July 17, 2013

 

 

 

 

 

 

 

 

 

    You must send the completed and executed signature pages to this Securities Purchase Agreement, the Registration Rights Agreement, the Security Agreement, the Escrow Agreement, the completed Purchaser Information (Section 6 of this Securities Purchase Agreement) and the Spousal Consent to the following escrow holder, preferably by fax or e-mail:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[  ]  a.	A director, executive officer or general partner of Company.
[  ]  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.)
[  ]  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.
[  ]  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.
[  ]  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:]
	[  ]  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.
	[  ]  2.	A broker/dealer registered pursuant to Section 15 of Securities Exchange Act of 1934.
	[  ]  3.	An insurance company as defined in Section 2(13) of Securities Act.
	[  ]  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.
	[  ]  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.
	[  ]  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.
	[  ]  7.	Any private business development company as defined in Section 202(a)(22) of Investment Advisers Act of 1940.
	[  ]  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.
	[  ]  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.
[  ]  f.	An entity in which all equity owners are accredited investors as described above.

 

 

 

 

 

 

 

 

____________________________________ 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

 

 

 

 

 

 

 

 

 

 

Use of Proceeds	(in thousands)
Patent filing and protection	$25
Research and development of new products	60
Development of existing products (including product and equipment purchases)	285
Equipment and software	25
Fee to Placement Agent	75
Attorney’s Fees	75
Working capital and general corporate purposes	205
Total Use of Proceeds	$750

 

 

 

 

 

 

(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 JULY ___, 2013, 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:

 

 

 

 

 

___________________________

 

 

 

 

___________________________

 

 

FORM OF NOTE

 

$[__________]

July [____], 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

X=	Y(A-B)      A

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.

 

 

 

 

 

In conjunction with the Offering, the Holder has received certain registration rights relating to the Shares pursuant to the terms of a Registration Rights Agreement of even date herewith.  If the right to have the Shares registered pursuant to the Registration Rights Agreement terminates in accordance with Section 2(f) of the Registration Rights Agreement (the “Registration Rights Termination”), the Holder will have the right to require the Company to purchase the Warrant from the Holder (the “Put Right”) at a price equal to 20% of the principal amount of the Holder’s Note (the “Put Price”).  The Company shall pay the Holder the Put Price as promptly as practicable but in any event not later than 10 days after the Holder delivers notice to the Company of exercise of the Put Right.  The Put Right will expire 12 months from the Registration Rights Termination.

 

 

 

 

 

 

__________________________

 

_______________________                         ____________________________

_______________________

 

 

 

 

 

 

SECURITY AGREEMENT

 

 

Notwithstanding anything to the contrary set forth in Section 2.2 above, the types or items of Collateral described in such Section shall not include any Equipment which is, or at the time of the Debtor’s acquisition thereof shall be, subject to a purchase money mortgage or other purchase money lien or security interest (including capitalized or finance leases) permitted hereunder if: (a) the valid grant of a security interest or lien therein to the Subscribers in such Equipment is prohibited by the terms of the agreement between the Debtor and the holder of such purchase money mortgage or other purchase money lien or security interest or under applicable law and such prohibition has not been or is not waived, or the consent of the holder of the purchase money mortgage or other purchase money lien or security interest has not been or is not otherwise obtained, or under applicable law such prohibition cannot be waived and (b) the purchase money mortgage or other purchase money lien or security interest on such item of Equipment is or shall become valid and perfected.  To the extent each of the foregoing conditions is satisfied, the Subscribers shall, through the Collateral Agent, at the request of the Debtor and at the Debtor’s expense, execute and deliver a UCC-3 partial release with respect to any such Equipment subject to such a purchase money security interest or lien, provided, that, such partial release shall be in form and substance satisfactory to the Collateral Agent.

 

 

(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.

5.7           The Debtor represents and warrants that it is the true and lawful exclusive owner of the Collateral, free and clear of any liens, encumbrances and claims other than those listed on Schedule 5.1.

9.3           The Collateral Agent is authorized, at any such sale, if the Collateral Agent deems it advisable to do so, in order to comply with any applicable securities laws, to restrict the prospective bidders or purchasers to persons who will represent and agree, among other things, that they are purchasing the Collateral for their own account for investment, and not with a view to the distribution or resale thereof, or otherwise to restrict such sale in such other manner as the Subscribers deem advisable to ensure such compliance.  Sales made subject to such restrictions shall be deemed to have been made in a commercially reasonable manner.

 

 

 

To Debtors:	Ideal Power Inc. 5004 Bee Creek Rd., Suite 600 Spicewood, Texas 78669 Attention: Chief Executive Officer Paul.Bundschuh@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 Attention: Erick Richardson
To Holders:	To the addresses specified in the Subscription Purchase Agreement for each Holder

To Collateral Agent:	Anthony DiGiandomenico 401 Wilshire Boulevard, Suite 1020 Santa Monica, California 90401
With a copy (not constituting notice) to:	Scott Bartel, Esq. Eric Stiff, Esq. Locke Lord LLP 500 Capitol Mall, Suite 1800 Sacramento, California 95814 Telephone:  (916) 930-2500 sbartel@lockelord.com estiff@lockelord.com

10.6                 Governing Law; Venue; Severability.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles that would result in the application of the substantive laws of another jurisdiction, except to the extent that the perfection of the security interest granted hereby in respect of any item of Collateral may be governed by the law of another jurisdiction.  Any legal action or proceeding against the Debtor with respect to this Agreement must be brought only in the courts in the State of New York  or United States federal courts located within the State of New York, and, by execution and delivery of this Agreement, the Debtor hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts.  The Debtor hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement brought in the aforesaid courts and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum.  If any provision of this Agreement, or the application thereof to any person or circumstance, is held invalid, such invalidity shall not affect any other provisions which can be given effect without the invalid provision or application, and to this end the provisions hereof shall be severable and the remaining, valid provisions shall remain of full force and effect.

 

 

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)

(44) “Goods” means all things that are movable when a security interest attaches.  The term includes (i) fixtures, (ii) standing timber that is to be cut and removed under a conveyance or contract for sale, (iii) the unborn young of animals, (iv) crops grown, growing, or to be grown, even if the crops are produced on trees, vines, or bushes, and (v) manufactured homes.  The term also includes a computer program embedded in goods and any supporting information provided in connection with a transaction relating to the program if (i) the program is associated with the goods in such a manner that it customarily is considered part of the goods, or (ii) by becoming the owner of the goods, a person acquires a right to use the program in connection with the goods.  The term does not include a computer program embedded in goods that consists solely of the medium in which the program is embedded.  The term also does not include accounts, chattel paper, commercial tort claims, deposit accounts, documents, general intangibles, instruments, investment property, letter-of-credit rights, letters of credit, money, or oil, gas, or other minerals before extraction.

 

 

Bank	Account No.	Bank Address
BBVA Compass Bank (main acct)	0034253943	5800 North Mopac, Austin TX
BBVA Compass Bank (exp acct)	2529218454	5800 North Mopac, Austin TX
BBVA Compass Bank	2532425878	5800 North Mopac, Austin TX

 

 

 

SUBORDINATION AGREEMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Austin, Texas 78711-2878

 

 

 

 

 

 

 

 

(j)      Term of Subordination. Notwithstanding anything else herein set forth, this Subordination Agreement shall terminate upon the earlier of (i) payment of the Senior Loans or (ii) the automatic conversion of Senior Loans in accordance with the terms of the Senior Loan Agreements, upon completion of Debtor’s initial public offering of securities (“IPO”). Debtor has advised Subordinated Creditor that Debtor will endeavor in good faith to close, but cannot assure that the IPO will be completed by or about to August 30, 2013.

 

 

DEBTOR:                                                IDEAL POWER CONVERTERS, INC.

Title: Chief Executive Officer

SUBORDINATED

CREDITOR:

THE OFFICE OF THE GOVERNOR ECONOMICDEVELOPMENT AND TOURISM

 

 

 

 

 

 

 

_________________________________ (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)