Document:

ex4-1.htm

Exhibit 4.1

 

 

Warrant – Series C 

 

THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.

 

DIGITAL POWER CORPORATION

 

REDEEMABLE COMMON STOCK PURCHASE WARRANT

 

May __, 2017

 

THIS COMMON STOCK PURCHASE WARRANT (this “Warrant”) of Digital Power Corporation, a corporation duly organized and validly existing under the laws of California (the “Company”), is issued to the Holder (as defined below) as part of a unit purchased by the Holder from the Company pursuant to which the Holder is also purchasing shares of the Company’s Series C Preferred Stock from the Company (the “Offering”)..

 

FOR VALUE RECEIVED, the Company hereby certifies that the registered holder hereof, [●] , with an address at [●] , and the Holder’s successors and assigns (the “Holder”), is entitled to purchase from the Company [●] duly authorized, validly issued, fully paid and nonassessable shares of common stock, no par value (the “Common Stock”), at a purchase price equal to $1.00 per share, as may be adjusted pursuant to the anti-dilution provisions set forth herein (the “Warrant Price”). The Holder is registered on the records of the Company regarding registration and transfer of the Warrant (the “Warrant Register”) and is the owner and Holder thereof for all purposes, except as described in Section 13 hereof.

 

1.      Warrant Exercise. This Warrant shall become exercisable six months after the date hereof.

 

2.      Expiration of Warrant. This Warrant shall expire on [five years after Initial Closing Date] (the “Expiration Date”).

 

3.      Exercise of Warrant. This Warrant shall be exercisable pursuant to the terms of Section 1 and this Section 3 hereof.

 

 

 

 

 

	
Redeemable Common Stock Purchase Warrant
	
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	Issued by Digital Power Corporation to	 

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3.1      Manner of Exercise. This Warrant may only be exercised by the Holder hereof, in accordance with the terms and conditions hereof, in whole or in part with respect to any portion of this Warrant, into shares of Common Stock (the “Warrant Shares”), during normal business hours on any day other than a Saturday or a Sunday or a day on which commercial banking institutions in New York, New York are authorized by law to be closed (a “Business Day”) on or prior to the Expiration Date with respect to such portion of this Warrant, by surrender of this Warrant to the Company at its office maintained pursuant to Section 13.2(a) hereof, accompanied by an exercise notice (the “Exercise Notice”) in substantially the form attached to this Warrant as Exhibit A (or a reasonable facsimile thereof) duly executed by the Holder, together with the payment of the Warrant Price. The Holder also shall have the right, at its election exercised in its sole discretion, when exercising the Warrant, in whole or in part, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Exercise Price, elect instead to receive upon such exercise the "Net Number" of shares of Common Stock determined according to the following formula (a "Cashless Exercise"):

 

	
 
	
Net Number =
	
(A x B) - (A x C)
	
 

	 	 	B	 

  

For purposes of the foregoing formula:

 

A = the total number of shares with respect to which this Warrant is then being exercised.

 

B = the Closing Price, as defined in Paragraph (e) of Section 4, of the Common Stock on the trading day immediately preceding the date of the Exercise Notice.

 

C = the Warrant Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

Anything to the contrary notwithstanding, in no event shall the Holder be entitled to exercise any portion of this Warrant in excess of that portion of this Warrant upon exercise of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and the Holder’s affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unexercised portion of the Warrant or the unexercised or unconverted portion of any other of the Company’s securities subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the exercise of the portion of this Warrant with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 9.99% of the outstanding shares of Common Stock (“Ownership Limitation”). Beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Regulations 13D - G thereunder, provided, further, however, that the limitations on exercised may be waived by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the Company, and the provisions of the exercise limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver).

 

 

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Redeemable Common Stock Purchase Warrant
	
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 3.2      When Exercise Effective. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the Business Day on which this Warrant shall have been surrendered to the Company as provided in Section 3.1 hereof, and, at such time, the corporation, association, partnership, organization, business, individual, government or political subdivision thereof or a governmental agency (a “Person” or the “Persons”) in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon exercise as provided in Section 3.3 hereof shall be deemed to have become the holder or holders of record thereof. 

 

3.3      Delivery of Certificates Upon Exercise. Certificates for shares purchased hereunder shall be transmitted by the Company’s transfer agent (the “Transfer Agent”) to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is then a participant in such system and either (A) there is an effective Registration Statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery to the address specified by the Holder in the Exercise Notice by the date that is three Business Days after the latest of (A) the delivery to the Company of the Exercise Notice, (B) surrender of this Warrant and (C) payment of the aggregate Exercise Price as set forth above (including by cashless exercise) (such date, the “Warrant Share Delivery Date”). If the Company fails for any reason to deliver to the Holder certificates evidencing the Warrant Shares subject to an Exercise Notice by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the closing price of the Common Stock on the date of the applicable Exercise Notice), $10 per Business Day (increasing to $20 per Business Day on the fifth Business Day after such liquidated damages begin to accrue) for each Business Day after such Warrant Share Delivery Date until such certificates are delivered or the Holder rescinds such exercise.

 

3.4     Rescission Rights. If the Company fails to cause the Transfer Agent to transmit the Warrant Shares to the Holder via the DWAC system or a certificate or certificates representing the Warrant Shares pursuant to Section 3.3 by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

3.5     Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit the Warrant Shares to the Holder via the DWAC system or a certificate or certificates representing the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date as provided in Section 3.3 above, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares that the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, reasonable evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

 

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Redeemable Common Stock Purchase Warrant
	
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3.6     Partial Exercise. In case exercise is in part only, a new Warrant of like tenor, dated the date hereof and calling in the aggregate on the face thereof for the number of Warrant Shares equal to the number of Warrant Shares called for on the face of this Warrant minus the number of Warrant Shares designated by the Holder upon exercise as provided in Section 3.1 hereof (without giving effect to any adjustment thereof).

 

3.7     Company to Reaffirm Obligations. The Company will, at the time of each exercise of this Warrant and upon the written request of the Holder hereof, acknowledge in writing its continuing obligation to afford to the Holder all rights (including without limitation any rights to registration of the Warrant Shares issued upon exercise) to which the Holder shall continue to be entitled after exercise in accordance with the terms of this Warrant; provided, however, that if the Holder shall fail to make a request, the failure shall not affect the continuing obligation of the Company to afford the rights to such Holder.

 

4.             Warrant Adjustments.

 

The Warrant Price and the number of shares purchasable upon exercise of this Warrant shall be subject to adjustment with respect to events after the date hereof as follows:

 

(a)      Adjustment for Change in Capital Stock. Except as provided in Paragraph 4 (p) below, if the Company shall (i) declare a dividend on its outstanding Common Stock in shares of its capital stock, (ii) subdivide its outstanding Common Stock, or (iii) issue any shares of its capital stock by reclassification of its Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then in each such case the Warrant Price in effect immediately prior to such action shall be adjusted so that if this Warrant is thereafter exercised, the Holder may receive the number and kind of shares which it would have owned immediately following such action if it had exercised this Warrant immediately prior to such action. Such adjustment shall be made successively whenever such an event shall occur. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision or reclassification. If after an adjustment the Holder upon exercise of this Warrant may receive shares of two or more classes of capital stock of the Company, the Company's Board of Directors, in good faith, shall determine the allocation of the adjusted Warrant Price between the classes of capital stock. After such allocation, the Warrant Price of each class of capital stock shall thereafter be subject to adjustment on terms comparable to those applicable to Common Stock in this Section 4. 

 

 

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Redeemable Common Stock Purchase Warrant
	
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(b)      Number of Shares. Upon each adjustment of the Warrant Price as a result of the calculations made in Paragraph 4 (a) above, this Warrant shall thereafter evidence the right to purchase, at the adjusted Warrant Price, that number of shares (calculated to the nearest one-hundredth) obtained by dividing (i) the product obtained by multiplying the number of shares issuable upon exercise of this Warrant prior to adjustment of the number of shares by Warrant Price in effect prior to adjustment of the Warrant Price by (ii) the Warrant Price in effect after such adjustment of the Warrant Price 

 

(c)     Transactions Not Requiring Adjustments. No adjustment need be made for a transaction referred to in Paragraph (a) of this Section 4 if the Holder is permitted to participate in the transaction on a basis no less favorable than any other party and at a level, which would preserve the Holder’s percentage equity participation in the Common Stock upon exercise of this Warrant. 

 

(d)     Action to Permit Valid Issuance of Common Stock. Before taking any action which would cause an adjustment reducing the Warrant Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of this Warrant, the Company will take all corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue shares of such Common Stock at such adjusted Warrant Price.

 

(e)     Minimum Adjustment. No adjustment in the Warrant Price shall be required if such adjustment is less than $0.05; provided, however, that any adjustments, which by reason of this Paragraph 4 (e) are not required to be made, shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 4 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Warrant Price, in addition to those required by this Paragraph 4 (e), as it in its discretion shall determine to be advisable in order that any stock dividends, subdivision of shares, distribution of rights to purchase stock or securities, or distribution of securities convertible into or exchangeable for stock hereafter made by the Company to its stockholders shall not be taxable.

 

(f)     Referral of Adjustment. In any case in which this Section 4 shall require that an adjustment in the Warrant Price be made effective as of a record date for a specified event (the “Exercise Event”), if this Warrant shall have been exercised after such record date, the Company may elect to defer until the occurrence of the Exercise Event issuing to the Holder the shares, if any, issuable upon the Exercise Event over and above the shares, if any, issuable upon such exercise on the basis of the Warrant Price in effect prior to such adjustment; provided, however, that the Company shall deliver to the Holder a due bill or other appropriate instrument evidencing the Holder’ right to receive such additional shares upon the occurrence of the Exercise Event.

 

 

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Redeemable Common Stock Purchase Warrant
	
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(g)     Number of Shares. Upon each adjustment of the Warrant Price as a result of the calculations made in Paragraph (a) of this Section 4, this Warrant shall thereafter evidence the right to purchase, at the adjusted Warrant Price, that number of shares (calculated to the nearest thousandth) obtained by dividing (i) the product obtained by multiplying the number of shares purchasable upon exercise of this Warrant prior to adjustment of the number of shares by the Warrant Price in effect prior to adjustment of the Warrant Price by (ii) the Warrant Price in effect after such adjustment of the Warrant Price.

 

(h)     Notice of Adjustments. Whenever the Warrant Price is adjusted, the Company shall promptly mail to the Holder a notice of the adjustment together with a certificate from the Company's Chief Financial Officer briefly stating (i) the facts requiring the adjustment, (ii) the adjusted Warrant Price and the manner of computing it, and (iii) the date on which such adjustment becomes effective. The certificate shall be prima facia evidence that the adjustment is correct, absent manifest error.

 

(i)     Reorganization of Company. If the Company is a party to a merger, consolidation or a transaction in which (i) the Company transfers or leases substantially all of its assets; (ii) the Company reclassifies or changes its outstanding Common Stock; or (iii) the Common Stock is exchanged for securities, cash or other assets; the Person who is the transferee or lessee of such assets or is obligated to deliver such securities, cash or other assets shall assume the terms of this Warrant. If the issuer of securities deliverable upon exercise of this Warrant is an affiliate of the surviving, transferee or lessee corporation, that issuer shall join in such assumption. The assumption agreement shall provide that the Holder may exercise this Warrant into the kind and amount of securities, cash or other assets which it would have owned immediately after the consolidation, merger, transfer, lease or exchange if it had exercised this Warrant immediately before the effective date of the transaction. The assumption agreement shall provide for adjustments that shall be as nearly equivalent as may be practical to the adjustments provided for in this Section 4. The successor company shall mail to the Holder a notice briefly describing the assumption agreement. If this Paragraph applies, Paragraph 4 (a) above does not apply. Notwithstanding the forgoing, in the event of a reorganization of the Company, the Company shall have the right to purchase this Warrant equal to the difference between the exercise price, as adjusted, if any, and the equivalent value of share of Common Stock determined in the Reorganization by the Company’s Board of Directors.

 

(j)     Dissolution, Liquidation. In the event of the dissolution or total liquidation of the Company, then after the effective date thereof, this Warrant and all rights thereunder shall expire.

 

(k)     Notices. If (i) the Company takes any action that would require an adjustment in the Warrant Price pursuant to this Section 4; or (ii) there is a liquidation or dissolution of the Company, the Company shall mail to the Holder a notice stating the proposed record date for a distribution or effective date of a reclassification, consolidation, merger, transfer, lease, liquidation or dissolution. The Company shall mail the notice at least 15 days before such date. Failure to mail the notice or any defect in it shall not affect the validity of the transaction.

 

5.       Fractional Shares. If the number of Warrant Shares purchasable upon the exercise of this Warrant is adjusted pursuant to Section 4 hereof, the Company shall nevertheless not be required to issue fractions of shares upon exercise of this Warrant or otherwise, or to distribute certificates that evidence fractional shares. Instead the Company will issue cash in the amount equal to the fractional share times the Current Market Price calculated to the nearest penny.

 

 

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Redeemable Common Stock Purchase Warrant
	
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6.     Right to Registration. The Holder has the right to require the Company to register the Warrant Shares under the Act in accordance with the terms of an agreement (the “Registration Rights Agreement”) dated as of the date hereof between the Company and the Holders. The date that the first Registration Statement filed pursuant to the Registration Rights Agreement is declared effective by the Commission is herein referred to as the “Effective Date.”

 

7.      Redemption. 

 

(a)     Company’s Right to Redeem this Warrant. On or after the Effective Date, as long as there is an effective registration statement filed with the Commission registering the Warrants Shares, on not less than 30 days notice to the Holder, the Company may redeem this Warrant at a redemption price of $0.001 times the number of Warrant Shares for which this Warrant can then be exercised (the "Redemption Price"), provided that the reported Closing Price of the Common Stock equals or exceeds $2.00 per share for a period of 20 trading days ending one trading day prior to the date that the notice of redemption is sent. All unexercised Warrants must be redeemed if any Warrants are redeemed. 

 

(b)     Method of Redemption. In case the Company shall desire to exercise its right to redeem the Warrants, it shall mail a notice of redemption to the Holder, first class, postage prepaid, not later than the 30th day before the date fixed for redemption, at its last address as shall appear in the records of the Company. 

 

(c)     Notice of Redemption. The notice of redemption shall specify (i) the Redemption Price; (ii) the date fixed for redemption; (iii) the place where the Warrants shall be delivered and the Redemption Price paid; and (iv) that the right to exercise the Warrants shall terminate at 5:00 PM (New York time) on the date fixed for redemption. The date fixed for the redemption of the Warrants shall be the Redemption Date. 

 

(d)     Delivery of Redemption Price and Expiration of the Warrants. From and after the Redemption Date, the Company shall, at the place specified in the notice of redemption, upon presentation and surrender to the Company by or on behalf of the Holder of its Warrants to be redeemed, deliver or cause to be delivered to or upon the written order of the Holder a sum in cash equal to the Redemption Price of of its Warrants to be redeemed. From and after the Redemption Date and upon the deposit or setting aside by the Company of a sum sufficient to redeem all of the Warrants called for redemption, the Warrants to be redeemed, shall expire and become void and all rights hereunder, except the right to receive payment of the Redemption Price, shall cease. 

 

 

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Redeemable Common Stock Purchase Warrant
	
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8.             No Dilution or Impairment.

 

8.1     Actions to Permit Issuance of Warrant Shares. The Company will not, by amendment of its certificate of incorporation or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants, but will at all times in good faith assist in the carrying out of all of the terms and in the taking of all actions necessary or appropriate in order to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (a) will not permit the par value of any shares of Common Stock receivable upon the exercise of the Warrants to exceed the amount payable therefor upon exercise, (b) will take all actions necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock on the exercise of the Warrants, and (c) will not take any action which results in any adjustment of the Warrant Price if the total number of shares of Common Stock issuable after the action upon the exercise of the Warrant would exceed the total number of shares of Common Stock then authorized by the Company's certificate of incorporation and available for the purpose of issuance upon exercise.

 

8.2     Acknowledgement of Company’s Obligations. The Company acknowledges that its obligation to issue shares of Common Stock issuable upon exercise of the Warrants is binding upon it and enforceable regardless of the dilution that such issuance may have on the ownership interests of other stockholders.

 

9.            Chief Financial Officer’s Report as to Adjustments. In the case of any adjustment or re-adjustment in the shares of Common Stock issuable upon the exercise of the Warrants, the Company at its expense will promptly compute the adjustment or re-adjustment in accordance with the terms of the Warrants and cause its Chief Financial Officer to certify the computation (other than any computation of the fair value of property as determined in good faith by the Board of Directors of the Company) and prepare a report setting forth the adjustment or re-adjustment and showing in reasonable detail the method of calculation thereof and the facts upon which the adjustment or re-adjustment is based, including a statement of (a) the number of shares of Common Stock outstanding or deemed to be outstanding and (b) the Warrant Price in effect immediately prior to the deemed issuance or sale and as adjusted and re-adjusted (if required by Section 4 hereof) on account thereof. The Company will forthwith mail a copy of each report to the Holder and will, upon the written request at any time of the Holder, furnish to the Holder a like report setting forth the Warrant Price at the time in effect and showing in reasonable detail how it was calculated. The Company will also keep copies of all reports at its office maintained pursuant to Section 13.2(a) hereof and will cause them to be available for inspection at the office during normal business hours upon reasonable notice by the Holder or any prospective purchaser of the Warrants designated by the Holder.

 

10.          Reservation of Shares. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, free from all taxes, liens and charges with respect to the issue thereof and not be subject to preemptive rights or other similar rights of stockholders of the Company, solely for the purpose of effecting the exercise of the Warrants, such number of its shares of Common Stock as shall from time to time be sufficient to effect the exercise thereof, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the exercise of the Warrants, in addition to such other remedies as shall be available to the Holder, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase the number of authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including without limitation, using its best efforts to obtain the requisite stockholder approval necessary to increase the number of authorized shares of the Company’s Common Stock. All shares of Common Stock issuable upon exercise of the Warrants shall be duly authorized and, when issued upon exercise, shall be validly issued and, in the case of shares, fully paid and nonassessable and free from all preemptive or similar rights, taxes, liens and charges with respect to the issue thereof, and that upon issuance such shares shall be listed on each securities exchange, if any, on which the other shares of outstanding Common Stock of the Company are then listed.

 

 

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Redeemable Common Stock Purchase Warrant
	
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11.       Listing. The Company shall at all times comply in all respects with the Company’s reporting, filing and other obligations under the by-laws or rules of each national securities exchange or inter-dealer quotation system upon which shares of Common Stock are then listed and shall list the shares issuable upon the exercise of the Warrants on such national securities exchange or inter-dealer quotation system.

 

12.        Investment Representations: Restrictions on Transfer.

 

12.1     Investment Representations. The Holder acknowledge that the Warrants and the Warrant Shares have not been and, except as otherwise provided herein, will not be registered under the Act or qualified under applicable state securities laws and that the transferability thereof is restricted by the registration provisions of the Act as well as such state laws. The Holder represents that it is acquiring this Warrant and will acquire the Warrant Shares for its own account, for investment purposes only and not with a view to resale or other distribution thereof, nor with the intention of selling, transferring or otherwise disposing of all or any part of such securities for any particular event or circumstance, except selling, transferring or disposing of them upon full compliance with all applicable provisions of the Act, the Securities Exchange Act of 1934, the Rules and Regulations promulgated by the Commission thereunder, and any applicable state securities laws. The Holder further understands and agrees that (i) neither the Warrants nor the Warrant Shares may be sold or otherwise transferred unless they are subsequently registered under the Act and qualified under any applicable state securities laws or, in the opinion of counsel reasonably satisfactory to the Company, an exemption from such registration and qualification is available; (ii) any routine sales of the Company's securities made in reliance upon Rule 144 promulgated by the Commission under the Act, can be effected only pursuant to the terms and conditions of that Rule, including applicable holding periods and timely filing requirements with the Commission for the Company; and (iii) except as otherwise set forth herein, the Company is under no obligation to register the Warrants or the Warrant Shares on its behalf or to assist it in complying with any exemption from registration under the Act. The Holder agrees that each certificate representing any Warrant Shares for which the Warrants may be exercised will bear on its face a legend in substantially the following form:

 

These securities have not been registered under the Securities Act of 1933 or qualified under any state securities laws. They may not be sold, hypothecated or otherwise transferred in the absence of an effective registration statement under that Act or qualification under applicable state securities laws without an opinion counsel reasonably acceptable to the Company that such registration and qualification are not required.

 

 

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Redeemable Common Stock Purchase Warrant
	
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12.2     Notice of Proposed Transfer; Opinion of Counsel. Prior to any transfer of any securities that are not registered under an effective registration statement under the Act (“Restricted Securities”), the Holder will give written notice to the Company of the Holder's intention to affect a transfer and to comply in all other respects with this Section 12.2. Each notice (a) shall describe the manner and circumstances of the proposed transfer, and (b) shall designate counsel for the Holder giving the notice (who may be in-house counsel for the Holder). The Holder giving notice will submit a copy thereof to the counsel designated in the notice. The following provisions shall then apply:

 

(i) If in the opinion of counsel for the Holder reasonably satisfactory to the Company the proposed transfer (i.e. private sale of Restricted Securities) may be effected without registration of Restricted Securities under the Act (which opinion shall state the bases for the legal conclusions reached therein), the Holder shall thereupon be entitled to transfer the Restricted Securities in accordance with the terms of the notice delivered by the Holder to the Company. Each certificate representing the Restricted Securities issued upon or in connection with any transfer shall bear the restrictive legends required by Section 12.1 hereof.

 

(ii) If the opinion called for in (i) above is not delivered, the Holder shall not be entitled to transfer the Restricted Securities until either (x) receipt by the Company of a further notice from such Holder pursuant to the foregoing provisions of this Section 12.2 and fulfillment of the provisions of clause (i) above, or (y) such Restricted Securities have been effectively registered under the Act.

 

12.3      Termination of Restrictions. The restrictions imposed by this Section 12 upon the transferability of Restricted Securities shall cease and terminate as to any particular Restricted Securities: (a) which Restricted Securities shall have been effectively registered under the Act, or (b) when, in the opinions of both counsel for the holder thereof and counsel for the Company, which opinion shall not be unreasonably withheld, such restrictions are no longer required in order to insure compliance with the Act or Section 12 hereof. Whenever such restrictions shall cease and terminate as to any Restricted Securities, the holder thereof shall be entitled to receive from the Company, without expense (other than applicable transfer taxes, if any), new securities of like tenor not bearing the applicable legends required by Section 12.1 hereof.

 

13.           Ownership, Transfer and Substitution of Warrant.

 

13.1      Ownership of Warrant. The Company may treat the Holder, in whose name this Warrant is registered to in the Warrant Register maintained pursuant to Section 13.2(b) hereof, as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, except that, if and when any Warrant is properly assigned by a notice in substantially the form attached to this Warrant as Exhibit B (or a reasonable facsimile thereof) duly executed by the holder thereof in blank, the Company shall treat the bearer thereof as the owner of such Warrant for all purposes, notwithstanding any notice to the contrary. Subject to Section 12 hereof, this Warrant, if properly assigned, may be exercised by a new holder without a new Warrant first having been issued.

 

 

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Redeemable Common Stock Purchase Warrant
	
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13.2      Office; Transfer and Exchange of Warrant.

 

(a)      The Company will maintain an office (which may be an agency maintained at a bank) at 49430 Lakeview Boulevard, Fremont, CA 94538 (until the Company notifies the Holder of any change of location of the office) where notices, presentations and demands in respect of the may be made upon it.

 

(b)      The Company shall cause to be kept at its office maintained pursuant to Section 13.2(a) hereof a Warrant Register for the registration and transfer of the Warrants. The names and addresses of holders of the Warrants, the transfers thereof and the names and addresses of transferees of the Warrants shall be registered in such Warrant Register. The Person in whose name any Warrant shall be so registered shall be deemed and treated as the owner and holder thereof for all purposes of such Warrant, and the Company shall not be affected by any notice or knowledge to the contrary.

 

(c)      Upon the surrender of a Warrant, properly endorsed, for registration of transfer or for exchange at the office of the Company maintained pursuant to Section 13.2(a) hereof, the Company at its expense will (subject to compliance with Section 12 hereof, if applicable) execute and deliver to or upon the order of the Holder thereof a new Warrant of like tenor, in the name of such holder or as such holder (upon payment by such holder of any applicable transfer taxes) may direct, calling in the aggregate on the face thereof for the number of shares of Common Stock called for on the face of the Warrant so surrendered.

 

13.3        Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of a Warrant and, in the case of any such loss, theft or destruction of a Warrant, upon delivery of indemnity reasonably satisfactory to the Company in form and amount or, in the case of any mutilation, upon surrender of a Warrant for cancellation at the office of the Company maintained pursuant to Section 13.2(a) hereof, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor and dated the date hereof.

 

14.          No Rights or Liabilities as Stockholder. Except as may otherwise be provided herein, no Holder shall be entitled to vote or receive dividends or be deemed the holder of any shares of Common Stock or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, consolidation, merger, conveyance, or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until such Holder’s Warrant shall have been exercised and the shares of Common Stock purchasable upon the exercise hereof shall have become deliverable, as provided herein. The Holder will not be entitled to share in the assets of the Company in the event of liquidation, dissolution or the winding up of the Company.

 

 

11

 

 

	
Redeemable Common Stock Purchase Warrant
	
Page 12

	Issued by Digital Power Corporation to	 

____________________

 

15.         Notices. Any notice or other communication in connection with this Warrant shall be deemed to be given if in writing addressed as hereinafter provided and actually delivered at such address: (a) if to any Holder, at the registered address of such holder as set forth in the Warrant Register kept at the office of the Company maintained pursuant to Section 13.2(a) hereof, or (b) if to the Company, to the attention of its Chief Financial Officer at its office maintained pursuant to Section 13.2(a) hereof; provided, however, that the exercise of any Warrant shall be effective in the manner provided in Section 3 hereof.

 

16.         Payment of Taxes. The Company will pay all documentary stamp taxes attributable to the issuance of shares of Common Stock underlying this Warrant upon exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificate for shares of Common Stock underlying this Warrant in a name other that of the Holder. The Holder is responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving shares of Common Stock underlying this Warrant upon exercise hereof.

 

17.         Warrant Agent. The Company shall serve as warrant agent under for the Warrants. Upon 30 days notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or stockholders services business shall be successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last address as shown on the Warrant Register.

 

18.         Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of New York applicable to contracts made and to be performed entirely within such State. Any action, suit or proceeding in connection with this Warrant maybe brought in a federal or state court of record located in the County, and State of New York, and the Holder and the Company each agrees to submit to the personal jurisdiction of such court and waives any objection which either may have, based on improper venue or forum non conveniens, to the conduct of any proceeding in any such court and waives personal service of any and all process upon it, and consents that all such service of process be made by mail or messenger directed to it at the address referred to in Section 15 above and that service so made shall be deemed to be completed upon the earlier of actual receipt or five days after the same shall have been posted to its address. The section headings in this Warrant are for purposes of convenience only and shall not constitute a part hereof. The use herein of the masculine pronouns or similar terms shall be deemed to include the feminine and neuter genders as well and vice versa and the use of the singular pronouns shall be deemed to include the plural as well and vice versa.

 

(signature page to follow)

 

 

12

 

 

IN WITNESS WHEREOF, the Company has caused this Common Stock Purchase Warrant to be duly executed as of the date first above written.

 

DIGITAL POWER CORPORATION

 

By: ___________________________________

Name: Amos Kohn

Title: President and Chief Executive Officer

 

 

Agreed and Accepted:

 

 

___________________________

 

 

 

 

EXHIBIT A

 

EXERCISE NOTICE

 

To Be Executed by the Holder 

In Order to Exercise Warrants

 

TO: Digital Power Corporation

 

(1)     The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2)      Payment shall take the form of (check applicable box):

  

□        in lawful money of the United States; or

 

□        the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in Section 3.1 to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in Section 3.1.

 

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

 

 

_________________________________________________________

 

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

 

_________________________________________________________

 

_________________________________________________________

 

 

	
Dated:
	 	
 
	
 
	
 

	
 
	 	
 
	
 
	
 

	
 
	 	
 
	
 
	
 

	
 
	 	
 
	
 
	
 

	
 
	 	
 
	
 
	
 

	 	 	 	Address	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	Taxpayer Identification Number	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	Signature	 

           

 

 

 

EXHIBIT B

 

[FORM OF ASSIGNMENT]

 

To be executed by the registered holder if such holder

desires to transfer the Warrant Certificate.

 

FOR VALUE RECEIVED                                                                                                         hereby sells, assigns and transfers unto

 

 

(Please print name and address of transferee)

 

this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ________________ Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution.

 

	
Dated:
	 	
 
	
Signature
	 
	
 
	 	
 
	
(Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.)

	
 
	 	

	

	 
	
 
	 	
 
	

	
 
	 	
 
	

(Insert Social Security or Other Identifying Number of Holder)

	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 
	 	 	 	Signature Guaranteedex10-1.htm

Exhibit 10.1

 

	
Subscription Agreement Number: 
	 	

	
May 1, 2017

 

	
Issued to: 
	
 
	
 
	
 

 

 

in connection with the Offering by

 

Digital Power Corporation 

 

of

 

21 Units 

 

at

 

$52,000 per Unit

 

With each Unit consisting of

 

21,666 Shares of Series C Preferred Stock and 

Warrants to Purchase 80,667 Shares of Common Stock 

 

Minimum Offering

Four Units ($208,000)

 

Maximum Offering

21 Units ($1,092,000)

 

Placement Agent

 

DIVINE CAPITAL MARKETS LLC

39 BROADWAY

36TH FLOOR

NEW YORK, NEW YORK 10006

 

CONFIDENTIAL USE ONLY - MAY NOT BE REPRODUCED

 

 

 

 

 

 

NOTICES

 

NONE OF THE UNITS, THE SERIES C CONVERTIBLE PREFERRED STOCK OR WARRANTS INCLUDED IN THE UNITS OR THE SECURITIES UNDERLYING THE SERIES C CONVERTIBLE PREFERRED STOCK OR WARRANTS (COLLECTIVELY, THE “SECURITIES”) HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) OR ANY STATE SECURITIES LAWS. THESE SECURITIES ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THESE LAWS. THE UNITS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES REGULATORY AUTHORITY NOR HAS THE COMMISSION OR ANY SUCH AUTHORITY PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OR THE ACCURACY OR ADEQUACY OF THIS SUBSCRIPTION AGREEMENT AND INVESTMENT LETTER AND/OR ANY OTHER INFORMATION DOCUMENTS PROVIDED BY THE COMPANY IN CONNECTION THEREWITH (COLLECTIVELY, THE “INFORMATION DOCUMENTS”). ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. 

 

THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. CONSEQUENTLY, THE UNITS SHOULD BE CONSIDERED FOR PURCHASE ONLY AS A LONG-TERM INVESTMENT.

 

THE PURCHASERS SHOULD NOT CONSTRUE THE INFORMATION DOCUMENTS OR ANY COMMUNICATIONS IN CONNECTION THEREWITH AS LEGAL, TAX OR FINANCIAL ADVICE AND, ACCORDINGLY, MUST CONSULT THEIR OWN LEGAL, ACCOUNTING AND/OR FINANCIAL ADVISERS WITH RESPECT TO LEGAL, TAX AND RELATED MATTERS CONCERNING THIS INVESTMENT.

 

ANY INVESTOR SEEKING TAX ADVANTAGES SHOULD NOT PURCHASE UNITS. THIS INVESTMENT IS NOT A TAX SHELTER SINCE IT DOES NOT PROVIDE DEDUCTIONS WHICH WOULD BE AVAILABLE TO REDUCE INCOME FROM OTHER SOURCES. ACCORDINGLY, A DECISION TO PURCHASE THE UNITS SHOULD BE BASED SOLELY ON HER/HIS EVALUATION OF THE ECONOMIC CONSIDERATIONS OF THE TRANSACTION.

 

THE INFORMATION DOCUMENTS ARE FOR THE SOLE USE OF, AND CONSTITUTE AN OFFER ONLY TO, THE OFFEREE WHOSE NAME APPEARS ABOVE. ANY DISTRIBUTION OF THE INFORMATION DOCUMENTS, WHETHER IN WHOLE OR IN PART, TO ANY PERSON OTHER THAN SUCH OFFEREE AND HER/HIS AUTHORIZED AGENTS, AND ANY REPRODUCTION OF THE INFORMATION DOCUMENTS OR THE DIVULGENCE OF ANY OF THEIR CONTENTS, IS STRICTLY PROHIBITED. THE OFFEREE NAMED ABOVE, BY ACCEPTING DELIVERY OF THE INFORMATION DOCUMENTS, AGREES TO RETURN THE INFORMATION DOCUMENTS, TO THE COMPANY, IF SUCH OFFEREE DOES NOT UNDERTAKE TO PURCHASE THE SECURITIES OFFERED HEREBY.

 

 

i

 

 

NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATION OR TO GIVE ANY INFORMATION WITH RESPECT TO THE COMPANY OR THE SECURITIES OFFERED HEREBY, EXCEPT THE INFORMATION CONTAINED HEREIN (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) OR IN THE EXHIBITS HERETO AND, IF MADE OR GIVEN, SUCH REPRESENTATION OR INFORMATION MUST NOT BE RELIED UPON. IN MAKING THE DECISION WHETHER TO INVEST, PROSPECTIVE INVESTORS SHOULD RELY ONLY ON INFORMATION CONTAINED IN THE INFORMATION DOCUMENTS OR IN THE EXHIBITS HERETO. NEITHER THE DELIVERY OF THE INFORMATION DOCUMENTS AT ANY TIME NOR ANY SALE MADE PURSUANT HERETO IMPLIES THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE SET FORTH ON THE COVER PAGE HEREOF.

 

THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. (SEE THE RISK FACTORS SECTION OF THE COMPANY’S CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM DATED AS OF MAY 1, 2017 TO WHICH A FORM OF THIS SUBSCRIPTION AGREEMENT IS APPENDED AS EXHIBIT A). CONSEQUENTLY, ONLY PERSONS WHO CAN AFFORD A TOTAL LOSS OF THEIR INVESTMENT SHOULD CONSIDER THE PURCHASE OF THE UNITS. SUBSCRIBERS WILL BE REQUIRED TO REPRESENT, AMONG OTHER THINGS, THAT THEY: (A) ARE FULLY FAMILIAR WITH, UNDERSTAND AND CAN BEAR SUCH RISKS; (B) UNDERSTAND ALL OF THE TERMS OF THIS OFFERING; AND; (C) MEET CERTAIN MINIMUM INVESTMENT AND FINANCIAL SOPHISTICATION CRITERIA.

 

THE INFORMATION DOCUMENTS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON WHO HAS NOT COMPLETED AND RETURNED A SUBSCRIPTION AGREEMENT AND A QUALIFIED PURCHASER QUESTIONNAIRE, OR TO ANY PERSON WHOSE PURCHASER REPRESENTATIVE, IF ANY, HAS NOT COMPLETED AND RETURNED A QUALIFIED PURCHASER REPRESENTATIVE QUESTIONNAIRE, IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY AND THE PLACEMENT AGENT.

 

THE COMPANY IS MAKING THIS OFFERING ONLY TO ”ACCREDITED INVESTORS” AS DEFINED HEREIN AND MAY, IN ITS SOLE AND ABSOLUTE DISCRETION, REFUSE TO ACCEPT ANY SUBSCRIPTION. THE CONVERSION PRICE OF THE SERIES C PREFERRED STOCK AND THE EXERCISE PRICE OF THE WARRANTS HAVE BEEN ARBITRARILY DETERMINED BY THE COMPANY AND SHOULD NOT BE CONSTRUED AS AN INDICATION OF THE ACTUAL VALUE OF AN EQUITY INTEREST IN THE COMPANY. THE COMPANY RESERVES THE RIGHT TO WITHDRAW OR AMEND THE TERMS OF THIS OFFERING AT ANY TIME IN ITS SOLE AND ABSOLUTE DISCRETION, AND TO REJECT ANY SUBSCRIPTION IN WHOLE OR IN PART.

 

THE INFORMATION DOCUMENTS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY IN ANY JURISDICTION IN WHICH SUCH SALE OR OFFER OR SOLICITATION WOULD BE PROHIBITED BY LAW.

 

THE COMPANY HEREBY EXTENDS TO EACH PROSPECTIVE INVESTOR THE OPPORTUNITY TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, ITS OFFICERS CONCERNING THE INFORMATION DOCUMENTS AND TO OBTAIN ANY ADDITIONAL INFORMATION SHE/HE MAY CONSIDER NECESSARY IN MAKING AN INFORMED INVESTMENT DECISION TO THE EXTENT THAT THE COMPANY POSSESSES SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE. ACCESS TO SUCH INFORMATION MAY BE OBTAINED BY DIRECTING REQUESTS TO THE PLACEMENT AGENT AT DIVINE CAPITAL MARKETS LLC, 39 BROADWAY, 36TH FLOOR., NEW YORK, NEW YORK 10006, ATTENTION: VIRGINIA DURAN.

 

 

ii

 

 

THE INFORMATION DOCUMENTS CONTAIN SUMMARIES OF THE TERMS OF CERTAIN DOCUMENTS, BUT REFERENCE IS HEREBY MADE TO THE ACTUAL DOCUMENTS WHICH MAY BE OBTAINED FROM THE COMPANY AT THE ADDRESS SET FORTH BELOW FOR COMPLETE INFORMATION CONCERNING THE RIGHTS AND OBLIGATIONS OF THE PARTIES THERETO. ALL SUCH SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY THIS REFERENCE.

 

NOTICE TO FLORIDA RESIDENTS 

 

THE SECURITIES REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED BY INVESTORS IN A TRANSACTION EXEMPT UNDER SECTION 517.061 OF THE FLORIDA SECURITIES INVESTOR PROTECTION ACT. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF FLORIDA. IN ADDITION, IF SALES ARE MADE TO FIVE OR MORE FLORIDA RESIDENTS, EACH FLORIDA RESIDENT WHO SUBSCRIBES FOR THE PURCHASE OF INTERESTS HEREIN HAS THE RIGHT, PURSUANT TO SECTION 517.061(11)(A)5 OF SAID ACT, TO WITHDRAW SUCH RESIDENT’S SUBSCRIPTION FOR THE PURCHASE WITHIN THREE BUSINESS DAYS AFTER THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR PAYMENT FOR THE SECURITIES HAS BEEN MADE, WHICHEVER IS LATER, AND RECEIVE A FULL REFUND OF ALL MONIES PAID. WITHDRAWAL AND REFUND WILL BE WITHOUT ANY FURTHER LIABILITY TO ANY PERSON. TO ACCOMPLISH THIS WITHDRAWAL, A SUBSCRIBER ONLY NEED SEND A LETTER OR FACSIMILE TO THE PLACEMENT AGENT, DIVINE CAPITAL MARKETS LLC, 39 BROADWAY, 36TH FLOOR., NEW YORK, NEW YORK 10006, INDICATING SUCH RESIDENT’S INTENTION TO WITHDRAW. SUCH LETTER MUST BE RECEIVED, PRIOR TO THE END OF THE AFOREMENTIONED THIRD BUSINESS DAY. IT IS PRUDENT TO SEND SUCH LETTER BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ENSURE THAT IT IS RECEIVED AND ALSO TO EVIDENCE THE TIME IT WAS MAILED, UNLESS SAME IS PERSONALLY DELIVERED. IF THE REQUEST IS MADE VERBALLY IN PERSON OR BY TELEPHONE TO MS. DURAN AT THE ABOVE ADDRESS, A WRITTEN CONFIRMATION THAT THE REQUEST HAS BEEN RECEIVED SHOULD BE REQUESTED.

 

THE COMPANY’S ADDRESS IS 48430 LAKEVIEW BLVD, FREMONT, CALIFORNIA 94538-3158

 

ATTENTION: AMOS KOHN. ITS TELEPHONE NUMBER IS 510-657-2635 AND ITS FACSIMILE NUMBER IS (510) 657-6634 .

 

 

iii

 

 

Digital Power Corporation

TABLE OF CONTENTS

 

	Title of Section	Page
	 	 	 
	1.	
Terms of the Offering
	
1

	2.	The Placement Agent	2
	3.	Suitability Requirements; Transferability	3
	4.	Subscription Procedure and Effect	4
	5.	The Company’s Representations and Warranties	5
	6.	Validity of Securities	10
	7.	Indemnity	10
	8.	Modification	10
	9.	Notices	10
	10.	Counterparts	10
	11.	Successors and Assigns	10
	12.	Transferability	11
	13.	Applicable Law; Venue	11
	14.	Gender	11
	15.	Severability	11

 

Subscription Signature Section

 

EXHIBITS 

 

	
I.
	
Private Placement Memorandum Dated May 1, 2017

	 	Appendixes Thereto:
	 	 	 
	 	Appendix A:	Form of Certificate of Determination-Series C Convertible Preferred Stock
	 	Appendix B:	Form of Warrant
	 	Appendix C:	Registration Rights Agreement
	 	Appendix D:	Form of Purchaser Questionnaire
	 	Appendix E:	Form of Purchaser Representative’s Questionnaire
	 	 	 
	II.	Escrow Agreement

 

 

iv

 

 

SUBSCRIPTION AGREEMENT 

AND INVESTMENT LETTER

 

Date: _______, 2017

 

To the Board of Directors

Divine Capital Markets LLC

39 Broadway

36th Floor

New York, New York 10006

Attention: Virginia Duran

 

	
Re:
	
Subscription to Purchase Units of Digital Power Corporation

 

Ladies and Gentlemen:

 

This Subscription Agreement (this “Subscription Agreement”) is being delivered to the purchaser identified on the signature page to this Agreement (the “Subscriber”) in connection with its investment in the securities of Digital Power Corporation, a California corporation (the “Company”). The Company is conducting a private placement (the “Offering”) of a minimum of four Units and a maximum of 21 Units ($1,096,000) at a purchase price of $52,000 per Unit (the “Purchase Price”) with each Unit consisting of (i) 26,666 shares of Series C Convertible Preferred Stock (“Series C Preferred Stock”), which each share will be convertible into four shares of the Company’s common stock (the “Common Stock,”) and (ii) five year warrants (“Warrants”) providing the holder thereof the right to acquire in the aggregate 86,667 shares of Common Stock (collectively, the “Warrant Shares”) at an exercise price of $1.00 per share. For purposes of this Agreement, the term “Securities” shall refer to the Units, Series C Preferred Stock, and the Warrants and the Common Stock to be issued upon the conversion of the Series C Preferred Stock and the exercise of the Warrant (“Underlying Shares”).

 

This will acknowledge that the Subscriber hereby agrees to irrevocably purchase from the Company ______ unit(s) (the "Units") set forth in the Subscription Signature Section below in accordance with the terms of this Subscription Agreement and Investment Letter (the “Subscription Agreement,” and pursuant to the terms and conditions set forth in the Private Placement Memorandum dated May 1, 2017, including Appendixes attached thereto (the “Memorandum”).

 

	
1.
	
Terms of the Offering,

 

The Offering is being made on a “best efforts, all or none” basis with respect to the first four Units, and, thereafter, on a “best efforts only” basis until the remaining 16 Units are sold, the Company terminates the Offering, which it can do in its complete discretion at any time, or the Offering Period, as hereinafter defined, expires, which ever occurs first (the “Termination Date”). Unless at least four Units (the “Minimum) are sold on or before May 31, 2017, or June 9, 2017 if extended by the Company and the Placement Agent (the "Offering Period") and paid for with collected funds received in escrow as noted in the next succeeding paragraph within two Business Days thereafter, the Offering will terminate and all funds collected from subscribers will be promptly returned to them without interest thereon or deduction therefrom. A “Business Day” means any day except Saturday, Sunday and any day that shall be a federal legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close. Persons affiliated and/or otherwise related to the Company and the Placement Agent may purchase Units in the Offering but the Units purchased by them will not be included in the number of Units needed to satisfy the Minimum. 

 

 

 

 

 

Because the Minimum of four Units must be sold in order to make the Offering effective, all funds received will be held in escrow with JP Morgan Chase Bank (the “Escrow Agent”) pursuant to an escrow agreement among the Company, the Placement Agent and the Escrow Agent, a copy of which is appended hereto as Exhibit II. No funds will be remitted to the Company until at least four Units have been sold and paid for. Thereafter, funds will continue to be held in escrow and released to the Company at each subsequent closing, which shall be when an additional 17 Units have been sold and paid for except for the last closing, which shall occur on the earlier of May 31, 2017, which date may be extended to June 9, 2017, by agreement between the Company and the Placement Agent, or when all 21 Units on an accumulative basis have been sold and paid for (each a “Closing” and, collectively, the “Closings”) against delivery of the appropriate number of subscribed Units. Each Closing of the purchase and sale of the Units following acceptance by the Company of subscriptions, as evidenced by the Company's execution of the applicable Subscription Agreements, shall take place at the Placement Agent’s offices, or such other place as the Placement Agent and the Company shall determine, on such date as the Placement Agent and the Company shall determine. The date on which a Closing is consummated is the “Closing Date.” 

 

The Offering is being made only to “accredited investors” as defined herein. It is being conducted pursuant to the exemption from the registration provisions of the Securities Act set forth in Section 4(a)(2) thereof and applicable Rules and Regulations promulgated thereunder, including Rule 506 (b) of Regulation D. Section 4(a)(2) requires, among other things, that each purchaser acquire the Units, and the Series C Preferred Stock and the Warrants which is a part thereof, and the Underlying Shares (collectively, the “Underlying Securities”) with investment intent and not with a view to distribution. The Units being offered hereby and the Underlying Securities will be "restricted securities" under the Securities Act and may not be resold publicly except in compliance with Rule 144 promulgated thereunder or unless subsequently registered. 

 

Although the Common Stock is listed on the NYSE MKT under the symbol “DPW,” there is no public market for the Units, the Series C Preferred Stock or the Warrants and it is not anticipated that a public trading market for them will ever develop.

 

As set forth above, the Company has agreed to file a registration statement with the Securities and Exchange Commission (the “Commission”) covering the Underlying Shares, but cannot assure that such a filing will be made or, if it is, that it will be declared effective by the Commission. In the event, however, that the registration statement is declared effective, the Company cannot assure that the Underlying Shares will be readily tradable. 

 

ACCORDINGLY, THE UNDERSIGNED UNDERSTANDS AND ACKNOWLEDGES THAT, EVEN AFTER THE TERMINATION OF THE RESALE RESTRICTION PERIODS ON THE UNITS, THE UNDERLYING SECURITIES AND THE UNDERLYING SHARES, AND/OR THE UNDERLYING SHARES ARE REGISTERED, SHE/HE MAY BE UNABLE TO RESELL THESE SECURITIES FOR A SIGNIFICANT PERIOD OF TIME, IF EVER. 

 

Execution of this Subscription Agreement shall constitute an offer by the Undersigned to purchase the number of Units set forth in the Subscription Signature Section below on the terms specified herein. If the Undersigned's offer is accepted, the Company will execute a copy of the Signature Section and return it to the Undersigned. 

 

 

2

 

 

	
2.
	
The Placement Agent.

 

The Placement Agent, a member firm of the Financial Industry Regulatory Authority (“FINRA”), is acting as the exclusive placement agent for the Company in placing this Offering. If all of the Minimum and Maximum Units are sold, the Company will receive gross proceeds of $208,000 and $1,092,000, respectively less the expenses of this Offering. Management estimates that these expenses, including the fee and expense allowance payable to the Placement Agent described below, will be approximately $52,000 and $181,000 in the event the Minimum and Maximum Units are sold, respectively. 

 

The Placement Agent will receive a fee equal to 10% and a non-accountable expense allowance equal to 3% of the aggregate gross purchase price of the Units sold. The Company will also grant to the Placement Agent, for nominal consideration, a warrant, exercisable over a three year period commencing on the final Closing Date of the Offering, to purchase such number of Units as shall equal 10% of the number of Units sold in the Offering at an exercise price equal to 120% of the Unit offering price, which is $62,400.

 

The Company has agreed with the Placement Agent, that as long as any shares of C Preferred Stock are outstanding, but not later than five years from the Close, the Placement Agent shall have a right to have a representative approved by the Company attend and observe the Company’s board meetings in a non-voting capacity.

 

The undersigned understands that, except as may be required by applicable regulations of FINRA, the Placement Agent has not independently verified the information provided to her/him with respect to the Company. Accordingly, there is no representation by the Placement Agent as to the completeness or accuracy of such information.

 

	
3.
	
Suitability Requirements; Transferability,

 

An investment in the Company involves a high degree of risk and is suitable only for those qualified persons who have substantial financial resources and who, alone or together with their purchaser representatives (see the definition below), have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of purchasing the Units. Satisfaction of these suitability standards by a person does not represent a determination by the Company that the Units are a suitable investment for such person. Each person must consult her/his own professional advisors in order to determine the suitability of the investment. The Company may make or cause to be made such further inquiry and obtain such additional information as it deems appropriate with regard to the suitability of prospective investors.

 

Because this Offering is being made only to accredited investors, the Undersigned must complete, sign and return a Purchaser Questionnaire to the Company in order to assist it in determining whether she/he is an accredited or sophisticated investor and satisfies the minimum suitability requirements. The form of Purchaser Questionnaire is attached hereto as Appendix D. 

 

The term "purchaser representative" means any person who satisfies all of the following conditions or who the Company reasonably believes satisfies all of the following conditions:

 

(a)      she/he is not an affiliate, director, officer or other employee of the Company or beneficial owner of 10% or more of any class of the Company's equity securities, except where the purchaser is:

 

(i)     A relative of the purchaser representative by blood, marriage or adoption and not more remote than a first cousin;

 

 

3

 

 

(ii)     A trust or estate in which the purchaser representative and any persons related to her/him as specified in Paragraph (h)(1)(i) or (h)(1)(iii) of Rule 501 under Regulation D, collectively have more than 50 percent of the beneficial interest (excluding contingent interest) or of which the purchaser representative serves as trustee, executor, or in any similar capacity; or

 

(iii)     A corporation or other organization of which the purchaser representative and any persons related to her/him as specified in Paragraph (h)(1)(i) or (h)(1)(ii) of Rule 501, collectively are the beneficial owners of more than 50 percent of the equity securities (excluding directors' qualifying shares) or equity interests;

 

(b)     she/he has such knowledge and experience in financial and business matters that she/he is capable of evaluating, alone, or together with other purchaser representatives of the purchaser or together with the purchaser, the merits and risks of the prospective investment;

 

(c)     she/he is acknowledged by the purchaser in writing, during the course of the transaction, to be her/his purchaser representative in connection with evaluating the merits and risks of the prospective investment; and

 

(d)     she/he discloses to the purchaser in writing prior to the acknowledgment specified in Paragraph (h)(3) of Rule 501, any material relationship between herself/himself or her/his affiliates and the Company or its affiliates that then exists, that is mutually understood to be contemplated or that has existed at any time during the previous two years and any compensation received or to be received as a result of such relationship.

 

If the Undersigned is using a purchaser representative, the purchaser representative must complete, execute and return a Purchaser Representative’s Questionnaire to the Company. A form of Purchaser Representative’s Questionnaire is attached hereto as Appendix E.

 

	
4.
	
Subscription Procedure and Effect.

 

The subscription price shall be payable upon execution of this Subscription Agreement in accordance with the terms set forth herein. In order to subscribe for the Units, a qualified prospective investor must deliver the following to the Placement Agent, at 39 Broadway, 36th Floor, New York, New York 10006, Attention Virginia Duran.

 

	 	
●
	
an executed copy of the Subscription Signature Section of this Subscription Agreement, with all blanks properly completed, indicating all of the Units subscribed for; 

 

	 	
●
	
an executed copy of the Registration Rights Agreement; 

 

	 	
●
	
an executed copy of a Purchaser Questionnaire, with all questions properly completed;

 

	 	
●
	
if applicable, an executed copy of a Purchaser Representative Questionnaire, with all questions properly completed; 

 

a certified check, bank draft or money order, in the amount of the purchase price for the Units to be purchased, payable to JP Morgan Chase Bank for “Digital Power Corporation" Wired funds are also acceptable. The Company would prefer that the funds be wired. The wiring instructions are: JP Morgan Chase BankACCOUNT NAME: Divine Capital; FBO Digital Power Corporation investors ACCOUNT NUMBER: _____________. 

 

 

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On delivery of the executed Subscription Signature Section of this Subscription Agreement, the Subscriber will become bound by its terms. Unless otherwise required by applicable state securities laws, the Subscriber may not withdraw or revoke her/his executed Subscription Agreement in whole or in part without the consent of the Company.

 

The Company may accept this Subscription Agreement at any time on or before the Termination Date. This Subscription Agreement is not binding on the Company until it is accepted as evidenced by the signature of an officer of the Company. The Company, in its sole discretion, has the right to accept or reject this Subscription Agreement in whole or in part and accept Subscription Agreements other than in the order received. In the event of rejection of this Subscription Agreement, or in the event that, for any reason, none of the Units are sold (in which case this Subscription Agreement will be deemed to be rejected), the Company will thereafter promptly return or cause to be returned to the Subscriber by mail, a check in the amount paid by the Subscriber in this Offering, without interest thereon or deduction therefrom for expenses or otherwise, and this Subscription Agreement shall thereafter have no further force or effect except for the provisions of Section 7.

 

	
5.
	
The Company’s Representations and Warranties. The Company represents and warrants to the Undersigned and the Placement Agent that:

 

(a)     Subsidiaries. The Company has no direct or indirect subsidiaries other than those set forth in the SEC Documents, as defined below in Subsection (e) of this Section 5, (individually a “Subsidiary” and, collectively, the “Subsidiaries”). Except as disclosed in the SEC Documents, the Company owns, directly or indirectly, all of the capital stock of each Subsidiary free and clear of any and all liens, charges, encumbrances, security interests, rights of first refusal or other restrictions of any kind (each a “Lien” and, collectively, “Liens”), and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights. 

 

(b)     Organization and Qualification. Each of the Company and each Subsidiary is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and each Subsidiary is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, have or reasonably be expected to result in (i) an adverse effect on the legality, validity or enforceability of any agreement or other document executed by the Company relating to the Offering (each a “Transaction Document” and, collectively, the “Transaction Documents”), (ii) a material and adverse effect on the results of operations, assets, prospects, business or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) an adverse impairment to the Company’s ability to perform on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”). 

 

 

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(c)     Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of the Company and no further corporate action is required by the Company in connection therewith. Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as rights to indemnity and contribution may be limited by state or federal securities laws or the public policy underlying such laws, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ and contracting parties’ rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

 

(d)     No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

 

(e)     Representations and Warranties relating to the SEC Documents. The Company has filed all reports, schedules, forms, statements and other documents (collectively, the “SEC Documents”) required to be filed by it with the Commission pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) in a timely manner within the past three years. The SEC Documents have complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the Commission, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, to the best of the Company’s knowledge during those respective dates, the Company’s financial statements included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto. Such financial statements have been prepared in accordance with accounting principles generally accepted in the United States as in effect from time to time, consistently applied (“GAAP”), during the periods involved (except (a) as may be otherwise indicated in such financial statements or the notes thereto, or (b) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the Company’s financial condition as of the respective dates thereof and the results of the Company’s operations and cash flows for the respective periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). The Company has not received notification from the Commission, and/or any federal or state securities bureaus that any investigation (informal or formal), inquiry or claim is pending, threatened or in process against the Company and/or relating to any of its securities.

 

 

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(f)     Material Changes. Since the date of the latest audited financial statements included within the SEC Documents, except as specifically disclosed in the SEC Documents, (i) there has been no event, occurrence or development that has had or is reasonably likely to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice, and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting or the identity of its auditors, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) the Company has not issued any equity securities to any officer, director or affiliate, except pursuant to existing Company stock option or stock purchase plans or disclosed in SEC Documents. Except as specified in the SEC Documents, the Company does not have pending before the Commission any request for confidential treatment of information.

 

(g)     Litigation. Except as disclosed in the SEC Documents, (i) there is no action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or threatened in writing against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal, state, county, local or foreign), stock market, stock exchange or trading facility (individually an “Action” and, collectively, “Actions”), which (A) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Units or Underlying Securities or (B) could, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, (ii) neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty, and (iii) there has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act. 

 

(h)     Employment Matters. The Company and the Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours except where failure to be in compliance would not have a Material Adverse Effect. Neither the Company nor any Subsidiary is bound by or subject to (and none of the Company’s or any of its Subsidiaries’ assets or properties are bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the Company's knowledge, has sought to represent any of the employees, representatives or agents of the Company or the Subsidiaries. There is no strike or other material labor dispute involving the Company or the Subsidiaries pending, or to the Company's knowledge, threatened, that could have a Material Adverse Effect nor is the Company aware of any labor organization activity involving its or its Subsidiaries’ employees. The Company is not aware that any officer or key employee intends to terminate her or his employment with the Company, nor does the Company have a current intention to terminate the employment of any officer or key employee. 

 

(i)     Compliance. Neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment, labor matters and gaming matters, except in each case as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect. The Company is in compliance with the applicable requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations thereunder promulgated by the Commission, except where such noncompliance could not have or reasonably be expected to result in a Material Adverse Effect.

 

 

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(j)     Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Documents, except where the failure to possess such permits would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect (each a “Material Permit”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

 

(k)     Title to Assets. The Company and the Subsidiaries have good and marketable title in all personal property owned by them that is material to their respective businesses, in each case free and clear of all Liens, except for a Lien issued in connection with the issuance of a 12% Secured Convertible Promissory Note and Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and, to the Company’s knowledge, enforceable leases of which the Company and the Subsidiaries are in compliance, except as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect. The Barry W. Blank Trust has a first lien on all of the Company’s assets. 

 

(l)     Patents and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are necessary or material for use in connection with their respective businesses as described in the SEC Documents and which the failure to so have could, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither the Company nor any Subsidiary has received a written notice that the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind (a “Person”). To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights.

 

(m)    Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged. The Company does not believe that it will be unable to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a material increase in cost.

 

(n)     Transactions With Affiliates and Employees. Other than set forth in the SEC Documents, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is currently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 

 

 

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(o)     Internal Accounting Controls. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

 

(p)     Certain Fees. Except for transactions with the Placement Agent, no brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions related to the Offering.

 

(q)     Investment Company. The Company is not, and is not an affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940.

 

(r)     Taxes. The Company and the Subsidiaries have timely made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which the Company or such Subsidiaries are subject (unless and only to the extent that the Company or such Subsidiaries have set aside on their books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and have timely paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith, and have set aside on their books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. To the Company’s knowledge, there are no unpaid taxes of the Company and the Subsidiaries in any material amount claimed to be due by the taxing authority of any jurisdiction. Neither the Company nor the Subsidiaries have executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax. None of the Company’s or any of its Subsidiaries’ tax returns is currently being audited by any taxing authority.

 

(s)     Disclosure. The Company confirms that neither it, nor to its knowledge, any other Person acting on its behalf has provided any prospective purchasers of the Securities or their agents or counsel with any information that the Company believes constitutes material, non-public information. The Company understands and confirms that the prospective purchasers will rely on the foregoing representations and covenants in effecting transactions in securities of the Company. All disclosure provided to the prospective purchasers regarding the Company, its business and the transactions contemplated hereby, furnished by or on behalf of the Company (including the Company’s representations and warranties set forth in this Subscription Agreement) are true and correct in all material respects and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

 

(t)     Foreign Corrupt Practices.   Neither the Company, nor to the knowledge of the Company, any agent or other Person acting on behalf of the Company, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any Person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

 

 

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6.       Validity of Securities. The Company represents and warrants to the Undersigned that, upon the issuance of the Units to her/him pursuant to the terms of this Subscription Agreement, (i) the Underlying Shares will be duly authorized, validly issued, fully paid and non assessable when issued in accordance with the conversion provisions of the Series C Preferred Stock and the exercise provisions of the Warrants; (ii) each share of Series C Preferred Stock will be duly authorized, validly issued, fully paid and non assessable when issued, each Warrant will be duly authorized and each share of Series C Preferred Stock and each Warrant will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms; and (ii) the Undersigned will receive good, valid and marketable title to the Securities, free and clear of any pledges, security interests, Liens, charges or encumbrance of any kind (other than the restrictions on transfer set forth in this Subscription Agreement or under applicable securities laws). 

 

7.       Indemnity. The Subscriber agrees to indemnify and hold harmless the Company, the Placement Agent, and their respective officers, directors, employees, attorneys and agents, and any other Persons authorized by the Company to participate in the offer and/or sale of the Units against any and all loss, liability, claim, damage and expenses (including, but not limited to, any and all expenses reasonably incurred in investigating, preparing or defending against litigation commenced or threatened or any claim whatsoever) arising out of or based upon any breach of or failure by the Subscriber to comply with any representation, warranty, covenant or agreement made by the Subscriber herein or in any other document furnished by the Subscriber to any of the foregoing in connection with this transaction.

 

8.       Modification. Neither this Subscription Agreement nor any provisions hereof shall be modified, changed, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought.

 

9.       Notices. All notices, consents, requests, demands, offers, reports and other communications required or permitted to be given pursuant to this Subscription Agreement shall be in writing and shall be considered properly given or made when personally delivered to the party entitled thereto, or when sent by a nationally recognized overnight delivery service, confirmed electronic or facsimile transmission, or by United States mail in a sealed envelope, with postage prepaid, addressed, if to the Company, to the address given above, and if to the Subscriber, to the address set forth opposite the Subscriber's signature on the counterpart of this Subscription Agreement that she/he originally executes and delivers to the Company. The Company may change its address by giving notice thereof to all Unit purchasers.

 

10.       Counterparts. This Subscription Agreement may be executed in multiple counterpart copies, each of which shall be considered an original and all of which shall constitute one and the same instrument binding on all the parties, notwithstanding that all parties are not signatures to the same counterpart.

 

11.       Successors and Assigns. This Subscription Agreement and all of the terms and provisions hereof shall be binding upon and inure to the benefit of the parties and their respective heirs, executors, administrators, successors, trustees, legal representatives and assigns. If the Subscriber is more than one person, the obligation of the Subscriber shall be joint and several and the agreements, representations, warranties and acknowledgments herein contained shall be deemed to be made by and be binding upon each such person and her/his heirs, executors, administrators, successors, trustees, legal representatives and assigns.

 

 

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12.       Transferability. The Undersigned may not transfer or assign this Subscription Agreement or any interest of the Undersigned’s herein and any attempt to effect such a transfer shall be void. The assignment and transferability of the Units and Underlying Securities acquired by the Undersigned pursuant hereto shall be made only in accordance with the provisions of this Subscription Agreement, the Securities Act and the Rules and Regulations promulgated thereunder and applicable state securities laws.

 

13.       Applicable Law. This Subscription Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State. 

 

14.       Gender. The use herein of the masculine pronouns or similar terms shall be deemed to include the feminine and neuter genders as well and vice versa and the use of the singular pronouns shall be deemed to include the plural as well and vice versa.

 

15.       Severability. If one or more of the provisions or portions of this Subscription Agreement shall be deemed by any court or quasi-judicial authority to be invalid, illegal or unenforceable in any respect, the invalidity, illegality or unenforceability of the remaining provisions, or portions of provisions contained herein shall not in any way be affected or impaired thereby.

 

 

 

 

 

 

 

 

 

 

(Subscription Signature Section to follow)

 

 

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SUBSCRIPTION SIGNATURE SECTION 

DIGITAL POWER CORPORATION

 

MAY 1, 2017 SUBSCRIPTION

AGREEMENT AND INVESTMENT LETTER

 

The undersigned (the “Undersigned” or “Subscriber”) hereby purchases _________ Units from Digital Power Corporation (the “Company”) pursuant to the terms of the Subscription Agreement dated May 1, 2017 (the “Subscription Agreement”) of which this Subscription Signature Section is a part. All terms in this Subscription Signature Section have the meanings defined elsewhere in this Subscription Agreement.

 

Subscriber Representations.

 

The Subscriber hereby acknowledges, represents and warrants to, and agrees with the Company as follows:

 

(a)         The Subscriber is acquiring the Units and Underlying Securities for the Subscriber’s own account as principal for investment and not with a view to resale, distribution or fractionalization in whole or in part, and has no current agreement, understanding or arrangement to subdivide, sell, assign or otherwise dispose of all or any part of the Units and/or Underlying Securities and understands that there is no public market for the Units, Series C Preferred Stock or Warrants and none is expected to develop in the foreseeable future, if ever. She/he does not have any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participations to such Person or to any third Person, with respect to the Units and/or Underlying Securities for which she/he is subscribing.

 

(b)         The Units and Underlying Securities that the Subscriber is purchasing and the Underlying Shares into which the Series C Preferred Stock may be converted and for which the Warrants may be exercised have not been registered under the Securities Act or qualified under applicable state securities laws and the registration provisions of the Securities Act as well as the qualification provisions of such state laws thereof restrict their transferability. Based upon the representations and agreements being made by her/him herein, the Subscriber acknowledges that the offering and sale of the Units are intended to be exempt from registration under the Securities Act by virtue of Section 4(a)(2) thereof and applicable Rules and Regulations adopted thereunder, and that: 

 

1.     the Undersigned’s Units and Underlying Securities cannot be sold, pledged, assigned or otherwise disposed of unless they are subsequently registered under the Securities Act or qualified under applicable state securities laws or, in the reasonable opinion of the Company’s counsel, an exemption from such registration and/or qualification is available; 

 

2.     sales or transfers of the Undersigned’s Units and Underlying Securities are further restricted by the provisions of state securities laws; 

 

3.     the Company is under no obligation to assist the Undersigned in complying with any exemption from registration under the Securities Act or qualification under any state securities law, or, except as may be provided in the Registration Rights Agreement, to register the Units or Underlying Securities on the Undersigned’s behalf; 

 

 

 

 

 

4.     the certificates or other documentation representing the Undersigned’s Series C Preferred Stock, Warrants and Underlying Shares will bear, in substance, the following legend:

 

These securities have not been registered under the Securities Act of 1933. They may not be sold or transferred in the absence of an effective Registration Statement under that Act without an opinion of counsel satisfactory to the Company that such Registration is not required.; 

 

5.     the Company will place stop-transfer instructions on its books and with the transfer agent of its securities with respect to the Units and Underlying Securities registered in the name of the Undersigned or beneficially owned by her/him.

 

The Undersigned further acknowledges that the basis for these exemptions may not be available if, notwithstanding such representations, she/he only intends to hold these securities for a fixed or determinable period in the future, or until the market price rises or falls and she/he hereby represents and warrants that she/he does not have any such intention.

 

(c)         The Subscriber: (A) by herself/himself or together with her/his Purchaser Representative, if any, has such knowledge and experience in financial, business and tax matters that she/he is capable of evaluating the merits of the prospective purchase of the Units and making an investment decision with respect to the Company; (B) has had substantial experience in previous private and public purchases of speculative securities and is not relying on the Company, the Placement Agent, or any of their respective affiliates or attorneys with respect to economic, tax or other considerations involved in this investment; and (C) is able to bear the economic risk of this investment (i.e., she/he can afford a complete loss of her/his investment). In this regard, her/his overall commitment to investments, which are not readily marketable, is not disproportionate to her/his net worth, and her/his purchase of the Units will not cause such overall commitment to become excessive.

 

(d)         The Subscriber understands and acknowledges that an investment in the Company is speculative and subject to many risks. In this regard, the Company cannot assure her/him that all of the Units will be sold. Accordingly, the Company’s operations and financial condition will be adversely affected to the extent that less than all of the Units are sold, especially because it currently has no commitment for any financing. 

 

(e)         ______________ (insert name of Purchaser Representative: if none, leave blank) has acted as the Undersigned’s Purchaser Representative for purposes of the private placement exemption under the Securities Act. If the Undersigned has appointed a Purchaser Representative (which term is used herein with the same meaning as given in Rule 501(h) of Regulation D), she/he has been advised by her/his Purchaser Representative as to the merits and risks of an investment in the Company in general and the suitability of the Units as an investment for the Undersigned in particular, and is aware that the Purchaser Representative may be receiving compensation from the Company in connection with the services being performed by such Purchaser Representative for the Undersigned relating to her/his purchase of the Units.

 

(f)         The Subscriber has reviewed carefully the definition of “accredited investor” as set forth below, and the particular subparagraph or subparagraphs by which the Undersigned qualifies as such is (are) checked by her/him below.

 

(g)         The Subscriber has carefully reviewed the Private Placement Memorandum dated May 1, 2017 including the Risk Factors section set forth therein and in the SEC Documents

 

 

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THE UNDERSIGNED UNDERSTANDS THAT, BECAUSE OF THE SIGNIFICANT RISK FACTORS SET FORTH IN THE PRIVATE PLACEMENT MEMORANDUM AND IN THE SEC DOCUMENTS, INCLUDING BUT NOT LIMITED TO THE RISK FACTORS SET FORTH IN THE DESCRIPTION OF RISK FACTORS DISCLOSED IN THE PRIVATE PLACEMENT MEMORANDUM AND THE SEC DOCUMENTS, IF THE OFFERING IS CONSUMMATED, SHE/HE COULD LOSE HER/HIS ENTIRE INVESTMENT.

 

 

 

(balance of this page left blank intentionally)

 

 

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Definition of Accredited Investor

 

The Undersigned represents that she/he is an “accredited investor” as that term is defined in Rule 501 (a) of Regulation D promulgated under the Securities Act as follows (CHECK APPLICABLE BOXES):

 

☐       (A)     Certain banks, savings and loan institutions, broker-dealers, investment companies and other entities including an employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974 with total assets in excess of $5,000,000; any private business development company as defined in Section 202 (a) (22) of the Investment Advisers Act of 1940; any organization described in Section 501 (c) (3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Units, with total assets in excess of $5,000,000; or any trust with total assets in excess of $5,000,000 not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Section 230.506 (b) (2) (ii) of Regulation D;

 

☐       (B)     Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of her/his purchase exceeds $1,000,000 excluding the value of that person’s personal residence;

 

☐       (C)     Any natural person who had an individual income in excess of $200,000 or, with that person’s spouse a joint income in excess of $300,000 in each of the two most recent years and who reasonably expects an income in excess of $200,000, or $300,000 with that person’s spouse, in the current year;

 

☐       (D)     Any Individual Retirement Account and the individual who established the IRA is an accredited investor on the basis of (B) or (C) above;

 

☐       (E)     Any director, executive officer or general partner of the issuer of the securities being offered or sold, or any director, executive officer or general partner of a general partner of that issuer; or

 

☐       (F)     Any entity in which all of the equity owners are accredited investors under any of the paragraphs above.

 

In connection with the foregoing representations the Undersigned has appended hereto as Appendix E, a Purchaser Questionnaire that she/he has completed and executed. She/he represents and warrants that the information set forth therein as well as all other information which she/he is furnishing to the Company with respect to her/his financial condition and business and investment experience is accurate and complete as of the date hereof and she/he covenants that, in the event a material change should occur in such information, she/he will immediately provide the Company with such revised or corrected information. 

 

(h)  The Subscriber has adequate means of providing for her/his current needs and possible personal contingencies, has no need for liquidity of this investment and has no reason to anticipate any change in personal circumstances, financial or otherwise, which might cause or require any sale or distribution of the Units and/or Underlying Securities.

 

 

5

 

  

(i)     The Subscriber is familiar with the nature of the risks attending investments in securities and has determined that the purchase of the Units is consistent with her/his investment objectives and income prospects.

 

(j)     The Subscriber’s purchase of the Units has not been solicited by means of general solicitation or general advertisement, and the Subscriber has not been furnished with any oral representation or oral information in connection with the Offering which is not set forth in the Private Placement Memorandum or herein or in the Exhibits thereto or hereto or in the SEC Documents.

 

(k)     The Subscriber has received, reviewed and understands the Private Placement Memorandum and this Subscription Agreement, including all of the Exhibits attached thereto and hereto, has reviewed the SEC Documents, and has been granted a reasonable time prior to the date hereof during which she/he has had the opportunity to obtain such additional information as she/he deemed necessary to permit her/him to make an informed decision with respect to the purchase of her/his Units. She/he also represents and warrants that she/he (A) has reviewed such other documents and obtained such other information from the Company as she/he deems necessary in order for her/him to make an informed investment decision; (B) has had access to all relevant documents, instruments, books, and other records of or pertaining to the Company and has had the opportunity to ask questions of and receive answers from management and other representatives of the Company and requires no additional information or documentation; and (C) is fully aware of the current business prospects, financial condition, and operating history as set forth herein and in the Exhibits to the Private Placement Memorandum and hereto and in the SEC Documents relating to the Company. 

 

(l)     Other than information given to the Subscriber as described in Paragraph (k) above, no representations or warranties have been made to the Undersigned by the Company, the Placement Agent or any other Person in connection with this Offering, or any officer, employee, agent or affiliate of the Company or the Placement Agent, other than the representations made by the Company set forth I the Private Placement Memorandum or herein and she/he is not relying upon any representations other than those described in Paragraph (k) above. 

 

(m)     The Subscriber is not relying on the Company, the Placement Agent or this Subscription Agreement with respect to individual tax and other economic considerations involved in this investment and acknowledges that her/his investment in the Company is not a tax shelter.

 

(n)     If for any reason this Offering does not close or the Company does not accept the Undersigned’s subscription, the Undersigned shall have no claims against the Company, the Placement Agent, or their respective officers, directors, employees, attorneys or affiliates, and shall have no interest in the Units, the Underlying Securities or the Company.

 

(o)     If the Subscriber is a corporation, limited liability company, partnership, trust or other entity: (A) it is authorized and qualified to become a stockholder in, and authorized to make its investment in, the Company as provided herein; (B) it was not formed for the purpose of purchasing the Units; (C) the person signing this Subscription Agreement on behalf of such entity has been duly authorized by such entity to do so and by her/his execution of the Subscription Agreement, the Subscription Agreement constitutes a valid and legally binding obligation by the Subscriber; and (D) the Undersigned is duly organized and validly existing under the laws of its state of organization.

 

(p)     If the Subscriber is an individual, she/he is over 21 years of age; or, if the Subscriber is a partnership, trust or other entity, each equity owner of such entity is over 21 years of age.

 

 

6

 

  

(q)     The Undersigned has full power and authority to enter into this Subscription Agreement and, upon execution by the Undersigned, the Subscription Agreement will constitute the Undersigned’s valid and legally binding obligation.

 

(r)     This Subscription Agreement, together with the Exhibits hereto, constitutes the entire agreement of the parties hereto, and supersedes all prior understandings with respect to the subject matter hereof.

 

(s)     The address set forth below is the Undersigned’s (if an individual) true and correct residence, and the Undersigned has no current intention of becoming a resident of any other state or jurisdiction prior to the date on which payment in full for her/his Units will be made. If the Undersigned is a partnership, corporation or other entity, such address is such entity’s principal place of business.

 

(t)     All information which the Subscriber has heretofore furnished to the Company in this Subscription Agreement or any Exhibits thereto, is correct and complete as of the date of this Subscription Agreement and if there should be any material change in such information prior to her/his purchase of the Units she/he will immediately furnish such revised or corrected information to the Company.

 

(u)     The foregoing representations, warranties and agreements shall survive the date of this Subscription Agreement and the final Closing of the Offering.

 

THE UNDERSIGNED ACKNOWLEDGES THAT THIS SUBSCRIPTION AGREEMENT CONSISTS OF 34 PAGES AND ALSO INCLUDES EXHIBITS I and II AND THE APPENDIXES A THROUGH E WHICH ARE PART OF THE MEMORANDUM ATTACHED AS EXHIBIT I. 

 

(Subscription Page to follow)

 

 

7

 

 

Subscription Page

 

A.     SUBSCRIPTION:

 

	
Number of Units purchased                  
	
Aggregate Purchase Price                                  

         

 

B.     MANNER IN WHICH TITLE IS TO BE HELD (Please check One):

 

 

	
1.
	
□
	
Individual

	2.	□	Joint Tenants with Right of Survivorship
	3.	□	Community Property
	4.	□	Tenants in Common
	5.	□	Corporation/Partnership/ Limited Liability Company
	6.	□	IRA
	7.	□	Trust/Estate/Pension or Profit Sharing Plan, and date opened: ___________
	8.	□	As a Custodian for ___________________________ UGMA _______________(State)
	9.	□	Married with Separate Property
	10.	□	Keogh
	11.	□	Tenants by Entirety
	12.	□	Other:_____________________________________________________________

  

C.     TITLE:

 

PLEASE GIVE THE EXACT AND COMPLETE NAME IN WHICH TITLE TO THE UNITS ARE TO BE HELD:                                         

 

 

 

(signature page to follow)

 

 

8

 

 

Signature Page

 

IN WITNESS WHEREOF, the Purchaser has executed this Subscription Agreement on the [●] day of [●], 2017.

 

Name (of Entity if applicable):                                                                                                                                                                

 

 

	
Signature:                                                                                               
	
Signature:                                                                                                      

	 	 
	 	 
	Name:                                                                                                      	Name:                                                                                                             

    

 

Title (if applicable):                                                                        

 

 

	
Address:
	 	 	 	 	 	 
	 	 	Street or	City	State	Zip	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	Address for Notices:	 	 	 	 	 
	 	 	Street or P.O. Box No.	City 	State	Zip	 
	 	 	 	 	 	 	 
	Facsimile Number:	Email Address:	 	 	 

 

 

	Social Security or Federal Tax ID Number:	 	 

 

 

***DO NOT WRITE BELOW DOTTED LINE***

 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

 

ACCEPTED ON BEHALF OF THE COMPANY:

 

 

	
Digital Power Corporation.  
	
 
	 	 	 	
 

	
 
	
 
	
 
	 	 	 	
 

	
BY:
	
 
	
 
	Dated:	 	 	
Name:

	
 
	
Amos Kohn  
	 	 	 	
 

	
 
	
Title: President and CEO  
	 	 	 	
 

 

 

 

9

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