(1)

Review this Securities Purchase Agreement, Registration Rights Agreement, Senior Secured Convertible Promissory Note, Warrant, Security Agreement, and Subordination Agreement.

 

(2)

Indicate where appropriate, in Section 6(a) of the Securities Purchase Agreement, your status as an Accredited Investor by initialing the appropriate accreditation categories.

 

(3)

Type or print all information required in the blank sections in Section 6(b) of the Securities Purchase Agreement, including your requested subscription amount and your federal taxpayer identification number.

 

(4)

Execute the signature pages to the Securities Purchase Agreement, Registration Rights Agreement, Security Agreement, and Subordination Agreement.

 

(5)

If you are an individual, complete and execute, or cause to be executed, the enclosed Spousal Consent by either (i) having your spouse execute such consent or (ii) if  you are not married, by confirming your status as single on such consent.

 

(6)

Along with the completed and executed signature pages to this Securities Purchase Agreement, the Registration Rights Agreement, the Security Agreement, and the Subordination Agreement, send the completed Purchaser Information (Section 6 of this Securities Purchase Agreement) as well as the Spousal Consent to the following, preferably by fax or e-mail:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

o  a.	A director, executive officer or general partner of Company.
o  b.	A natural person whose individual net worth or joint net worth with spouse at time of purchase exceeds $1,000,000.  (In calculation of net worth, you may include equity in personal property and real estate (excluding your principal residence), cash, short term investments, stocks and securities.  Equity in personal property and real estate should be based on the fair market value of such property less debt secured by such property.)
o  c.	A natural person who had an individual income in excess of $200,000 in each of two most recent years or joint income with spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching same level of income in current year.
o  d.	A corporation, limited liability company, partnership, tax-exempt organization (under Section 501(c)(3) of Internal Revenue Code of 1986, as amended) or Massachusetts or similar business trust (i) not formed for specific purpose of acquiring Common Stock and (ii) having total assets in excess of $5,000,000.
o  e.	An entity which falls within one of following categories of institutional accredited investors, set forth in 501(a) of Regulation D under Securities Act [if you have marked this category, also mark which of following items describes you:]
	o  1.	A bank as defined in Section 3(a)(2) of Securities Act, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of Securities Act whether acting in its individual or a fiduciary capacity.
	o  2.	A broker/dealer registered pursuant to Section 15 of Securities Exchange Act of 1934.
	o  3.	An insurance company as defined in Section 2(13) of Securities Act.
	o  4.	An investment company registered under Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that act.
	o  5.	A Small Business Investment Company licensed by U.S. Small Business Administration under Section 301(c) or (d) of Small Business Investment Act of 1958.
	o  6.	Any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions for benefit of its employees, if such plan has total assets in excess of $5,000,000.
	o  7.	Any private business development company as defined in Section 202(a)(22) of Investment Advisers Act of 1940.
	o  8.	An employee benefit plan within meaning of Employee Retirement Income Security Act of 1974, if investment decision is made by a plan fiduciary, as defined in Section 3(21) of such act, which is either a bank, savings and loan association, insurance company or registered investment adviser, or if employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors.
	o  9.	A trust, with total assets in excess of $5,000,000, not formed for specific purpose of acquiring Class A Common Stock offered, whose purchase is directed by sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D.
o  f.	An entity in which all equity owners are accredited investors as described above.

 

 

 

 

 

 

____ (g)                       Trust

____________________________________ Address of Residence (or Business, if not an individual)	__________________________________ Address for Sending Notices (if different)
__________________________________ City, State and Zip Code	__________________________________ City, State and Zip Code
__________________________________ Telephone	__________________________________ Telephone
__________________________________ State of Residence (or State of Organization, if an entity)	__________________________________ State of Residence (or State of Organization, if an entity)
__________________________________ SSN/TIN	__________________________________ SSN/TIN
__________________________________ E-mail	__________________________________ E-mail

 

 

 

 

 

 

 

 

 

 

(vii)           The Company will institute an employee stock option or equity incentive plan acceptable to the Placement Agent.

 

 

 

 

 

(i)

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.  NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (OR OTHER EVIDENCE) IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.

 

(ii)	THE SECURITIES REPRESENTED HEREBY MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A SECURITIES PURCHASE AGREEMENT BETWEEN THE COMPANY AND THE SECURITY HOLDER DATED ____________, 2012, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

 

(iii)

Any legend required to be placed thereon by any appropriate securities commissioner.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PURCHASER (if individual):       Signature     Name (type or print)	PURCHASER (if entity):       Name of Entity   By:
Signature of Co-Signer (if any)     Name of Co-Signer (type or print)	Name:                                                                Its:

 

 

 

IDEAL POWER CONVERTERS, INC.

 

 

Subscription Amount (as accepted by the Company):

 

 

 

 

 

 

 

 

I hereby represent and warrant that I am unmarried as of the date of this Agreement.

 

 

Signature

EXHIBIT C

 

 

 

 

 

 

$___________

August __, 2012

 

 

 

 

 

 

EXHIBIT D

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Where,	X	=	The number of Shares to be issued to Holder;
	Y	=	The number of Shares for which the Warrant is being exercised;
	A	=	The fair market value of one Share; and
	B	=	The Exercise Price.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                Attn:  Secretary

 

 

 

Address:                                                           

 

 

 

               Attn:  Secretary

 

 

 

 

 

 

(Print Name)

SECURITY AGREEMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

liens  for  the  payment  of  taxes  which  are  not  yet  due  and payable;

 

(b)

liens  arising  by  statute  in  connection  with  worker’s compensation, unemployment insurance, old age benefits, social security obligations, taxes, assessments, statutory obligations or other similar charges (other than Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the the Debtor is a party or other cash deposits required to be made in the ordinary course of business, provided in each case that the obligation is not for borrowed money and that the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate proceedings which prevent enforcement of the matter under contest and adequate reserves have been established therefor;

 

(c)

mechanics’, workmen’s, materialmen’s, landlords’, carriers’ or other similar liens arising in the ordinary course of business with respect to obligations which are not due or which are being contested in good faith by appropriate proceedings which prevent enforcement of the matter under contest;

 

(d)

any interest or title of a lessor under any operating lease or capital lease; and

 

(e)

liens on real property of the Debtor or created solely for the purpose of securing indebtedness incurred to finance the purchase price of such real property;

 

(f)

cash deposits to secure performance bonds and other obligations of a like nature (in each case, other than for Indebtedness) incurred in the ordinary course of business for obligations not yet due or which are being contested in good faith by appropriate proceedings which prevent enforcement of the matter under contest and adequate reserves have been established therefor;

 

(g)

easements, rights-of-way, zoning and similar restrictions, building codes, reservations,  covenants,  conditions,  waivers,  survey  exceptions  and  other  similar encumbrances or title defects and, with respect to any interests in real property held or leased by the Debtor or any of its subsidiaries, mortgages, deeds of trust and other encumbrances incurred, created, assumed or permitted to exist and arising by, through or under  a  landlord  or  owner  of  such  property  encumbering  solely  such  landlord’s or owner’s interest in such real property, with or without the consent of the lessee;

 

(h)

liens in existence on the date hereof;

 

(i)

any  interest  of  a  licensor  under  a  license  entered  into  in  the  ordinary course of the Debtor’s business; and

 

(j)

any  lien  existing  on  any  part  of  any  business acquired by the Debtor,  prior  to  the acquisition  thereof  by  the  Debtor.

 

 

 

 

To Debtors:	Ideal Power Converters, Inc. 5004 Bee Creek Rd., Suite 600 Spicewood, Texas 78669 Attn: Chief Executive Officer Christopher.Cobb@idealpowerconverters.com
With a copy by facsimile only to:	Richardson & Patel LLP 1100 Glendon Avenue, Suite 850 Los Angeles, CA 90024 Fax: (310) 208-1154 Tel: (310) 208-1182
To Holders:	To the addresses specified in the Subscription Agreement for each Holder
To Collateral Agent:	[Name and address of Collateral Agent] [To be provided.]
With a copy (not constituting notice) to:	Law Offices of Aaron A. Grunfeld & Associates 1100 Glendon Avenue, Suite 850 Los Angeles, California 90024 Attention: Aaron A. Grunfeld Tel: (310) 788-7577 agrunfeld@grunfeldlaw.com

 

 

 

 

 

 

 

delivered by confirmed facsimile transmission.

SECURITY AGREEMENT

 

 

_________________________________ [Print Name of Subscriber]	__________________________________ [Name of Co-Subscriber, if applicable]
__________________________________ [Signature]	__________________________________ [Signature]
Name:	Name:_____________________________
Title:______________________________	Title: ______________________________
Mailing Address:	Telephone No.:_____________________
	Facsimile No:______________________
	Email Address:_____________________
(City, State and Zip)

 

 

SUBSCRIBER AND ADDRESS	NOTE PRINCIPAL AMOUNT	WARRANTS
TOTAL	$

 

 

Interest of the Officer of the Governor, Economics Development and Tourism, has been subordinated.

 

 

 

 

REGISTRATION RIGHTS AGREEMENT

 

 

 

       (e)      No Inclusion of Other Securities.  With the exception of any Registrable Securities that result from the Second Note Offering (as defined in the Securities Purchase Agreement), in no event shall the Company include any securities other than Registrable Securities on any Registration Statement without the prior written consent of the Required Holders.  With the exception of the investors in the Second Note Offering who will be granted registration rights, until the Applicable Date the Company shall not enter into any agreement providing any registration rights to any of its security holders without the consent of the Required Holders.

       (f)      The Company shall use its reasonable best efforts to prevent the issuance of any stop order or other suspension of effectiveness of any Registration Statement, and, if such an order is issued, to obtain the withdrawal of such order at the earliest possible moment and to notify each Purchaser who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance of such order and the resolution thereof.

 

       (a)      To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Purchaser and each of its directors, officers, shareholders, members, partners, employees, agents, advisors, representatives (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding the lack of such title or any other title) and each Person, if any, who controls such Purchaser within the meaning of the Securities Act or the Exchange Act and each of the directors, officers, shareholders, members, partners, employees, agents, advisors, representatives (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding the lack of such title or any other title) of such controlling Persons (each, an “Indemnified Person”), against any losses, obligations, claims, damages, liabilities, contingencies, judgments, fines, penalties, charges, costs (including, without limitation, court costs, reasonable attorneys’ fees and costs of defense and investigation), amounts paid in settlement or expenses, joint or several, (collectively, “Claims”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”). Subject to Section 7(c), the Company shall reimburse the Indemnified Persons, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim.  Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 7(a): (i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person for such Indemnified Person expressly for use in connection with the preparation of such Registration Statement or any such amendment thereof or supplement thereto and (ii) shall not be available to a particular Purchaser to the extent such Claim is based on a failure of such Purchaser to deliver or to cause to be delivered the prospectus made available by the Company (to the extent applicable), including, without limitation, a corrected prospectus, if such prospectus or corrected prospectus was timely made available by the Company and then only if, and to the extent that, following the receipt of the corrected prospectus no grounds for such Claim would have existed; and (iii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person.

 

If to the Company:   Ideal Power Converters, Inc. 5004 Bee Creek Road, Suite 600 Spicewood, Texas 78669 Attention:  Chief Executive Officer Telephone: Facsimile No.:

If to a Purchaser:   To the address set forth on the signature page of this Agreement.

With a copy (not constituting notice) to:   MDB Capital Group, LLC 401 Wilshire Blvd., Suite 1020 Santa Monica, CA 90401 Attention: Anthony DiGiandomenico Telephone: (310) 526-5015 Facsimile No.:

 

 

 

[Remainder of page intentionally left blank; signature pages follow.]

	IDEAL POWER CONVERTERS, INC.
	By:
		Name
		Title
	PURCHASERS:
The Purchasers executing the Signature Page in the form attached hereto as Annex A and delivering the same to the Company or its agents shall be deemed to have executed this Agreement and agreed to the terms hereof.

 

	PURCHASER:
	Name and Address, Fax No. and Social Security No./EIN of Purchaser:
	______________________________________   ______________________________________   ______________________________________   ______________________________________   Fax No.: _______________________________ Soc. Sec. No./EIN: _______________________
	If a partnership, corporation, trust or other business entity:
	By:     ___________________________________
	Name:
	Title:
	If an individual:       _____________________________________
	Signature

 

Name of Selling Shareholder	Number of Shares of Common Stock Owned Prior to Offering	Maximum Number Of Shares of Common Stock to be Sold Pursuant to this Prospectus	Number of Shares of Common Stock Owned After Offering

 

 

●

on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;

●

in the over-the-counter market;

●

in transactions otherwise than on these exchanges or systems or in the over-the-counter market;

●

through the writing or settlement of options, whether such options are listed on an options exchange or otherwise;

●

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

●

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

●

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

●

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

●

privately negotiated transactions;

●

short sales made after the date the Registration Statement is declared effective by the SEC;

●

agreements between broker-dealers and the selling shareholders to sell a specified number of such shares at a stipulated price per share;

●

a combination of any such methods of sale; and

●

any other method permitted pursuant to applicable law.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IDEAL POWER CONVERTERS INC
Outstanding Common Shareholders
Shareholder	Number of Shares Common Stock (as of July 31, 2012)
William C Alexander	1,280,250
Hamo Hacopian	625,000
Dr. David Breed	312,500
Cindy D. Breed	312,500
Charles De Tarr	281,925
Battery Ventures VIII, L.P.	122,175
John Bundschuh	108,550
Paul Bundschuh	106,620
Dynamic Manufacturing Solutions LLC	96,150
Mike Barron	42,160
Herman and Ann Breed	40,000
John P. Bundschuh	27,469
Paul Rousch	27,195
Salim A. and Rita S. Momin	25,000
Thomas Ryan   (was 25,000)	24,000
Joel Sher	18,815
Peter W. Bundschuh	14,675
William D. Bundschuh	14,675
Chris Cobb (including options w/vesting) and stock7/31	12,809
Mercom Capital LLC	11,289
Total	3,503,757

 

 

Shareholder				Number of Shares Preferred Stock (as of July 18, 2012)
None				0
TOTAL:				0

 

1.	The Company has issued the following warrants, copies of which have been made available to counsel for the Purchasers:

 

a.	Common Stock Warrant, dated November 3, 2008, granting Entrepreneurs Foundation of Central Texas the right to purchase 85,950 shares of Common Stock of the Company at an exercise price of $0.0004 per share.

 

b.

Right to Purchase Shares pursuant to that Investment Unit issued by Ideal Power Converters, Inc. to the Office of the Governor Economic Development and Tourism, dated October 1, 2010, which provides for the issuance of shares of the Company’s Common Stock or shares of the same class of capital stock or series of preferred stock as shall be issued in the First Qualifying Financing Transaction (defined therein).

 

2.	The following agreements, copies of which have been made available to counsel for the Purchasers, provide for issuance of Common Stock:

 

a.	In connection with an offer for full employment, Mike Barron is eligible to be granted a stock option with a 2 year vesting period for 9,407 shares with a strike price of $2.65754.

 

b.

Services Agreement, by and between Dynamic Manufacturing Solutions, LLC and Ideal Power Converters, Inc., dated January 15, 2010, which provided that Dynamic Manufacturing Solutions, LLC would receive $65 per hour, to be paid through issuances of Common Stock of Company.  According to the Services Agreement, each share of Common Stock of the Company was valued at $31.20 (prior to the stock split), based on a valuation of approximately $4,000,000 and 128,196 issued and optioned shares.  All shares issued pursuant to this agreement shall give effect to the Reclassification and the Stock Split provided in the Restated Certificate.  Compensation to Dynamic Manufacturing in the form of Common Stock of the Company is capped at a number of shares representing 3% of the total outstanding shares of Common Stock of the Company.  As of December 31, 2010, Dynamic Manufacturing Solutions, LLC reached the cap in the contract with 1,846 hrs at the $65/hr rate valued at $120,000 and 96,150 shares were issued (after stock split).  The Company has no outstanding obligations to Dynamic Manufacturing Solutions, LLC under this agreement, except that Dynamic Manufacturing Solutions, LLC, shall be paid an hourly rate of $85 per hour, if the Company fails to provide Dynamic Manufacturing Solutions, LLC with a right of first refusal on certain future manufacturing projects.

Outstanding Option holders

Option Number			Holder	Date		Number of Shares of Common Stock				Exercise Price			Acceleration?
	1		Robert Groover	6/15/2007			15,000			$	0.04		Fully vested
	2		Patrick Holmes	6/15/2007			10,000			$	0.04		Fully vested
	5		Charles De Tarr	1/31/2009			63,675			$	0.17452		Fully vested
	6		Paul Bundschuh	5/12/2009			2,925			$	0.3416		Fully vested
	9		Paul Bundschuh	8/25/2009			3,050			$	0.334		Fully vested
	12		Robert King	2/23/2010			64,100			$	1.248		Yes, upon a change of control
	13-A		Mike Barron	6/30/2010			34,550			$	1.248		Yes, upon a change of control
	14		Paul Bundschuh	6/30/2010			28,050			$	1.248		Fully vested
	15		Donald Haygood	6/30/2010			1,200			$	1.248		Yes, upon a change of control
	16		Hamid Toliyat	9/10/2010			48,375			$	1.248		Yes, upon a change of control
	17		Mike Barron	9/30/2010			26,350			$	1.248		Yes, upon a change of control
	18		Paul Bundschuh	9/30/2010			14,025			$	1.248		Fully vested
	19		Donald Haygood	9/30/2010			1,200			$	1.248		Yes, upon a change of control
	20		Paul Roush	9/30/2010			3,575			$	1.248		Fully vested
	21		Paul Bundschuh	12/31/2010			14,025			$	1.248		Fully vested
	22		Donald Haygood	12/31/2010			1,200			$	1.248		Yes, upon a change of control
	23		Donald Haygood	3/31/2011			564			$	2.65754		Fully vested
	24		Donald Haygood	6/30/2011			564			$	2.65754		Yes, upon a change of control
	25		Donald Haygood	11/14/2011			9,407			$	2.65754		Yes, upon a change of control, unless assumed by purchaser of company
	26		Larry Burns	11/14/2011			9,407			$	2.65754		Yes, upon a change of control, unless assumed by purchaser of company
	27		Paul Roush	11/14/2011			9,407			$	2.65754		Yes, upon a change of control, unless assumed by  purchaser of company
	28		Mike Barron	11/14/2011			9,407			$	2.65754		Yes, upon a change of control, unless assumed by purchaser of company
	29		Chris Cobb	6/01/2012 (new-2012)			45,155			$	2.65754		Yes, upon a change of control, unless assumed by purchaser of company
			Total				415,211

 

Office of the Governor Economic Development and Tourism

Number and type of shares to be issued dependent upon First Qualifying Financing Transaction (defined therein)