Item 1.01
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Entry into a Material Definitive Agreement.
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On July 12, 2018, ClearSign Combustion Corporation
(the “Company”) entered into a Stock Purchase Agreement with an accredited investor (the “Investor”) pursuant
to which the Company will sell an aggregate of 5,213,543 shares of its common stock, $0.0001 par value (the “Shares”)
at a price of $2.25 per Share for gross proceeds of $11,730,471.75. The closing of the transaction is expected to take place on
or before July 20, 2018 (the “Closing Date”).
The Stock Purchase Agreement
In addition to the purchase of the Shares,
the Stock Purchase Agreement permits the Investor, for a period that begins on the Closing Date and ends seven days following the
expiration date of the warrants issued on January 25, 2017 (the “Warrants”), to purchase from the Company up to an
aggregate 478,854 shares of common stock at a price of $4.00 per share (the “Additional Purchase Right”). The number
of shares of common stock for which the Additional Purchase Right may be exercised and the price at which the shares may be purchased
are both subject to adjustment as provided in the Warrants. The Stock Purchase Agreement provides that the Investor may appoint
one director to the Company’s Board of Directors.
The Stock Purchase Agreement also permits
the Investor to participate in future capital raising transactions (the “Participation Right”) on the same terms as
other investors participating in such transactions. The Participation Right will expire on December 31, 2023. Excluded from the
Participation Right are the following: (i) shares of common stock issued pursuant to the exercise of certain currently outstanding
warrants or options or issued pursuant to equity incentive plans or other compensation arrangements; (ii) securities issued in
debt financing transactions with any financial institution or company; (iii) securities issued in transactions with strategic partners
such as customers, suppliers or distributors; (iv) securities issued in rights or other securities offerings made to all stockholders;
and (v) securities issued pursuant to stockholder-approved transactions including any transaction resulting in a change of control.
Transactions with strategic partners include, but are not limited to, (A) the consolidation or merger by the Company (or its subsidiaries
or affiliates) with or into (whether or not the Company is the surviving corporation) another entity; (B) the sale, assignment,
transfer, conveyance or disposition of all or substantially all of the properties or assets of the Company or any of its significant
subsidiaries; (C) allowing one or more entities to make, or allowing the Company to be subject to or have its common stock be subject
to, a purchase, tender or exchange offer; (D) the consummation of a stock or share purchase agreement with a strategic partner;
or (E) the consummation with a strategic partner of any other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement).
The Investor may not exercise the Additional
Purchase Right or the Participation Right if the purchase of additional shares of common stock would cause the Investor to own
20% or more of the Company’s then outstanding common stock or hold shares with 20% or more of the voting power of the Company.
The Registration Rights Agreement
Under the terms of a Registration Rights
Agreement that will be entered into with the Investor on the Closing Date, the Company is required to register the Shares for resale
and to register the shares that may be issued pursuant to the Additional Purchase Right and the Participation Right so long as
the shares purchased by other investors in the offering subject to the Participation Right are also required to be registered.
The Registration Rights Agreement requires the Company to file the registration statement with the Securities and Exchange Commission
(the “Commission”) and to use commercially reasonable efforts to have the registration statement declared effective
by the Commission six months after the Closing Date. The registration rights granted to the Investor will terminate in their entirety
effective on the first date on which there ceases to be outstanding any Registrable Securities, as defined in the Registration
Rights Agreement.
The Voting Agreement
Pursuant to a Voting Agreement that will
be entered into with the Investor on the Closing Date, for so long as the Investor beneficially owns at least 3,000,000 shares
of common stock (as adjusted for any stock split, stock dividend or any subdivision of the common stock, or any other reclassification
or other similar recapitalization after the Closing Date), or such lesser number of shares of common stock which then constitute
at least 10% of the shares of the Company’s then outstanding common stock, at each annual meeting of the stockholders of
the Company or at any meeting of the stockholders of the Company at which members of the Board of Directors are to be elected,
or whenever such action is to be taken by written consent, the Company will nominate for election one individual designated by
the Investor. The Voting Agreement will terminate in its entirety upon the earlier to occur of (a) the mutual written agreement
of the Investor and the Company; (b) the occurrence of a Change in Control, as defined in the Voting Agreement; and (c) a decline,
whether as a result of the Company’s issuance of additional shares of common stock or as a result of the Investor’s
sale of shares of the Company’s common stock, in the Investor’s ownership of the Company’s common stock to less
than 10% of shares of the then outstanding common stock.
The above discussion does not purport to
be a complete description of the Stock Purchase Agreement, the Registration Rights Agreement and the Voting Agreement described
in this Current Report and it is qualified in its entirety by reference to the full text of such documents, which are attached
as exhibits to this Current Report and are incorporated herein by reference.