Document:

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Exhibit 10.33

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (the “Agreement”), dated as of July 29, 2013, is entered into by and among IDEAL POWER INC., a Delaware corporation (“Debtor”), the Subscribers identified on Schedule 1 hereto (the “Subscribers”), who are parties to the Securities Purchase Agreement dated of even date herewith by and among Debtor and such Subscribers, and Anthony DiGiandomenico (“Collateral Agent”).

RECITALS

WHEREAS, Subscribers have made senior secured loans in the principal amount of $750,000 to the Debtor (the "July 2013 Loans") and, together with senior secured loans in the amount of $750,000 and $3,250,000 made by the Debtor on August 31, 2012 and November 21, 2012, respectively, (collectively with the July 2013 Loans, the "Loans") are, collectively, intended to be secured by a first-priority senior security interest in all assets of the Debtor.

           WHEREAS, the July 2013 Loans are evidenced by one or more senior secured convertible promissory notes (each a “Note” and collectively the "Notes") issued by the Debtor.  The Notes have been executed by the Debtor as borrower, in favor of and to document indebtedness to, the Subscribers (each, a “Holder” and collectively the “Holders”).

WHEREAS, to assist the Debtor with its capital raising efforts, The Office of the Governor Economic Development and Tourism of the State of Texas (“Subordinated Lender”) agreed to subordinate to the holders of the senior secured convertible promissory notes documenting the Loans (including the Holders of the July 2013 Loans) its rights, priority and claims under that certain Texas Emerging Technology Fund Award and Security Agreement dated October 1, 2010.

WHEREAS, in consideration of the July 2013 Loans made by the Subscribers to the Debtor and for other good and valuable consideration, and as security for the performance by the Debtor of its obligations under the Notes, and as security for the repayment of the July 2013 Loans and all other sums due from the Debtor to the Subscribers arising under the Transaction Documents (as defined in the Purchase Agreement, the Notes, and any other agreement between or among them (collectively, the “Obligations”)), the Debtor, for good and valuable consideration, receipt of which is acknowledged, has agreed to grant to the Subscribers and to the Collateral Agent on behalf of the Subscribers a security interest in the Collateral (as such term is hereinafter defined), on the terms and conditions hereinafter set forth.

WHEREAS, the following terms which are defined in the Uniform Commercial Code in effect in the State of New York on the date hereof are included on Schedule 2 and are used herein as so defined:  Account, Chattel Paper, Documents, Equipment, General Intangible, Goods, Instrument, Inventory and Proceeds.

  

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AGREEMENT

1.           Definitions; Interpretation.  All capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings assigned to them in the Note and Purchase Agreement.  As used in this Agreement, the following terms shall have the following meanings:

 

“Agreement” means this Security Agreement, including any amendments hereto.

 

“Collateral Agent” shall have the meaning as set forth in the Preamble.

 

“Collateral” shall have the meaning as set forth in Section 2.2.

 

“Debtor” shall have the meaning as set forth in the Preamble.

 

 “Event of Default” shall have the meaning as set forth in Section 8.

 

“Holder” or “Holders” shall have the meaning as set forth in the Recitals.

 

 “Majority in Interest” shall have the meaning as set forth in Section 12.3.

 

“Note” and "Notes" shall have the meanings as set forth in the Recitals.

 

“Obligations” shall have the meaning as set forth in the Recitals.

 

“Permitted Liens” shall have the meaning as set forth in Section 5.1.

 

“Senior Debt” shall mean the senior secured convertible promissory notes issued by the Debtor on August 31, 2012 and November 21, 2012.

 

“Subscribers” shall have the meaning as set forth in the Preamble.

2.           Grant of General Security Interest in Collateral.

2.1 As security for the Obligations of the Debtor, the Debtor hereby grants to each of the Subscribers a security interest in the Collateral, which security interest shall be in pari passu with the security interest granted to the holders of the Senior Debt.

2.2 “Collateral” shall mean all of the following property of the Debtor:

(A)           All now owned and hereafter acquired right, title and interest of the Debtor in, to and in respect of all Accounts, Goods, real or personal property, all present and future books and records relating to the foregoing and all products and Proceeds of the foregoing, and as set forth below:

(i)           all now owned and hereafter acquired right, title and interest of the Debtor in, to and in respect of all: Accounts, interests in goods represented by Accounts, returned, reclaimed or repossessed goods with respect thereto and rights as an unpaid vendor; contract rights; Chattel Paper; investment property; General Intangibles (including but not limited to, tax and duty claims and refunds, registered and unregistered patents, trademarks, service marks, certificates, copyrights, trade names, applications for the foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer lists, licenses, whether as licensor or licensee, choses in action and other claims, and existing and future leasehold interests and claims in and to equipment, real estate and fixtures); Documents; Instruments; letters of credit, bankers’ acceptances or guaranties; cash moneys, deposits including but not limited to the deposit accounts identified on Schedule 3; securities, bank accounts, deposit accounts, credits and other property now or hereafter owned or held in any capacity by Debtors, as well as agreements or property securing or relating to any of the items referred to above;

  

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(ii)           Goods.  All now owned and hereafter acquired right, title and interest of Debtors in, to and in respect of goods, including, but not limited to:

(a)           All Inventory, wherever located, whether now owned or hereafter acquired, of whatever kind, nature or description, including all raw materials, work-in-process, finished goods, and materials to be used or consumed in the Debtor's business; finished goods, timber cut or to be cut, oil, gas, hydrocarbons, and minerals extracted or to be extracted, and all names or marks affixed to or to be affixed thereto for purposes of selling same by the seller, manufacturer, lessor or licensor thereof and all Inventory which may be returned to the Debtor by its customers or repossessed by the Debtor and all of the Debtor's right, title and interest in and to the foregoing (including all of the Debtor’s rights as a seller of goods);

(b)           All Equipment and fixtures, wherever located, whether now owned or hereafter acquired, including, without limitation, all machinery, furniture and fixtures, and any and all additions, substitutions, replacements (including spare parts), and accessions thereof and thereto (including, but not limited to the Debtor's rights to acquire any of the foregoing, whether by exercise of a purchase option or otherwise);

(iii)           Property.  All now owned and hereafter acquired right, title and interests of the Debtor in, to and in respect of any other personal property in or upon which the Debtor has or may hereafter have a security interest, lien or right of setoff;

                      (iv)           Books and Records.  All present and future books and records relating to any of the above including, without limitation, all computer programs, printed output and computer readable data in the possession or control of the Debtor, any computer service bureau or other third party; and

                      (v)           Products and Proceeds.  All products and Proceeds of the foregoing in whatever form and wherever located, including, without limitation, all insurance proceeds and all claims against third parties for loss or destruction of or damage to any of the foregoing.

(B)           All now owned and hereafter acquired right, title and interest of the Debtor in, to and in respect of the following:

(i)           all additional shares of stock, partnership interests, member interests or other equity interests from time to time acquired by the Debtor, in any subsidiary of the Debtor, the certificates representing such additional shares, and other rights, contractual or otherwise, in respect thereof and all dividends, distributions, cash, instruments, investment property and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such additional shares, interests or equity; and

(ii)           all security entitlements of the Debtor in, and all Proceeds of any and all of the foregoing in each case, whether now owned or hereafter acquired by the Debtor and howsoever its interest therein may arise or appear (whether by ownership, security interest, lien, claim or otherwise).

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 rights or interests in any contract, lease, permit, license, charter or license agreement covering real or personal property, as such, if under the terms of such contract, lease, permit, license, charter or license agreement, or applicable law with respect thereto, the valid grant of a security interest or lien therein to the Subscribers is prohibited or would result in a breach and such prohibition or breach has not been or is not waived or the consent of the other party to such contract, lease, permit, license, charter or license agreement has not been or is not otherwise obtained or under applicable law such prohibition or breach cannot be waived. 

  

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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.

“Equipment” shall include all of the Debtor's now owned and hereafter acquired equipment, machinery, laboratory and research equipment and tools, computers and computer hardware and software (whether owned or licensed), vehicles, tools, furniture, fixtures, all attachments, accessions and property now or hereafter affixed thereto or used in connection therewith, and substitutions and replacements thereof, wherever located.

2.3           The Subscribers and the Collateral Agent are hereby specifically authorized, after the Maturity Date (defined in the Note) accelerated or otherwise, and after the occurrence of an Event of Default (as defined herein) and the expiration of any applicable cure period, to transfer any Collateral into the name of the Collateral Agent and to take any and all action deemed advisable to the Subscribers to remove any transfer restrictions affecting the Collateral.

3.           Perfection of Security Interest.

3.1           The Debtor shall prepare, execute and deliver to the Collateral Agent UCC-1 Financing Statements or other instruments necessary to perfect a security interest in any item of the Collateral (collectively, the "Lien Documents") in form and substance acceptable to the Collateral Agent.  The Collateral Agent is instructed to prepare and file or cause to be filed at the Debtor’s cost and expense, the Lien Documents in such United States and foreign jurisdictions deemed advisable to the Collateral Agent, including but not limited to the States of Texas or Delaware, as appropriate.

3.2           All other certificates and instruments constituting Collateral from time to time required to be pledged to the Subscribers pursuant to the terms hereof (the “Additional Collateral”) shall be delivered to the Collateral Agent promptly upon receipt thereof by or on behalf of the Debtor.  All such certificates and instruments shall be held by or on behalf of the Subscribers pursuant hereto and shall be delivered in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment or undated stock powers executed in blank, all in form and substance satisfactory to the Collateral Agent.  If any Collateral consists of uncertificated securities, unless the immediately following sentence is applicable thereto, the Debtor shall cause the Collateral Agent to become the registered holder thereof, or cause each issuer of such securities to agree that it will comply with instructions originated by the Collateral Agent with respect to such securities.  If any Collateral consists of security entitlements, the Debtor shall transfer such security entitlements to the Collateral Agent or cause the applicable securities intermediary to agree that it will comply with entitlement orders by the Collateral Agent.

  

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3.3           If the Debtor shall receive, by virtue of the Debtor being or having been an owner of any Collateral, any (i) stock certificate (including, without limitation, any certificate representing a stock dividend or distribution in connection with any increase or reduction of capital, reclassification, merger, consolidation, sale of assets, combination of shares, stock split, spin-off or split-off), promissory note or other instrument, (ii) option or right, whether as an addition to, substitution for, or in exchange for, any Collateral, or otherwise, (iii) dividends payable in cash or in securities or other property or (iv) dividends or other distributions in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in surplus, the Debtor shall receive such stock certificate, promissory note, instrument, option, right, payment or distribution in trust for the benefit of the Subscribers, shall segregate it from the Debtor’s other property and shall deliver it forthwith to the Subscribers, in the exact form received, with any necessary endorsement and/or appropriate stock powers duly executed in blank, to be held by the Subscribers as Collateral and as further collateral security for the Obligations.

4.           Voting Power Relating to Collateral/Dividends and Distributions.

4.1           So long as an Event of Default does not exist, the Debtor shall be entitled to exercise all voting power pertaining to any of the Collateral, provided such exercise is not contrary to the interests of the Subscribers and does not impair the Collateral.

4.2.           At any time an Event of Default exists or has occurred and is continuing, all rights of the Debtor, upon notice given by the Collateral Agent, to exercise the voting power shall cease and all such rights shall thereupon become vested in the Collateral Agent for the benefit of the Subscribers, which shall thereupon have the sole right to exercise such voting power and receive such payments.

4.3           All dividends, distributions, interest and other payments which are received by Debtor contrary to the provisions of Section 4.2 shall be received in trust for the benefit of the Subscribers as security and Collateral for payment of the Obligations, shall be segregated from other funds of Debtor, and shall be forthwith paid over to the Collateral Agent as Collateral in the exact form received with any necessary endorsement and/or appropriate stock powers duly executed in blank, to be held by the Collateral Agent as Collateral and as further collateral security for the Obligations.

5.           Further Action By Debtors; Covenants and Warranties.

5.1           The Subscribers, along with the holders of the senior secured convertible promissory notes evidencing the Senior Debt, at all times shall have a perfected security interest in the Collateral.  The Debtor represents that other than the security interests described on Schedule 5.1, it has and will continue to have full title to the Collateral free from any liens, leases, encumbrances, judgments or other claims, except for “Permitted Liens” (defined below).  The Subscribers’ security interest in the Collateral, together with the security interests of the holders of the senior secured convertible promissory notes evidencing the Senior Debt, constitutes and will continue to constitute a first, prior and indefeasible security interest in favor of the Subscribers, subject only to the security interests described on Schedule 5.1.  The Debtor will do all acts and things, and will execute and file all instruments (including, but not limited to, security agreements, financing statements, continuation statements, etc.) reasonably requested by the Collateral Agent to establish, maintain and continue the perfected security interest of the Subscribers and the holders of the senior secured convertible promissory notes evidencing the Senior Debt in the perfected Collateral, and will promptly on demand, pay all costs and expenses of filing and recording, including the costs of any searches reasonably deemed necessary by the Collateral Agent from time to time to establish and determine the validity and the continuing priority of the security interest of the Subscribers and the holders of the senior secured convertible promissory notes evidencing the Senior Debt, and also pay all other claims and charges that, in the opinion of the Subscribers and the holders of the senior secured convertible promissory notes evidencing the Senior Debt are reasonably likely to materially prejudice, imperil or otherwise affect the Collateral or their security interests therein.   For purposes of this Agreement, “Permitted Liens” shall include:

 

	
  

	
(a)  

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

  

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(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.

5.2           Except in connection with sales of Collateral in the ordinary course of business, for fair value and in cash, and except for Collateral which is substituted by assets of identical or greater value (subject to the consent of the Collateral Agent) or which is not material to the Debtor’s business, the Debtor will not sell, transfer, assign or pledge those items of Collateral (or allow any such items to be sold, transferred, assigned or pledged), without the prior written consent of the Collateral Agent other than a transfer of the Collateral to a wholly-owned United States formed and located subsidiary of the Debtor with prior notice to the Collateral Agent, and provided the Collateral remains subject to the security interest herein described.  Although Proceeds of Collateral are covered by this Agreement, this shall not be construed to mean that the Collateral Agent or the Subscribers consent to any sale of the Collateral, except as provided herein.  Sales of Collateral in the ordinary course of business as described above shall be free of the security interest of the Subscribers and the Collateral Agent shall promptly execute such documents (including without limitation releases and termination statements) as may be required by the Debtor to evidence or effectuate the same.

 

  

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5.3           The Debtor will, at all reasonable times during regular business hours and upon reasonable notice, allow the Collateral Agent or its representatives free and complete access to the Collateral and all of the Debtor’s records that in any way relate to the Collateral, for such inspection and examination as the Collateral Agent reasonably deems necessary.

5.4           The Debtor, at its sole cost and expense, will protect and defend the Collateral against the claims and demands of all persons other than the Subscribers and the holders of the senior secured convertible promissory notes evidencing the Senior Debt.

5.5           The Debtor will promptly notify the Collateral Agent of any levy, distraint or other seizure by legal process or otherwise of any part of the Collateral, and of any threatened or filed claims or proceedings that are reasonably likely to affect or impair any of the rights of the Subscribers under this Security Agreement in any material respect.

5.6           The Debtor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other reasonable assurances or instruments and take further steps relating to the Collateral and other property or rights covered by the security interest hereby granted, as the Collateral Agent may reasonably require to perfect the security interest of the Subscribers hereunder.

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.

6.           Power of Attorney.

At any time an Event of Default has occurred, and only after the applicable cure period as set forth in this Agreement and the other Transaction Documents, and is continuing, the Debtor hereby irrevocably constitutes and appoints the Collateral Agent as the true and lawful attorney of the Debtor, with full power of substitution, in the place and stead of Debtor and in the name of the Debtor or otherwise, at any time or times, in the discretion of the Collateral Agent, to take any action and to execute any instrument or document which is reasonably and prudently necessary to protect the Subscribers’ rights in the Collateral as set forth in this Agreement.  This power of attorney is coupled with an interest and is irrevocable until the Obligations are satisfied.

7.           Performance by the Subscribers.

If the Debtor fails to perform any material covenant, agreement, duty or obligation of the Debtor under this Agreement or the Purchase Agreements, the Collateral Agent may, after any applicable cure period and notice required hereunder, at any time or times in its discretion, take action to effect performance of such obligation.  All reasonable expenses of the Subscribers incurred in connection with the foregoing authorization shall be payable by the Debtor as provided in Paragraph 10.1 hereof.  No discretionary right, remedy or power granted to the Subscribers under any part of this Agreement shall be deemed to impose any obligation whatsoever on the Subscribers with respect thereto, such rights, remedies and powers being solely for the protection of the Subscribers.

8.           Event of Default.

An event of default (“Event of Default”) shall be deemed to have occurred hereunder upon the occurrence of any event of default as defined and described in this Agreement, in the Note, the Purchase Agreements, Transaction Documents (as defined in the Purchase Agreements), and any other agreement to which the Debtor and the Subscribers are parties.  Upon and after any Event of Default, after the applicable cure period, if any, any or all of the Obligations shall become immediately due and payable at the option of the Collateral Agent, and the Collateral Agent may dispose of Collateral as provided herein.  A default by the Debtor of any of its material obligations pursuant to this Agreement, the Purchase Agreements and any of the other Transaction Documents shall be an Event of Default hereunder and an “Event of Default” as defined in the Notes, and the Purchase Agreements.

  

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9.           Disposition of Collateral.

Upon and after any Event of Default which is then continuing,

9.1           The Collateral Agent may exercise its rights with respect to each and every component of the Collateral, without regard to the existence of any other security or source of payment, in order to satisfy the Obligations.  In addition to other rights and remedies provided for herein or otherwise available to it, the Subscribers shall have all of the rights and remedies of a secured party on default under the Uniform Commercial Code then in effect in the State of New York.

9.2           If any notice to the Debtor of the sale or other disposition of Collateral is required by then applicable law, 5 business days prior written notice (which the Debtor agrees is reasonable notice within the meaning of Section 9.612(a) of the Uniform Commercial Code) shall be given to the Debtor of the time and place of any sale of Collateral which the Debtor hereby agrees may be by private sale.  The rights granted in this Section are in addition to any and all rights available to the Subscribers under the Uniform Commercial Code.

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.

9.4           All proceeds received by the Subscribers in respect of any sale, collection or other enforcement or disposition of Collateral, shall be applied (after deduction of any amounts payable to the Subscribers pursuant to Paragraph 10.1 hereof) against the Obligations.  Upon payment in full of all Obligations, the Debtor shall be entitled to the return of all Collateral, including cash, which has not been used or applied toward the payment of the Obligations or used or applied to any and all costs or expenses of the Subscribers incurred in connection with the liquidation of the Collateral (unless another person is legally entitled thereto).  Any assignment of Collateral by the Collateral Agent to the Debtor shall be without representation or warranty of any nature whatsoever and wholly without recourse.  To the extent allowed by law, the Collateral Agent may purchase the Collateral and pay for such purchase by offsetting the purchase price with sums owed to the Subscribers by the Debtor arising under the Obligations or any other source.

9.5           Without limiting, and in addition to, any other rights, options and remedies the Subscribers have under the Transaction Documents, the UCC, at law or in equity, or otherwise, upon the occurrence and continuation of an Event of Default, the Collateral Agent shall have the right to apply for and have a receiver appointed by a court of competent jurisdiction.  The Debtor expressly agrees that such a receiver will be able to manage, protect and preserve the Collateral and continue the operation of the business of the Debtor to the extent necessary to collect all revenues and profits thereof and to apply the same to the payment of all expenses and other charges of such receivership, including the compensation of the receiver, until a sale or other disposition of such Collateral shall be finally made and consummated.

9.6           Provided an Event of Default or an event, which with the passage of time or the giving of notice could become an Event of Default is not pending, then from and after the date the Subscriber has exercised its conversion rights with respect to not less than one-half of the Principal Amount of the Subscriber’s Note and the Debtor has complied with its obligations with respect to all such conversions, then the Subscriber’s security interest granted pursuant to this Agreement shall be automatically released.

  

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10.           Miscellaneous.

10.1           Expenses.  The Debtor shall pay to the Collateral Agent for the benefit of the Subscribers, on demand, the amount of any and all reasonable expenses, including, without limitation, attorneys’ fees, legal expenses and brokers’ fees, which the Collateral Agent may incur in connection with (a) exercise or enforcement of any the rights, remedies or powers of the Subscribers hereunder or with respect to any or all of the Obligations upon breach; or (b) failure by the Debtor to perform and observe any agreements of the Debtor contained herein which are performed by Collateral Agent.

10.2           Waivers, Amendment and Remedies.  No course of dealing by the Collateral Agent or the Subscribers and no failure by the Collateral Agent or the Subscribers to exercise, or delay by the Collateral Agent or the Subscribers in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, and no single or partial exercise thereof shall preclude any other or further exercise thereof or the exercise of any other right, remedy or power of the Collateral Agent or the Subscribers.  No amendment, modification or waiver of any provision of this Agreement and no consent to any departure by the Debtor therefrom shall, in any event, be effective unless contained in a writing signed by the Collateral Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The rights, remedies and powers of the Collateral Agent, not only hereunder, but also under any instruments and agreements evidencing or securing the Obligations and under applicable law are cumulative, and may be exercised by the Collateral Agent for the benefit of the Subscribers from time to time in such order as the Collateral Agent may elect.

10.3           Notices.  All notices or other communications given or made hereunder shall be in writing and shall be personally delivered or deemed delivered the first business day after being faxed (provided that a copy is delivered by first class mail) to the party to receive the same at its address set forth below or to such other address as either party shall hereafter give to the other by notice duly made under this Section:

	
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

Any party may change its address by written notice in accordance with this paragraph.

  

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10.4           Term; Binding Effect.  This Agreement shall (a) remain in full force and effect until payment and satisfaction in full of all of the Obligations; (b) be binding upon the Debtor, and its successors and permitted assigns; and (c) inure to the benefit of the Subscribers and its successors and assigns.

10.5           Captions.  The captions of Paragraphs, Articles and Sections in this Agreement have been included for convenience of reference only, and shall not define or limit the provisions of this agreement and have no legal or other significance whatsoever.

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.

10.7           Entire Agreement.  This Agreement contains the entire agreement of the parties and supersedes all other agreements and understandings, oral or written, with respect to the matters contained herein.

10.8           Counterparts/Execution.  This Agreement may be executed in any number of counterparts and by the different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument.  This Agreement may be executed by facsimile signature and delivered by electronic transmission.

11.           Termination; Release.  When the Obligations have been indefeasibly paid and performed in full or all outstanding Notes have been converted to Common Stock pursuant to the terms of the Note and the Purchase Agreements, this Agreement shall terminate, and the Subscribers or the Collateral Agent, as appropriate, at the request and sole expense of the Debtor, will execute and deliver to the Debtor the proper instruments (including UCC termination statements) acknowledging the termination of the Security Agreement, and duly assign, transfer and deliver to the Debtor, without recourse, representation or warranty of any kind whatsoever, such of the Collateral, as may be in the possession of the Collateral Agent or Subscribers.

12.           Subscribers' Powers.

12.1           Subscribers' Powers.  The powers conferred on the Subscribers hereunder are solely to protect Subscribers’ interest in the Collateral and shall not impose any duty on the Subscribers to exercise any such powers.

12.2           Reasonable Care.  The Collateral Agent is required to exercise reasonable care in the custody and preservation of any Collateral in its possession.

12.3           Majority in Interest.   The rights of the Subscribers hereunder, except as otherwise set forth herein shall be exercised upon the approval of Subscribers (including the holders of the senior secured convertible promissory notes evidencing the Senior Debt) holding no less than 51% of the outstanding principal amount of the Loans (“Majority in Interest”) at the time such approval is sought or given.  Any tangible or physical Collateral shall be delivered to and be held by the Collateral Agent pursuant to this Agreement and on behalf of all Subscribers as to their respective rights.

  

-10-

  

12.4           Authority of Collateral Agent.  By executing this Agreement the Subscribers appoint the Collateral Agent as their agent to exercise all of the rights, benefits and remedies granted to them as secured parties under this Agreement.  The Collateral Agent agrees to exercise all of the rights, benefits and remedies conveyed by this Agreement solely for the benefit of the Subscribers and, unless a delay would cause irreparable damage to the Collateral or any part of it, only after consultation with the Majority in Interest.  In accordance with its role as the agent for the Subscribers, the Lien Documents will identify the Collateral Agent as the secured party.

12.5           Duties of the Collateral Agent.  The Collateral Agent agrees to hold and dispose of the Collateral in accordance with and subject only to the terms of this Agreement.

12.6           Appointment of Attorney-in-Fact.  The Debtor hereby irrevocably appoints the Collateral Agent as the Debtor’s attorney-in-fact to arrange for the transfer of the Collateral and to do and perform all actions that are necessary or appropriate in order to effect the terms of this Agreement.

12.7           Matters Pertaining to Collateral Agent.

12.7.1                      The Collateral Agent shall not be personally liable for any act it may do or omit to do under this Agreement while acting in good faith and in the exercise of its best judgment, and any act done or omitted by the Collateral Agent pursuant to the advice of the Collateral Agent’s attorney shall be conclusive evidence of such good faith.  Except as expressly provided herein, the Collateral Agent is expressly authorized and directed to disregard any and all notices or warnings given by any of the parties, or by any other person or corporation, excepting only orders or process of court, and is hereby expressly authorized to comply with and obey any and all orders, judgments or decrees of any court.  If the Collateral Agent obeys or complies with any such order, judgment or decree of any court, the Collateral Agent shall not be liable to the Subscribers or the Debtor or to any other person, firm or corporation by reason of such compliance, notwithstanding that any such order, judgment or decree be subsequently reversed, modified, annulled, set aside or vacated, or found to have been entered without jurisdiction.

12.7.2                      The Subscribers and the Debtor expressly agree the Collateral Agent has the absolute right at the Collateral Agent’s election, if the Collateral Agent considers it appropriate, to file an action in interpleader in a court of proper jurisdiction requiring the parties to answer and litigate their claims and rights among themselves, and the Collateral Agent is authorized to deposit with the clerk of the court all documents and funds held by him pursuant to this Agreement.  In the event such action is filed, the Debtor agrees to pay all costs, expenses and reasonable attorneys’ fees that the Collateral Agent incurs in such interpleader action.  Upon filing of such action the Collateral Agent shall thereupon be fully released and discharged from all obligations to further perform any duties or obligations otherwise imposed by the terms of this Agreement.

12.7.3                      The Collateral Agent shall not be bound in any way by any other agreement between the Subscribers and the Debtor as to which the Collateral Agent is not a party, whether or not the Collateral Agent has knowledge thereof, nor by any notice of a claim or demand with respect to this Agreement or the Collateral.  The Collateral Agent shall have no duties or responsibilities except as expressly set forth in this Agreement.  The Collateral Agent may rely conclusively on any certificate, statement, request, waiver, receipt, agreement or other instrument that the Collateral Agent believes to be genuine and to have been signed and presented by an appropriate person or persons.

12.7.4                      The retention and distribution of the Collateral in accordance with the terms and provisions of this Agreement shall fully and completely release the Collateral Agent from any obligation or liability assumed by the Collateral Agent hereunder as to the Collateral.

12.7.5                      The Collateral Agent, while in possession of the Collateral prior to or following the occurrence of an Event of Default, as hereinabove provided, and while acting in accordance with the terms of this Agreement or applicable law, is not responsible for any fluctuations in value or delays in disposing of the Collateral.

12.7.6                      The Collateral Agent shall not be liable in any respect for verifying the identity, authority or rights of the parties executing or delivering or purporting to execute and/or deliver this Agreement.

  

-11-

  

12.7.7                      Notwithstanding anything herein to the contrary, the Collateral Agent shall have no duty with respect to the Collateral other than the duty to use reasonable care in the custody and preservation of the Collateral if it is in the Collateral Agent's possession.  The Collateral Agent shall be under no obligation to take any steps necessary to preserve rights in the Collateral against any other parties, to sell the Collateral if it threatens to decline in value, or to exercise any rights represented thereby, except as directed by the Majority in Interest pursuant to the terms of this Agreement.

12.7.8                      The Debtor and the Subscribers agree to and each does hereby indemnify, defend (with counsel acceptable to the Collateral Agent) and hold the Collateral Agent harmless against any and all losses, damages, claims and expenses, including reasonable attorneys’ fees, that may be incurred by the Collateral Agent by reason of it compliance with the terms of this Agreement.  If, as a result of any disagreement between the parties and/or adverse demands and claims being made by any or all of them upon the Collateral Agent, the Collateral Agent shall become involved in litigation, including any interpleader brought by the Collateral Agent as provided in this Agreement, the Debtor agrees that it shall be liable to the Collateral Agent on demand for all costs, expenses and attorneys’ fees that the Collateral Agent shall incur and/or be compelled to pay by reason of such litigation.

12.8           Replacement of Collateral Agent.  In the event the Collateral Agent is or becomes unwilling or unable to act in such capacity for any reason, the Majority in Interest shall appoint a successor.  The Majority in Interest (but not the Debtor) shall have the right, after delivery of written notice signed by the Majority in Interest to the Collateral Agent, to terminate the Collateral Agent and to name the Collateral Agent’s successor.

[THIS SPACE INTENTIONALLY LEFT BLANK]

  

-12-

  

IN WITNESS WHEREOF, the undersigned have executed and delivered this Security Agreement, as of the date first written above.

“DEBTOR”

IDEAL POWER INC.

a Delaware corporation

By:                                                     

       Paul Bundschuh

      Chief Executive Officer

Agreed and Accepted by:

“COLLATERAL AGENT”

Anthony DiGiandomenico

By:/s/ Anthony DiGiandomenico                                                                                     

Name:/s/ Anthony DiGiandomenico                                                                                     

Title:                                                                          

 

This Security Agreement may be signed by facsimile signature and

delivered by confirmed facsimile transmission.

  

-13-

  

OMNIBUS SUBSCRIBER SIGNATURE PAGE TO

SECURITY AGREEMENT

 

The undersigned, in its capacity as a Subscriber, hereby executes and delivers the Security Agreement to which this signature page is attached and agrees to be bound by the Security Agreement on the date set forth on the first page of the Security Agreement. This counterpart signature page, together with all counterparts of the Security Agreement and signature pages of the other parties named therein, shall constitute one and the same instrument in accordance with the terms of the 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)

	  

  

-14-

  

IDEAL POWER INC.

SECURITY AGREEMENT EXHIBITS AND SCHEDULES

Schedule 1 – Subscribers

Schedule 2 - Provisions of the New York Uniform Commercial Code

Schedule 3 – Deposit Accounts

Schedule 5.1 – Security Interests

  

-15-

  

SCHEDULE 1

SUBSCRIBERS

  

-16-

  

SCHEDULE 2

UNIFORM COMMERCIAL CODE OF NEW YORK

Definitions from § 9.102 of the New York Uniform Commercial Code

(2) "Account", except as used in "account for", means a right to payment of a monetary obligation, whether or not earned by performance, (i) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (ii)for services rendered or to be rendered, (iii) for a policy of insurance issued or to be issued, (iv) for a secondary obligation incurred or to be incurred, (v) for energy provided or to be provided, (vi) for the use or hire of a vessel under a charter or other contract, (vii) arising out of the use of a credit or charge card or information contained on or for use with the card, or (viii) as winnings in a lottery or other game of chance operated or sponsored by a state, governmental unit of a State, or person licensed or authorized to operate the game by a State or governmental unit of a State.  The term includes health-care-insurance receivables.  The term does not include (i) rights to payment evidenced by chattel paper or an instrument, (ii) commercial tort claims, (iii) deposit accounts, (iv) investment property, (v) letter-of-credit rights or letters of credit, or (vi) rights to payment for money or funds advanced or sold, other than rights arising out of the use of a credit or charge card or information contained on or for use with the card.

(11) "Chattel paper" means a record or records that evidence both a monetary obligation and a security interest in specific goods, a security interest in specific goods and software used in the goods, a security interest in specific goods and license of software used in the goods, a lease of specific goods, or a lease of specific goods and license of software used in the goods.  In this paragraph, "monetary obligation" means a monetary obligation secured by the goods or owed under a lease of the goods and includes a monetary obligation with respect to software used in the goods.  The term does not include (i) charters or other contracts involving the use or hire of a vessel or (ii) records that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card.  If a transaction is evidenced by records that include an instrument or series of instruments, the group of records taken together constitutes chattel paper.

(30) "Document" means a document of title or a receipt of the type described in Section 7--201(2).

7-201(2): Where goods including distilled spirits and agricultural commodities are stored under a statute requiring a bond against withdrawal or a license for the issuance of receipts in the nature of warehouse receipts, a receipt issued for the goods has like effect as a warehouse receipt even though issued by a person who is the owner of the goods and is not a warehouseman.

(33) "Equipment" means goods other than inventory, farm products, or consumer goods.

(42) "General intangible" means any personal property, including things in action, other than accounts, chattel  paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money, and oil, gas, or other minerals before extraction.  The term includes payment intangibles and software.

(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.

  

-17-

  

(47) "Instrument" means a negotiable instrument or any other writing that evidences a right to the payment of a monetary obligation, is not itself a security agreement or lease, and is of a type that in ordinary course of business is transferred by delivery with any necessary indorsement or assignment.  The term does not include (i) investment property, (ii) letters of credit, or (iii) writings that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card.

(48) "Inventory" means goods, other than farm products, which:

(A) are leased by a person as lessor;

(B) are held by a person for sale or lease or to be furnished under a contract of service;

(C) are furnished by a person under a contract of service; or

(D) consist of raw materials, work in process, or materials used or consumed in a business.

(64) "Proceeds", except as used in Section 9--609(b), means the following property:

(A) Whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral;

(B) whatever is collected on, or distributed on account of, collateral;

(C) rights arising out of collateral;

(D) to the extent of the value of collateral, claims  arising out  of the loss, nonconformity, or interference with the use of, defects or infringement of rights in,  or  damage to, the collateral; or

(E) to the extent of the value of collateral and to the extent payable to the debtor or the secured party, insurance  payable by reason of the loss or nonconformity of, defects or infringement of rights in, or damage to, the collateral.

  

-18-

  

SCHEDULE 3

DEPOSIT ACCOUNTS

	
Bank

	
Account No.

	
Bank Address

	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  

  

-19-

  

SCHEDULE 5.1

SECURITY INTERESTS

Not applicable.

The security interests granted to the Subscribers herein are identical to and in pari passu with the security interests granted to the holders of the senior secured convertible promissory notes evidencing the Senior Debt.

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

  

-20-

  

PATENTS AND PATENT APPLICATIONS SUBJECT TO THE IDEAL POWER CONVERTERS INC. SECURITY AGREEMENT DATED JULY 29, 2013 BETWEEN IDEAL POWER CONVERTERS INC. THE COLLATERAL AGENT AND THE SUBSCRIBERS

 

	
Page 1

	  	  	  	  	  	  	  
	
Dkt#

	
Status

	
where?

	
App No

	
File d

	
Priority

	
Pat No?

	
Issue/est.

	
IPC‐011.P

	
expired

	
USpr

	
6 0/811,19 1

	
6‐Jun‐06

	
6‐Jun‐06

	
IPC‐011~CN

	
pending

	
CN

	
2 007 8002 9 2 08.4

	
6‐Feb‐09

	
6‐Jun‐06

	  	  
	
IPC‐011~EP

	
pending

	
EP

	
7 7 9591 5.3

	  	
6‐Jun‐06

	  	  
	
IPC‐012

	
issued

	
US

	
1 1 /7 59 ,006

	
6‐Jun‐07

	
6‐Jun‐06

	
7,599,196

	
6‐Oct‐09

	
IPC‐012A

	
issued

	
US

	
12 /4 79 ,2 07

	
5‐Jun‐09

	
6‐Jun‐06

	
8,300,426

	
30‐Oct‐12

	
IPC‐012E

	
issued

	
US

	
13 /2 05,2 4 3

	
8‐Aug‐11

	
6‐Jun‐06

	
8,400,800

	
19‐Mar‐13

	
IPC‐012F

	
issued

	
US

	
13 /2 05,2 50

	
8‐Aug‐11

	
6‐Jun‐06

	
8,395,910

	
12‐Mar‐13

	
IPC‐012G

	
issued

	
US

	
13 /2 05,2 6 3

	
8‐Aug‐11

	
6‐Jun‐06

	
8,345,452

	
1‐Jan‐13

	
IPC‐013

	
issued

	
US

	
11 /7 58,9 70

	
6‐Jun‐07

	
6‐Jun‐06

	
7,778,045

	
17‐Aug‐10

	
IPC‐013C

	
pending

	
US

	
13 /859 ,2 6 5

	
9‐Apr‐13

	
6‐Jun‐06

	  	  
	
IPC‐020~BR

	
pending

	
BR

	
PI1011551 -0

	
28‐Dec‐11

	
29‐Jun‐09

	  	  
	
IPC‐020~CN

	
pending

	
CN

	
201 08003 87 04 8

	
29‐Feb‐12

	
29‐Jun‐09

	  	  
	
IPC‐020~EP

	
pending

	
EP

	
108003 1 0.4

	
13‐Jan‐12

	
29‐Jun‐09

	  	  
	
IPC‐020~KR

	
pending

	
KR

	
2 01 2 -7 0007 2 0

	
10‐Jan‐12

	
29‐Jun‐09

	  	  
	
IPC‐020A

	
issued

	
US

	
13 /2 05,2 1 2

	
8‐Aug‐11

	
29‐Jun‐09

	
8,391,033

	
5‐Mar‐13

	
IPC‐020B

	
issued

	
US

	
13 /54 1 ,9 02

	
5‐Jul‐12

	
29‐Jun‐09

	
8,441,819

	
14‐May‐13

	
IPC‐020C

	
issued

	
US

	
13 /54 1 ,9 05

	
5‐Jul‐12

	
29‐Jun‐09

	
8,432,711

	
30‐Apr‐13

	
IPC‐020D

	
issued

	
US

	
13 /54 1 ,9 1 0

	
5‐Jul‐12

	
29‐Jun‐09

	
8,446,705

	
21‐May‐13

	
IPC‐020E

	
issued

	
US

	
13 /54 1 ,9 1 4

	
5‐Jul‐12

	
29‐Jun‐09

	
8,451,637

	
28‐May‐13

	
IPC‐020F

	
pending

	
US

	
13 /84 7 ,7 03

	
20‐Mar‐13

	
29‐Jun‐09

	  	  
	
IPC‐021~BR

	
pending

	
BR

	
BR11 2 012 003 6 12 -2

	
16‐Feb‐12

	
17‐Aug‐09

	  	  
	
IPC‐021~CA

	
pending

	
CA

	
28084 9 0

	  	  	  	  
	
IPC‐021A

	
issued

	
US

	
1 3 /2 05,225

	
8‐Aug‐11

	
17‐Aug‐09

	
8,295,069

	
23‐Oct‐12

	
IPC‐021B

	
issuing

	
US

	
1 3 /54 2 ,223

	
5‐Jul‐12

	
17‐Aug‐09

	  	
13‐Aug‐13

	
IPC‐021C

	
issued

	
US

	
1 3 /54 2 ,225

	
5‐Jul‐12

	
17‐Aug‐09

	
8,406,025

	
26‐Mar‐13

	
IPC‐021D

	
auth

	
US

	  	  	
17‐Aug‐09

	  	  
	
IPC‐022

	
issued

	
US

	
1 3 /3 08,2 00

	
30‐Nov‐11

	
30‐Nov‐10

	
8,446,042

	
21‐May‐13

	
IPC‐022A

	
issued

	
US

	
13 /7 05,2 3 0

	
5‐Dec‐12

	
30‐Nov‐10

	
8,446,043

	
21‐May‐13

	
IPC‐022A

	
pending

	
US

	
13 /872 ,9 73

	
29‐Apr‐13

	
30‐Nov‐10

	  	  
	
IPC‐022WO

	
expiring

	
PCT

	
PCT/US1 1 /62689

	
30‐Nov‐11

	
30‐Nov‐10

	  	  
	
IPC‐023

	
pending

	
US

	
13 /4 01 ,771

	
21‐Feb‐12

	
18‐Feb‐11

	  	  
	
IPC‐024

	
pending

	
US

	
13 /4 00,56 7

	
20‐Feb‐12

	
18‐Feb‐11

	  	
27‐Aug‐13

	
IPC‐028

	
issued

	
US

	
13 /3 08,3 56

	
30‐Nov‐11

	
30‐Nov‐10

	
8,461,718

	
11‐Jun‐13

	
IPC‐028~IN

	
pending

	
IN

	
49 55/DELNPi2 01 3

	  	  	  	  
	
IPC‐028~MY

	
pending

	
MY

	  	  	  	  	  
	
IPC‐028~PH

	
pending

	
PH

	  	  	  	  	  
	
IPC‐028~SG

	
pending

	
SG

	
2 01 3 04 01 9 -1

	
21‐May‐13

	  	  	  
	
IPC‐028A

	
issued

	
US

	
13 /7 05,2 4 0

	
5‐Dec‐12

	
30‐Nov‐10

	
8,471,408

	
25‐Jun‐13

	
IPC‐028B

	
pending

	
US

	
13 /872 ,9 79

	
29‐Apr‐13

	
30‐Nov‐10

	  	  
	
IPC‐029.P

	
expiring

	
USpr

	
61 /7 00,1 3 1

	
12‐Sep‐12

	
12‐Sep‐12

	  	  
	
IPC‐029.P2

	
expiring

	
USpr

	
6 1 /7 84 ,001

	
14‐Mar‐13

	
12‐Sep‐12

	  	  
	
IPC‐030.P

	
pending

	
USpr

	
6 1 /81 4 ,993

	
23‐Apr‐13

	
23‐Apr‐13

	  	  
	
IPC‐036.P

	
pending

	
USpr

	
61 /83 8,7 58

	
24‐Jun‐13

	
24‐Jun‐13

	  	  
	
IPC‐037.P

	
pending

	
USpr

	
61 /84 1 ,6 1 8

	
1‐Jul‐13

	
1‐Jul‐13

	  	  
	
IPC‐038.P

	
pending

	
USpr

	
61 /84 1 ,6 21

	
1‐Jul‐13

	
1‐Jul‐13

	  	  

 

 

-21-

 

 

 

 

	
page 2

	  	  	  	  	  	  	  
	
Dkt #

	
St atus

	
where?

	
A pp No

	
Filed

	
Priority

	
Pat No?

	
Issue/est.

	
IPC‐039.P

	
pending

	
USpr

	
61 /841 ,6 2 4

	
1‐Jul‐13

	
1‐Jul‐13

	  	  
	
IPC‐PCCS‐001

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐002

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐003

	
pending

	
USpr

	
61 /7 65,098

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐004

	
pending

	
USpr

	
61 /7 65,1 29

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐005

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐006

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐007

	
pending

	
USpr

	
61 /7 65,099

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐008

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐009

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐011

	
pending

	
USpr

	
61 /7 65,1 00

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐012

	
pending

	
USpr

	
61 /7 65,1 3 1

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐013

	
pending

	
USpr

	
61 /7 65,1 02

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐014

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐015

	
pending

	
USpr

	
61 /7 65,1 04

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐018

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐019

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐021

	
pending

	
USpr

	
61 /7 65,1 07

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐022

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐025

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐026

	
pending

	
USpr

	
61 /7 65,1 3 2

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐029

	
pending

	
USpr

	
6 1 /778,6 4 8

	
13‐Mar‐13

	
13‐Mar‐13

	  	  
	
IPC‐PCCS‐030

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐031

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐032

	
pending

	
USpr

	
61 /7 65,1 1 0

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐034

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐035

	
pending

	
USpr

	
61 /7 65,1 1 2

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐036

	
pending

	
USpr

	
61 /7 65,1 1 4

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐037

	
pending

	
USpr

	
6 1 /778,6 6 1

	
13‐Mar‐13

	  	  	  
	
IPC‐PCCS‐038

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐040

	
pending

	
USpr

	
61 /7 65,1 1 6

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐041

	
pending

	
USpr

	
61 /7 65,1 1 8

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐043

	
pending

	
USpr

	
61 /7 65,1 1 9

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐044

	
pending

	
USpr

	
61 /7 65,1 22

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐045

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐046

	
pending

	
USpr

	
61 /7 65,1 3 7

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐046

	
proposed

	  	
61 /7 65,1 3 7

	
15‐Feb‐13

	  	  	  
	
IPC‐PCCS‐047

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐051

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐052

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐053

	
pending

	
USpr

	
61 /7 65,1 23

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐054

	
pending

	
USpr

	
61 /7 65,1 26

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐055

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐057

	
pending

	
USpr

	
61 /7 65,1 3 9

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐059

	
pending

	
USpr

	
61 /7 65,1 4 4

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐060

	
pending

	
USpr

	
61 /7 65,1 4 6

	
15‐Feb‐13

	
15‐Feb‐13

	  	  
	
IPC‐PCCS‐061

	
pending

	
USpr

	
6 1 /778,6 80

	
13‐Mar‐13

	
13‐Mar‐13

	  	  
	
IPC‐PCCS‐062

	
pending

	
USpr

	
61 /81 7 ,092

	
29‐Apr‐13

	
29‐Apr‐13

	  	  
	
IPC‐PCCS‐063

	
pending

	
USpr

	
6 1 /817 ,012

	
29‐Apr‐13

	
29‐Apr‐13

	  	  
	
IPC‐PCCS‐064

	
pending

	
USpr

	
6 1 /817 ,019

	
29‐Apr‐13

	
29‐Apr‐13

	  	  
	
IPC‐PCCS‐065

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐066

	
proposed

	  	  	  	  	  	  
	
IPC‐PCCS‐067

	
proposed

	  	  	  	  	  	  

 

-22-warranttranchethree.htm

Exhibit 10.34

	
No. D-1 

	
Issue Date:    July 29, 2013

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.  THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND/OR APPLICABLE STATE SECURITIES LAWS,OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.

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 29, 2013, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

IDEAL POWER INC.

STOCK PURCHASE WARRANT

THIS CERTIFIES that ________________ (the “Holder”) is entitled, upon the terms and subject to the conditions hereinafter set forth in this Warrant (this “Warrant”), at any time on or after (except as otherwise limited below) the date of the applicable event specified in Section 2 below setting forth the Exercise Price and on or prior to the Expiration Date, but not thereafter, to subscribe for and to purchase from Ideal Power Inc., a Delaware corporation (the “Company”), shares of the Company's common stock, $0.001 par value (the “Common Stock”).

This Warrant is issued pursuant to a Securities Purchase Agreement and in connection with the issuance to the Holder of a Convertible Promissory Note (the “Note”) of even date herewith, and is one of the Warrants (collectively, the “Warrants”) being issued in connection with the issuance of a series of Senior Secured Convertible Promissory Notes of like tenor (collectively, “Notes”) being issued by the Company to raise interim financing of up to $750,000 (the “Offering”).  Capitalized terms used herein, but not otherwise defined, shall have the meanings ascribed to such terms in the Securities Purchase Agreement.

The following is a statement of the rights of the Holder of this Warrant and the conditions to which this Warrant is subject, to which the Holder, by the acceptance of this Warrant, agrees:

1.           Certain Definitions

1.1           “Calendar Due Date” means July 29, 2014.

1.2           “Change of Control” means any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, and shall be deemed to be occasioned by, or to include, (i) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any stock acquisition, reorganization, merger or consolidation) unless the Company’s shareholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Company’s acquisition or sale or otherwise) hold at least a majority of the voting power of the surviving or acquiring entity, or its direct or indirect parent entity (except that the sale by the Company of shares of its capital stock to investors in bona fide equity financing transactions shall not be deemed a Change of Control for this purpose) or (ii) a sale, exclusive license or other disposition of all or substantially all of the assets of the Company, including a sale, exclusive license or other disposition of all or substantially all of the assets of the Company’s subsidiaries, if such assets constitute substantially all of the assets of the Company and such subsidiaries taken as a whole.

1.3           “Exercise Price” is defined in Section 2 below.

  

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1.4           “Expiration Date” means that date that is seven years after the issue date set forth above, provided, however, if the Company closes the IPO after the fifth anniversary date of the deemed issue date but prior to the Expiration Date, then the Expiration Date shall be extended for an additional five years following the close of the IPO.

1.5           “IPO” means a firm commitment underwritten initial public offering of the Company’s Common Stock pursuant to a registration statement declared effective by the Securities and Exchange Commission which closes before the Calendar Due Date and results in gross proceeds to the Company of at least $10 million.

1.6           “IPO Price” means the price per share of the Company's Common Stock offered to public investors in an IPO, without regard to any underwriting discount or expense (as appropriately adjusted to reflect stock dividends, stock splits, combinations, recapitalizations and the like with respect to the Company’s capital stock after the date hereof).

1.7           “Private Equity Financing” means a privately marketed equity financing resulting in gross proceeds in excess of $250,000 which closes before the Calendar Due Date; provided, however, that none of the following issuances of securities shall constitute a “Private Equity Financing”: (i) the Offering and any subsequent offerings of senior secured convertible promissory notes or any other debt offering; (ii) securities issued without consideration in connection with any stock split or stock dividend on, the Company’s Common Stock; (iii) securities issued to the Company’s employees, officers, directors, consultants, advisors or service providers pursuant to any plan, agreement or similar arrangement unanimously approved by the Company’s board of directors; (iv) securities issued to banks or equipment lessors; (v) securities issued in connection with sponsored research, collaboration, technology license, development, original equipment manufacturing (OEM), marketing or other similar agreements or strategic partnerships; (vi) securities issued in connection with a bona fide business acquisition of or by the Company (whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise); (vii) the Investment Unit dated October 1, 2010, issued by the Company to the Office of the Governor Economic Development and Tourism, and any securities relating to the conversion or exercise thereof; or (viii) any right, option or warrant to acquire any security convertible into or exercisable for the securities listed in clauses (i) through (vii) above.

1.8           “Private Equity Financing Price” means the price per share of Common Stock paid by investors in the Private Equity Financing, which shall be determined by dividing (a) the total consideration received or to be received by each investor assuming exercise in full of all warrants or similar securities, divided by (b) the total number of shares of Common Stock acquirable either directly or by conversion or exercise of instruments, by the Holder, on a fully diluted basis.

1.9           “Shares” means the shares of Common Stock issuable under this Warrant, computed in accordance with Section 2 below.

2.           Number of Shares and Exercise Price

The number of shares of Common Stock (the “Shares”) covered by this Warrant and the per share Exercise Price shall be determined as follows (subject to appropriate adjustments pursuant to Section 10):

(i)           in the event of an IPO that occurs prior to the Calendar Due Date, one-half the principal amount of the Holder's Note divided by the lower of 0.70 of the IPO Price or $1.46 shall determine the number of shares covered by the Warrant while the per-share exercise price shall be equal to the lower of 0.70 times the IPO Price or $1.46, in which case this Warrant will become exercisable; or

(ii)           in the event of a Private Equity Financing that occurs prior to the Calendar Due Date, one-half of the principal amount of the Holder's Note divided by the lower of 0.70 of the Private Equity Financing Price or $1.46 shall determine the number of shares covered by the Warrant, with a per-share exercise price equal to the lower of 0.70 times the Private Equity Financing Price or $1.46, in which case this Warrant will become exercisable; provided, however, that (A) if the Company undertakes first, a Private Equity Financing and secondly, an IPO prior to the Calendar Due Date and (B) the Private Equity Financing Price is higher than the IPO Price, then the number of shares of Common Stock covered by the Warrant and the per share exercise price shall be adjusted to equal the number of shares of Common Stock and the exercise price calculated in accordance with subsection (i) above; or

  

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(iii)           If the Company does not undertake either a Private Equity Financing or an IPO prior to the Calendar Due Date, then the number of Shares covered by this Warrant shall equal one-half the original principal amount of the Holder’s Note divided by $1.46, and the exercise price shall be $1.46 per share, in which case this Warrant will become exercisable.

3.           Exercise of Warrant

3.1           The purchase rights represented by this Warrant are exercisable by the Holder, in whole or in part, by the surrender of this Warrant and the Notice of Exercise annexed hereto duly executed at the Company’s principal executive office (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company), and upon payment of the aggregate Exercise Price of the Shares thereby purchased (by cash or by check or bank draft payable to the order of the Company); whereupon the Holder shall be entitled to receive a certificate for the number of Shares so purchased. The Company agrees that if at the time of the surrender of this Warrant and purchase of the Shares, the Holder shall be entitled to exercise this Warrant, the Shares so purchased shall be issued to the Holder as the record owner of such Shares as of the close of business on the date on which this Warrant shall have been exercised as aforesaid or on such later date requested by the Holder or on such earlier date agreed to by the Holder and the Company.

3.2           In lieu of exercising this Warrant by payment of cash or check or bank draft payable to the order of the Company pursuant to subsection 3.1 above, the Holder may elect to receive Shares equal to the value of this Warrant (or the portion thereof being exercised), at any time after the date hereof and before the close of business on the Expiration Date, by surrender of this Warrant at the principal executive office of the Company, together with the Notice of Cashless Exercise annexed hereto, in which event the Company will issue to the Holder Shares in accordance with the following formula:

	 	
 

	 	 X =	
Y(A-B)

     A

	 	 	 	 	 	 
	 	
Where,

	 	
X

	
=

	
The number of Shares to be issued to Holder;

	 	  	 	
Y

	
=

	
The number of Shares for which the Warrant is being exercised;

	 	  	 	
A

	
=

	
The fair market value of one Share; and

	 	  	 	
B

	
=

	
The Exercise Price.

 

(a)           For purposes of this subsection 3.2, the fair market value of a Share is defined as follows:

(i)           if the Holder exercises within three days of the closing of the IPO, then the fair market value shall be the IPO Price;

(ii)           if the Holder exercises after receipt of a notice of a Change of Control but before a Change of Control, then the fair market value shall be the value to be received in such Change of Control by the holders of the Company's Common Stock;

(iii)           if the exercise occurs more than three days after the closing of the IPO, and:

 

           (1)           if the Common Stock is traded on a securities exchange or the Nasdaq Stock Market, the fair market value shall be the last sale price on the trading day immediately prior to the Company's receipt of the Notice of Conversion or, if no sale of the Company's Common Stock took place on the trading day immediately prior to the receipt of the Notice of Conversion, then the fair market value shall be the last sale price on the most recent day prior to the receipt of the Notice of Conversion on which trades were made and reported; or

 

  

-3-

  

 

(2)           if the Common Stock is traded over-the-counter, the value shall be deemed to be the last sale price on the trading day immediately prior to the Company's receipt of the Notice of Conversion or, if no sale of the Company's Common Stock took place on the trading day immediately prior to the receipt of the Notice of Conversion, then the fair market value shall be the last sale price on the most recent day prior to the receipt of the Notice of Conversion on which trades were made and reported;

(iv)           if there is no active public market for the Common Stock, the fair market value thereof shall be determined in good faith by the Company’s Board of Directors.

3.3           The exercise or conversion of this Warrant in connection with a Change of Control may, at the election of the Holder, be conditioned upon the closing of such Change of Control, in which event the Holder shall not be deemed to have exercised or converted this Warrant until immediately prior to the closing of such Change of Control.

4.           Nonassessable

The Company covenants that all Shares which may be issued upon the exercise of this Warrant will be validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof.  Certificates for Shares purchased hereunder shall be delivered to the Holder promptly after the date on which this Warrant shall have been exercised.

5.           Fractional Shares

No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant.  With respect to any fraction of a share called for upon the exercise of this Warrant, such fractional share shall be rounded down to the nearest whole share, and the Company shall pay to the Holder the amount of such fractional share multiplied by an amount equal to such fraction multiplied by the then current fair market value (determined in accordance with Section 3.2(a)) of a Share shall be paid in cash to the Holder.

6.           Charges, Taxes and Expenses

Issuance of certificates for Shares upon the exercise of this Warrant shall be made without charge to the Holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder.

7.           No Rights as Shareholders

This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof.

8           Saturdays, Sundays, Holidays, Etc.

If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, a Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day that is not a Saturday, Sunday or legal holiday.

9.           Intentionally Omitted

10.           Adjustments

The Exercise Price and the number of Shares purchasable hereunder are subject to adjustment from time to time as set forth in this Section 10.

 

  

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10.1           Reclassification, etc.  If the Company, at any time while this Warrant, or any portion hereof, remains outstanding and unexpired by reclassification of securities or otherwise, shall change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities or any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Warrant immediately prior to such reclassification or other change and the Exercise Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 10.

10.2           Subdivision or Combination of Shares.  In the event that the Company shall at any time subdivide the outstanding securities as to which purchase rights under this Warrant exist, or shall issue a stock dividend on the securities as to which purchase rights under this Warrant exist, the number of securities as to which purchase rights under this Warrant exist immediately prior to such subdivision or to the issuance of such stock dividend shall be proportionately increased, and the Exercise Price shall be proportionately decreased, and in the event that the Company shall at any time combine the outstanding securities as to which purchase rights under this Warrant exist, the number of securities as to which purchase rights under this Warrant exist immediately prior to such combination shall be proportionately decreased, and the Exercise Price shall be proportionately increased, effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be.

10.3           Cash Distributions.  No adjustment on account of cash dividends or interest on the securities as to which purchase rights under this Warrant exist will be made to the Exercise Price under this Warrant.

11.           Notice of Certain Events

The Company will provide notice to the Holder with at least 20 days notice prior to the closing of a Change of Control or an IPO.  Such notice shall be in accordance with the notice provision included at Section 12(e) of the Securities Purchase Agreement of even date herewith.

12.           Purchase Rights; Fundamental Transactions

In addition to any adjustments pursuant to Section 10 above, if at any time the Company grants, issues or sells any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of Common Stock (“Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

13.           Put Right

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.

14.           Miscellaneous

14.1           Loss, Theft, Destruction or Mutilation of Warrant.  Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new Warrant executed in the same manner as this Warrant and of like tenor and amount.

  

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14.2           Waivers and Amendments.  This Warrant and the obligations of the Company and the rights of the Holder under this Warrant may be amended, waived, discharged or terminated (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely) with the written consent of the Company (which shall not be required in connection with a waiver of rights in favor of the Company) and the holders of at least a majority of the then-outstanding aggregate principal amount under the Notes; provided, however, that no such amendment or waiver shall reduce the number of Shares represented by this Warrant without the consent of the Holder hereof; and provided further, however, that nothing shall prevent the Holder from individually agreeing to waive the observation of any term of this Warrant.  Any amendment, waiver, discharge or termination effected in accordance with this Section14.2 shall be binding upon the Company, the Holder, and except pursuant to a waiver by an individual holder of another Warrant pursuant to the final proviso in the immediately preceding sentence, each other holder of Warrants.

14.3           Notices.  Any notice, request or other communication required or permitted hereunder shall be given in accordance with the Purchase Agreement.

14.4           Severability.  If one or more provisions of this Warrant are held to be unenforceable under applicable law, such provision(s) shall be excluded from this Warrant and the balance of this Warrant shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms.

14.5           Successors and Assigns.  Neither this Warrant nor any rights hereunder are transferable without the prior written consent of the Company.  Notwithstanding the foregoing, the Holder shall be permitted to transfer this Warrant to any affiliate (as that term is defined in the Securities Act of 1933) of the Holder.  If a transfer is permitted pursuant to this Section, the transfer shall be recorded on the books of the Company upon the surrender of this Warrant, properly endorsed, to the Company at its principal offices, and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer.  In the event of a partial transfer, the Company shall issue to the holders one or more appropriate new warrants.  Subject to the foregoing, the provisions of this Warrant shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the Company and the Holder.

14.6           Delays or Omissions.  No delay or omission to exercise any right, power, or remedy accruing to the Holder, upon any breach or default of the Company under this Warrant shall impair any such right, power, or remedy of the Holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default therefore or thereafter occurring.  Any waiver, permit, consent, or approval of any kind or character on the part of the Holder of any breach or default under this Warrant or any waiver on the part of the Holder of any provisions or conditions of this Warrant must be made in writing and shall be effective only to the extent specifically set forth in such writing.  All remedies, either under this Warrant or by law or otherwise afforded to the Investors, shall be cumulative and not alternative.

14.7           Titles and Subtitles.  The titles of the paragraphs and subparagraphs of this Warrant are for convenience of reference only and are not to be considered in construing this Warrant.

14.8           Construction.  The language used in this Warrant will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party.

14.9           Governing Law.  THIS WARRANT SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF THE STATE OF NEW YORK AS SUCH LAWS ARE APPLIED TO AGREEMENTS BETWEEN NEW YORK RESIDENTS ENTERED INTO AND TO BE PERFORMED ENTIRELY WITHIN NEW YORK.

[Remainder of Page Intentionally Left Blank]

  

-6-

  

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized.

Ideal Power Inc.

By:                                                                            

Paul Bundschuh

Chief Executive Officer

Address:   5004 Bee Creek Road, Suite 600

                  Spicewood Texas 78669

 

                  Attn:  Paul Bundschuh

 

  

-7-

  

NOTICE OF EXERCISE

 

 

	
TO: 

	
Ideal Power Inc.

5004 Bee Creek Road, Suite 600

Spicewood, Texas 78669

Attn: Secretary

 

 

The undersigned hereby elects to purchase ______________ shares (the “Shares”) of the Common Stock of Ideal Power Inc. pursuant to the terms of the attached Warrant and tenders herewith payment of the purchase price in full.

 

 

Please issue a certificate or certificates representing the Shares in the name of the undersigned or in such other name as is specified below:

 

_________________________________

(Print Name)

 

Address: __________________________

_________________________________

 

The undersigned confirms that the undersigned is an “accredited investor,” and that the Shares are being acquired for the account of the undersigned for investment only and not with a view to, or for resale in connection with, the distribution thereof, and that the undersigned has no present intention of distributing or selling the Shares.

 

	
______________________________

(Date) 

	
______________________________

(Signature)

 

______________________________

(Print Name)

 

  

-8-

  

NOTICE OF CASHLESS EXERCISE

 

	
TO: 

	
Ideal Power Inc.

5004 Bee Creek Road, Suite 600

Spicewood, Texas 78669

Attn: Secretary

 

 

The undersigned hereby elects to purchase ______________ shares (the “Shares”) of the Common Stock of Ideal Power Inc. pursuant to the cashless exercise provision of Section 3 of the attached Warrant.

 

 

Please issue a certificate or certificates representing the Shares in the name of the undersigned or in such other name as is specified below:

 

_________________________________

(Print Name)

 

  

Address: __________________________

_________________________________

 

The undersigned represents that the undersigned is an “accredited investor,” and that the Shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof, and that the undersigned has no present intention of distributing or reselling such shares.

 

	
______________________________

(Date) 

	
______________________________

(Signature)

  

______________________________

(Print Name)

 

-9-

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