Item 1.01 Entry into a Material Definitive Agreement.
On February 24, 2017, Ideal Power Inc., a Delaware corporation (the “
Company
”), entered into a Purchase Agreement (the “
Purchase Agreement
”), with the institutional and other accredited investors identified therein (each, an “
Investor
” and collectively, the “
Investors
”), relating to a private placement (the “
Private Placement
”) of the Company’s common stock (the “
Common Stock
”) and warrants (the “
Warrants
”) to purchase shares of Common Stock (the “
Warrant Shares
”). The Company also agreed to sell to Investors whose purchase of Common Stock would have resulted in such Investor, together with its affiliates and certain related parties, beneficially owning more than 9.99% of the Company’s outstanding Common Stock immediately following the consummation of this offering, shares of the Company’s newly designated Series A Convertible Preferred Stock (the “
Preferred Stock
”). Each share of Preferred Stock is convertible, subject to certain beneficial ownership limitations described in Item 3.02 below, into one share of Common Stock (the “
Conversion Shares
” and, collectively with the Preferred Stock, the Common Stock, the Warrants and the Warrant Shares, the “
Securities
”). Under the Purchase Agreement, each share of Common Stock or Preferred Stock is being sold together with a Warrant to purchase one share of Common Stock at a price of $2.535 per share of Common Stock and related Warrant, or per share of Preferred Stock and related Warrant. The Investors have agreed to purchase an aggregate of approximately 5,208,860 shares of Common Stock and 708,430 shares of Preferred Stock together with Warrants to purchase approximately 5,917,154 shares of Common Stock for aggregate gross proceeds of approximately $15 million. The Warrants have an exercise price of $2.41 per share, are non-exercisable for the first six months and will expire three years from the date of issuance. The Investors include all executive officers and directors of the Company, each of whom agreed to purchase the Securities on the same terms and conditions as the other Investors. The closing of the Private Placement (the “
Closing
”) is expected to occur on or about March 3, 2017, subject to satisfaction of customary closing conditions.
National Securities Corporation (“
National
”) has acted as the Company’s exclusive placement agent in connection with the Private Placement. At Closing, the Company will pay National a cash placement agent fee equal to 7.5% of the gross proceeds of the Private Placement. The Company will also issue to National a warrant (the “Agent Warrant”) to purchase up to that number of shares of Common Stock equal to 4% of the shares of Common Stock or Preferred Stock (excluding the shares of Common Stock underlying the Warrants) sold in the Private Placement. The Agent Warrant will be exerciable commencing 12 months and ending three years from the Closing at an exercise price of $2.89 per share and shall otherwise conform to the terms and conditions of the Warrants sold to the investors in the Private Placement.
Pursuant to the Purchase Agreement, the Company has agreed to indemnify the Investors for liabilities arising out of or relating to any breach of any of the representations, warranties, covenants or agreements made by the Company in the Purchase Agreement or related documents, subject to certain exceptions. The Purchase Agreement also contains customary representations and warranties and covenants of the Company and is subject to customary closing conditions. The representations, warranties and covenants made by the Company in the Purchase Agreement were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreements and such representations, warranties or covenants were accurate only as of the date when made. Accordingly, such representations, warranties and covenants should not be relied on as accurately representing the current state of the Company’s affairs.
At the Closing, the Company also will enter into a registration rights agreement (the “
Registration Rights Agreement
”) with the Investors pursuant to which the Company will agree to register for resale the shares of Common Stock, the Warrant Shares and the Conversion Shares sold or issuable in the Private Placement (the “
Registrable Securities
”). Under the terms of the Registration Rights Agreement, the Company will be obligated to file a registration statement covering the resale or other disposition of the Registrable Securities by the Investors no later than 30 days after the Closing and to cause the registration statement to become effective no later than the earlier of (i) five business days after the Securities and Exchange Commission (the “
SEC
”) informs the Company that no review of the registration statement will be made or that the SEC has no further comments on the registration statement or (ii) 90 days after the Closing. The Registration Rights Agreement provides for liquidated damages upon the occurrence of certain events, including the Company’s failure to file the registration statement or cause it to become effective by the deadlines set forth above, or the Company’s failure to make available to Investors the benefits of Rule 144.
The Securities to be issued in the Private Placement were offered and will be sold exclusively to accredited investors in a transaction exempt from registration under the Securities Act of 1933, as amended (the “
Securities Act
”), as a transaction not involving a public offering, pursuant to Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
The foregoing summaries of the Purchase Agreement, Registration Rights Agreement and the Warrants are qualified in their entirety by reference to the full text of the agreements, which are attached as Exhibits 10.1, 10.2 and 4.1 hereto and are incorporated herein by reference.