broker or other agent that holds your shares how to vote your shares.
If you do not provide such voting instructions to your broker, then your broker is not permitted to exercise discretion and will
not vote your shares on any non-routine Proposal, which is called a “broker non-vote.” Broker non-votes are not included
in the tabulation of the voting results of any of the Proposals and, therefore, do not affect these Proposals.
With
the exception of Proposal 2, the ratification of the appointment of SingerLewak LLP as our independent registered public accounting
firm for the fiscal year ending December 31, 2016, all of the Proposals are considered non-routine, and thus brokers cannot use
discretionary authority to vote shares if they have not received instructions from their clients. Please submit voting instructions
to your broker or other agent so that your vote is counted.
How
many votes do I have?
On
each matter to be voted upon, you will have one vote for each share of the Company’s common stock that you owned on the
Record Date.
How
many votes can be cast by all stockholders?
The
Company had 3,785,216 outstanding shares of common stock on the Record Date, and each of those shares is entitled to one vote.
Stockholders are not entitled to cumulate voting rights.
How
many shares of common stock must be present or represented by proxy in order to conduct business at the annual meeting?
A
majority of all outstanding shares of our common stock entitled to vote at the annual meeting must be present or represented by
proxy in order to satisfy the quorum requirement for the transaction of business at the annual meeting. Both abstentions
and broker non-votes are counted for purposes of determining a quorum. If a quorum should not be present, the annual meeting
may be adjourned from time to time until a quorum is obtained.
What
vote is required to approve the Proposals?
Assuming
the presence of a quorum at the annual meeting:
Proposal
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Vote Required
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Broker
Discretionary
Vote Allowed
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Proposal 1—Election of six members to the Board
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Plurality of the votes cast (the six directors receiving the most “For” votes shall be elected)
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No
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Proposal 2—Ratification of the Appointment of SingerLewak LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016
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The affirmative vote of the majority of the votes cast
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Yes
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Proposal 3—Approval of an amendment to the Ener-Core, Inc. 2015 Omnibus Incentive Plan
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The affirmative vote of the majority of the votes cast
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No
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Proposal 4—Advisory vote to approve executive compensation
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The affirmative vote of the majority of the votes cast
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No
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For
purposes of Proposals 1, 2, 3 and 4, broker non-votes are not considered “votes cast” at the annual meeting and thus
will have no effect on the outcome of such Proposals. For purposes of Proposals 2, 3 and 4, abstentions are not considered “votes
cast” at the annual meeting and thus will have no effect on the outcome of such Proposals.
The
advisory vote on executive compensation (Proposal 4) is non-binding; however, the Board and the Compensation Committee of the
Board will take into account the outcome of the stockholder vote on this Proposal at the annual meeting when considering future
executive compensation arrangements.
How
does Ener-Core’s Board Recommend that I vote?
Our
Board recommends that you vote:
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●
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FOR
all six nominees named in this Proxy Statement in Proposal 1;
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FOR
Proposal 2—Ratification of Appointment of SingerLewak LLP as the Company’s Independent Registered Public Accounting
Firm;
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FOR
Proposal 3—Approval of an Amendment to the Ener-Core, Inc. 2015 Omnibus Incentive Plan; and
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FOR
Proposal 4—Advisory Vote to Approve Executive Compensation.
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Can
I revoke a previously delivered proxy or change my vote after I deliver my proxy?
Yes.
You may revoke a previously delivered proxy by delivering another properly completed proxy with a later date (including via the
Internet or by telephone), or by delivering written notice of revocation of your proxy to the Secretary of the Company at our
principal executive offices, located at 9400 Toledo Way, Irvine, California 92618, in each case before the exercise of the previously
delivered proxy at the annual meeting. You may also revoke your proxy by attending the annual meeting and voting in person, although
attendance at the annual meeting will not, in and of itself, revoke a valid proxy that was previously delivered. If you hold shares
through a brokerage firm, bank, dealer or other similar organization, you must contact that brokerage firm, bank, dealer or other
similar organization to revoke any prior voting instructions. You may also revoke any prior voting instructions by voting in person
at the annual meeting if you obtain a legal proxy as described in the paragraph under the heading “Who can attend the annual
meeting?” below.
Who
can attend the annual meeting?
Any
person who was a stockholder of the Company on the Record Date may attend the annual meeting. If you own shares in street name,
you should ask your brokerage firm, bank, dealer or other similar organization for a legal proxy to bring with you to the annual
meeting. If you do not receive a legal proxy in time, you should bring your most recent brokerage statement so that we can verify
your ownership of our stock and admit you to the annual meeting. You will not, however, be able to vote your shares at the annual
meeting without a legal proxy.
What
happens if I sign and return the Proxy Card but do not indicate how to vote on a proposal?
If
you duly execute your Proxy Card but do not provide instructions on how your shares should vote, your shares will be voted “For”
the election of all of the director nominees identified in Proposal 1, “For” the ratification of the appointment of
SingerLewak LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016, “For”
the approval of an amendment to the Ener-Core, Inc. 2015 Omnibus Incentive Plan and “For” the advisory vote to approve
executive compensation.
How
can I find out the results of the voting at the annual meeting?
Preliminary
voting results will be announced at the annual meeting. Final voting results will be published in a Current Report on Form 8-K,
which we will file with the Securities and Exchange Commission (“SEC”) within four business days after the annual
meeting.
When
are stockholder proposals due for the next annual meeting?
We
presently intend to hold our next annual meeting of stockholders on or around September 29, 2017. Any appropriate proposal
submitted by a stockholder for inclusion in the Company’s proxy statement and intended to be presented at the next annual
meeting of stockholders must be submitted in writing to our Secretary at 9400 Toledo Way, Irvine, California 92618, and received
no later than May 1, 2017
in order to be includable in the Company’s proxy statement and related proxy for
the next annual meeting of stockholders. Such proposals will need to comply with Rule 14a-8 promulgated under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), regarding the inclusion of stockholder proposals in company
proxy materials. Although the Board will consider stockholder proposals, we reserve the right to omit from our proxy statement,
or to recommend votes against, stockholder proposals that we are not required to include under Rule 14a-8 under the Exchange Act.
Who
is paying for this proxy solicitation?
The
Company will bear the entire cost of solicitation of proxies, including preparation, assembly, printing, and mailing of this Proxy
Statement, the Proxy Card and any additional information furnished to stockholders. Copies of solicitation materials will be furnished
to brokerage firms, banks, dealers and other similar organizations holding in their names shares of common stock beneficially
owned by others to forward to such beneficial owners. The Company may reimburse persons representing beneficial owners of common
stock for their costs of forwarding solicitation materials to such beneficial owners. In addition to the mailing of this Proxy
Statement, the solicitation of proxies or votes may be supplemented by telephone, electronic communication, or personal solicitation
by directors, officers or other regular employees of the Company. No additional compensation will be paid to directors, officers
or other regular employees for such services.
How
can I obtain additional information about the Company?
Copies
of our Annual Report on Form 10-K will be furnished without charge to stockholders upon written request. Exhibits to the Annual
Report on Form 10-K will be provided upon written request. All written requests should be directed to: Ener-Core, Inc., Secretary,
9400 Toledo Way, Irvine, California 92618.
We
are subject to the informational requirements of the Exchange Act, which requires that we file reports, proxy statements and other
information with the SEC. The SEC maintains a website that contains reports, proxy and information statements and other information
regarding companies, including our Company, that file electronically with the SEC. The SEC’s website address is www.sec.gov. In
addition, our filings may be inspected and copied at the public reference facilities of the SEC located at 100 F Street, N.E.
Washington, DC 20549. Copies of such filings may also be obtained upon request and payment of the appropriate fee from the
Public Reference Section of the SEC located at 100 F Street, N.E., Washington, District of Columbia 20549.
PROPOSAL
1: ELECTION OF DIRECTORS
Under
our bylaws, the number of directors of the Company shall be not less than one (1) nor more than seven (7) as fixed from time to
time by resolution of the Board. The Board previously fixed the number of directors at seven (7), and has fixed the number of
directors at six (6) effective upon the election of directors at the annual meeting. Each director serves until such director’s
successor is duly elected and qualified or such director’s earlier resignation, death or removal.
Currently,
the Board consists of seven directors. Six directors will be elected to the Board at the annual meeting. The Board has nominated
Alain J. Castro, Michael J. Hammons, Jeffrey A. Horn, Bennet P. Tchaikovsky, Ian C. Copeland and Stephen Markscheid for re-election
at the annual meeting. Christopher J. Brown will not stand for re-election to the Board, which is not due to any refusal by Mr.
Brown to stand for election or any disagreement by Mr. Brown with the Company or the Board on any matter relating to the Company’s
operations, policies or practices. Mr. Brown’s term as a director will end upon the election of directors at the annual
meeting. Because our common stock is quoted on the OTCQB tier of the OTC Market (“OTCQB”), and not listed on a national
securities exchange, we are not subject to corporate governance listing standards, including director independence listing standards.
Although we are not required to do so under any national securities exchange listing standards, the Board has affirmatively determined
that
Messrs. Hammons, Horn, Tchaikovsky, Copeland
and Markscheid are “independent”
for purposes of
Section 303A.02 of the NYSE Listed Company Manual
and the Company’s
Corporate Governance Guidelines.
Directors
are elected by a plurality of the votes cast in person or by proxy at the annual meeting and entitled to vote on the election
of directors. “Plurality” means that the director nominees receiving the highest number of affirmative votes of the
votes cast will be elected as directors, up to the number of directors to be elected at the annual meeting. Therefore, any shares
that are not voted, whether by withheld authority, broker non-vote or otherwise, will have no effect on the outcome of the election
of directors. Each nominee has agreed to serve as a director if elected, and we have no reason to believe that any nominee will
be unable to serve. If any director nominee is unable to serve or will not serve as a director, then the persons designated as
proxies on the Proxy Card will vote for a nominee or nominees designated by the Board.
All
of the Company’s directors are expected to attend the annual meeting. All of our directors attended last year’s
annual meeting of stockholders, either telephonically or in person.
INFORMATION
ABOUT THE DIRECTOR NOMINEES
Name
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Age
(1)
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Position
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Alain
J. Castro
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46
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Chief
Executive Officer and Director
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Michael
J. Hammons(2)
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46
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Chairman
of the Board
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Jeffrey
A. Horn
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61
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Director
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Bennet
P. Tchaikovsky(3)
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47
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Director
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Ian
C. Copeland(4)
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54
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Director
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Stephen
Markscheid
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62
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Director
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(1)
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The
information provided in this table is as of the date of this Proxy Statement.
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(2)
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Chairman
of the Nominating and Corporate Governance Committee.
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(3)
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Chairman
of the Audit Committee.
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(4)
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Chairman
of the Compensation Committee.
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Alain
J. Castro,
Chief Executive Officer and Director
Mr.
Castro has been the Chief Executive Officer and a director of Ener-Core Power, Inc., our wholly owned subsidiary (“Ener-Core
Power”), since May 14, 2013 and the Company’s Chief Executive Officer and director since the merger of Ener-Core Power
and Flex Merger Acquisition Sub, Inc. effective as of July 1, 2013 (the “Merger”). He founded International Energy
Ventures Limited, a United Kingdom-based investor of clean tech companies and renewable energy projects, in May 2003. Between
February 2008 and June 2011, Mr. Castro served in various capacities (including president and a director) of the North and South
America divisions of Akuo Energy, an international developer and operator of renewable energy projects. Prior to his career
in the renewable energy sector, he was a partner at Ernst & Young Consulting (in the Mercosur region of Latin America), an
international advisory services firm. Mr. Castro participated in the Sloan Executive Masters Program at the London Business
School and received his B.S. in Industrial and Mechanical Engineering from the University of Texas. The Board concluded that
Mr. Castro’s experience with clean tech companies and renewable energy projects, as well as his previous executive-level
experience, coupled with his position as our Chief Executive Officer, made his nomination as one of our directors appropriate.
Michael
J. Hammons, Chairman of the Board, Independent Director and Chairman of the Nominating and Corporate Governance Committee
Mr.
Hammons became Chairman of the Board as of the closing of the Merger and chairman of our Nominating and Corporate Governance
Committee on July 14, 2015. From June 2009 to February 2014, Mr. Hammons was a partner at SAIL Venture Partners II, LLC, an investor
in energy and water technology companies, which was the management company and general partner of SAIL Venture Partners II, LP. From
September 2008 through March 2009, he was the chief executive officer of Vigilistics, Inc., a Mission Viejo, California-based
software company and, from August 2007 to May 2008, the Chief Executive Officer of Nexiant, Inc., an Irvine, California-based
provider of proprietary technology solutions for the maintenance, repair, and operations inventory space. From 2011 until
March 2015, Mr. Hammons served as chairman and director of the board of directors of Enerpulse Technologies, Inc. Mr. Hammons
received his B.S. in Industrial Engineering from California Polytechnic State University, San Luis Obispo, and his M.B.A. from
Harvard Business School. The Board concluded that Mr. Hammons’ prior experience as a partner in SAIL Venture Partners
II, LLC, with its investment portfolio, his management expertise in respect of similarly situated companies, and his familiarity
with us coupled with his service as the Chairman of Ener-Core Power’s board of directors prior to the closing of the Merger,
made his nomination as one of our directors appropriate.
Jeffrey
A. Horn, Independent Director
Mr.
Horn became one of our directors on May 28, 2014. Mr. Horn’s career spanned over 34 years at Caterpillar Inc.,
including most recently as Managing Director of Caterpillar Power Generation Systems in Houston beginning in January 2009, before
retiring in January 2012. Caterpillar Inc. is not related to or affiliated with the Company. Mr. Horn received his B.S.
degree in Economics from the University of Wisconsin, Madison, in 1977. The Board concluded that Mr. Horn’s background
in the power equipment sector, coupled with his work experience in the mining industry which is a target market for the Company’s
products, made his nomination as one of our directors appropriate.
Bennet
P. Tchaikovsky, Independent Director and Chairman of the Audit Committee
Mr.
Tchaikovsky became one of our directors and chairman of our Audit Committee on November 25, 2013. Since August 2014,
Mr. Tchaikovsky has been a full time Assistant Professor at Irvine Valley College where he teaches courses in financial and managerial
accounting. From April 2010 through August 2013, Mr. Tchaikovsky served as the Chief Financial Officer of VLOV Inc., a China-based
clothing designer and distributor that was also a U.S. publicly traded company. From September 2009 to July 2011, Mr. Tchaikovsky
served as Chief Financial Officer of China Jo-Jo Drugstores, Inc., a U.S. public company operating a chain of pharmacies in China,
where he also served as a director from August 2011 through January 2013. From May 2008 to April 2010, Mr. Tchaikovsky served
as the Chief Financial Officer of Skystar Bio-Pharmaceutical Company, a U.S. public company that manufactures and distributes
veterinary medicines and related products in China, which he performed on a part-time basis and assisted primarily with preparing
its financial statements and other financial reporting obligations. From March 2008 through November 2009, Mr. Tchaikovsky
was a director of Ever-Glory International Group, a U.S. public company and apparel manufacturer based in China, and served on
the audit committee as chairman and on the compensation committee as a member. From December 2008 through November 2009,
Mr. Tchaikovsky was a director of Sino Clean Energy, Inc., which was a U.S. public company that manufactured coal fuel substitute
in China, and served on the audit committee as chairman and on both the compensation and nominating committees as a member. None
of the foregoing companies is related to or affiliated with us. Mr. Tchaikovsky is a licensed Certified Public Accountant
and an active member of the California State Bar. He received a B.A. in Business Economics from the University of California
at Santa Barbara, and a J.D. from Southwestern University School of Law. The Board concluded that Mr. Tchaikovsky’s
experience with U.S. public companies, as well as his legal and accounting backgrounds, made his nomination as one of our directors
appropriate.
Ian
C. Copeland, Independent Director and Chairman of the Compensation Committee
Mr.
Copeland became one of our directors on December 1, 2014 and chairman of our Compensation Committee on July 14, 2015.
Mr.
Copeland brings over 25 years of global experience in developing, financing and managing world-class projects and companies in
the power, rail, water and mining markets. Since September 2015, Mr. Copeland has served as a Managing Director and Co-Chief Investment
Officer of Ultra Capital, LLC, an investment firm focused on investment in sustainable infrastructure and real asset projects,
where he is responsible for overseeing origination of investment projects and supporting decisions of the investment committee.
Until December 2012, Mr. Copeland was a Senior Vice President of Bechtel Corporation. During his 15-year tenure with Bechtel Corporation,
he served in various capacities including President of the Fossil Power, Communications and Renewable Power businesses and Managing
Director of Bechtel Enterprises. Previously, Mr. Copeland held senior management positions with Wärtsilä Corporation
and Hannon Armstrong & Company. Mr. Copeland began his career with the utility consulting practice of Booz Allen Hamilton
after graduating from Rutgers University with degrees in physics and mechanical engineering.
The Board
concluded that Mr. Copeland’s background
in international business including experience developing, financing, and
managing projects in the power and infrastructure markets, made his nomination as one of our directors appropriate.
Stephen
Markscheid, Independent Director
Mr.
Markscheid became one of our directors on June 29, 2016.
Mr. Markscheid brings
over 30 years of corporate finance experience in the United States, Asia and Europe, including experience in mergers and acquisitions,
strategic investments, joint ventures and new business development across industries in emerging markets. Mr. Markscheid has served
as Chief Executive Officer of Synergenz BioScience Inc. since 2007, head of international business for Mammoth Industries since
2013 and partner of Wilton Partners since 2014. He has also been an independent member of the boards of directors of CNinsure,
Inc. since 2007, Jinko Solar, Inc. since 2009, China Integrated Energy Corporation since 2011, China Ming Yang Wind Power Group
since 2011 and ChinaCast Education Corporation since 2011. Mr. Markscheid was previously a representative of the US-China Business
Council from 1978 to 1983, a vice president of Chase Manhattan Bank from 1984 to 1988, a vice president of First Chicago Bank
from 1988 to 1993, a case leader of Boston Consulting Group from 1994 to 1997, a director of business development of GE Capital
(Asia Pacific) from 1998 to 2001, a senior vice president of GE Healthcare Financial Services from 2003 to 2006 and the chief
executive officer of HuaMei Capital Company, Inc. from 2006 to 2007. Mr. Markscheid received his bachelor’s degree in East
Asian studies from Princeton University in 1976, a master’s degree in international affairs and economics from Johns Hopkins
University (SAIS) in 1980 and an MBA from Columbia University in 1991
. The Board concluded that Mr. Markscheid’s
extensive experience as an independent director and his substantial corporate finance experience, particularly in Asia, made his
appointment to the Board appropriate.
Vote
Required
The
six director nominees receiving the highest number of affirmative votes of the vote cast shall be elected.
THE
BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE ELECTION OF THE SIX NOMINEES NAMED IN THIS PROXY STATEMENT.
CORPORATE
GOVERNANCE
Currently,
the Board consists of seven directors. The Board has fixed the number of directors at six effective upon the election of directors
at the annual meeting. Our bylaws provide that our directors will hold office until their successors have been duly elected and
qualified. The Board is responsible for the business and affairs of the Company and considers various matters that require
its approval.
Our
common stock is currently quoted on the OTCQB under the symbol “ENCR.” The OTCQB does not require issuers to comply
with corporate governance listing standards that issuers listed on a national securities exchange, such as the New York Stock
Exchange and the Nasdaq Stock Market, are required to comply with. As a matter of corporate governance best practices, we have
taken actions to improve our corporate governance, including establishing a board of directors with a majority of directors who
are “independent” for purposes of Section 303A.02 of the NYSE Listed Company Manual and a standing Audit Committee,
Compensation Committee and Nominating and Corporate Governance Committee. We have also adopted Corporate Governance Guidelines,
a Code of Ethics, an Insider Trading Policy and other similar corporate policies.
Independence
of the Board
Based
upon information submitted by Messrs. Hammons, Horn, Tchaikovsky, Copeland and Markscheid, the Board has determined that each
of them is “independent” for purposes of Section 303A.02 of the NYSE Listed Company Manual, even though such definition
of independence does not currently apply to us because we are not currently listed on the NYSE or any affiliated marketplace,
and under our Corporate Governance Guidelines
.
Mr. Castro is not an independent director. Under the Corporate Governance Guidelines, which are available at
http://ir.ener-core.com/governance-docs
,
no director will be considered “independent” unless the Board affirmatively determines that the director has no direct
or indirect material relationship with the Company.
Code
of Ethics
The
Company’s Code of Ethics, which applies to all officers, directors and employees, was adopted by the Board on September
24, 2013. The Code of Ethics was filed as Exhibit 14.1 to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2014 filed with the SEC on March 31, 2015 and is also available on the Company’s website at
http://ir.ener-core.com/governance-docs
.
Meetings
of the Board
During
the fiscal year ended December 31, 2015, the Board met three times and took action by unanimous written consent sixteen times.
Each incumbent director serving during the fiscal year ended December 31, 2015 attended at least 75% of the aggregate of all Board
and applicable committee meetings during the period that he served as a director.
Our
Corporate Governance Guidelines, which are available at
http://ir.ener-core.com/governance-docs
, provide that the Company
will make every effort to schedule its annual meeting of stockholders at a time and date to maximize attendance by directors,
taking into account our directors’ schedules. All directors are strongly encouraged to make every effort to attend the Company’s
annual meeting of stockholders, absent an unavoidable and irreconcilable conflict.
Information
Regarding Committees of the Board
The
Board has three standing committees: the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance
Committee. The following table provides membership and meeting information for these committees for the fiscal year ended December
31, 2015:
Name
|
|
Audit
|
|
|
Compensation
|
|
|
Nominating
and Corporate Governance
|
|
Alain J. Castro
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Hammons
|
|
|
|
|
|
|
|
|
|
|
X
|
(4)
|
Christopher J. Brown, Ph.D.(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey A. Horn
|
|
|
X
|
|
|
|
X
|
|
|
|
|
|
Bennet P. Tchaikovsky
|
|
|
X
|
(4)(5)
|
|
|
|
|
|
|
|
|
Ian C. Copeland
|
|
|
|
|
|
|
X
|
(4)
|
|
|
|
|
Eric Helenek(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen Markscheid(3)
|
|
|
X
|
(6)
|
|
|
X
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total meetings in year ended December 31, 2015
|
|
|
5
|
|
|
|
1
|
|
|
|
0
|
|
Total actions by unanimous written consent
in year ended December 31, 2015
|
|
|
1
|
|
|
|
0
|
|
|
|
0
|
|
(1)
|
Not
standing for re-election at the 2016 annual meeting.
|
|
|
(2)
|
Resigned
on March 30, 2016.
|
|
|
(3)
|
Appointed
to the Board on June 29, 2016.
|
|
|
(4)
|
Committee
chairman.
|
|
|
(5)
|
“Audit
committee financial expert” within the meaning of Item 407(d)(5)(ii) and (iii) of Regulation S-K.
|
|
|
(6)
|
Appointed
to the Audit and Compensation Committees on August 22, 2016.
|
Below
is a description of each committee as it is presently constituted. The Board has determined that each current member of each
committee meets certain SEC and NYSE rules and regulations regarding “independence”, as well as “independence”
under our Corporate Governance Guidelines,
and that each member is free of any relationship
that would impair his individual exercise of independent judgment with regard to the Company.
Audit
Committee
The
Audit Committee currently consists of Messrs. Tchaikovsky (Chairman), Horn and Markscheid. The Audit Committee operates under
a written charter, which is available at
http://ir.ener-core.com/governance-docs
. The purpose of the Audit Committee is
to oversee the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company.
In addition to other powers and responsibilities, the Audit Committee (i) is directly responsible for the appointment, compensation,
retention, oversight and termination, if necessary, of the independent registered public accounting firm, (ii) reviews the independence
and quality control procedures of the independent registered public accounting firm, (iii) reviews and discusses the annual audited
financial statements with management and the independent registered public accounting firm, and (iv) reviews, and approves as
appropriate, all related party transactions.
Compensation
Committee
The
Compensation Committee currently consists of Messrs. Copeland (Chairman), Horn and Markscheid. The Compensation Committee operates
under a written charter, which is available at
http://ir.ener-core.com/governance-docs
. The purpose of the Compensation
Committee is to discharge the Board’s responsibilities relating to compensation of the Company’s executives, to produce
an annual report on executive compensation for inclusion in the Company’s proxy materials and to review and discuss with
management the Compensation Discussion and Analysis to be included in the proxy materials in accordance with applicable rules
and regulations. In addition to other powers and responsibilities, the Compensation Committee shall (i) review the compensation
philosophy of the Company, (ii) review and approve the Chief Executive Officer’s compensation, (iii) review and approve,
in consultation with the Chief Executive Officer, all compensation for other officers of the Company, (iv) review and approve
employment agreements and severance arrangements for the Chief Executive Officer and other officers of the Company and (v) prepare
and approve the Compensation Committee report to be included in the Company’s annual proxy statement.
For
additional information regarding the Compensation Committee’s consideration and determination of executive officer and director
compensation, see the section entitled “Compensation Discussion and Analysis” and “Director Compensation”
of this Proxy Statement.
Nominating
and Corporate Governance Committee
The
Nominating and Corporate Governance Committee currently consists of Mr. Hammons (Chairman). The Nominating and Corporate Governance
Committee operates under a written charter, which is available at
http://ir.ener-core.com/governance-docs
. The purpose
of the Nominating and Corporate Governance Committee is to assist the Board in identifying qualified candidates to become Board
members, selecting director nominees for election at the annual meeting of stockholders, selecting candidates to fill any vacancies
on the Board and overseeing the evaluation of the Board. In addition to other powers and responsibilities, the Nominating and
Corporate Governance Committee shall (i) prior to each annual meeting of stockholders at which directors are to be elected, recommend
to the Board director candidates for nomination by the Board, (ii) after a vacancy arises on the Board or if a director advises
of his or her resignation, recommend to the Board director candidates to fill such vacancy, (iii) at least annually review the
performance of each current director and recommend to the Board whether such director should be nominated for an additional term,
(iv) assist the Board in the Board’s annual review of its performance and make appropriate recommendations to improve performance
and (v) make recommendations to the Board regarding Board size and composition and composition of the committees.
The
Corporate Governance and Nominating Committee identifies potential director candidates through a variety of sources, including
recommendations made by current or former directors, members of our executive management, stockholders and business, academic
and industry contacts. When appropriate, a search firm may be retained by the Corporate Governance and Nominating Committee to
identify director candidates.
Our
Corporate Governance Guidelines set forth the following criteria with respect to director nominees:
|
●
|
Nominees
should have a reputation for integrity, honesty and adherence to high ethical standards;
|
|
●
|
Nominees
should have demonstrated business acumen, experience and ability to exercise sound judgments
in matters that relate to the current and long-term objectives of the Company and should
be willing and able to contribute positively to the decision-making process of the Company;
|
|
●
|
Nominees
should have a commitment to understand the Company and its industry and to regularly
attend and participate in meetings of the Board and its committees;
|
|
●
|
Nominees
should have the interest and ability to understand the sometimes conflicting interests
of the various constituencies of the Company, which include stockholders, employees,
customers, governmental units, creditors and the general public, and to act in the interests
of all stockholders; and
|
|
●
|
Nominees
should not have, nor appear to have, a conflict of interest that would impair the nominee's
ability to represent the interests of all the Company's stockholders and to fulfill the
responsibilities of a director.
|
The
Corporate Governance and Nominating Committee reviews and assesses at least annually the skills and characteristics of Board members,
as well as the composition of the Board as a whole. The Corporate Governance and Nominating Committee’s assessment includes
a review of our directors’ respective independence qualifications, skills and experience in the context of the needs of
the Board. Additionally, the Nominating and Corporate Governance Committee considers diversity of the Board members’ skill
and experience in areas that are relevant to the Company’s business and activities, including operations, finance, marketing
and sales. Our Board does not, however, have a formal policy regarding racial/ethnic, gender or other diversity of director candidates,
but considers diversity as a factor in evaluating such candidates.
In
assessing the composition of the Board, the Corporate Governance and Nominating Committee considers the Board’s current
and anticipated needs, and seeks to maintain an appropriate balance of different business backgrounds, skills and expertise based
on the nature and requirements of our business and the markets that we serve. In evaluating potential director candidates, the
Corporate Governance and Nominating Committee considers all relevant information regarding such candidates, including the membership
criteria stated above, and whether such candidates would meet the Corporate Governance and Nominating Committee’s objectives
for the overall composition of the Board, as well as the candidates’ ability and willingness to devote adequate time to
Board responsibilities. When appropriate, the Corporate Governance and Nominating Committee will recommend qualified candidates
for nomination by the entire Board.
In
accordance with our bylaws and Corporate Governance Guidelines, stockholders may also nominate a candidate for election as director
by complying with certain notice and other requirements set forth therein. See “Director Nominees for 2017 Meeting”
below for additional information regarding stockholder nominations. If the Corporate Governance and Nominating Committee or the
Board determines that any nomination made by a stockholder was not made in accordance with the proper procedures, the rules and
regulations promulgated under the Securities and Exchange Commission or other applicable laws or regulations, such nomination
will be void. As noted below, the Nominating and Corporate Governance Committee will evaluate candidates recommended by stockholders
in the same manner as those recommended by others.
Report
of the Audit Committee
This
report is submitted by the Audit Committee members who served on the committee during the fiscal year ended December 31, 2015.
The Audit Committee oversees the Company’s financial reporting process on behalf of the Board. The Audit Committee operates
under a written charter approved by the Board. The charter provides, among other things, that the Audit Committee has the
authority to appoint, compensate, retain, oversee and terminate the independent registered public accounting firm. In discharging
its oversight responsibilities regarding the audit process, the Audit Committee:
|
●
|
reviewed
and discussed the audited financial statements with management and the independent registered public accounting firm;
|
|
●
|
discussed
with the independent registered public accounting firm the matters required to be discussed under applicable rules adopted
by the Public Company Accounting Oversight Board (“PCAOB”);
|
|
●
|
received
the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements
of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning
independence and has discussed with the independent registered public accounting firm its independence; and
|
|
●
|
based
on the review and discussions referred to above, recommended to the Board that the audited financial statements be included
in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, for filing with the Securities
and Exchange Commission.
|
Respectfully
submitted,
|
|
|
The
Audit Committee of the Board
|
Bennet
P. Tchaikovsky, Chairman
|
Jeff
Horn
|
Stockholder
Communications with the Board
Under
the Corporate Governance Guidelines, stockholders can send communications intended for the Board or non-management directors to
the attention of the Company’s Secretary at 9400 Toledo Way, Irvine, California 92618. All such communications should prominently
indicate on the outside of the envelope that it is intended for the Board, the non-management directors or any specific directors.
Communications received in writing will be collected, organized and processed by the Secretary, who will distribute the communications
to members of the Board as appropriate, depending on the facts and circumstances outlined in the communication received. Comments
or questions regarding the Company’s accounting, internal controls, or auditing matters will generally be referred to the
Chair of the Audit Committee. Comments or questions regarding the nomination of directors and other corporate governance matters
will generally be referred to the Chair of the Nominating and Corporate Governance Committee. If no director is specified,
the communication will be forwarded to the entire Board.
Board
Leadership Structure and Role in Risk Oversight
Under
the Corporate Governance Guidelines, the Board is free to select the Chairman of the Board and the Chief Executive Officer in
a manner that it considers to be in the best interests of the Company at the time of selection. Currently, Mr. Castro serves as
Chief Executive Officer and as a member of the Board, and Mr. Hammons serves as Chairman of the Board. We currently believe that
this leadership structure is in the best interests of the Company and strikes an appropriate balance between our Chief Executive
Officer’s responsibility for the day-to-day management of the Company and the Chairman of the Board’s responsibility
to provide oversight, including setting the Board’s meeting agendas and presiding at executive sessions of the independent
directors. Mr. Castro provides a strong link between management and the Board, which we believe promotes clear communication and
enhances strategic planning and implementation of corporate strategies. Overall, we believe that having our Chief Executive Officer
also serve as a director helps provide strong, unified leadership for our management team. Additionally, in addition to having
a non-executive Chairman of the Board, five of our six current Board members have been deemed to be “independent”
by the Board, which we believe provides sufficient independent oversight of our management. Because the Company has a non-executive
Chairman of the Board, the Board has not designated a lead independent director.
The
Board, as a whole and also at the committee level, plays an active role overseeing the overall management of the Company’s
risks. Our Audit Committee reviews risks related to financial and operational items with our management and the Company’s
independent registered public accounting firm. The Board is in regular contact with our Chief Executive Officer and Chief Financial
Officer, who report directly to the Board and who supervise day-to-day risk management.
Director
Compensation
The
Compensation Committee has the authority and responsibility to review and evaluate periodically the cash and equity compensation
paid to non-employee directors. Based on such review and evaluation, the Compensation Committee makes recommendations to our Board,
and the Board approves all non-employee director compensation in its sole discretion. In evaluating and making its recommendations
regarding non-employee director compensation, the Compensation Committee informally considers competitive market practices by
reviewing publicly available information relating to compensation of non-employee directors at other comparable companies. The
Compensation Committee did not rely on any consultants or utilize any peer company comparisons or benchmarking in setting non-employee
director compensation levels for fiscal 2015.
The
following table provides 2015 compensation information for our non-employee directors:
Director Compensation Table(1)
|
Name
|
|
Fees Earned
or Paid in
Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)(2)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Hammons(3)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Christopher J. Brown, Ph.D. (4)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Bennet P. Tchaikovsky(5)
|
|
|
40,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
40,000
|
|
Jeffrey Horn(6)
|
|
|
40,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
40,000
|
|
Ian Copeland(7)
|
|
|
40,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
40,000
|
|
Eric Helenek(8)
|
|
|
26,667
|
|
|
|
—
|
|
|
|
54,615
|
|
|
|
84,615
|
|
(1)
|
All
share figures and exercise prices noted in the footnotes to this table are as adjusted to give effect to the 1-for-50 reverse
split of our common stock effective July 8, 2015.
|
(2)
|
The
amounts shown in this column represent the aggregate grant date fair value of stock options granted in the year computed in
accordance with FASB ASC Topic 718. These amounts are not paid to or realized by the director. See Note 12 of the notes to
our audited consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December
31, 2015 for a discussion of valuation assumptions made in determining the grant date fair value and compensation expense
of our stock options.
|
|
|
(3)
|
Mr.
Hammons serves as our Chairman of our Board and has served as our Nominating and Corporate Governance Committee Chairman since
July 14, 2015. On November 28, 2014, we entered into a stock option agreement with Mr. Hammons dated as of November 28, 2014
to purchase 6,000 shares of our common stock at an exercise price per share of $8.00. The agreement provides for the option
to vest as follows: (i) 1/2 of the total number of shares on the grant date, and (ii) 1/18 of the total number of shares each
month thereafter, beginning January 1, 2015.
|
|
|
(4)
|
Mr.
Brown will not stand for re-election to the Board, which is not due to any refusal by Mr. Brown to stand for election or any
disagreement by Mr. Brown with the Company or the Board on any matter relating to the Company’s operations, policies
or practices. Mr. Brown’s term as a director will end upon the election of directors at the 2016 annual meeting.
|
|
|
(5)
|
Mr.
Tchaikovsky has served as a director and as our Audit Committee Chairman since November 2013. Beginning in April 2014, we
began to pay Mr. Tchaikovsky an annual fee of $40,000. On November 22, 2013, we issued Mr. Tchaikovsky an option to purchase
5,000 shares of our common stock at an exercise price per share of $76.00. On April 28, 2014, we cancelled these options and
issued Mr. Tchaikovsky an option to purchase 5,000 shares of our common stock at an exercise price per share of $17.50, with
15% of the grant vesting on the grant date and the remainder vesting over 36 months.
|
|
|
(6)
|
Mr.
Horn has served as a director since May 2014 and is paid an annual fee of $40,000. On May 28, 2014, we issued Mr. Horn an
option to purchase 6,000 shares of our common stock at an exercise price per share of $22.00. The agreement provides for 1/36
of the total number of shares subject to the award to vest each month beginning June 28, 2014.
|
|
|
(7)
|
Mr.
Copeland has served as a director since December 2014 and as our Compensation Committee Chairman since July 14, 2015 and is
paid an annual fee of $40,000. On November 28, 2014, we issued Mr. Copeland an option to purchase 6,000 shares of our common
stock at an exercise price per share of $8.00. The agreement provides for 1/36 of the total number of shares subject to the
award to vest each month beginning January 1, 2015.
|
|
|
(8)
|
Mr.
Helenek served as a director beginning May 2015 and was paid an annual fee of $40,000, which was prorated to $26,667 for his
service in 2015. On May 18, 2015, we issued Mr. Helenek an option to purchase 6,000 shares of our common stock at an exercise
price per share of $9.50, with 1/4 vesting on May 18, 2016 and the remainder vesting ratably over the 36 months thereafter.
Mr. Helenek resigned from the Board effective March 30, 2016. Mr. Helenek’s resignation from the Board was not the result
of any disagreement with us on any matter relating to our operations, policies or practices. Mr. Helenek’s option to
purchase common stock did not vest and was forfeited upon his resignation in 2016.
|
We
have the following agreements with our directors for their services on the Board. All share figures and exercise prices for our
common stock (but not the share and per share amounts for the common stock of Ener-Core Power) noted in the following summaries
are as adjusted to give effect to the 1-for-50 reverse split of our common stock effective July 8, 2015:
Our
Agreement with Mr. Tchaikovsky:
On
November 22, 2013, Mr. Tchaikovsky accepted his appointment to the Board and as Chairman of our Audit Committee pursuant to our
offer letter dated November 10, 2013. The offer letter provides for the grant of an option under our 2013 Equity Incentive Plan
(the “2013 Plan”) to purchase 5,000 shares of our common stock at an exercise price equal to the per share closing
price on November 25, 2013 (as adjusted for the 1-for-50 reverse split), being the fair market value on such date. In addition
to the shares granted, the offer letter contemplates an annual director’s fee of $40,000, subject to annual reviews by the
Compensation Committee, approval by our Board and approval of the stockholders as appropriate. We also agreed to reimburse Mr.
Tchaikovsky for reasonable travel expenses incurred to attend Board meetings, and to indemnify him in his capacity as a director
to the fullest extent permissible.
In
connection with the option granted under the offer letter, we entered into a stock option agreement with Mr. Tchaikovsky, dated
as of November 25, 2013, pursuant to which we granted Mr. Tchaikovsky an option to purchase 5,000 shares of our common stock.
The agreement provides that the option vests as follows: (i) 1/4 of the total number of shares subject to the award will vest
one year from the grant date, and (ii) 1/48 of the total number of shares subject to the award will vest on a monthly basis thereafter.
On April 28, 2014, with Mr. Tchaikovsky’s agreement, we cancelled these options and issued Mr. Tchaikovsky an option to
purchase 5,000 shares of our common stock at an exercise price per share of $17.50, with 15% of the grant vesting on the grant
date and the remainder vesting over 36 months.
Our
Agreement with Mr. Horn:
On
May 28, 2014, Mr. Horn accepted his appointment to the Board pursuant to our offer letter dated May 19, 2014. The offer letter
provides for the grant of an option under the 2013 Plan to purchase 6,000 shares of our common stock at an exercise price equal
to the per share closing price on May 28, 2014 (as adjusted for the 1-for-50 reverse split), the fair market value on such date.
In addition to the shares granted, the offer letter contemplates an annual director’s fee of $40,000 payable in monthly
installments, although such fee is not guaranteed. We also agreed to reimburse Mr. Horn for reasonable travel expenses incurred
to attend Board meetings, and to indemnify him in his capacity as a director to the fullest extent permissible.
In
connection with the option granted under the offer letter, we entered into a stock option agreement with Mr. Horn, dated as of
May 28, 2014, pursuant to which we granted Mr. Horn an option to purchase 6,000 shares of our common stock, at an exercise price
of $22.00 per share, the fair market value on the date our Board approved the grant. The agreement provides for 1/36 of the total
number of shares subject to the award to vest each month beginning June 28, 2014.
Our
Agreement with Mr. Copeland:
On
December 1, 2014, Mr. Copeland accepted his appointment to the Board pursuant to our offer letter dated November 24, 2014. The
offer letter provides for the grant of an option under the 2013 Plan to purchase 6,000 shares of our common stock at an exercise
price equal to the per share closing price on November 28, 2014 (as adjusted for the 1-for-50 reverse split), the fair market
value on such date. In addition to the shares granted, the offer letter contemplates an annual director’s fee of $40,000,
payable in monthly installments, although such fee is not guaranteed. We also agreed to reimburse Mr. Copeland for reasonable
travel expenses incurred to attend Board meetings, and to indemnify him in his capacity as a director to the fullest extent permissible.
In
connection with the option granted under the offer letter, we entered into a stock option agreement with Mr. Copeland, dated as
of November 28, 2014, pursuant to which we granted Mr. Copeland an option to purchase 6,000 shares of our common stock, at an
exercise price of $8.00 per share, the fair market value on the date our Board approved the grant. The agreement provides for
1/36 of the total number of shares subject to the award to vest each month beginning January 1, 2015.
Our
Agreement with Mr. Hammons:
As
compensation for his services as a director and Chairman of the Board, on November 28, 2014, the Board granted Mr. Hammons an
option under the 2013 Plan to purchase 6,000 shares of our common stock, at an exercise price equal to the per share closing price
on November 28, 2014, the fair market value on such date. Immediately thereafter, we entered into a stock option agreement with
Mr. Hammons, dated November 28, 2014, granting Mr. Hammons an option to purchase 6,000 shares of our common stock, at an exercise
price of $8.00 per share, the fair market value on the date our Board approved the grant. The agreement provides that the option
vests as follows: (i) 1/2 of the total number of shares subject to the award will vest one year from the grant date, and (ii)
1/18 of the remaining number of shares subject to the award will vest on a monthly basis thereafter, beginning January 1, 2015.
Our
Agreement with Mr. Helenek:
On
May 18, 2015, Mr. Helenek accepted his appointment to the Board pursuant to our offer letter of the same date. The offer letter
provides for the grant of an option under the 2013 Plan to purchase 6,000 shares of our common stock at an exercise price equal
to the per share closing price on May 18, 2015, the fair market value on such date. In addition to the shares granted, the offer
letter contemplates an annual director’s fee of $40,000 payable in monthly installments, although such fee is not guaranteed.
We also agreed to reimburse Mr. Helenek for reasonable travel expenses incurred to attend Board meetings, and to indemnify him
in his capacity as a director to the fullest extent permissible.
In
connection with the option granted under the offer letter, we entered into a stock option agreement with Mr. Helenek, dated as
of May 18, 2015, granting Mr. Helenek an option to purchase 6,000 shares of our common stock at an exercise price of $9.50 per
share, the fair market value on the date our Board approved the grant. The agreement provides that the option vests as follows:
(i) 1/4 of the total number of shares subject to the award will vest one year from the grant date, and (ii) 1/48 of the total
number of shares subject to the award will vest on a monthly basis thereafter. Mr. Helenek resigned from our Board effective March
30, 2016. None of the options granted were vested upon his resignation and thus were forfeited upon his resignation. Mr. Helenek’s
resignation from our Board was not the result of any disagreement with us on any matter relating to our operations, policies or
practices.
Our
Agreement with Mr. Markscheid:
Effective
as of June 29, 2016, the Board appointed Stephen Markscheid to fill a vacancy on the Board, which Mr. Markscheid accepted pursuant
to an offer letter dated as of June 29, 2016, which provides for the grant of an option under our 2015 Omnibus Incentive Plan
(the “2015 Plan”), effective July 1, 2016, to purchase 6,000 shares of our common stock at an exercise price of $4.31
per share. In addition to the shares granted, the offer letter contemplates an annual director’s fee of $40,000 payable
in monthly installments, although such fee is not guaranteed. We also agreed to reimburse Mr. Markscheid for reasonable travel
expenses incurred to attend Board meetings, and to indemnify him in his capacity as a director to the fullest extent permissible.
In
connection with the above-described option grant, we and Mr. Markscheid entered into a stock option agreement in the form provided
by the 2015 Plan, which provides for 1/4 of the total number of shares to vest after twelve months and 1/48 of the total number
of shares to vest each month commencing each month thereafter. The options granted will become fully vested and exercisable immediately
prior to, and contingent upon, a “Change in Control” (as defined in the 2015 Plan).
INFORMATION
REGARDING OUR DIRECTORS AND EXECUTIVE OFFICERS
The
following table identifies our current executive officers and directors, their respective offices and positions, and their respective
dates of election or appointment:
Name
|
|
Age
|
|
Positions Held:
|
|
Date of Election or Appointment
|
Alain J. Castro
|
|
46
|
|
Chief Executive Officer and Director
|
|
May 14, 2013
|
Boris A. Maslov, Ph.D.
|
|
56
|
|
President, Chief Operating Officer and Chief Technology Officer
|
|
July 1, 2013
|
Domonic J. Carney
|
|
50
|
|
Chief Financial Officer, Secretary, Treasurer
|
|
August 25, 2014
|
Michael J. Hammons
|
|
46
|
|
Chairman of the Board and Chairman of the Nominating and Corporate Governance Committee
|
|
July 1, 2013
|
Christopher J. Brown, Ph.D.
|
|
40
|
|
Director
|
|
July 1, 2013
|
Jeffrey A. Horn
|
|
61
|
|
Director
|
|
May 28, 2014
|
Bennet P. Tchaikovsky
|
|
47
|
|
Director and Chairman of the Audit Committee
|
|
November 25, 2013
|
Ian C. Copeland
|
|
54
|
|
Director and Chairman of the Compensation Committee
|
|
December 1, 2014
|
Stephen Markscheid
|
|
62
|
|
Director
|
|
June 29, 2016
|
Douglas A. Hamrin
|
|
46
|
|
Vice President, Engineering
|
|
March 16, 2015
|
Arrangements
Involving Directors or Executive Officers
There
is no arrangement or understanding between any of our directors or executive officers and any other person pursuant to which any
director or officer was or is to be selected as a director or officer, and there is no arrangement, plan, or understanding as
to whether non-management stockholders will exercise their voting rights to continue to elect the current Board. There are
also no arrangements, agreements, or understandings to our knowledge between non-management stockholders that may directly or
indirectly participate in or influence the management of our affairs.
Family
Relationships
There
are no family relationships between or among any of the current directors, executive officers or persons nominated or charged
to become directors or executive officers. There are no family relationships among our officers and directors and those of our
subsidiaries and affiliated companies.
Business
Experience
The
business experience of our directors, including executive officers serving as directors, is provided under “
Information
about the Director Nominees
” in Proposal 1 above. The business experience of executive officers who are not also
directors is described below.
Boris
A. Maslov, Ph.D.
,
President, Chief Operating Officer, and Chief Technology Officer
Mr.
Maslov became our President, Chief Operating Officer, and Chief Technology Officer as of the closing of the Merger. Commencing
with the inception of Ener-Core Power until the closing of the Merger, he served as its President, Chief Operating Officer, and
Chief Technology Officer, and served as its interim Chief Executive Officer from inception until May 14, 2013. Previously,
between January 2011 and November 2012 (the inception of Ener-Core Power), Dr. Maslov was Vice President of FlexEnergy, Inc. Prior
to that, between October 2007 and January 2011, he was Chief Executive Officer of Energy One Management LLC, a renewable energy
project development company located in McLean, Virginia. He received his Ph.D. in Electrical Engineering and his B.S. and
M.S. in Electrical Engineering and Computer Science from the Moscow Institute of Physics and Technology.
Domonic
J. Carney, Chief Financial Officer, Secretary and Treasurer
Mr.
Carney was appointed as the Company’s Chief Financial Officer, Secretary and Treasurer effective on August 25, 2014. Until
his appointment, Mr. Carney was an independent consultant providing finance, accounting and business strategy services. From March
30, 2012 to October 2012, Mr. Carney served as the chief financial officer for T3 Motion, Inc. (TTTM.PK), an electric vehicle
technology company. From March 2005 to February 2012, Mr. Carney served as Chief Financial Officer for Composite Technology Corporation
(CPTC.OB), a manufacturer of high efficiency carbon composite electric transmission conductors and renewable energy wind turbines.
Mr. Carney has a Masters in Accounting from Northeastern University and a Bachelor’s Degree in Economics from Dartmouth
College.
Douglas
A. Hamrin, Vice President of Engineering
Mr.
Hamrin was appointed as an executive officer of the Company on March 16, 2015. Since July 1, 2013, Mr. Hamrin has been our Vice
President of Engineering. From May 2008 to December 2012, Mr. Hamrin served as Director of Thermal Oxidizer Development for Flex
Energy. Prior to joining Flex Energy, Mr. Hamrin held positions as Technical Manager, Applications and Principal Applications
Engineer at Honeywell Turbo Technologies, Director of the Fuel Systems Group at Capstone Turbine Corporation and Engineer at Generals
Motors Powertrain Division. Mr. Hamrin has an M.S. in Mechanical Engineering from the Massachusetts Institute of Technology and
a BS in Mechanical Engineering from the Illinois Institute of Technology.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Exchange Act requires our directors and executive officers and persons who own more than 10% of our common stock
to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities.
Officers, directors and greater than 10% stockholders are required by SEC rules to furnish us with copies of all Section 16(a)
reports they file. Based solely on the review of copies of such forms furnished to us, or written representations that no reports
were required, we believe that for the fiscal year ended December 31, 2015, our directors, executive officers and greater than
10% stockholders complied with Section 16(a) filing requirements applicable to them.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding the shares of common stock beneficially owned or deemed to be beneficially
owned as of August 22, 2016 by (i) each person known by the Company to beneficially own more than 5% of our common stock, (ii)
each of our directors, (iii) our executive officers named in the summary compensation table, and (iv) all of our directors and
executive officers as a group, as adjusted to give effect to the 1-for-50 reverse split of our common stock effective July 8,
2015.
Except
as indicated by the footnotes below, we believe, based on the information furnished to us, that the beneficial owners named in
the table below have sole voting and investment power with respect to all shares of our common stock that they beneficially own,
subject to applicable community property laws.
In
computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we
deemed outstanding shares of common stock subject to options or warrants held by that person that are currently exercisable or
exercisable within 60 days of August 22, 2016. We did not deem those shares outstanding, however, for the purpose of computing
the percentage ownership of any other person.
Name and Address of Beneficial Owners(1)
|
|
Amount and Nature of Beneficial Ownership(2)
|
|
|
Percent of Class(2)
|
|
Alain J. Castro(3)
|
|
|
51,674
|
|
|
|
1.35
|
%
|
Boris A. Maslov(4)
|
|
|
17,024
|
|
|
|
*
|
|
Domonic J. Carney(5)
|
|
|
26,071
|
|
|
|
*
|
|
Michael J. Hammons(6)
|
|
|
7,334
|
|
|
|
*
|
|
Christopher J. Brown (7)
|
|
|
2,934
|
|
|
|
*
|
|
Bennet P. Tchaikovsky(8)
|
|
|
4,174
|
|
|
|
*
|
|
Jeff Horn(9)
|
|
|
5,834
|
|
|
|
*
|
|
Ian Copeland(10)
|
|
|
4,667
|
|
|
|
*
|
|
Stephen Markscheid (11)
|
|
|
—
|
|
|
|
*
|
|
Douglas Hamrin(12)
|
|
|
24,854
|
|
|
|
*
|
|
All directors and executive officers as a group (10 persons)(13)
|
|
|
144,398
|
|
|
|
3.81
|
%
|
|
|
|
|
|
|
|
|
|
Five Percent Beneficial Owners:
|
|
|
|
|
|
|
|
|
SAIL Exit Partners, LLC(14)
|
|
|
586,005
|
|
|
|
15.48
|
%
|
SAIL Pre-Exit Acceleration Fund, LP(15)
|
|
|
5,232
|
|
|
|
*
|
|
Jeneration Capital Master Fund(16)
|
|
|
375,000
|
|
|
|
9.59
|
%
|
Like Capital Limited(17)
|
|
|
696,056
|
|
|
|
18.39
|
%
|
*
Less than 1%
(1)
|
Unless
otherwise noted, the business address for each holder is 9400 Toledo Way, Irvine, California 92618.
|
|
|
(2)
|
The
applicable percentage ownership is based on 3,785,216 shares of common stock outstanding as of August 22, 2016, as adjusted
to give effect to the 1-for-50 reverse split of our common stock effective July 8, 2015. The number of shares of common stock
owned are those “beneficially owned” as determined under the rules of the SEC, including any shares of common
stock as to which a person has sole or shared voting or investment power and any shares of common stock that the person has
the right to acquire within 60 days through the exercise of any option, warrant, or right.
|
|
|
(3)
|
Consists
of 6,667 shares purchased on September 22, 2014 in conjunction with the Company’s September 2014 PIPE transaction, 500
shares purchased from Dr. Maslov and 44,507 shares of common stock underlying options that are exercisable within 60 days
of August 22, 2016. Does not include 9,653 shares of common stock underlying options that are not exercisable within 60 days
of August 22, 2016. These stock options were granted to Mr. Castro on April 15, 2014, May 13, 2014 and November 28, 2014.
|
|
|
(4)
|
Consists
of 17,024 shares of common stock underlying options that are exercisable within 60 days of August 22, 2016. Does not include
5,190 shares of common stock underlying options that are not exercisable within 60 days of August 22, 2016. These stock options
were granted to Dr. Maslov on April 15, 2014, May 13, 2014 and November 28, 2014.
|
|
|
(5)
|
Consists
of 4,000 shares of common stock issued to Charles Schwab & Co. Inc. FBO Domonic Carney IRA and 2,667 shares issued to
Charles Schwab & Co. Inc. FBO Domonic Carney Roth IRA, as to which Mr. Carney holds voting and investment power. These
shares were issued in conjunction with the September 2014 PIPE. Consists of 1,000 shares of common stock purchased from Dr.
Maslov on May 8, 2015. Consists of 18,404 shares of common stock underlying options that are exercisable within 60 days of
August 22, 2016. Does not include 16,296 shares of common stock underlying options that are not exercisable within 60 days
of August 22, 2016. These stock options were granted to Mr. Carney on August 19, 2014 and November 28, 2014.
|
|
|
(6)
|
Consists
of the 1,334 shares issued in conjunction with the September 2014 PIPE and 6,000 shares of common stock underlying options
that are exercisable within 60 days of August 22, 2016. These stock options were granted to Mr. Hammons on November 28, 2014.
Mr. Hammons’ business address is 3161 Michelson Drive, Suite 750, Irvine, California 92612.
|
(7)
|
Consists
of 1,334 shares of common stock issued to Dr. Brown as an individual and 1,600 shares issued to Christopher J. Brown Contributing
IRA, issued in connection with the September 2014 PIPE, as to which Dr. Brown holds voting and investment power. Dr. Brown’s
business address is 3161 Michelson Drive, Suite 750, Irvine, California 92612.
|
|
|
(8)
|
Consists
of 4,174 shares of common stock underlying options that are exercisable within 60 days of August 22, 2016. Does not include
826 shares of common stock underlying options that are not exercisable within 60 days of August 22, 2016. These stock options
were granted to Mr. Tchaikovsky on April 15, 2014. Mr. Tchaikovsky’s business address is 6571 Morningside Drive, Huntington
Beach, California 92648.
|
|
|
(9)
|
Consists
of the 1,334 shares issued to Mr. Horn in conjunction with the September 2014 PIPE. Also consists of 4,500 shares of common
stock underlying options that are exercisable within 60 days of August 22, 2016. Does not include 1,500 shares of common stock
underlying options that are not exercisable within 60 days of August 22, 2016. These stock options were granted to Mr. Horn
on May 28, 2014. Mr. Horn’s business address is 703 Hollybriar Lane, Naples, Florida 34108.
|
|
|
(10)
|
Consists
of 1,000 shares of common stock purchased from Dr. Maslov on May 8, 2015. Consists of 3,500 shares of common stock underlying
options that are exercisable within 60 days of August 22, 2016. Does not include 2,500 shares of common stock underlying options
that are not exercisable within 60 days of August 22, 2016. These stock options were granted to Mr. Copeland on November 28,
2014. Mr. Copeland’s business address is 13007 Mimosa Farm Court, Rockville, Maryland 20850.
|
|
|
(11)
|
Does
not include 6,000 shares of common stock underlying options that are not exercisable within 60 days of August 22, 2016. These
stock options were granted to Mr. Markscheid on June 29, 2016. Mr. Markscheid’s business address is 419 Washington Avenue,
Wilmette, Illinois 60091.
|
|
|
(12)
|
Consists
of 5,550 shares of common stock. Consists of 19,304 shares of common stock underlying options that are exercisable within
60 days of August 22, 2016. Does not include 7,644 shares of common stock underlying options that are not exercisable within
60 days of August 22, 2016. These stock options were granted to Mr. Hamrin on April 15, 2014, May 13, 2014 and October 3,
2014.
|
|
|
(13)
|
Includes
117,412 shares of common stock underlying options that are exercisable within 60 days of August 22, 2016.
|
|
|
(14)
|
To
the Company’s knowledge, F. Henry Habicht II is the manager of SAIL Exit Partners, LLC and is deemed to have sole voting
and investment power with respect to the shares of common stock owned by SAIL Exit Partners, LLC. SAIL Exit Partners, LLC’s
business address is 3161 Michelson Drive, Suite 750, Irvine, California 92612.
|
|
|
(15)
|
To
the Company’s knowledge, SAIL Capital Partners, LLC is the general partner and management company of SAIL Pre-Exit Acceleration
Fund, LP. To the Company’s knowledge, F. Henry Habicht II is the managing partner of SAIL Capital Partners, LLC and
is deemed to have sole voting and investment power with respect to the shares of common stock owned by SAIL Pre-Exit Acceleration
Fund, LP. SAIL Capital Partners, LLC’s business address is 3161 Michelson Drive, Suite 750, Irvine, California 92612.
|
|
|
(16)
|
Consists
of 250,000 shares of common stock and 125,000 shares of common stock issuable upon exercise of a warrant issued on December 31,
2016 (the “December 2015 Warrant”), which is exercisable within 60 days of August 22, 2016. These reported securities
are subject to a 9.99% beneficial ownership limitation, as set forth in the December 2015 Warrant. As such, Jeneration Capital
Master Fund cannot exercise the December 2015 Warrant if Jeneration Capital Master Fund would beneficially own, after such exercise,
more than 9.99% of the outstanding shares of our common stock. The percentage set forth in the table above assumes that the exercise
of the December 2015 Warrant is subject to such 9.99% limitation. Jeneration Capital Management serves as the investment manager
of Jeneration Capital Master Fund and may be deemed to have beneficial ownership of the shares of common stock and shares of common
stock underlying the December 2015 Warrant (subject to the 9.99% beneficial ownership limitation) owned by Jeneration Capital
Master Fund. Jimmy Ching-Hsin Chang is the principal of Jeneration Capital Management and may be deemed to have beneficial ownership
of the shares of common stock and shares of common stock underlying the December 2015 Warrant (subject to the 9.99% beneficial
ownership limitation) owned by Jeneration Capital Master Fund. Mr. Chang disclaims any beneficial ownership of any such shares
of our common stock. Jeneration Capital Master Fund’s business address is c/o Jeneration Capital Advisors (Hong Kong) Limited,
20/F, One IFC, 1 Harbour View Street, Central, Hong Kong.
|
|
|
(17)
|
Ma
Chi Wing Wendy is the Managing Director of Like Capital Limited and is deemed to have sole voting and investment power with respect
to the shares of common stock owned by Like Capital Limited. Like Capital Limited’s business address is New World Tower
1, 23rd Floor, 18 Queens Road Central, Hong Kong.
|
To
our knowledge, none of our directors, officers or affiliates, or any 5% or greater stockholder of the Company, or any associate
or any such directors, officers or affiliates, is a party that is adverse to the Company in any material legal proceeding.
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
This
Compensation Discussion and Analysis describes the material elements of the compensation awarded to our current executive officers.
This compensation discussion focuses on the information contained in the following tables and related footnotes and narrative
for the last completed fiscal year.
Our
current executive compensation program may from time to time include the following principal components: (i) base salary;
(ii) stock incentive plan awards; (iii) discretionary annual cash bonuses; and (iv) perquisites and benefits.
Our
Compensation Philosophy and Objectives
Our
philosophy regarding compensation of our executive officers includes the following principles:
|
●
|
our
compensation program should reward the achievement of our strategic initiatives and short- and long-term operating and financial
goals;
|
|
|
|
|
●
|
compensation
should appropriately reflect differences in position and responsibility;
|
|
|
|
|
●
|
compensation
should be reasonable; and
|
|
|
|
|
●
|
the
compensation program should be understandable and transparent.
|
In
order to implement such compensation principles, we have developed the following objectives for our executive compensation program:
|
●
|
overall
compensation levels must be sufficiently competitive to attract and retain talented leaders and motivate those leaders to
achieve superior results;
|
|
|
|
|
●
|
a
portion of total compensation should be contingent on, and variable with, achievement of objective corporate performance goals,
and that portion should increase as an executive’s position and responsibility increases;
|
|
|
|
|
●
|
total
compensation should be higher for individuals with greater responsibility and greater ability to influence our achievement
of operating goals and strategic initiatives;
|
|
|
|
|
●
|
the
number of elements of our compensation program should be kept to a minimum, and those elements should be readily understandable
by and easily communicated to executives, stockholders, and others; and
|
|
|
|
|
●
|
executive
compensation should be set at responsible levels to promote a sense of fairness and equity among all employees and appropriate
stewardship of corporate resources among stockholders.
|
Determination
of Compensation Awards
The
Compensation Committee was created to be our primary authority to determine the compensation awards available to our executive
officers. Because there were no members of our Compensation Committee during fiscal year 2014, members of our Board provided recommendations
regarding the compensation of our executive officers and approved all executive compensation during 2014. We formed our Compensation
Committee in July 2015 and it has engaged the services of a consultant to review a peer group of companies in order to provide
them with market data on the compensation of directors and officers of peer companies. The Compensation Committee continues to
review the data and may in the future modify the compensation of our directors and executive officers in order to better align
their compensation with our goals and objectives and ensure their compensation is competitive in the marketplace.
Compensation
Benchmarking and Peer Group
We
did not rely on any consultants or utilize any peer company comparisons or benchmarking in setting executive compensation levels
for fiscal 2014. However, our management informally considered competitive market practices by reviewing publicly available information
relating to compensation of executive officers at other comparable companies in making its recommendations to our Board regarding
our executives’ compensation for fiscal 2014. In 2015, we took steps, including the engagement of a third party consultant
to establish peer company comparisons, to ensure that the Compensation Committee and/or Board has a comprehensive picture of the
compensation paid to our executives and with a goal toward total direct compensation for our executives that is on par with the
median total direct compensation paid to executives in peer companies if annually established target levels of performance at
our company and business segment levels are achieved. Our Compensation Committee intends to complete the evaluation and to provide
recommendations during the second half of 2016. We expect our recommendations for 2016 to include a better alignment of management
compensation with the achievement of key performance goal and objectives.
Elements
of Compensation
The
principal elements of our executive compensation are:
|
●
|
base
salary; and
|
|
|
|
|
●
|
stock
incentive plan awards.
|
While
base salary is generally included as an element of compensation of our executive officers in every year, the granting of stock
incentive awards, as well as bonuses and perquisites, is determined on a case-by-case basis. During the fiscal year ended December
31, 2015, our compensation program consisted solely of base salary. No stock options or cash incentive pay was granted or approved
in 2015. For fiscal 2016, we expect that our executive compensation will consist of base salary with additional incentive pay
to be determined by the Compensation Committee as described above.
Base
Salaries
Base
salary is used to recognize the experience, skills, knowledge and responsibilities required of our employees, including our named
executive officers. When establishing base salaries for 2015, subject to the provisions of each person’s employment agreement,
our Board and management considered a number of factors, including the seniority of the individual, the functional role of the
position, the level of the individual’s responsibility, the ability to replace the individual, the base salary of the individual
at their prior employment and the number of well-qualified candidates to assume the individual’s role. Generally, we believe
that executive base salaries should be targeted near the median of the range of salaries for executives in similar positions at
comparable companies.
Discretionary
Annual Cash Bonuses
The
Compensation Committee has discretion to recommend and approve the annual cash bonus for our Chief Executive Officer and each
other named executive officer. Bonus awards generally will be based on our management’s recommendations and ultimately approved
by the Compensation Committee. There were no annual bonuses granted for 2015. Annual bonuses, when awarded, are intended to compensate
officers for individual performance, for our overall financial performance, and for achieving important operational and financial
milestones during the relevant fiscal year. During fiscal 2015, Dr. Maslov and Mr. Hamrin were and are eligible for cash bonuses
of $2,000, awarded whenever we receive a patent for which an employee is listed as a co-developer.
Stock
Incentive Plan Awards
Our
current stock option plans, the 2013 Plan, which our Board adopted on July 1, 2013, and the 2015 Plan, which our Board adopted
on July 14, 2015, were designed to provide long-term incentives to our executives and other employees and award recipients, and
to increase stockholder value through competent, effective management. We believe that the ability to grant equity awards as a
component of compensation will provide us with an advantage in attracting qualified management and employees. Stock option award
decisions are evaluated on a case-by-case basis giving consideration to factors such as the recipient’s qualifications and
abilities, the nature of the recipient’s position, and the recipient’s ability to contribute to the development and
achievement of our business objectives.
Perquisites
and Other Compensation
Presently,
we do not include perquisites or other benefits as a part of executive compensation, though we may in the future include perquisites
and other benefits as an element of compensation from time to time on a discretionary basis.
Management’s
Role in the Compensation-Setting Process
Our
management plays an important role in our compensation-setting process. The most significant aspects of management’s role
are evaluating other executive officers’ performance, recommending business performance targets and objectives, and recommending
salary levels and option awards. Our management makes recommendations to our Board regarding our executives’ compensation
packages. During this process, management may be asked to provide the Board with their evaluation of the executive officers’
performance, the background information regarding our strategic financial and operational objectives, and compensation recommendations
as to the executive officers.
Executive
Compensation
2015
Summary Compensation Table(1)
The
following table sets forth information regarding compensation for each of our 2015 “named executive officers” for
SEC reporting purposes.
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Option Awards
($)(2)
|
|
|
All Other Compensation
($)
|
|
|
Total
($)
|
|
Alain J. Castro,
|
|
2015
|
|
|
200,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
200,000
|
|
Chief Executive Officer(3)
|
|
2014
|
|
|
181,667
|
|
|
|
—
|
|
|
|
1,351,524
|
|
|
|
—
|
|
|
|
1,533,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boris A. Maslov,
|
|
2015
|
|
|
225,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
225,000
|
|
President, COO and CTO(4)
|
|
2014
|
|
|
220,313
|
|
|
|
2,000
|
|
|
|
584,191
|
|
|
|
—
|
|
|
|
806,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domonic J. Carney,
|
|
2015
|
|
|
180,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
180,000
|
|
Secretary/Treasurer Chief Financial Officer(5)
|
|
2014
|
|
|
63,750
|
|
|
|
—
|
|
|
|
255,689
|
|
|
|
—
|
|
|
|
319,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kelly Anderson Treasurer/Chief Financial Officer (6)
|
|
2014
|
|
|
85,873
|
|
|
|
—
|
|
|
|
268,950
|
|
|
|
—
|
|
|
|
354,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas Hamrin
|
|
2015
|
|
|
180,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
180,000
|
|
Vice President, Engineering(7)
|
|
2014
|
|
|
157,065
|
|
|
|
1,500
|
|
|
|
656,952
|
|
|
|
—
|
|
|
|
815,517
|
|
(1)
|
All
share figures and exercise prices noted in the footnotes to this table are adjusted to give effect to the 1-for-50 reverse
split of our issued and outstanding common stock on July 8, 2015, retroactively.
|
|
|
(2)
|
The
amounts shown in this column represent the aggregate grant date fair value of stock options granted in the year computed in
accordance with FASB ASC Topic 718. These amounts are not paid to or realized by the officer. The Company did not grant any
option awards to any executives during 2015. See Note 12 of the notes to our audited consolidated financial statements contained
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 for a discussion of valuation assumptions made
in determining the grant date fair value and compensation expense of our stock options.
|
(3)
|
Mr.
Castro became the Chief Executive Officer of the operating company under the terms of his employment agreement on April 25,
2013. His base salary was $200,000 per annum for 2015 and for most of 2014, except as noted below. In 2013, Mr. Castro received
25,000 options granted at an exercise price of $50.00 per option and 18,000 options at an exercise price of $65.00 per option.
On April 28, 2014, Mr. Castro’s previously issued options were cancelled and 43,000 options were issued to Mr. Castro
at an exercise price of $17.50 per option, with 15% of the options vesting upon grant and the remainder vesting in equal monthly
amounts over the next 36 months. Between May 1, 2014 and July 31, 2014, Mr. Castro agreed to reduce his base salary to a $120,000
annual rate under our furlough plan and he was issued 6,460 additional fully vested options at an exercise price of $24.00
per option in lieu of $20,000 of base salary. Mr. Castro’s base salary reverted to a $200,000 annual rate on August
1, 2014. In November 2014, Mr. Castro received 4,700 options at an exercise price of $8.00 per option, with 25% of the options
vesting in November 2015 and thereafter vesting ratably on a monthly basis over three years.
|
|
|
(4)
|
Dr.
Maslov’s base salary in 2015 and for most of 2014 was at a $225,000 annual rate, except as noted below. In 2014, Dr.
Maslov was paid a bonus of $2,000 in cash subsequent to the granting of a patent by the United States Patent and Trademark
Office to us for which Dr. Maslov was named as a co-developer. In 2013, Dr. Maslov received 16,000 options granted at an exercise
price of $65.00 per option. On April 28, 2014, the options issued in 2013 were cancelled and 16,000 options were issued to
Dr. Maslov at an exercise price of $17.50 per option, with 15% of the options vesting upon grant and the remainder vesting
in equal monthly amounts over the next 36 months. During 2014, Dr. Maslov received 1,514 additional fully vested options at
an exercise price of $24.00 per option in lieu of a reduction in base salary of $4,688 under our furlough plan. In November
2014, Dr. Maslov received 4,700 options at an exercise price of $8.00 per option, with 25% of the options vesting in November
2015 and thereafter vesting ratably on a monthly basis over three years. Dr. Maslov was paid an amount of $67,875 in January
2013, prior to the reverse merger, to pay for a liability associated with the exercise of stock options in 2012 due to a Code
Section 409A issue that was discovered and resolved with the Internal Revenue Service in 2013.
|
|
|
(5)
|
Mr.
Carney became our Secretary, Treasurer and Chief Financial Officer effective August 19, 2014. His base salary is $180,000
per annum per the terms of his employment agreement. On August 19, 2014, Mr. Carney was granted 30,000 options with an exercise
price of $7.50 per option vesting 12.5% on February 19, 2014, 12.5% on August 19, 2015 and thereafter vesting ratably on a
monthly basis over three years. In November 2014, Mr. Carney received 4,700 options at an exercise price of $8.00 per option,
with 25% of the options vesting in November 2015 and thereafter vesting ratably on a monthly basis over three years.
|
|
|
(6)
|
Ms.
Anderson was our Treasurer and Chief Financial Officer from November 15, 2013 until July 3, 2014. Her base salary was $175,000
per annum per the terms of her employment agreement. Ms. Anderson resigned as Treasurer and Chief Financial Officer effective
July 3, 2014. In 2013, Ms. Anderson received 20,000 options granted at an exercise price of $76.50 per option. On April 28,
2014, Ms. Anderson’s previously issued options were cancelled and 30,000 options were issued to Ms. Anderson at an exercise
price of $17.50 per option, with 15% of the options vesting upon grant and the remainder vesting in equal monthly amounts
over the next 36 months. On May 1, 2014, Ms. Anderson received 942 additional fully vested options at an exercise price of
$24.00 per option in lieu of a reduction in base salary under our furlough plan between May 1, 2014 and July 31, 2014. All
of Ms. Anderson’s options expired unexercised during 2014.
|
|
|
(7)
|
Mr.
Hamrin became our Vice President of Engineering effective March 15, 2015. His base salary is $180,000 per annum for 2015 and $160,000
per annum for 2014. In 2014, Mr. Hamrin was paid a bonus of $1,500 in cash subsequent to the granting of a patent by the United
States Patent and Trademark Office to us for which Mr. Hamrin was named as a co-developer. We currently have no employment agreement
with Mr. Hamrin. In 2013, Mr. Hamrin received 16,000 options granted at an exercise price of $65.00 per option. On April 28, 2014,
Mr. Hamrin’s previously issued options were cancelled and 16,000 options were issued to Mr. Hamrin at an exercise price
of $17.50 per option, with 15% of the options vesting upon grant and the remainder vesting in equal monthly amounts over the next
36 months. On May 1, 2014, Mr. Hamrin received 948 additional fully vested options at an exercise price of $24.00 per option in
lieu of a reduction of base salary of $2,935 under our furlough plan between May 1, 2014 and July 31, 2014. On October 3, 2014,
Mr. Hamrin received 10,000 options at an exercise price of $12.50 per option, with 25% of the options vesting in October 2015
and thereafter vesting ratably on a monthly basis over three years.
|
Employment
Agreements, Termination of Employment and Change-in-Control Arrangements
Except
as described below, we currently have no employment agreements with any of our executive officers, nor any compensatory plans
or arrangements resulting from the resignation, retirement or any other termination of any of our executive officers, from a change-in-control,
or from a change in any executive officer’s responsibilities following a change-in-control.
Employment
Agreements
We
have entered into various employment and employment-related agreements with certain of our executive officers. Set forth below
is a summary of many of the material provisions of such agreements, which summaries do not purport to contain all of the material
terms and conditions of each such agreement. All share figures and exercise prices noted in these summaries are adjusted to give
effect to the 1-for-50 reverse split of our issued and outstanding common stock on July 8, 2015, retroactively, unless otherwise
noted.
Our
Agreements with Mr. Castro and Dr. Maslov:
We
employ Mr. Castro pursuant to an executive employment agreement, dated April 25, 2013, with Flex Power Generation, Inc., then
known as Ener-Core Power, Inc., for the position of Chief Executive Officer, which agreement we assumed as of the closing of the
Merger. Under the agreement, the term of his employment is one year, renewing automatically for successive one-year terms unless
either party gives the other party notice of non-renewal not less than 30 day prior to the end of the relevant term. We will pay
Mr. Castro a base salary of $200,000 per year that may be increased but not decreased by our Board in its sole discretion. Mr.
Castro is eligible (i) for an annual bonus and/or other annual incentive compensation in accordance with any applicable executive
bonus plan as our Board may adopt in its sole discretion, and (ii) to participate in our equity incentive plan or incentive option
plan, as applicable, with grants and vesting schedules as determined by the Board from time to time. In connection with Mr. Castro’s
participation in our voluntary wage reduction plan from May 1, 2014 to July 31, 2014, on May 23, 2014, we entered into an amendment
to the executive employment agreement with Mr. Castro, pursuant to which we issued Mr. Castro an option to purchase up to 15 shares
of our common stock (pre-split) in exchange for $1.00 (pre-split) that he voluntarily forwent under the wage reduction plan. As
a result, we entered into a stock option agreement with Mr. Castro on May 13, 2014, pursuant to which we granted Mr. Castro an
option to purchase 6,460 shares of our common stock at an exercise price of $24.00 per share. All the shares subject to Mr. Castro’s
option vested immediately on the date of grant.
We
employ Dr. Maslov pursuant to an executive employment agreement, dated December 31, 2012, with Flex Power Generation, Inc., for
the position of Interim Chief Executive Officer, which agreement we assumed as of the closing of the Merger. Under the agreement,
the term of his employment is one year, renewing automatically for successive one-year terms each year unless either party gives
the other party notice of non-renewal not less than 30 day prior to the end of the relevant term. We will pay Dr. Maslov a base
salary of $225,000 per year that may be increased but not decreased by our Board in its sole discretion. Dr. Maslov is eligible
(i) for an annual bonus and/or other annual incentive compensation in accordance with any applicable executive bonus plan as our
Board may adopt in its sole discretion, and (ii) to participate in our equity incentive plan or incentive option plan, as applicable,
with grants and vesting schedules as determined by the Board from time to time. In connection with Dr. Maslov’s participation
in our voluntary wage reduction plan from May 9, 2014 to June 15, 2014, on May 23, 2014, we entered into an amendment to the executive
employment agreement with Dr. Maslov, pursuant to which we issued Dr. Maslov an option to purchase up to 15 shares of our common
stock (pre-split) in exchange for $1.00 (pre-split) that he voluntarily forwent under the wage reduction plan. As a result, we
entered into a stock option agreement with Dr. Maslov on May 13, 2014, pursuant to which we granted Dr. Maslov an option to purchase
1,514 shares of our common stock at an exercise price of $24.00 per share. All the shares subject to Dr. Maslov’s option
vested immediately on the date of grant.
The
termination provisions for Mr. Castro’s or Dr. Maslov’s employment are substantially similar and are set forth below.
If we terminate Mr. Castro’s or Dr. Maslov’s services for cause (whether during or at the end of an employment year),
then we are obligated to pay the sum of (i) the respective executive’s salary and bonuses, if any, through the date of termination,
(ii) any earned but unused vacation time and paid time off (PTO), and (iii) any unreimbursed expenses. ”Cause” means
the respective executive’s (A) willful dishonesty or fraud with respect to our business affairs, (B) willful falsification
of any employment or other of our records, (C) misappropriation of or intentional damage to our business or property, including
the improper use or disclosure of our confidential or proprietary information, (D) conviction (including any plea of guilty or
nolo contendere
) of a felony or crime that involves moral turpitude, (E) willful and continued failure to comply with
our reasonable written directives after the respective executive’s receipt of written notice from us of such refusal and
a reasonable opportunity to cure, or (F) the misappropriation of any corporate opportunity, or otherwise obtaining personal profit
from any transaction which is adverse to our interests or to the benefits to which we are entitled.
If
Mr. Castro’s or Dr. Maslov’s services are terminated upon death or disability, we are obligated to pay the respective
executive or their respective estate (i) the same economic benefits as if his services were terminated for cause and (ii) upon
a determination by our Board in its sole discretion, the respective executive or his respective estate may also be granted (A)
additional vesting of then-unvested stock or stock options, (B) a proportional amount of any earned and unpaid annual bonus based
on the respective executive’s performance through the date of termination, and/or (C) severance payments. ”Disability”
means the inability to perform one or more of the essential functions of the job due to physical or mental impairment, with or
without reasonable accommodation as required by law, for any period aggregating more than 120 days in any 365-consecutive day
period.
If
we terminate Mr. Castro’s or Dr. Maslov’s services for any other reason, then we are obligated to pay the respective
executive (i) the same economic benefits as if his services were terminated for cause, and (ii) monthly cash severance payments
at his then-salary rate during the six-month period immediately following the termination date, subject to earlier termination
in the event that he obtains new employment or engages (or assists any other person or entity to engage) in any activity competitive
with our business. Further, if, during the six-month period immediately preceding or following a Change of Control (as hereinafter
defined) we terminate his employment without Cause, then all of the respective executive’s then-unvested outstanding options
will immediately vest. A “Change of Control” occurs when (i) any person becomes the beneficial owner of our securities
that then represents 50% or more of the total voting power of our outstanding voting securities, unless such person was the beneficial
owner of at least 20% of our voting power as of February 1, 2012, and does not become the beneficial owner of 80% or more of our
voting power, (ii) we consummate the sale, exchange, lease, or other disposition of all or substantially all of our assets to
a person or group of related persons, (iii) we consummate a merger, reorganization, recapitalization, consolidation, or similar
transaction with any other corporation or other business entity, in one transaction or a series of related transactions (except
one in which (A) the holders of our voting securities outstanding immediately before such transaction continue to hold at least
50% of the voting power in the surviving entity or (B) a transaction in which a single party (or a group of affiliated parties)
acquires our voting securities and the holders of our voting securities immediately before the transaction do not dispose of a
majority of their interests in us in connection with that transaction), or (iii) we dissolve or liquidate.
Mr.
Castro or Dr. Maslov may terminate their respective employment relationships with us at any time and for any reason. Such resignation
will not become effective until the earlier of (i) 90 days after the date the respective resignation notice is given to our Board
or (ii) a date we specify. If Mr. Castro or Dr. Maslov chooses to do so, each has agreed to make himself available to us during
the 30-day period following his termination, without any compensation, (i) to facilitate an efficient transition of his job-related
responsibilities and duties, and (ii) to respond to questions from us regarding information and/or activities in which he had
been engaged while employed by us.
During
Mr. Castro’s or Dr. Maslov’s employment with us and for a period of the shorter of (i) 12 months after their respective
termination or (ii) the number of months we employed Mr. Castro or Dr. Maslov, both are subject to restrictive covenants that
provide each individual will not: (i) call on, solicit, divert, interfere with or take away (or attempt to call on, solicit, divert,
interfere with or take away) any of our projects, business, clients, customers or prospects with whom or with which they had contact
during their employment with us by promoting or selling services or products that compete with us or our affiliates; or (ii) solicit,
influence or induce (or attempt to solicit, influence or induce) any employees as of the respective termination date with whom
they had direct contact during their employment with us.
Both
Mr. Castro’s and Dr. Maslov’s executive employment agreement also contain other restrictive covenants further prohibiting:
(i) disparagement of us or our affiliates during their employment and thereafter, and (ii) the use or disclosure of confidential
business information during or at any time after termination of their employment.
On
April 28, 2014, our Board approved the re-pricing and vesting schedules of outstanding stock options to purchase an aggregate
of 172,600 shares of our common stock previously granted to our officers, directors, employees and consultants. As a result of
this cancellation and reissuance of the options, we entered into a stock option cancellation agreement and concurrently entered
into new stock option agreements with each of the officers, directors, employees and consultants who held shares as of that date,
which included Mr. Castro and Dr. Maslov. The number of underlying shares subject to each award remained unchanged as a result
of the re-pricing and vesting schedule change.
On
November 28, 2014, we entered into stock option agreements with each of Mr. Castro and Dr. Maslov granting each an option to purchase
up to 4,700 shares of our common stock, at an exercise price of $8.00 per share, the fair market value on the date that our Board
approved the grant. The options vest as follows: (i) 1/4 of the total number of shares subject to the award will vest one year
from the grant date, and (ii) 1/48 of the total number of shares subject to the award will vest on a monthly basis thereafter.
Our
Agreements with Mr. Carney
:
Our
offer letter to Mr. Carney dated August 19, 2014 provided for an annual base salary of $180,000 and an option under the 2013 Plan
to purchase 30,000 shares of our common stock at an exercise price equal to the per share closing price on August 19, 2014, being
the fair market value on such date.
In
addition to the offer letter, we entered into an executive employment agreement with Mr. Carney, dated as of August 19, 2014,
for the position of Chief Financial Officer and Treasurer, which, in addition to his annual compensation as described in the offer
letter, provides that he is eligible to receive an annual bonus and other annual incentive compensation that our Board may adopt,
as well as benefits that we make available to other employees. We will also reimburse Mr. Carney for reasonable expenses that
he incurs in performing his duties.
If
we terminate Mr. Carney’s services for cause (whether during or at the end of an employment year), we are obligated to pay
him the sum of (i) his salary and bonuses, if any, through the date of termination, (ii) any earned but unused vacation time and
paid time off (PTO), and (iii) any unreimbursed expenses. ”Cause” means his (A) willful dishonesty or fraud with respect
to our business affairs, (B) willful falsification of any employment or other of our records, (C) misappropriation of or intentional
damage to our business or property, including the improper use or disclosure of our confidential or proprietary information, (D)
conviction (including any plea of guilty or
nolo contendere
) of a felony or crime that involves moral turpitude, (E) willful
and continued failure to comply with our reasonable written directives after his receipt of written notice from us of such refusal
and a reasonable opportunity to cure, or (F) the misappropriation of any corporate opportunity, or otherwise obtaining personal
profit from any transaction which is adverse to our interests or to the benefits to which we are entitled.
If
Mr. Carney’s services are terminated upon his death or disability, then (i) we are obligated to pay to him or his estate
the same economic benefits as if his services were terminated for cause and (ii) he or his estate may also be granted (A) additional
vesting of then-unvested stock or stock options, (B) a proportional amount of any earned and unpaid annual bonus based on his
performance through the date of termination, and/or (C) severance payments. ”Disability” means his inability to perform
one or more of the essential functions of his job due to his physical or mental impairment, with or without reasonable accommodation
as required by law, for any period aggregating more than 120 days in any 365-consecutive day period.
If
we terminate Mr. Carney’s services for any other reason, then we are obligated to pay him (i) the same economic benefits
as if his services were terminated for cause, (ii) monthly cash severance payments at his then-salary rate, and (iii) continuation
of our provided health insurance coverage, each to be paid during the six-month period immediately following the termination date,
subject to earlier termination in the event that he obtains new employment or engages (or assists any other person or entity to
engage) in any activity competitive with our business. Further, if during the six-month period immediately preceding or following
a Change of Control (as hereinafter defined), we terminate his employment without Cause, then all of his then-unvested outstanding
options will immediately vest. A “Change of Control” occurs when (i) any person becomes the beneficial owner of our
securities that then represents 50% or more of the total voting power of our outstanding voting securities, unless such person
was the beneficial owner of at least 20% of our voting power as of August 19, 2014, and does not become the beneficial owner of
80% or more of our voting power, (ii) we consummate the sale, exchange, lease, or other disposition of all or substantially all
of our assets to a person or group of related persons, (iii) we consummate a merger, reorganization, recapitalization, consolidation,
or similar transaction with any other corporation or other business entity, in one transaction or a series of related transactions
(except one in which (A) the holders of our voting securities outstanding immediately before such transaction continue to hold
at least 50% of the voting power in the surviving entity or (B) a transaction in which a single party (or a group of affiliated
parties) acquires our voting securities and the holders of our voting securities immediately before the transaction do not dispose
of a majority of their interests in us in connection with that transaction), or (iii) we dissolve or liquidate.
Mr.
Carney may terminate his employment relationship with us at any time and for any reason. Such resignation will not become effective
until the earlier of (i) 90 days after the date resignation notice is given to our Board or (ii) a date we specify. If Mr. Carney
does so, he has agreed to make himself available to us during the 30-day period following his termination, without any compensation
(subject to exception): (i) to facilitate an efficient transition of his job-related responsibilities and duties and (ii) to respond
to questions from us regarding information and/or activities in which he had been engaged while employed by us.
During
his employment with us and for a period of the shorter of (i) 12 months after his termination or (ii) the number of months we
employed Mr. Carney, Mr. Carney is subject to restrictive covenants that provide he will not: (i) call on, solicit, divert, interfere
with or take away (or attempt to call on, solicit, divert or interfere with or take away) any of our projects, business, clients,
customers or prospects with whom or with which Mr. Carney had contact during his employment with us by promoting or selling services
or products that compete with us or our affiliates; or (ii) solicit, influence or induce (or attempt to solicit, influence or
induce) any employees as of his termination date with whom Mr. Carney had direct contact during his employment with us.
The
executive employment agreement also contains other restrictive covenants further prohibiting: (a) disparagement of us or our affiliates
during his employment and thereafter, and (b) the use or disclosure of confidential business information during or at any time
after termination of his employment.
In
connection with the option granted under his executive employment agreement, we entered into a stock option agreement with Mr.
Carney, dated as of August 19, 2014. The agreement grants an option to purchase up to 30,000 shares of our common stock, at an
exercise price of $7.50 per share, the fair market value on the date that our Board approved the grant. The agreement provides
that the options vest as follows: (i) 1/8 of the total number of shares subject to the award will vest six months from the grant
date, (ii) 1/8 of the total number of shares subject to the award will vest one year from the grant date and (iii) 1/48 of the
total number of shares subject to the award will vest on a monthly basis thereafter.
On
November 28, 2014, we entered into a stock option agreement with Mr. Carney granting him an option to purchase up to 4,700 shares
of our common stock at an exercise price of $8.00 per share, the fair market value on the date that our Board approved the grant.
The options vest as follows: (i) 1/4 of the total number of shares subject to the award will vest one year from the grant date
and (ii) 1/48 of the total number of shares subject to the award will vest on a monthly basis thereafter.
Our
Agreements with Ms. Anderson
:
Our
offer letter to Ms. Anderson dated November 1, 2013 provided for an annual base salary of $175,000 and an option under the 2013
Plan to purchase 20,000 shares of our common stock at an exercise price equal to the per share closing price on November 15, 2013,
being the fair market value on such date. She would also be eligible for a one-time bonus of $50,000 if we successfully raised
at least $10 million in a public offering of our common stock.
In
addition to the offer letter, we entered into an executive employment agreement with Ms. Anderson dated as of November 15, 2013,
for the position of Chief Financial Officer and Treasurer, which, in addition to her annual compensation as described in the offer
letter, provided that she was eligible to receive an annual bonus and other annual incentive compensation that our Board adopted,
as well as benefits that we made available to other employees. We also agreed to reimburse Ms. Anderson for reasonable expenses
that she incurred in performing her duties.
If
we terminated Ms. Anderson’s services for cause (whether during or at the end of an employment year), then we were obligated
to pay her the sum of (i) her salary and bonuses, if any, through the date of termination, (ii) any earned but unused vacation
time and paid time off (PTO), and (iii) any unreimbursed expenses. ”Cause” meant her (A) willful dishonesty or fraud
with respect to our business affairs, (B) willful falsification of any employment or other of our records, (C) misappropriation
of or intentional damage to our business or property, including the improper use or disclosure of our confidential or proprietary
information, (D) conviction (including any plea of guilty or
nolo contendere
) of a felony or crime that involved moral
turpitude, (E) willful and continued failure to comply with our reasonable written directives after her receipt of written notice
from us of such refusal and a reasonable opportunity to cure, or (F) the misappropriation of any corporate opportunity, or otherwise
obtaining personal profit from any transaction which was adverse to our interests or to the benefits to which we are entitled.
If
Ms. Anderson’s services terminated upon her death or disability, then (i) we were obligated to pay to her or her estate
the same economic benefits as if her services were terminated for cause and (ii) she or her estate could also be granted (A) additional
vesting of then-unvested stock or stock options, (B) a proportional amount of any earned and unpaid annual bonus based on her
performance through the date of termination, and/or (C) severance payments. ”Disability” meant her inability to perform
one or more of the essential functions of her job due to her physical or mental impairment, with or without reasonable accommodation
as required by law, for any period aggregating more than 120 days in any 365-consecutive day period.
If
we had terminated Ms. Anderson’s services for any other reason, then we were obligated to pay her (i) the same economic
benefits as if her services were terminated for cause and (ii) monthly cash severance payments at her then-salary rate, each to
be paid during the six-month period immediately following the termination date, subject to earlier termination in the event that
she obtained new employment or engages (or assists any other person or entity to engage) in any activity competitive with our
business. Further, if, during the six-month period immediately preceding or following a Change of Control (as hereinafter defined),
we had terminated her employment without Cause, then all of her then-unvested outstanding options would have immediately vested.
A ”Change of Control” was defined as when (i) any person became the beneficial owner of our securities that then represented
50% or more of the total voting power of our outstanding voting securities, unless such person was the beneficial owner of at
least 20% of our voting power as of February 1, 2012, and did not become the beneficial owner of 80% or more of our voting power,
(ii) we consummated the sale, exchange, lease, or other disposition of all or substantially all of our assets to a person or group
of related persons, (iii) we consummated a merger, reorganization, recapitalization, consolidation, or similar transaction with
any other corporation or other business entity, in one transaction or a series of related transactions (except one in which (A)
the holders of our voting securities outstanding immediately before such transaction continued to hold at least 50% of the voting
power in the surviving entity or (B) a transaction in which a single party (or a group of affiliated parties) acquired our voting
securities and the holders of our voting securities immediately before the transaction did not dispose of a majority of their
interests in us in connection with that transaction), or (iii) we dissolved or liquidated.
Ms.
Anderson had the ability to terminate her employment relationship with us at any time and for any reason. Such resignation would
not have become effective until the earlier of (i) 90 days after the date resignation notice was given to our Board or (ii) a
date we specified. If Ms. Anderson did so, she agreed to make herself available to us during the 30-day period following her termination,
without any compensation: (i) to facilitate an efficient transition of her job-related responsibilities and duties and (ii) to
respond to questions from us regarding information and/or activities in which she had been engaged while employed by us.
Ms.
Anderson tendered her resignation on June 30, 2014, which we accepted. We entered into an independent consulting agreement with
Ms. Anderson on June 26, 2014, which governed her continued service to us as a paid consultant until August 31, 2014.
During
her employment with us and for a period of the shorter of (i) 12 months after her termination or (ii) the number of months we
employed Ms. Anderson, Ms. Anderson is subject to restrictive covenants that provide she will not: (i) call on, solicit, divert,
interfere with or take away (or attempt to call on, solicit, divert or interfere with or take away) any of our projects, business,
clients, customers or prospects with whom or with which Ms. Anderson had contact during her employment with us by promoting or
selling services or products that compete with us or our affiliates; or (ii) solicit, influence or induce (or attempt to solicit,
influence or induce) any employees as of her termination date with whom Ms. Anderson had direct contact during her employment
with us.
The
executive employment agreement also contains other restrictive covenants further prohibiting: (a) disparagement of us or our affiliates
during her employment and thereafter, and (b) the use or disclosure of confidential business information during or at any time
after termination of her employment.
In
connection with the option granted under her executive employment agreement, we entered into a stock option agreement with Ms.
Anderson, dated as of November 15, 2013. The agreement granted an option to purchase up to 20,000 shares of our common stock,
at an exercise price equal to the fair market value of the common stock on the date her employment commenced. The options vested
as follows: (i) 1/4 of the total number of shares subject to the award were to vest one year from the grant date and (ii) 1/48
of the total number of shares subject to the award were to vest on a monthly basis thereafter. On April 28, 2014, Ms. Anderson’s
options were cancelled and reissued pursuant to the terms of the Stock Cancellation Agreement and Reissued Stock Option Agreement.
We
also entered into a stock option agreement with Ms. Anderson in connection with Ms. Anderson’s participation in our voluntary
wage reduction plan from May 16, 2014 to June 15, 2014, pursuant to the amendment to executive employment agreement with Ms. Anderson,
dated May 23, 2014. The stock option agreement, dated May 13, 2014, granted Ms. Anderson an option to purchase 942 shares of our
common stock at an exercise price of $24.00 per share. All the shares subject to Ms. Anderson’s option vested immediately
on the date of grant.
Upon
her resignation, all unvested options issued to Ms. Anderson were immediately cancelled. All vested options remained exercisable
until November 30, 2014. On December 1, 2014, all unexercised options issued to Ms. Anderson were cancelled.
Our
Agreements with Mr. Hamrin
We
entered into an executive employment agreement with Mr. Hamrin, dated as of June 29, 2016, for the position of Vice President
of Engineering, which provides that he will receive an annual base salary of $180,000 and is eligible to receive an annual bonus
and/or other annual incentive compensation in accordance with any applicable executive bonus plan applicable to Mr. Hamrin as
may be adopted by the Board in its sole discretion. The executive employment agreement also provides that we will reimburse Mr.
Hamrin for reasonable expenses that he incurs in performing his duties. During the term of his employment, Mr. Hamrin will also
be entitled to up to 15 days of paid time off (“PTO”) annually (adjusted annually based on years of service with us)
and to participate in our benefit plans and programs. The initial term of the executive employment agreement is one year, which
may be automatically extended for successive one year terms unless terminated by either party upon at least 30 days prior notice.
If
we terminate Mr. Hamrin’s services for Cause (whether during or at the end of an employment year), we are obligated to pay
him the sum of (i) his salary and bonuses, if any, through the date of termination, (ii) any earned but unused vacation time/PTO,
and (iii) any unreimbursed expenses. “Cause” means his (A) willful dishonesty or fraud with respect to our business
affairs, (B) willful falsification of any employment or other of the our records, (C) misappropriation of or intentional damage
to our business or property, including the improper use or disclosure of its confidential or proprietary information, (D) conviction
(including any plea of guilty or nolo contendere ) of a felony or crime that involves moral turpitude, (E) willful and continued
failure to comply with the our reasonable written directives after his receipt of written notice from us of such refusal and a
reasonable opportunity to cure, or (F) the misappropriation of any corporate opportunity, or otherwise obtaining personal profit
from any transaction which is adverse to our interests or to the benefits to which we are entitled.
If
Mr. Hamrin’s services are terminated upon his death or disability, then (i) we are obligated to pay to him or his estate
the same economic benefits as if his services were terminated for Cause and (ii) he or his estate may also be granted (A) additional
vesting of then-unvested stock or stock options, (B) a proportional amount of any earned and unpaid annual bonus based on his
performance through the date of termination, and/or (C) severance payments. “Disability” means Mr. Hamrin’s
inability to perform one or more of the essential functions of his job due to his physical or mental impairment, with or without
reasonable accommodation as required by law, for any period aggregating more than 120 days in any 365-consecutive day period.
If
we terminate Mr. Hamrin’s services for any other reason, then we are obligated to pay him (i) the same economic benefits
as if his services were terminated for Cause, (ii) monthly cash severance payments at his then effective salary rate, and (iii)
continuation of our provided health insurance coverage, each to be paid during the six-month period immediately following the
termination date, subject to earlier termination in the event that he obtains new employment or engages (or assists any other
person or entity to engage) in any activity competitive with our business. Further, if during the six-month period immediately
preceding or following a Change of Control (as hereinafter defined), we terminate his employment without Cause, then all of his
then-unvested outstanding options will immediately vest. A “Change of Control” occurs when (i) any person becomes
the beneficial owner of securities that then represents 50% or more of the total voting power of the Company’s outstanding
voting securities, unless such person was the beneficial owner of at least 20% of its voting power as of the effective date of
the Employment Agreement, and does not become the beneficial owner of 80% or more of our voting power, (ii) we consummate the
sale, exchange, lease, or other disposition of all or substantially all of its assets to a person or group of related persons,
(iii) we consummate a merger, reorganization, recapitalization, consolidation, or similar transaction with any other corporation
or other business entity, in one transaction or a series of related transactions (except one in which (A) the holders of our voting
securities outstanding immediately before such transaction continue to hold at least 50% of the voting power in the surviving
entity or (B) a transaction in which a single party (or a group of affiliated parties) acquires our voting securities and the
holders of our voting securities immediately before the transaction do not dispose of a majority of their interests in connection
with that transaction), or (iv) we dissolve or liquidate.
Mr.
Hamrin may terminate his employment at any time and for any reason. Such resignation will not become effective until the earlier
of (i) 90 days after the date resignation notice is given to the Board or (ii) a date specified by us. If Mr. Hamrin terminates
his employment, he has agreed to make himself available to us during the 30-day period following his termination, without any
compensation (subject to exception): (i) to facilitate an efficient transition of his job-related responsibilities and duties
and (ii) to respond to questions regarding information and/or activities in which he had been engaged while employed by us.
During
his employment with us and for a designated period after his termination, Mr. Hamrin is subject to restrictive covenants that
provide he will not: (i) call on, solicit, divert, interfere with or take away (or attempt to call on, solicit, divert or interfere
with or take away) any of our projects, business, clients, customers or prospects with whom or with which Mr. Hamrin had contact
during his employment with us by promoting or selling services or products that compete with us or our affiliates; or (ii) solicit,
influence or induce (or attempt to solicit, influence or induce) any employees as of his termination date with whom Mr. Hamrin
had direct contact during his employment with us.
The
Employment Agreement also contains other restrictive covenants further prohibiting: (a) disparagement of us or our affiliates
during Mr. Hamrin’s employment and thereafter, (b) the improper solicitation of our customers following the expiration or
termination his employment with us and (c) the use or disclosure of confidential business information during or at any time after
termination of his employment.
Outstanding
Equity Awards at 2015 Fiscal Year-End
The
following disclosure reflects all outstanding equity awards at the end of our 2015 fiscal year for each named executive officer,
who served in such capacity as of December 31, 2015. All share figures and exercise prices noted in the following table and its
footnotes are adjusted to give effect to the 1-for-50 reverse split of our issued and outstanding common stock on July 8, 2015,
retroactively.
|
|
|
|
Option Awards
|
|
|
|
|
|
|
|
Number of securities underlying unexercised options (#)
|
|
|
Option Exercise
|
|
|
Option Expiration
|
Name
|
|
Grant Date
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Price ($)
|
|
|
Date (1)
|
Alain Castro
|
|
4/28/14
|
|
|
26,756
|
(2)
|
|
|
16,244
|
|
|
|
17.50
|
|
|
4/28/20
|
|
|
5/13/14
|
|
|
6,460
|
(3)
|
|
|
—
|
|
|
|
24.00
|
|
|
5/13/20
|
|
|
11/28/14
|
|
|
1,273
|
(4)
|
|
|
3,427
|
|
|
|
8.00
|
|
|
11/28/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boris Maslov
|
|
4/28/14
|
|
|
9,956
|
(2)
|
|
|
6,044
|
|
|
|
17.50
|
|
|
4/28/20
|
|
|
5/13/14
|
|
|
1,514
|
(3)
|
|
|
—
|
|
|
|
24.00
|
|
|
5/13/20
|
|
|
11/28/14
|
|
|
1,175
|
(4)
|
|
|
3,427
|
|
|
|
8.00
|
|
|
11/28/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domonic J. Carney
|
|
8/19/14
|
|
|
7,500
|
(5)
|
|
|
22,500
|
|
|
|
7.50
|
|
|
8/19/20
|
|
|
11/28/14
|
|
|
1,175
|
(4)
|
|
|
3,427
|
|
|
|
8.00
|
|
|
11/28/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas A. Hamrin
|
|
4/28/14
|
|
|
9,956
|
(2)
|
|
|
6,044
|
|
|
|
17.50
|
|
|
4/28/20
|
|
|
5/13/14
|
|
|
948
|
(3)
|
|
|
—
|
|
|
|
24.00
|
|
|
5/13/20
|
|
|
10/03/14
|
|
|
3,750
|
(6)
|
|
|
6,250
|
|
|
|
12.50
|
|
|
7/01/23
|
(1)
|
All
options granted in 2014 to officers expire six years from the grant date except that Mr. Hamrin’s October 2014 grant
expires at the end of the option plan.
|
|
|
(2)
|
Options
vest as follows: (i) 15% on the April 28, 2014 grant date and (ii) the remainder in equal monthly amounts over 36 months thereafter.
All options may be exercised early for restricted shares that vest in accordance with the original option vesting schedule.
|
|
|
(3)
|
Options
vested 100% on the May 13, 2014 grant date.
|
|
|
(4)
|
Options
vest as follows: (i) 25% on November 28, 2015 and (ii) the remainder vest in equal monthly amounts over 36 months thereafter.
All options may be exercised early for restricted shares that vest in accordance with the original option vesting schedule.
|
|
|
(5)
|
Options
vest as follows: (i) 12.5% on February 19, 2015, (ii) 12.5% on August 19, 2015 and (iii) the remainder vest in equal monthly
amounts over 36 months thereafter. All options may be exercised early for restricted shares that vest in accordance with the
original option vesting schedule.
|
|
|
(6)
|
Options
vest as follows: (i) 25% on October 3, 2015 and ii) the remainder vest in equal monthly amounts over 36 months thereafter.
All options may be exercised early for restricted shares that vest in accordance with the original option vesting schedule.
|
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Company
Policies and Procedures
Although
the Board has not adopted a written policy or procedure for the review, approval and ratification of related person transactions,
the charter of the Audit Committee provides that the Audit Committee is responsible for reviewing and approving, on an ongoing
basis, any proposed transaction with any related person for which disclosure and/or approval is required under applicable law,
including pursuant to rules promulgated by the Securities and Exchange Commission. Currently, this review and approval requirement
applies to any transaction to which the Company will be a party, in which the amount involved exceeds $120,000, and in which any
of the following persons will have a direct or indirect material interest: (a) any of our directors or executive officers; (b)
any director nominee; (c) any security holder who is known to us to own, of record or beneficially, five percent or greater of
any class of our voting securities; or (d) any member of the immediate family (as defined in Item 404 of Regulation S-K) of any
of the persons described in the foregoing clauses (a)–(c).
In
the event that management becomes aware of any related party transaction, management will present information regarding such transaction
to the Audit Committee for review and approval. In addition, the Audit Committee periodically reviews and considers with management
the disclosure requirements relating to transactions with related persons and the potential existence of any such transaction.
Related
Party Transactions
All
share and per share amounts applicable to our common stock from transactions that occurred subsequent to the July 1, 2013 reverse
merger in the following summaries of related party transactions have been adjusted to reflect the 1-for-50 reverse split of our
issued and outstanding common stock on July 8, 2015, retroactively. The share and per share amounts related to transactions undertaken
by our wholly-owned predecessor subsidiary, Ener-Core Power, Inc. (a private entity prior to the July 1, 2013 reverse merger),
have not been adjusted to account for the 1-for-50 reverse split of our issued and outstanding common stock on July 8, 2015 and
are presented as the transactions originally occurred.
On
September 22, 2014, we sold and issued 26,666,658 shares (adjusted to approximately 533,334 shares post-split) of our common stock
to 36 accredited investors at $0.15 per share (adjusted to $7.50 per share post-split), referred to as the September 2014 PIPE.
The following officers and directors participated in the September 2014 PIPE, in which they purchased the number of shares listed
adjacent to their name and waived their right to register their shares under the Registration Rights Agreement in connection with
that offering.
Name
|
|
Position with Company
|
|
Number
of
Shares
Purchased
in
September
2014
Private
Placement
|
|
|
Number of
Shares
Purchased,
As
Adjusted
for 1-for-50
Reverse
Split
|
|
|
Aggregate
Purchase
Price
($)
|
|
Alain J. Castro
|
|
Director and Chief Executive Officer
|
|
|
333,333
|
|
|
|
6,667
|
|
|
|
50,000
|
|
Domonic J. Carney
|
|
Treasurer and Chief Financial Officer
|
|
|
333,340
|
|
|
|
6,667
|
|
|
|
50,001
|
|
Michael J. Hammons
|
|
Director
|
|
|
66,667
|
|
|
|
1,334
|
|
|
|
10,000
|
|
Christopher J. Brown
|
|
Director
|
|
|
146,667
|
|
|
|
2,934
|
|
|
|
22,000
|
|
Jeffrey A. Horn
|
|
Director
|
|
|
66,667
|
|
|
|
1,334
|
|
|
|
10,000
|
|
PROPOSAL
2: RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Audit Committee has selected SingerLewak LLP (“SingerLewak”) as the Company’s independent registered public
accounting firm for the fiscal year ending December 31, 2016, and has further directed that management submit the selection of
the independent registered public accounting firm for ratification by the stockholders at the annual meeting. Representatives
of SingerLewak are not expected to be present at the annual meeting, either in person or by teleconference, and, as such, we do
not expect representatives of SingerLewak will be available to respond to appropriate questions.
Effective
December 4, 2014, the Company dismissed Kelly & Company (“Kelly & Co.”) as its independent registered public
accounting firm. The audit reports of Kelly & Co. on the Company’s financial statements for the years ended December
31, 2012 and 2013 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles, except for explanatory paragraphs indicating that there was substantial doubt as to the
Company’s ability to continue as a going concern.
From
its engagement through the date of the filing of the Current Report on Form 8-K dated December 10, 2014, there were: (i) no disagreements
between the Company and Kelly & Co. on any matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Kelly & Co., would have caused
Kelly & Co. to make reference to the subject matter of the disagreement in its reports on the Company’s financial statements
for such periods, and (ii) no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.
On
December 8, 2014, the Company engaged SingerLewak as its independent registered public accounting firm. During the fiscal year
ended December 31, 2013 and the subsequent interim period through the engagement of SingerLewak on December 8, 2014, the Company
did not consult with SingerLewak on (i) the application of accounting principles to a specified transaction, either completed
or proposed, or the type of audit opinion that may be rendered on the Company’s financial statements, and SingerLewak did
not provide either a written report or oral advice to the Company that was an important factor considered by the Company in reaching
a decision as to any accounting, auditing, or financial reporting issue; or (ii) the subject of any disagreement, as defined in
Item 304(a)(1)(iv) of Regulation S-K and the related instructions, or a reportable event within the meaning set forth in Item
304(a)(1)(v) of Regulation S-K.
The
termination of Kelly & Co. and the engagement of SingerLewak as the Company’s independent registered public accounting
firm were approved by the Board.
Although
ratification is not required by our bylaws or otherwise, the Board is submitting the selection of SingerLewak as the Company’s
independent registered public accounting firm to our stockholders for ratification as a matter of good corporate practice. No
determination has been made as to what action the Board or the Audit Committee would take if stockholders do not ratify the appointment.
Even if the appointment is ratified, however, the Audit Committee may, in its discretion, direct the appointment of a different
independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change
would be in the best interests of the Company and its stockholders.
Principal
Accountant Fees and Services
The
following table shows the fees that were billed for audit and other services provided by SingerLewak during the 2015 and 2014
fiscal years:
|
|
For the Fiscal Years
ended
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Audit Fees(1)
|
|
$
|
90,000
|
|
|
$
|
—
|
|
Audit-Related Fees(2)
|
|
|
142,000
|
|
|
|
—
|
|
Tax Fees(3)
|
|
|
—
|
|
|
|
—
|
|
All Other Fees(4)
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
232,000
|
|
|
$
|
—
|
|
(1)
|
Audit
Fees
—This category includes the audit of our annual financial statements, review of financial statements included
in our Quarterly Reports on Form 10-Q, and services that are normally provided by independent auditors in connection with
statutory and regulatory filings or the engagement for fiscal years. This category also includes advice on audit and accounting
matters that arose during, or as a result of, the audit or the review of interim financial statements.
|
(2)
|
Audit-Related
Fees
—This category consists of assurance and related services by SingerLewak that were reasonably related to the
performance of the audit or review of our financial statements and are not reported above under “Audit Fees.”
The services for the fees disclosed under this category include consultation regarding our correspondence with the SEC.
|
|
|
(3)
|
Tax
Fees
—This category consists of professional services rendered for tax compliance and tax advice. Although the Company
incurred no such fees during fiscal years 2015 and 2014, the services for the fees disclosable under this category would include
tax return preparation and technical tax advice.
|
|
|
(4)
|
All
Other Fees
—This category consists of fees for other miscellaneous items.
|
The
following table shows the fees that were billed for audit and other services provided by Kelly & Co. during the 2015 and 2014
fiscal years:
|
|
For the Fiscal Years
ended
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Audit Fees(1)
|
|
$
|
—
|
|
|
$
|
89,000
|
|
Audit-Related Fees(2)
|
|
|
29,000
|
|
|
|
10,000
|
|
Tax Fees(3)
|
|
|
—
|
|
|
|
—
|
|
All Other Fees(4)
|
|
|
—
|
|
|
|
4,000
|
|
Total
|
|
$
|
29,000
|
|
|
$
|
103,000
|
|
(1)
|
Audit
Fees
—This category includes the audit of our annual financial statements, review of financial statements included
in our Quarterly Reports on Form 10-Q, and services that are normally provided by independent auditors in connection with
statutory and regulatory filings or the engagement for fiscal years. This category also includes advice on audit and accounting
matters that arose during, or as a result of, the audit or the review of interim financial statements.
|
|
|
(2)
|
Audit-Related
Fees
—This category consists of assurance and related services by Kelly & Co. that were reasonably related to
the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.”
The services for the fees disclosed under this category include consultation regarding our correspondence with the SEC.
|
|
|
(3)
|
Tax
Fees
—This category consists of professional services rendered for tax compliance and tax advice. Although the Company
incurred no such fees during fiscal years 2015 and 2014, the services for the fees disclosable under this category would include
tax return preparation and technical tax advice.
|
|
|
(4)
|
All
Other Fees
—This category consists of fees for other miscellaneous items.
|
Pre-Approval
Policies and Procedures of the Audit Committee
Consistent
with the rules and regulations promulgated by the Securities and Exchange Commission, the Audit Committee approves the engagement
of our independent registered public accounting firm and is also required to pre-approve all audit and non-audit expenses. Prior
to engaging its accountants to perform particular services, the Audit Committee obtains an estimate for the service to be performed.
All of the services described above were approved by the Audit Committee in accordance with its procedure.
Vote
Required
The
affirmative vote of the holders of a majority of the votes cast at the annual meeting will be required to approve Proposal 2.
The
Board recommends a vote “FOR” the ratification of the appointment of singerlewak LLP as the Company’s independent
registered public accounting firm.
PROPOSAL
3: APPROVAL OF AN AMENDMENT TO THE ENER-CORE, INC.
2015
OMNIBUS INCENTIVE PLAN
We
are asking our stockholders to approve an amendment to the Ener-Core, Inc. 2015 Omnibus Incentive Plan (the “2015 Plan”)
to increase the number of shares of our common stock subject to the 2015 Plan by 300,000 shares.
The 2015 Plan was
originally approved by the Board on July 14, 2015, and our stockholders on August 28, 2015. A total of up to 300,000 shares of
our common stock were initially authorized for issuance under the 2015 Plan. On August 22, 2016, subject to stockholder approval,
the Board approved a proposal to amend the 2015 Plan to increase the number of shares of our common stock subject to the 2015 Plan
by 300,000 shares (the “Amendment”) to allow for a total authorized pool of 600,000 shares, subject to automatic increase
for any shares subject to outstanding awards under the Ener-Core, Inc. 2013 Equity Incentive Award Plan (the “Prior Plan”)
that subsequently cease to be subject to such Prior Plan awards (other than by reason of settlement of the awards in shares). The
Amendment does not alter any other terms of the 2015 Plan.
The Board recommends that stockholders approve the Amendment. The purpose of the Amendment is to enhance our
ability to attract and retain highly qualified officers, non-employee directors, key employees, consultants and advisors, and to
motivate such service providers to serve the Company and to expend maximum effort to improve the business results and earnings
of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations
and future success of the Company. The Amendment will also allow us to promote greater ownership in the Company by such service
providers in order to align their interests more closely with the interests of our stockholders. As we did not make grants pursuant
to the 2015 Plan during 2015, stockholder approval of the Amendment should enable us to proceed with sufficient grants to retain
or attract eligible participants to provide support to us in 2016 and 2017.
Under
Code Section 162(m), we may be prohibited from deducting compensation paid to “covered employees” in excess of $1
million per person in any year. “Covered employees” are defined as the chief executive officer and the three other
most highly compensated named executive officers (excluding the chief financial officer). Compensation that qualifies as “performance-based”
is not subject to the $1 million limit. In general, one of the requirements that must be satisfied to qualify as “performance-based”
compensation is that the material terms of the performance goals under which the compensation may be paid must be disclosed to
and approved by a majority vote of our stockholders, generally at least once every five years. For purposes of Code Section 162(m),
the material terms of the performance goals generally include (1) the individuals eligible to receive compensation upon achievement
of performance goals, (2) a description of the business criteria on which the performance goals may be based and (3) the maximum
amount that can be paid to an individual upon attainment of the performance goals. The 2015 Plan, as amended by the Amendment,
does not alter the material terms of the performance goals under the 2015 Plan. The material terms of the performance goals for
2015 Plan are disclosed below under “Summary of the 2015 Plan.” Although stockholder approval of the Amendment will
provide increased flexibility to grant awards that qualify as “performance-based” compensation under Code Section
162(m), we retain the ability to grant awards under the 2015 Plan that do not qualify as “performance-based” compensation
under Code Section 162(m) with or without the Amendment.
Summary
of the 2015 Plan and Amendment
The
following provides a summary of the principal features of the 2015 Plan, as amended by the Amendment, for reference by our stockholders
in considering the Amendment. The following summary of the 2015 Plan, however, does not purport to be a complete description of
all of the provisions of the 2015 Plan and is qualified in its entirety by reference to the complete text of the 2015 Plan, which
was attached to our Proxy Statement, as filed on July 15, 2015, as Appendix A, and the Amendment, which is attached
to this Proxy Statement as Appendix A.
Eligibility
Awards
may be granted under the 2015 Plan to officers, employees, directors, consultants and advisors of the Company and its affiliates.
Incentive stock options may be granted only to employees of the Company or its subsidiaries. As of August 22, 2016, approximately
26 individuals were eligible to receive awards under the 2015 Plan, including 4 executive officers and 6 non-employee directors.
Administration
The
2015 Plan may be administered by the Board or the Compensation Committee. The Compensation Committee, in its discretion, selects
the individuals to whom awards may be granted, the time or times at which such awards are granted and the terms and conditions
of such awards.
Number
of Authorized Shares
The number of shares
of common stock authorized for issuance under the 2015 Plan is 300,000 shares, representing 4.6% of our fully diluted common stock
outstanding as of August 22, 2016. However, if the Amendment is approved by our stockholders, the number of shares of common stock
authorized for issuance under the 2015 Plan, as amended by the Amendment, would be 600,000 shares, representing 9.1% of our fully
diluted common stock outstanding as of August 22, 2016. In addition, any awards outstanding under the Prior Plan will remain subject
to and be paid under the Prior Plan and any shares then subject to outstanding awards under the Prior Plan that subsequently expire,
terminate or are surrendered or forfeited for any reason without issuance of shares will automatically become available for issuance
under the 2015 Plan. Upon effectiveness of the Amendment, up to 600,000 shares may be granted as incentive stock options under
Code Section 422. The shares of common stock issuable under the 2015 Plan, as amended by the Amendment, will consist of authorized
and unissued shares, treasury shares or shares purchased on the open market or otherwise.
If
any award is canceled, terminates, expires or lapses for any reason prior to the issuance of shares or if shares are issued under
the 2015 Plan and thereafter are forfeited to the Company, the shares subject to such awards and the forfeited shares will not
count against the aggregate number of shares of common stock available for grant under the 2015 Plan. In addition, the following
items will not count against the aggregate number of shares of common stock available for grant under the 2015 Plan: (1) the payment
in cash of dividends or dividend equivalents under any outstanding award, (2) any award that is settled in cash rather than by
issuance of shares of common stock, (3) shares surrendered or tendered in payment of the option price or purchase price of an
award or any taxes required to be withheld in respect of an award or (4) awards granted in assumption of or in substitution for
awards previously granted by an acquired company.
Awards
to Non-Employee Directors
No
more than $500,000 may be granted in equity-based awards during any one year to a non-employee member of the Board, based on the
grant date fair value for accounting purposes in the case of stock options or SARs and based on the fair market value of our common
stock underlying the award on the grant date for other equity-based awards. This limit does not apply to shares received by a
non-employee director at his or her election in lieu of all or a portion of the director’s retainer for board service.
Adjustments
If certain changes
in our common stock occur by reason of any recapitalization, reclassification, stock split, reverse split, combination of shares,
exchange of shares, stock dividend or other distribution payable in stock, or other increase or decrease in our common stock without
receipt of consideration by the Company, or if there occurs any spin-off, split-up, extraordinary cash dividend or other distribution
of assets by the Company, we will equitably adjust the number and kind of securities for which stock options and other stock-based
awards may be made under the 2015 Plan, including the individual award limits for “performance-based” compensation
under Code Section 162(m). In addition, if there occurs any spin-off, split-up, extraordinary cash dividend or other distribution
of assets by the Company, we will equitably adjust the number and kind of securities subject to any outstanding awards and the
exercise price of any outstanding stock options or SARs.
Types
of Awards
The
2015 Plan permits the granting of any or all of the following types of awards:
●
Stock
Options
. Stock options entitle the holder to purchase a specified number of shares of common stock at a specified price (the
exercise price), subject to the terms and conditions of the stock option grant. The Compensation Committee may grant either incentive
stock options, which must comply with Code Section 422, or nonqualified stock options. The Compensation Committee sets exercise
prices and terms and conditions, except that stock options must be granted with an exercise price not less than 100% of the fair
market value of our common stock on the date of grant (excluding stock options granted in connection with assuming or substituting
stock options in acquisition transactions). Unless the Compensation Committee determines otherwise, fair market value means, as
of a given date, the closing price of our common stock. At the time of grant, the Compensation Committee determines the terms
and conditions of stock options, including the quantity, exercise price, vesting periods, term (which cannot exceed 10 years)
and other conditions on exercise.
●
Stock
Appreciation Rights
. The Compensation Committee may grant SARs, as a right in tandem with the number of shares underlying
stock options granted under the 2015 Plan or as a freestanding award. Upon exercise, SARs entitle the holder to receive payment
per share in stock or cash, or in a combination of stock and cash, equal to the excess of the share’s fair market value
on the date of exercise over the grant price of the SAR. The grant price of a tandem SAR is equal to the exercise price of the
related stock option and the grant price for a freestanding SAR is determined by the Compensation Committee in accordance with
the procedures described above for stock options. Exercise of a SAR issued in tandem with a stock option will reduce the number
of shares underlying the related stock option to the extent of the SAR exercised. The term of a freestanding SAR cannot exceed
10 years, and the term of a tandem SAR cannot exceed the term of the related stock option.
●
Restricted Stock, Restricted Stock Units and Other Stock-Based Awards
. The Compensation Committee
may grant awards of restricted stock, which are shares of common stock subject to specified restrictions, and restricted
stock units (RSUs), which represent the right to receive shares of our common stock in the future. These awards may be made
subject to repurchase, forfeiture or vesting restrictions at the Compensation Committee’s discretion. The restrictions
may be based on continuous service with the Company or the attainment of specified performance goals, as determined by the
Compensation Committee. Stock units may be paid in stock or cash or a combination of stock and cash, as determined by the
Compensation Committee. The Compensation Committee may also grant other types of equity or equity-based awards subject to the
terms and conditions of the 2015 Plan and any other terms and conditions determined by the Compensation Committee.
●
Performance
Awards
. The Compensation Committee may grant performance awards, which entitle participants to receive a payment from the
Company, the amount of which is based on the attainment of performance goals established by the Compensation Committee over a
specified award period. Performance awards may be denominated in shares of common stock or in cash, and may be paid in stock or
cash or a combination of stock and cash, as determined by the Compensation Committee. Cash-based performance awards include annual
incentive awards.
No
Repricing
Without
stockholder approval, the Compensation Committee is not authorized to (1) lower the exercise or grant price of a stock option
or SAR after it is granted, except in connection with certain adjustments to our corporate or capital structure permitted by the
2015 Plan, such as stock splits, (2) take any other action that is treated as a repricing under generally accepted accounting
principles or (3) cancel a stock option or SAR at a time when its exercise or grant price exceeds the fair market value of the
underlying stock, in exchange for cash, another stock option or SAR, restricted stock, RSUs or other equity award, unless the
cancellation and exchange occur in connection with a change in capitalization or other similar change.
Clawback
All
cash and equity awards granted under the 2015 Plan will be subject to all applicable laws regarding the recovery of erroneously
awarded compensation, any implementing rules and regulations under such laws, any policies adopted by the Company to implement
such requirements, and any other compensation recovery policies as may be adopted from time to time by the Company.
Performance-Based
Compensation under Section 162(m)
Performance
Goals and Criteria
. Under Code Section 162(m), we may be prohibited from deducting compensation paid to our principal executive
officer and our three other most highly compensated executive officers (other than our principal financial officer) in excess
of $1 million per person in any year. However, compensation that qualifies as “performance-based” is not subject to
the $1 million limit.
If the Compensation
Committee intends to qualify an award under the 2015 Plan as “performance-based” compensation under Code Section 162(m),
the performance goals selected by the Compensation Committee may be based on the attainment of specified levels of one, or any
combination, of the following performance criteria for the Company on a consolidated basis, and/or specified subsidiaries or business
units, as reported or calculated by the Company (except with respect to the total stockholder return and earnings per share criteria):
(1) cash flow; (2) earnings per share, as adjusted for any stock split, stock dividend or other recapitalization; (3) earnings
measures (including EBIT and EBITDA); (4) return on equity; (5) total stockholder return; (6) share price performance, as adjusted
for any stock split, stock dividend or other recapitalization; (7) return on capital; (8) revenue; (9) income; (10) profit margin;
(11) return on operating revenue; (12) brand recognition/acceptance; (13) customer metrics (including customer satisfaction, customer
retention, customer profitability or customer contract terms); (14) productivity; (15) expense targets; (16) market share;
(17) cost control measures; (18) balance sheet metrics; (19) strategic initiatives; (20) implementation, completion or attainment
of measurable objectives with respect to recruitment or retention of personnel or employee satisfaction; (21) return on assets;
(22) growth in net sales; (23) the ratio of net sales to net working capital; (24) stockholder value added; (25) improvement
in management of working capital items (inventory, accounts receivable or accounts payable); (26) sales from newly-introduced products;
(27) successful completion of, or achievement of milestones or objectives related to, financing or capital raising transactions,
strategic acquisitions or divestitures, joint ventures, partnerships, collaborations or other transactions; (28) product quality,
safety, productivity, yield or reliability (on time and complete orders); (29) funds from operations; (30) regulatory body approval
for commercialization of a product; (31) debt levels or reduction or debt ratios; (32) economic value; (33) operating efficiency;
(34) research and development achievements; or (35) any combination of the forgoing business criteria. The Compensation Committee
can also select any derivations of these business criteria (e.g., income will include pre-tax income, net income, operating income).
Performance
goals may, in the discretion of the Compensation Committee, be established on a Company-wide basis, or with respect to one or
more business units, divisions, subsidiaries or business segments, as applicable. Performance goals may be absolute or relative
to the performance of one or more comparable companies or indices.
The Compensation Committee may determine at the time
that the performance goals are established the extent to which measurement of performance goals may exclude the impact of charges
for restructuring, discontinued operations, extraordinary items, debt redemption or retirement, asset write downs, litigation
or claim judgments or settlements, acquisitions or divestitures, foreign exchange gains and losses and other extraordinary, unusual
or non-recurring items, and the cumulative effects of tax or accounting changes (each as defined by generally accepted accounting
principles and as identified in the Company’s financial statements or other SEC filings).
In addition, compensation
realized from the exercise of options and SARs granted under the 2015 Plan is intended to meet the requirements of the performance-based
compensation exception under Code Section 162(m). These awards must have an exercise price equal at least to fair market value
at the date of grant, are granted to covered individuals by a Compensation Committee consisting of at least two outside directors,
and the 2015 Plan limits the number of shares that may be the subject of awards granted to any individual during any calendar
year.
Limitations
.
Subject to certain adjustments for changes in our corporate or capital structure described above, participants who are granted
awards intended to qualify as “performance-based” compensation under Code Section 162(m) may not be granted stock
options or SARs for more than 100,000 shares in any calendar year or more than 125,000 shares for all share-based awards that
are performance awards in any calendar year. The maximum dollar value granted to any participant pursuant to that portion of a
cash award granted under the 2015 Plan for any calendar year to any employee that is intended to satisfy the requirements for
“performance-based compensation” under Code Section 162(m) may not exceed $4.0 million for an annual incentive award
and $2.0 million for all other cash-based awards.
Transferability
Awards
are not transferable other than by will or the laws of descent and distribution, except that in certain instances transfers may
be made to or for the benefit of designated family members of the participant for no value.
Change
in Control
Effect
of Change in Control
. Under the 2015 Plan, in the event of a change in control (as defined in the 2015 Plan), outstanding
awards will be treated in accordance with the applicable transaction agreement. If no treatment is provided for in the transaction
agreement, each award holder will be entitled to receive the same consideration that stockholders receive in the change in control
for each share of stock subject to the award holder’s awards, upon the exercise, payment or transfer of the awards, but
the awards will remain subject to the same terms, conditions and performance criteria applicable to the awards before the change
in control, unless otherwise determined by the Compensation Committee. In connection with a change in control, outstanding stock
options and SARs can be cancelled in exchange for the excess of the per share consideration paid to stockholders in the transaction,
minus the option or SARs exercise price.
Subject
to the terms and conditions of the applicable award agreements, awards granted to non-employee directors will fully vest on an
accelerated basis, and any performance goals will be deemed to be satisfied at target. For awards granted to all other service
providers, vesting of awards will depend on whether the awards are assumed, converted or replaced by the resulting entity.
● For
awards that are not assumed, converted or replaced, the awards will vest upon the change in control. For performance awards,
the amount vesting will be based on the greater of (1) achievement of all performance goals at the “target” level
or (2) the actual level of achievement of performance goals as of the Company’s fiscal quarter end preceding the change
in control, and will be prorated based on the portion of the performance period that had been completed through the date of
the change in control.
● For
awards that are assumed, converted or replaced by the resulting entity, no automatic vesting will occur upon the change in control.
Instead, the awards, as adjusted in connection with the transaction, will continue to vest in accordance with their terms and
conditions. In addition, the awards will vest if the award recipient has a separation from service within two years after the
change in control by the Company other than for “cause” or by the award recipient for “good reason” (each
as defined in the applicable award agreement). For performance awards, the amount vesting will be based on the greater of (1)
achievement of all performance goals at the “target” level or (2) the actual level of achievement of performance goals
as of the Company’s fiscal quarter end preceding the change in control, and will be prorated based on the portion of the
performance period that had been completed through the date of the separation from service.
Term,
Termination and Amendment of the 2015 Plan
Unless
earlier terminated by the Board, the 2015 Plan will terminate, and no further awards may be granted, 10 years after August 26,
2015, the date it was approved by stockholders. The Board may amend, suspend or terminate the 2015 Plan at any time, except that,
if required by applicable law, regulation or stock exchange rule, stockholder approval will be required for any amendment. The
amendment, suspension or termination of the 2015 Plan or the amendment of an outstanding award generally may not, without a participant’s
consent, materially impair the participant’s rights under an outstanding award.
Equity
Compensation Plan Information
The
following table provides information as of December 31, 2015 with respect to compensation plans under which equity securities
of the Company are authorized for issuance, adjusted to reflect the 1-for-50 reverse split of our common stock effective July
8, 2015.
Plan Category
|
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
|
|
|
Weighted-average exercise price of outstanding options, warrants and rights
|
|
|
Number of securities remaining available for future issuance under equity compensation plans
|
|
Equity compensation plans approved by security holders
|
|
|
308,464
|
|
|
$
|
13.61
|
|
|
|
300,000
|
|
Equity compensation plans not approved by security holders
|
|
|
80,794
|
|
|
$
|
28.84
|
|
|
|
—
|
|
Total
|
|
|
389,248
|
|
|
$
|
16.77
|
|
|
|
300,000
|
|
The 2015 Plan is summarized above under
“Summary of the 2015 Plan and Amendment”. The 2013 Plan was adopted by our Board and approved by our stockholders in
June 2013. The 2013 Plan authorizes our Board (as administrator of the 2013 Plan) to grant incentive stock options to employees,
and to grant nonstatutory stock options or stock purchase rights to employees, directors and consultants (each as defined in the
2013 Plan). The 2013 Plan, when initially approved by our stockholders in June 2013, reserved for issuance 14,000,000 shares of
our common stock (280,000 shares of common stock post-split). On March 25, 2015, our Board amended the 2013 Plan to reserve for
issuance 21,000,000 shares of our common stock (420,000 shares of common stock post-split). This increase has not been approved
by our stockholders. No further amendments have been made to the 2013 Plan.
With
respect to grants of incentive stock options under the 2013 Plan to employees who, at the time of grant, own stock representing
more than 10% of the voting power of all classes of stock of the Company, the exercise price of incentive stock options must be
no less than 110% of the fair market value of our common stock on the date of the grant. In the case of a grant of incentive stock
options under the 2013 Plan to any other employee, the exercise price of incentive stock options must be no less than 100% of
the fair market value of our common stock on the date of the grant. With respect to grants of nonstatutory stock options under
the 2013 Plan, the exercise price of nonstatutory stock options must be no less than 100% of the fair market value of our common
stock on the date of the grant.
The
fair market value means the value of our common stock on the applicable grant date, determined as follows: (i) if our common stock
is listed on an established stock exchange, the closing price of our common stock on the last market trading day prior to the
grant of the award; (ii) if our common stock is regularly quoted by a recognized securities dealer, but selling prices are not
reported, the arithmetic mean between the high bid and low asked stock prices on the last market trading day prior to the grant
of the award; or (iii) if our common stock is not publicly traded or quoted, as established by our Board in good faith and consistent
with the definition of fair market value under the regulations promulgated under Section 409A of the Internal Revenue Code of
1986, as amended.
Options
granted under the 2013 Plan generally must be exercised during the optionee’s continuing status as an employee, director
or consultant. If an employee, director or consultant ceases to perform services in his or her respective capacity for the Company,
such optionee may only exercise his or her options within the period of time specified in an option agreement, which must specify
at least thirty days to the extent that the options are vested on the date of termination. If no time period is so specified,
the options will remain exercisable for three months following the optionee’s termination with the Company.
If
an employee, director or consultant ceases to perform services in his or her respective capacity for the Company because the optionee
becomes disabled, such optionee may exercise his or her options within the period of time specified in an option agreement, which
must specify a time period of at least six months to the extent that the options are vested on the date of termination. If no
time period is so specified, the options will remain exercisable for twelve months following the optionee’s termination
with the Company due to such disability.
If
an employee, director or consultant ceases to perform services in his or her respective capacity for the Company due to his or
her death, his or her options may be exercised (by the optionee’s estate or a person who acquires the right through inheritance)
within the period of time specified in an option agreement, which must specify at least six months to the extent that the options
are vested on the date of his or her death. If no time period is so specified, the options will remain exercisable for twelve
months following the optionee’s termination with the Company due to his or her death.
If
an employee, director or consultant ceases to perform services in his or her respective capacity for the Company due to termination,
disability or death, in no event shall the options be exercised after ten years from the date of the grant.
Stock purchase rights
granted under the 2013 Plan are subject to the same terms and restrictions as the option grants and may be granted independent
of, or in connection with, the grant of other awards granted under the 2013 Plan and/or cash awards made outside the 2013 Plan.
In order to accept an award of stock purchase rights, the employee, director or consultant receiving such award must execute a
restricted stock purchase agreement setting forth the terms of the award, as well as the stock price of stock purchase rights,
as determined by our Board. The relevant restricted stock purchase agreement shall also grant to us a right of repurchase (unless
our Board determines otherwise). If and when the stock purchase right is exercised, the employee, director or consultant exercising
the stock purchase right shall have rights equivalent to those of a stockholder of the Company.
Awards granted under
the 2013 Plan are generally not transferable by the participant except by will or the laws of descent or distribution, and each
award is exercisable, during the lifetime of the participant, only by the participant (except as otherwise provided in the 2013
Plan).
Under certain circumstances in connection with a merger or other extraordinary corporate transaction, accelerated
vesting of such awards may occur, all as set forth in the 2013 Plan. Our Board may amend, alter, suspend, or terminate the 2013
Plan at any time, and concurrent with the adoption and approval of the 2015 Plan has eliminated any authorization for new grants
pursuant to the 2013 Plan. We may not alter the rights and obligations under any award granted before amendment of the 2013 Plan
without the consent of the affected participant. Unless terminated sooner, the 2013 Plan will terminate automatically in June 2023.
Equity
compensation not approved by stockholders consists of warrants issued to service providers, typically businesses, which are issued
on the basis of services provided in lieu of, in whole or in part, cash compensation. All warrants outstanding as of December
31, 2015 were issued as fully exercisable on the date of issuance. As of December 31, 2015, as adjusted to give effect to the
1-for-50 reverse split of our common stock effective July 8, 2015, equity compensation not approved by stockholders consists of:
|
|
Issue Date
|
|
Expiration Date
|
|
Number of Shares Underlying
Warrants
(#)
|
|
|
Exercise Price
per Share
($)
|
|
2013 Services Warrants—July(1)
|
|
July 2013
|
|
July 2018
|
|
|
9,494
|
|
|
$
|
37.50
|
|
2013 Services Warrants—August(1)
|
|
Aug 2013
|
|
Aug 2018
|
|
|
728
|
|
|
|
37.50
|
|
2013 Services Warrants—November(2)
|
|
Nov 2013
|
|
Nov 2018
|
|
|
2,400
|
|
|
|
50.00
|
|
2014 Services Warrants—April(3)
|
|
Apr 2014
|
|
Apr 2019
|
|
|
13,657
|
|
|
|
39.00
|
|
2014 Services Warrants—September(4)
|
|
Aug 2014
|
|
Aug 2019
|
|
|
16,000
|
|
|
|
25.00
|
|
2014 PIPE Warrants—September(5)
|
|
Sept 2014
|
|
Sept 2018
|
|
|
26,500
|
|
|
|
25.00
|
|
2014 Services Warrants—November(6)
|
|
Nov 2014
|
|
Nov 2018
|
|
|
6,500
|
|
|
|
25.00
|
|
2015 Services Warrants—May(7)
|
|
May 2015
|
|
May 2020
|
|
|
5,515
|
|
|
|
12.50
|
|
Balance outstanding at December 31, 2015
|
|
|
|
|
|
|
80,794
|
|
|
$
|
28.84
|
|
Warrants exercisable at December 31, 2015
|
|
|
|
|
|
|
80,794
|
|
|
$
|
28.84
|
|
(1)
|
The
July and August 2013 services warrants were issued for fees incurred in conjunction with the Private Equity issuances
in July 2013. The warrants were valued on the issuance date using the Black-Scholes option pricing model at $214,000 for
the combined 10,222 warrants issued.
|
(2)
|
The
November 2013 services warrants were issued for fees incurred in conjunction with the November 2013 Private Equity issuance. The
warrants were valued using the Black-Scholes option pricing model at $72,000 on the issuance date.
|
(3)
|
The
April 2014 services warrants were issued for fees incurred in conjunction with the 2014 Convertible Notes. The shares of common
stock issuable upon exercise of the warrants were valued at $157,000 on the issuance date.
|
|
|
(4)
|
The
September 2014 services warrants were issued to a consultant in exchange for advisory services with no readily available fair
value. At the time of issuance, the exercise price of the warrants was $0.78 per share ($39.00 per share on a post-split adjusted
basis), and the warrants had a one-time price reset provision to the exercise price of the Convertible Notes Warrants if the exercise
price of the Convertible Notes Warrants changed prior the September 30, 2014. On September 22, 2014, the exercise price was changed
to $0.50 per share ($25.00 per share on a post-split adjusted basis). There are no further exercise price changes for this warrant
series. The warrants were valued using the Black-Scholes option pricing model at $131,000 on the issuance date with an additional
$6,000 recorded to expense on September 22, 2014 to reflect the change in fair value resulting from the exercise price change.
|
|
|
(5)
|
The
September 2014 PIPE Warrants were issued in connection with placement agent services for the Company’s September 2014 private
equity placement. The warrants were valued using the Black-Scholes option pricing model at $296,000 on the issuance date.
|
|
|
(6)
|
The
November 2014 services warrants were issued as compensation for investor relations services provided during 2014. The warrants
were valued using the Black-Scholes option pricing model at $43,000 on the issuance date.
|
|
|
(7)
|
The
May 2015 services warrants were issued in connection with placement agent services for the Company’s May 2015 private
equity placement. The warrants were valued using the Black-Scholes option pricing model at $56,000 on the issuance date.
|
Federal
Income Tax Information
The
following is a brief summary of the U.S. federal income tax consequences of the 2015 Plan generally applicable to the Company
and to participants in the 2015 Plan who are subject to U.S. federal taxes. The summary is based on the Code, applicable Treasury
Regulations and administrative and judicial interpretations thereof, each as in effect on the date of this Proxy Statement, and
is, therefore, subject to future changes in the law, possibly with retroactive effect. The summary is general in nature and does
not purport to be legal or tax advice. Furthermore, the summary does not address issues relating to any U.S. gift or estate tax
consequences or the consequences of any state, local or foreign tax laws.
Nonqualified
Stock Options
. A participant generally will not recognize taxable income upon the grant or vesting of a nonqualified stock
option with an exercise price at least equal to the fair market value of our common stock on the date of grant and no additional
deferral feature. Upon the exercise of a nonqualified stock option, a participant generally will recognize compensation taxable
as ordinary income in an amount equal to the difference between the fair market value of the shares underlying the stock option
on the date of exercise and the exercise price of the stock option. When a participant sells the shares, the participant will
have short-term or long-term capital gain or loss, as the case may be, equal to the difference between the amount the participant
received from the sale and the tax basis of the shares sold. The tax basis of the shares generally will be equal to the greater
of the fair market value of the shares on the exercise date or the exercise price of the stock option.
Incentive
Stock Options
. A participant generally will not recognize taxable income upon the grant of an incentive stock option. If a
participant exercises an incentive stock option during employment or within three months after employment ends (12 months in the
case of permanent and total disability), the participant will not recognize taxable income at the time of exercise for regular
U.S. federal income tax purposes (although the participant generally will have taxable income for alternative minimum tax purposes
at that time as if the stock option were a nonqualified stock option). If a participant sells or otherwise disposes of the shares
acquired upon exercise of an incentive stock option after the later of (1) one year from the date the participant exercised the
option and (2) two years from the grant date of the stock option, the participant generally will recognize long-term capital gain
or loss equal to the difference between the amount the participant received in the disposition and the exercise price of the stock
option. If a participant sells or otherwise disposes of shares acquired upon exercise of an incentive stock option before these
holding period requirements are satisfied, the disposition will constitute a “disqualifying disposition,” and the
participant generally will recognize taxable ordinary income in the year of disposition equal to the excess of the fair market
value of the shares on the date of exercise over the exercise price of the stock option (or, if less, the excess of the amount
realized on the disposition of the shares over the exercise price of the stock option). The balance of the participant’s
gain on a disqualifying disposition, if any, will be taxed as short-term or long-term capital gain, as the case may be.
With
respect to both nonqualified stock options and incentive stock options, special rules apply if a participant uses shares of common
stock already held by the participant to pay the exercise price or if the shares received upon exercise of the stock option are
subject to a substantial risk of forfeiture by the participant.
Stock
Appreciation Rights
. A participant generally will not recognize taxable income upon the grant or vesting of a SAR with a grant
price at least equal to the fair market value of our common stock on the date of grant and no additional deferral feature. Upon
the exercise of a SAR, a participant generally will recognize compensation taxable as ordinary income in an amount equal to the
difference between the fair market value of the shares underlying the SAR on the date of exercise and the grant price of the SAR.
Restricted
Stock Awards, Restricted Stock Units, and Performance Awards
. A participant generally will not have taxable income upon the
grant of restricted stock, RSUs or performance awards. Instead, the participant will recognize ordinary income at the time of
vesting or payout equal to the fair market value (on the vesting or payout date) of the shares or cash received minus any amount
paid. For restricted stock only, a participant may instead elect to be taxed at the time of grant.
Other
Stock or Cash-Based Awards
. The U.S. federal income tax consequences of other stock- or cash- based awards will depend upon
the specific terms and conditions of each award.
Tax
Consequences to the Company
. In the foregoing cases, we generally will be entitled to a deduction at the same time, and in
the same amount, as a participant recognizes ordinary income, subject to certain limitations imposed under the Code.
Code
Section 409A
. We intend that awards granted under the 2015 Plan will comply with, or otherwise be exempt from, Code Section
409A, but make no representation or warranty to that effect.
Tax
Withholding.
We are authorized to deduct or withhold from any award granted or payment due under the 2015 Plan, or require
a participant to remit to us, the amount of any withholding taxes due in respect of the award or payment and to take such other
action as may be necessary to satisfy all obligations for the payment of applicable withholding taxes. We are not required to
issue any shares of common stock or otherwise settle an award under the 2015 Plan until all tax withholding obligations are satisfied.
Vote
Required
The
affirmative vote of the holders of a majority of the votes cast at the annual meeting will be required to approve Proposal 4.
THE
BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE AMENDMENT TO THE ENER-CORE, INC. 2015
OMNIBUS INCENTIVE PLAN.
PROPOSAL
4: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
We
are providing stockholders with the opportunity to cast a non-binding, advisory vote on the compensation of our named executive
officers as disclosed pursuant to the SEC’s executive compensation disclosure rules and set forth in this Proxy Statement
(including in the compensation tables and narratives accompanying those tables as well as in the Compensation Discussion and Analysis).
As
described more fully in the Compensation Discussion and Analysis beginning on page 20 of this Proxy Statement, the
principal elements of our executive compensation are base salary and stock incentive plan awards (with the majority of such
awards historically being stock options). While base salary is generally included as an element of compensation of our
executive officers in every year, the granting of stock incentive awards, as well as bonuses and perquisites, is determined
on a case-by-case basis. We believe that this compensation structure has served us well and reflects our philosophy of
fairness to our employees and avoiding discrepancies between our executive pay and the pay of our middle management and other
employees.
In
accordance with the requirements of Section 14A of the Exchange Act (which was added by the Dodd-Frank Wall Street Reform and
Consumer Protection Act) and the related rules of the SEC, the Board requests your advisory vote on the following resolution at
the annual meeting:
RESOLVED,
that the compensation paid to the Company’s named executive officers, as disclosed in this Proxy Statement pursuant to the
SEC’s executive compensation disclosure rules (which disclosure includes the Compensation Discussion and Analysis, the compensation
tables and the narrative discussion that accompanies the compensation tables), is hereby approved.
This
vote is an advisory vote only and will not be binding on the Company, the Board or the Compensation Committee, and will not be
construed as overruling a decision by, or creating or implying any additional fiduciary duty for, the Board or the Compensation
Committee. However, the Board and Compensation Committee, which is responsible for designing and administering our executive compensation
program, values the opinions expressed by stockholders in their vote on this Proposal, and will consider the outcome of the vote
when making future compensation decisions for named executive officers.
Vote
Required
The
affirmative vote of the holders of a majority of the votes cast at the annual meeting will be required to approve Proposal 4.
THE
BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE COMPENSATION OF THE COMPANY’S
NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO THE SEC’S EXECUTIVE COMPENSATION DISCLOSURE RULES.
ANNUAL
REPORT ON FORM 10-K
ENCLOSED
HEREWITH IS A COPY OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K, AND ANY AMENDMENTS THERETO (WITHOUT EXHIBITS) FOR OUR FISCAL
YEAR ENDED DECEMBER 31, 2015. NO PART OF THE ANNUAL REPORT IS INCORPORATED HEREIN AND NO PART THEREOF IS TO BE CONSIDERED PROXY
SOLICITING MATERIAL. ADDITIONAL COPIES MAY BE REQUESTED IN WRITING. SUCH REQUESTS SHOULD BE SUBMITTED TO THE COMPANY’S SECRETARY
AT
ENER-CORE, INC., 9400 Toledo Way, Irvine, California 92618. EXHIBITS TO THE ANNUAL
REPORT ON FORM 10-K WILL ALSO BE PROVIDED UPON SPECIFIC REQUEST. THE MATERIALS WILL BE PROVIDED WITHOUT CHARGE.
OTHER
MATTERS
The
Board and management do not know of any other matters that will be presented for consideration at the annual meeting. If any other
matters are properly brought before the annual meeting, the persons appointed as proxies will vote on such matters in accordance
with their best judgment.
STOCKHOLDERS
PROPOSALS FOR 2017 ANNUAL MEETING
To
be considered for inclusion in next year’s Proxy Statement, stockholder proposals must be received at our principal executive
offices no later than the close of business on May 1, 2017, in accordance with Rule 14a-8 promulgated under the Exchange Act.
However, if the date of the next annual meeting is changed by more than 30 days from the anniversary of this year’s annual
meeting, then, to be considered for inclusion in the Proxy Statement relating to next year’s annual meeting, notice of a
stockholder proposal will need to be received by the Company in a reasonable amount of time before the Company begins to send
its proxy materials for the 2017 annual meeting.
If
a stockholder wishes to present a stockholder proposal at our next annual meeting that is not intended to be included in the Proxy
Statement, we must receive such proposal no later than July 31, 2017. Under Rule 14a-4(c) under the Exchange Act, which governs
the Company’s use of discretionary proxy voting authority with respect to stockholder proposals that are not included in
the Company’s proxy solicitation materials pursuant to Rule 14a-8 of the Exchange Act, if we do not receive the stockholder’s
notice of intent to present such a proposal at the Company’s 2017 annual meeting by July 31, 2017, then the Company’s
management proxies will have the right to exercise their discretionary authority in connection with the matter submitted by the
stockholders, without discussion of the matter in the Proxy Statement. However, if the date of our 2017 annual meeting is changed
by more than 30 days from the anniversary of this year’s annual meeting, then notice will need to be received by the Company
not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on
the later of the 60th day prior to such annual meeting or, in the event public announcement of the date of such annual meeting
is first made by the Company fewer than 70 days prior to the date of such annual meeting, the close of business on the 10th day
following the day on which public announcement of the date of such meeting is first made by the Company.
Any
proposal must comply with the requirements as to form and substance established by the SEC for such proposal to be included in
our Company’s Proxy Statement. The Company reserves the right to exclude stockholder proposals pursuant to SEC rules, or
if untimely. If a stockholder nominates a director candidate, in order for such nomination to be valid and acceptable, all information
required to be provided under Regulation 14A under the Exchange Act and requested by the Board (or Nominating and Corporate Governance
Committee, if applicable) concerning such candidate must be furnished within a reasonable time prior to the above deadline for
stockholder proposals.
All
notices of intention to present a proposal at the 2017 annual meeting should be addressed to our Company Secretary at Ener-Core,
Inc., 9400 Toledo Way, Irvine California 92618 and to ensure prompt receipt by us, such notices should be sent to us via certified
mail, return receipt requested. We reserve the right to reject, rule out of order, or take other appropriate action with respect
to any proposal that does not comply with these and other applicable requirements. Any stockholder proposal for next year’s
annual meeting submitted after the deadlines described above will not be considered filed on a timely basis. For proposals that
are not timely filed, we retain discretion to vote the proxies we receive. For proposals that are timely filed, we retain discretion
to vote the proxies we receive, provided that (i) we include in our Proxy Statement advice on the nature of the proposal and how
we intend to exercise our voting discretion and (ii) the proponent does not issue a Proxy Statement.
DIRECTOR
NOMINEES FOR 2017 ANNUAL MEETING
In
accordance with procedures set forth in our Amended and Restated Bylaws, our stockholders may propose nominees for election to
the Board only after providing timely written notice to our Company Secretary. To be timely, a stockholder’s notice to our
Company Secretary must be delivered to or mailed and received at our principal executive offices, located at 9400 Toledo Way,
Irvine California 92618, on or before July 31, 2017
but not earlier than July 1, 2017. However, if the date of our
2017 annual meeting is changed by more than 30 days from the anniversary of this year’s annual meeting, then notice will
need to be received by the Company not earlier than the close of business on the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th day prior to such annual meeting or, in the event public announcement
of the date of such annual meeting is first made by the Company fewer than 70 days prior to the date of such annual meeting, the
close of business on the 10th day following the day on which public announcement of the date of such meeting is first made by
the Company.
The
notice must set forth, among other things:
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the
nominee’s name, age, business address and residence address;
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the
nominee’s principal occupation or employment;
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the
class and number of shares of our capital stock which are beneficially owned by the nominee;
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a
description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nominations are to be made by the stockholder; and
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any
other information concerning the nominee required under the rules of the SEC in a proxy statement soliciting proxies for the election
of directors, as well as certain other specific information required by our Amended and Restated Bylaws, a copy of which may be
obtained by writing to our Company Secretary or accessing the SEC’s EDGAR filing database at www.sec.gov.
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Submissions
must be made by mail, courier or personal delivery—submissions by e-mail will not be considered. The Nominating and Corporate
Governance Committee will consider only those stockholder recommendations whose submissions comply with the above procedural requirements,
including the additional requirements set forth in our Amended and Restated Bylaws. The Nominating and Corporate Governance Committee
will evaluate candidates recommended by stockholders in the same manner as those recommended by others.
DELIVERY
OF DOCUMENTS TO SECURITY HOLDERS SHARING AN ADDRESS
The
SEC has adopted rules that permit companies and intermediaries such as brokers to satisfy delivery requirements for Proxy Statements
with respect to two or more stockholders sharing the same address by delivering a single Proxy Statement addressed to those stockholders.
This process, which is commonly referred to as “householding,” potentially provides extra convenience for stockholders
and cost savings for companies. We and some brokers deliver a single Proxy Statement to multiple stockholders sharing an address
unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker
or us that they are or we will be householding materials to your address, householding will continue until you are notified otherwise
or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive
a separate Proxy Statement, or if you currently receive multiple Proxy Statements and would prefer to participate in householding,
please notify your broker if your shares are held in a brokerage account or us if you hold registered shares. You can notify us
by sending a written request to our Company Secretary at Ener-Core, Inc., 9400 Toledo Way, Irvine California 92618 or by calling
us at (949) 616-3300.
WHERE
YOU CAN FIND MORE INFORMATION
The
Company files annual, quarterly and current reports, proxy statements and other information with the SEC. You can read these SEC
filings over the Internet at the SEC’s website at www.sec.gov. To receive copies of public records not posted to the SEC’s
web site at prescribed rates, you may complete an online form at http://www.sec.gov, send a fax to (202) 772-9337 or submit a
written request to the SEC, Office of FOIA/PA Operations, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for further information.
By
Order of the Board of Directors,
/s/
Michael J. Hammons
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Michael
J. Hammons,
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Chairman
of the Board
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Irvine,
California
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August
29, 2016
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Appendix
A
FIRST
AMENDMENT
TO
ENER-CORE,
INC.
2015
OMNIBUS INCENTIVE PLAN
In
accordance with those certain resolutions adopted by the Board of Directors and stockholders of Ener-Core, Inc., a Delaware corporation
(the “
Company
”), the 2015 Omnibus Incentive Plan (the “
Plan
”) of the Company is hereby amended
as follows:
1. Section
4.1 of the Plan is hereby amended and restated in its entirety to increase the number of shares reserved for issuance under the
Plan as follows:
“
4.1.
Authorized
Number of Shares.
Subject
to adjustment under
Section 15
, the aggregate number of shares of Common Stock that may be initially issued pursuant to
the Plan is 600,000. In addition, Shares underlying any outstanding award granted under the Prior Plan that, following the Effective
Date, expires, or is terminated, surrendered or forfeited for any reason without issuance of Shares shall be available for the
grant of new Awards. As provided in
Section 1
, no new awards shall be granted under the Prior Plan following the Effective
Date. Shares issued under the Plan may consist in whole or in part of authorized but unissued Shares, treasury Shares or Shares
purchased on the open market or otherwise, all as determined by the Board from time to time.”
2. Unless
otherwise expressly provided for in this First Amendment to the Plan (the “
First Amendment
”), all capitalized
words, phrases, or defined terms used in this First Amendment will have the same meaning ascribed to them in the Plan.
3. Except
as expressly set forth in this First Amendment, there have been no other changes or modifications to the Plan, and the Plan remains
otherwise unchanged and in full force and effect.
4. This
First Amendment shall be effective as of [______], 2016.
I
hereby certify that the Plan was duly amended and such First Amendment has been duly approved by the Board of Directors of the
Company as of August 22, 2016 and such First Amendment has been duly approved by the stockholders of the Company as of [______],
2016.
[
Signature
Page
Follows
]
IN
WITNESS WHEREOF, the undersigned has caused this First Amendment to be executed effective as of the date set forth above.
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ENER-CORE, INC.,
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A Delaware corporation
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By:
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Domonic
J. Carney, Chief Financial Officer
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