Exhibit 10.1

THIS NOTE IS ISSUED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE SECURITIES ACT OF 1933 (THE "ACT") AND QUALIFICATION PROVISIONS OF APPLICABLE STATE SECURITIES LAWS. NEITHER IT NOR THE SHARES OF COMMON STOCK INTO WHICH IT CAN BE CONVERTED CAN BE SOLD, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO THE ACT AND QUALIFIED UNDER APPLICABLE STATE LAW OR, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO MAKER, AN EXEMPTION THEREFROM IS AVAILABLE.

THE HOLDER AND ANY ASSIGNEE, BY ACCEPTANCE OF THIS NOTE, ACKNOWLEDGE AND AGREE THAT, BY REASON OF THE PROVISIONS OF SECTION 4(e) OF THIS NOTE, FOLLOWING CONVERSION OF A PORTION OF THIS NOTE, THE UNPAID AND UNCONVERTED PRINCIPAL AMOUNT OF THIS NOTE REPRESENTED BY THIS NOTE MAY BE LESS THAN THE AMOUNT STATED ON THE FACE HEREOF.

FOR VALUE RECEIVED, the undersigned, Digital Power Corporation , a California corporation with offices at 49430 Lakeview Boulevard, Fremont, CA 94538 ("Maker"), promises to pay to the [●] with an address at [●] ("Payee"), on October 20, 2019, except as otherwise provided herein (the "Maturity Date"), the principal amount of Five Hundred Thirty Thousand ($530,000.00) Dollars in lawful money of the United States of America (the "Principal”) together with all accrued interest.

The Principal of this Note is subject to an original issue discount in the amount of Thirty Thousand ($30,000.00) Dollars; as a result, on the date hereof, the Payee has delivered to Maker cash in the amount of Five Hundred Thousand ($500,000.00) Dollars.

This Note is (i) secured by a first priority security interest in all of the Collateral as hereinafter defined; and (ii) convertible into Maker's common stock, no par value per share (the "Common Stock"), all as set forth below. It bears simple interest (the "Interest") at the annual rate of twelve percent (12%), payable, in arrears, on the Interest Payment Dates (as defined in Section 1 below), until the Principal and all accrued Interest thereon (collectively the “Obligations”) shall be paid in full.

1.           Interest and Reimbursement of Expenses .

1.1     Interest. Maker will pay Interest on the fifteenth day of each January, April, July and October (the "Interest Payment Dates") commencing on January 15, 2017. Interest on this Note will accrue from the most recent date to which Interest has been paid or, if no Interest has been paid, from the date of delivery of this Note. If an Interest Payment Date falls on a date that is not a Business Day, the Interest shall be payable on the next succeeding Business Day. Interest will be computed on the basis of a 360-day year of twelve 30-day months. A “ Business Day ” is 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.

1.2     Prepay. Upon 30 days’ notice to Payee, Maker shall have the right to prepay the Principal and accrued interest prior to the Maturity Date.

1.3     Mandatory Payment. In the event that Maker sells its entire ownership interest in, or substantially all the assets of, Digital Power Limited ("DPL"), located in Salisbury, England, concurrent with such sale, Maker will pay Payee the outstanding Principal and accrued Interest earned thereon.

1.4     Reimbursement of Payees’s Expenses. In addition to, and without limiting, Maker’s obligation to pay or reimburse Payee for any fees or expenses pursuant to any other provision in the Note, Maker shall reimburse Payee for reasonable legal fees up to $7,500.00 and reasonable due diligence, lien searches, filing fees and other expenses incurred in connection with the transactions contemplated hereby.

2.      Method of Payment . Maker will pay Principal and Interest in money of the United States that at the time of payment is legal tender for the payment of public and private debts. Maker may, however, pay Principal and Interest by its check, subject to collection, payable in such money. It may mail an Interest check to Payee’s address as it first appears on this Note or such other address as Payee shall give by notice to Maker. If less than the then outstanding Principal is paid, this Note shall be surrendered only for notation by Maker of the Principal payment made and returned to Payee. Anything to the contrary notwithstanding, in the event that Payee converts the Principal of this Note as provided in Section 4 below, at Payee’s option, Maker shall pay all then accrued but unpaid Interest in cash.

3.      Security .     The Secured Obligations as defined in Section 3.2 below shall be secured as follows:

3.1     Grant of Security Interest. Maker hereby grants, assigns and pledges to Payee a priority security interest in the following described property and interests in property now owned or hereafter acquired by Maker and its subsidiaries, including, without limitation, DPL, together with all proceeds thereof (collectively, the “ Collateral ”). This security interest will be first in priority.

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(a) Equipment. All machinery and equipment, all data processing and office equipment, all computer equipment, hardware and firmware, all furniture, fixtures, appliances and all other goods of every type and description, whether now owned or hereafter acquired and wherever located, together with all parts, accessories and attachments and all replacements thereof and additions thereto.

(b) Inventory. All inventory and goods, whether held for lease, sale or furnishing under contracts of service, all agreements for lease of same and rentals therefrom, whether now in existence or owned or hereafter acquired and wherever located.

(c) General Intangibles. All rights, interests, choses in action, causes of action, claims and all other intangible property of every kind and nature, in each instance whether now owned or hereafter acquired, including, but not limited to, all corporate and business records; all loans, royalties, and other obligations receivable; all trade secrets, inventions, designs, patents, patent applications, registered or unregistered service marks, trade names, trademarks, copyrights and the goodwill associated therewith and incorporated therein, and all registrations and applications for registration related thereto; goodwill, licenses, permits, franchises, customer lists and credit files; all customer and supplier contracts, firm sale orders, rights under license and franchise agreements, and other contracts and contract rights; all right, title and interest under leases, subleases, licenses and concessions and other agreements relating to real or personal property and any security agreements relating thereto; all rights to indemnification; all proceeds of insurance of which Maker or any of its subsidiaries is a beneficiary; all letters of credit, guarantees, liens, security interests and other security held by or granted to Maker or any of its subsidiaries; and all other intangible property, whether or not similar to the foregoing; and all products and all books and records related to any of the foregoing.

(d) Cash; Accounts, Chattel Paper, Instruments, Securities and Documents. All cash, accounts, accounts receivable, chattel paper, deposit accounts, instruments, investment property, letters of credit or rights with respect to any letters of credit, securities accounts, shares of stock and other securities, and documents, whether now in existence or owned or hereafter acquired, entered into, created or arising, and wherever located.

(e) Other Property. All property or interests in any other property now owned or hereafter acquired.

(a)     The full and timely payment of the indebtedness evidenced by this Note, together with Interest thereon and other fees and expenses payable thereby, and any extensions, modifications, consolidations, and/or renewals thereof;

(b)     The full and prompt performance of all of Maker’s obligations to Payee evidenced by this Note; and

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(c)     The full and prompt payment of all court costs, and other expenses and costs of whatever kind incident to the collection of the indebtedness evidenced by this Note, the enforcement or protection of the security interests created by this Note or the exercise by Payee of any of its rights or remedies with respect to the indebtedness evidenced by this Note, including, without limitation reasonable attorneys’ fees incurred by Payee (including without limitation reasonable attorneys’ fees incurred by Payee in connection with the amendment, modification, and/or waiver of any rights available to Payee pursuant to this Note), all of which Maker agrees to pay to Payee within ten (10) days upon demand.

All of the foregoing indebtedness and other obligations are collectively referred to in this Agreement as the “Secured Obligations.”

4.      Conversion .

(a)     Payee's right to Convert. Except as provided by the “Ownership Limitation” as defined below in this Paragraph 4(a) or in Paragraph 4(g)(iii) below, Payee shall have the right, at any time commencing on the date hereof until the close of business on the day the Obligations are paid in full, to cause the conversion (a “Conversion”) of all or any portion (if such portion is Five Thousand ($5,000) Dollars or a whole multiple of Five Thousand ($5,000) Dollars) of the Principal outstanding at the time such Conversion is effected (the "Convertible Principal") into shares of Common Stock (the "Underlying Shares"). The price for Conversion, subject to adjustment as provided in Section 5 below, shall be Fifty Five ($0.55) Cents per share (the “Conversion Rate”). Maker will not issue a fractional share of Common Stock upon Conversion but will instead will issue cash calculated to the nearest penny in the amount equal to the fractional share times the closing price for a share of the Company’s Common Stock on the date of such conversion. Except as may be provided in Section 4 (b) below, anything to the contrary notwithstanding, in no event shall Payee be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by Payee and Payee’s affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Note or the unexercised or unconverted portion of any other of Maker’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 conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by Payee 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 conversion may be waived by Payee upon, at the election of Payee, not less than 61 days’ prior notice to Maker, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by Payee, as may be specified in such notice of waiver).

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(b)     Manner of Conversion. Payee may exercise its Conversion right by completing, executing and sending to Maker a completed and executed Note Conversion Form appended hereto as Annex A (the “Conversion Notice”) setting forth the amount of the Convertible Principal to be converted and providing the other information required in the Conversion Notice. Maker shall issue the number of Underlying Shares into which the Convertible Principal is to be converted in accordance with the Conversion Rate. If required by applicable federal or state securities laws or regulations, Payee shall represent in writing to Maker prior to the receipt of the Underlying Shares that such Shares will be acquired by Payee for investment only and not for resale or with a view to the distribution thereof, and shall agree that any certificates representing the Shares may bear a legend, conspicuously noting such restriction, as Maker shall deem reasonably necessary or desirable to enable it to comply with any applicable federal and/or state laws or regulations.

(c)     Delivery of Certificates Upon Conversion. Certificates for Underlying Shares to be issued upon Conversion shall be transmitted by Maker’s transfer agent (the “ Transfer Agent ”) to Payee (A) by crediting the account of Payee’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if Maker is then a participant in such system and there is an effective Registration Statement, as defined in Section 6 below, permitting the issuance of the Underlying Shares to or resale of the Underlying Shares by Payee or (B) if the Maker is not then a participant in the DWAC system and there is not an effective Registration Statement as aforesaid, by physical delivery of the certificates, bearing the restrictive legends required by Section 4(b) above if the Underlying Shares are otherwise not publicly tradable or without such restrictive legends if the Underlying Shares are otherwise publicly tradable, to the address specified by Payee in the Conversion Notice by the date that is five (5) Business Days after the later of (i) the delivery to Maker of the Conversion Notice or (ii) surrender of this Note (such date, the “ Underlying Share Delivery Date ”).

(d)     Rights on Failure of Timely Delivery. If Maker fails to cause the Transfer Agent to transmit to Payee a certificate or the certificates representing the Underlying Shares pursuant to Paragraph 4 .(c) above by the Underlying Share Delivery Date, then, (i) Payee will have the right to rescind such Conversion, which will terminate on the earlier of the actual delivery of the Underlying Shares or ten (10) Business Days after the Underlying Share Delivery Date; and (ii) Maker shall pay to Payee as liquidated damages and not as a penalty Two Hundred Fifty ($250.00) Dollars for each day after the Underlying Share Delivery Date that Maker fails to deliver the certificate or the certificates representing the Underlying Shares pursuant to Paragraph 4 .(c) above. 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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(e)      Surrender of Note Upon Conversion . Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, Payee shall not be required to physically surrender this Note to Maker unless the entire unpaid principal amount of this Note is so converted. Payee and Maker shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to Payee and Maker, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of Payee shall, prima facie, be controlling and determinative in the absence of fraud or manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, Payee may not transfer this Note unless Payee first physically surrenders this Note to Maker, whereupon Maker will forthwith issue and deliver upon the order of Payee a new Note of like tenor, registered as Payee (upon payment by Payee of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. Payee and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

(f)     Taxes on Shares Issued. The issue of stock certificates on Conversions of this Note shall be made without charge to Payee for any tax in respect of such issue. As noted in Section 4(e) above, Maker shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of Common Stock in any name other than that of Payee, and Maker shall not be required to issue or deliver any certificates representing such Common Stock unless and until the person or persons requesting the issue thereof shall have paid to Maker the amount of such tax or shall have established to the satisfaction of Maker that such tax has been paid.

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(g)     Covenants of Maker Relating to Conversion. Maker covenants and agrees that from and after the date hereof and until the date of repayment of all of the Obligations, or Conversion of all of the Convertible Principal:

(i)     It shall reserve, free from preemptive rights, out of its authorized but unissued shares of Common Stock, or out of shares of Common Stock held in its treasury, sufficient shares to provide for the Conversion of this Note from time to time as this Note is presented for Conversion;

(ii)     All Underlying Shares that may be issued upon Conversion of this Note will upon issue be validly issued, fully paid and non-assessable, free from all taxes, liens and charges with respect to the issue thereof, and will not be subject to the preemptive rights of any stockholder of Maker;

(iii)      If any Underlying Shares to be provided for the purpose of Conversion of the Convertible Principal requires registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued upon Conversion, Maker will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be, and Maker's obligation to deliver shares of the Common Stock upon Conversion of the Convertible Principal shall be abated until such registration or approval is obtained; provided , however , that this Note and the Obligations shall remain outstanding unless paid in full until Maker delivers the Underlying Shares and any then accrued but unpaid Interest to Payee and in no event shall this Note be converted until Maker effects such delivery; and

(iv)     If, and thereafter so long as the Common Stock shall be listed on any securities exchange, market or other quotation system, Maker will, if permitted by the rules of such exchange, market or other quotation system, list and keep listed and for sale so long as the Common Stock shall be so listed on such exchange, market or other quotation system, upon official notice of issuance, all Underlying Shares issuable upon Conversion of the Convertible Principal and, in addition, if the rules of such exchange, market or other quotation system require stockholder approval for the authorization and/or issuance of the Underlying Shares issuable upon Conversion of the Convertible Principal Maker will use its best efforts to obtain such approval in a timely manner.

(h)     Mandatory Conversion. On or after the earlier of the Effective Date as long as a Registration Statement remains effective or the date on which the Underlying Shares may otherwise be sold publicly, Maker may, at its option, convert all of this Note but not any portion thereof in accordance with the provisions of Section 3 above at any time on not less than thirty (30) days’ prior written notice, provided that the closing price for a share of Common Stock equals or exceeds Three ($3.00) Dollars for a period of thirty (30) consecutive trading days ending one trading day prior to the notice of Mandatory Conversion.

(i)     Exchange Listing; Shareholder Approval. Notwithstanding anything contained herein to the contrary, Payee may not exercise its Conversion rights until the NYSE Mkt has approved the additional listing of the Underlying shares and Maker’s shareholders have approved the potential issuance of the Underlying Shares pursuant to Section 713(a) of the NYSE Mkt rules, if applicable. Maker will take all action reasonably required to obtain such shareholder approval as soon as possible if applicable.

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5.      Adjustment in Conversion Rate .

(a)     Adjustment for Change in Capital Stock. Except as provided in Paragraph 5 (l) below, if Maker 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 Maker is the continuing corporation), then in each such case the Conversion privilege and the Conversion Rate in effect immediately prior to such action shall be adjusted so that if this Note is thereafter converted, Payee may receive the number and kind of shares which Payee would have owned immediately following such action if Payee had converted this Note 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 Payee upon Conversion of this Note may receive shares of two or more classes of capital stock of Maker, Maker's Board of Directors shall determine, in good faith, the allocation of the adjusted Conversion Rate between or among, as the case may be, the classes of capital stock. After such allocation, the conversion privilege and conversion rate of each class of capital stock shall thereafter be subject to adjustment on terms comparable to those applicable to Common Stock in this Section 5 .

(b)     [Intentionally Deleted]

(c)     Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 5(a) above, if at any time Maker grants, issues or sells any rights to purchase stock, warrants, securities or other property pro rata to all record holders of any class of shares of Common Stock (the “Purchase Rights”), then Payee will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which Payee could have acquired if Payee had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on exercise hereof, including, without limitation, the Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that Payee’s right to participate in any such Purchase Right would result in Payee exceeding the Ownership Limitation, then Payee shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for Payee until such time, if ever, as Payee’s right thereto would not result in Payee exceeding the Ownership Limitation).

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

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(e)     Minimum Adjustment. No adjustment in the Conversion Rate shall be required if such adjustment is less than 1% of the then Existing Conversion Rate; provided , however , that any adjustments which by reason of this Paragraph 5 (d ) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 5 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, Maker shall be entitled to make such reductions in the Conversion Rate, in addition to those required by this Paragraph 5 (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 Maker to its stockholders shall not be taxable.

(f)     Referral of Adjustment. In any case in which this Section 5 shall require that an adjustment in the Conversion Rate be made effective as of a record date for a specified event (the “Conversion Event”), if this Note shall have been converted after such record date, Maker may elect to defer until the occurrence of the Conversion Event issuing to Payee the shares, if any, issuable upon the Conversion Event over and above the shares, if any, issuable upon such Conversion Event on the basis of the Conversion Rate in effect prior to such adjustment; provided , however , that Maker shall deliver to Payee a due bill or other appropriate instrument evidencing Payee’s right to receive such additional shares upon the occurrence of the event requiring such adjustment.

(g)     Number of Shares. Upon each adjustment of the Conversion Rate as a result of the calculations made in Paragraphs 5 (a) , (b) and ( c ) above, this Note shall thereafter evidence the right to purchase, at the adjusted Conversion Rate, 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 Conversion of this Note prior to adjustment of the number of shares by the Conversion Rate in effect prior to adjustment of the Conversion Rate by (ii) the Conversion Rate in effect after such adjustment of the Conversion Rate.

(h)     When No Adjustment Required. No adjustment need be made for a transaction referred to in Paragraphs 5 (a), (b) and (c) above if Payee is permitted to participate in the transaction on a basis no less favorable than any other party and at a level that would preserve Payee’s percentage equity participation in the Common Stock upon Conversion of this Note. No adjustment need be made for a change in the par value of the Common Stock, or from par value to no par value or no par value to par value. If this Note becomes convertible solely into cash, no adjustment need be made thereafter. Interest will not accrue on the cash. The transactions set forth in this Section 5(h) are defined as “Exempt Issuances”.

(i)     Notice of Adjustment. Whenever the Conversion Rate is adjusted, Maker shall promptly mail to Payee a notice of the adjustment together with a certificate from Maker's Chief Financial Officer briefly stating (i) the facts requiring the adjustment, (ii) the adjusted Conversion Rate and the manner of computing it, and (iii) the date on which such adjustment becomes effective. The certificate shall be evidence that the adjustment is correct, fraud or absent manifest error.

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(j)     [Intentionally Deleted]

(k)     [Intentionally Deleted]

(l)     Notice of Certain Transactions. If (i) Maker takes any action that would require an adjustment in the Conversion Rate pursuant to this Section 5 ; or (ii) there is a liquidation or dissolution of Maker, Maker shall mail to Payee a notice stating the proposed record date for a distribution or effective date of a reclassification, consolidation, merger, transfer, lease, liquidation or dissolution. Maker shall mail the notice at least fifteen (15) days before such date.

(m)     Reorganization of Maker. If Maker and/or the holders of Common Stock are parties to a merger, consolidation or a transaction in which (i) Maker transfers or leases substantially all of its assets; (ii) Maker 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 Note. If the issuer of securities deliverable upon Conversion of this Note is an affiliate of the surviving, transferee or lessee corporation, that issuer shall join in such assumption. The assumption agreement shall provide that the Payee may convert the Convertible Principal into the kind and amount of securities, cash or other assets that Payee would have owned immediately after the consolidation, merger, transfer, lease or exchange if Payee had converted this Note 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 5 . The successor company shall mail to Payee a notice briefly describing the assumption agreement. If this Paragraph applies, Paragraph 5 (a) above does not apply.

6.      Maker’s Covenant to Register the Underlying Shares . Maker covenants to Payee that it, within one hundred twenty (120) days after the date hereof, will file a registration statement to register the Underlying Shares and the shares issuable upon exercise of the Warrants owned by Payee (the “Warrant Shares”) under the Act pursuant to a registration statement (a “Registration Statement”) filed with the Securities and Exchange Commission (the “Commission”) and use its best efforts to have the Registration Statement declared effective by the Commission as soon as possible in accordance with the terms of an agreement (the “Registration Rights Agreement”) dated as of the date hereof between Maker and Payee.

7.      Maker’s C ovenants . Maker covenants and agrees that from and after the date hereof and until the date of repayment in full of the Obligations and satisfaction of the Conversion Obligations it shall comply with the following conditions:

(i)     Payment of Secured Obligations. Maker will pay the indebtedness evidenced by this Note according to the terms hereof, and will timely pay or perform, as the case may be, all the other Secured Obligations.

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(ii)     Maintenance of Existence and Conduct of Business. Maker shall, and shall cause each of its subsidiaries to (A) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and rights; and (B) continue to conduct its business so that the business carried on in connection therewith may be properly and advantageously conducted at all times.

(iii)     Books and Records. Maker shall, and shall cause each of its subsidiaries, to keep adequate books and records of account with respect to its business activities.

(iv)     Insurance. Maker shall, and shall cause each of its subsidiaries, if any, to maintain insurance policies insuring such risks as are customarily insured against by companies engaged in businesses and/or with property similar to those operated and/or owned or leased by Maker or any such subsidiaries, as the case may be, including but not limited to, insurance policies covering real property. All such policies are to be carried with reputable insurance carriers and shall be in such amounts as are customarily insured against by companies with similar assets and properties engaged in a similar business.

(v)     Compliance with Law. Maker shall comply, and shall cause each of its subsidiaries, to comply in all material respects with all federal, state, local and foreign laws and regulations applicable to it or such subsidiaries, as the case may be, which, if breached, would have a material adverse effect on Maker's or such subsidiaries', as the case may be, business, prospects, operations, properties, assets or condition (financial or otherwise).

(vi)      Compliance with Applicable Securities Laws. Maker shall file, and shall cause each of its subsidiaries, where applicable, to file all reports required to be filed by applicable securities laws and regulations, and such filings shall be accurate, timely filed and in full compliance with such securities laws and regulations, and Maker shall continue, and shall cause each of its subsidiaries, where applicable, to continue to be in full compliance with the provisions of the Sarbanes Oxley act applicable to it.

(vii)     Compliance with Material Agreements, Leases, Licenses and Financial Obligations. All of the terms of each of Maker’s and/or its subsidiaries’ and affiliates’, material agreements, leases, licenses and financial obligations shall be complied with, and each of them shall be kept in full force and effect in accordance with their respective terms.

(viii)     Prohibition on Guarantees. From and after the date hereof, neither Maker nor any of its subsidiaries shall guarantee any obligations or commitments of any third party.

(ix)     Transfer of Collateral. Neither Maker nor any of its subsidiaries shall sell, exchange, lease, negotiate, pledge, assign or otherwise dispose of the Collateral to anyone other than sales of inventory in the ordinary course of business.

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(x)     Notice of Litigation. Maker shall promptly give notice, in writing, to Payee of (a) any actions, suits or proceedings, litigation or investigation instituted or threatened against it or any director, officer or key employee of it or any of its subsidiaries any director, officer or key employee of such subsidiary by any person or entity whomsoever, that if brought or, if adversely determined, could materially adversely affect any of the business, assets or condition, financial or otherwise of Maker, and (b) any dispute between Maker or any of its subsidiaries on the one hand and any governmental regulatory body on the other hand.

(xi) Taxes and Assessments. Maker will and will cause all of its subsidiaries to (a) file all tax returns and appropriate schedules thereto that are required to be filed under applicable law, prior to the date of delinquency, (b) pay and discharge all taxes, assessments and governmental charges or levies imposed upon Maker or any of its subsidiaries, upon its income and profits or upon any properties belonging to it, prior to the date on which penalties attach thereto, and (c) pay all taxes, assessments and governmental charges or levies that, if unpaid, might become a lien or charge upon any of its or of its subsidiaries properties.

(xii) Notice of Default. Maker will give written notice to Payee of the occurrence of any Event of Default (as defined below) under this Note promptly upon the occurrence thereof.

(xiii) Perfecting Security Interest. Maker shall file with the State of California a financing statement on Form UCC-1.

(xiv)     Obligation to Continue Filing Public Reports and Maintain Exchange Listing. Maker will not, without the prior written consent of Payee, take any action that will relieve it from its obligation to continue to file reports pursuant to the Exchange Act or any other applicable federal or state securities law or result in the delisting of the Common Stock from the NYSE Mkt.

(xv)     Share Consolidation. Maker shall not effect a share consolidation or reverse stock split without the prior written consent of Payee.

8.      Reorganization of Maker . If Maker is party to a merger, consolidation or a transaction in which it is not the surviving or continuing entity or transfers or leases all or substantially all of its assets, the person who is the surviving or continuing entity or is the transferee or lessee of such assets shall assume the terms of this Note and the Obligations.

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9.      Representations and Warranties of Maker ; Maker Authorization of Payee . Maker represents and warrants to Payee that: (i) it, and each of its subsidiaries, is a corporation or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power to carry on its business as now conducted and to own its properties and assets it now owns; (ii) it, and each of its subsidiaries, is duly qualified or licensed to do business as a foreign corporation or other entity in good standing in the jurisdictions in which ownership of property or the conduct of its business requires such qualification except jurisdictions in which the failure to qualify to do business will have no material adverse effect on its business, prospects, operations, properties, assets or condition (financial or otherwise); (iii) it, and each of its subsidiaries, and/or affiliates thereof, holds all licenses and otherwise complies with all laws, rules and regulations required to permit it to own its property and conduct its business in the jurisdictions in which it owns its property and conducts its business; (iv) it, and each of its subsidiaries, where applicable, has filed all reports required to be filed by applicable securities laws and regulations, such filings have been accurate, timely filed and in full compliance with such securities laws and regulations and it, and each of its subsidiaries, where applicable, are currently and have been in full compliance with the pro visions of the Sarbanes Oxley act applicable to it; (v) it has full power and authority to execute and deliver this Note, and that the execution and delivery of this Note will not result in the breach of or default under, with or without the giving of notice and/or the passage of time, any other agreement, financial instrument, arrangement or indenture to which it is a party or by which it may be bound, or the violation of any law, statute, rule, decree, judgment or regulation binding upon it; (vi) it, and each of its subsidiaries, is in material compliance with all of its financial obligations and all of its material agreements; (vii) there is no action, suit, proceeding, or investigation pending or, to the knowledge of Maker, currently threatened against it or any of its subsidiaries or affecting any of them or involving the validity or enforceability of this Note or the priority of the liens hereon, at law or in equity, or before any governmental or administrative agency, and neither Maker or any of its subsidiaries is in default with respect to any order, writ, injunction, decree or demand of any court or any governmental authority; (viii) Maker and each of its subsidiaries has good and marketable title to all of the Collateral, including but not limited to all the real and personal property owned by it and/or used in its respective business, free and clear of any and all claims, liens, encumbrances, equities and restrictions of every kind and nature whatsoever other than the liens granted pursuant to the terms of this Note; and (ix) it has taken and will take all acts required, including but not limited to authorizing the signatory hereof on its behalf to execute this Note, so that upon the execution and delivery of this Note, it shall constitute the valid and legally binding obligation of Maker enforceable against Maker in accordance with the terms thereof. In addition, Maker represents and warrants to Payee that it has taken all actions to create and maintain for the benefit of Payee valid liens upon, security titles to and/or perfected security interests in all Collateral now or hereafter held by or for Payee, including, without limitation, the execution, delivery, filing and recordation of UCC-1 Financing Statements needed to perfect Payee’s lien against the Collateral as provided herein. Maker hereby authorizes Payee to file at any time and from time to time such financial statement with respect to the Collateral naming Payee or its designee as secured party and Maker as debtor, as Payee may require, and including any other information with respect to Maker as Payee may determine, together with any amendment and continuations with respect thereto, which authorization shall apply to all financing statements filed on, prior to of after the date hereof.

10.      Events of Defaults . The occurrence or existence of any one or more of the following events or conditions (regardless of the reasons therefor) shall constitute an "Event of Default" hereunder:

(i)     Maker shall fail to make any payment of Principal or Interest when due and payable or declared due and payable pursuant to the terms hereof and such failure shall remain uncured for a period of ten (10) days thereafter;

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(ii)     Maker shall fail at any time to be in material compliance with any of the covenants set forth in Paragraph 3 (c) or Section 7 of this Note, or shall fail at any time to be in material compliance with or neglect to perform, keep or observe any of the provisions of this Note to be complied with, performed, kept or observed by Maker and such failure shall remain uncured for a period of thirty (30) days after notice thereof has been given by Payee to Maker;

(iii)     Any representation or warranty made in this Note by Maker shall be untrue or incorrect in any material respect as of the date when made or deemed made;

(iv)     Any money judgment, writ or warrant of attachment, or similar process not covered by insurance in excess of Twenty Five Thousand ($25,000) Dollars in the aggregate shall be entered or filed against Maker or any of its subsidiaries or any of their properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of thirty (30) days;

(vi)     Maker or any of its subsidiaries shall make an assignment for the benefit of creditors or shall be unable to pay its debts as they become due;

(vii)     Maker or any of its subsidiaries shall have received a written notice of default related to any material agreement to which it is a party and such act of default shall remain uncured after any applicable cure period;

(viii)     Maker entering into or consummating any Change in Control, as defined at the end of this Section 10 , without either Payee’s prior written consent or the simultaneous payment in full of all Secured Obligations;

(ix)      Maker’s liquidation, dissolution, or other termination;

(x)     Any material adverse change in the business, operations, assets, liabilities, prospects for repayment, properties, condition (financial or otherwise) or results of operations, of Maker or any of its subsidiaries, or any litigation or governmental proceeding or investigation brought or threatened against Maker or any of its subsidiaries, or any executive officer or key employee of Maker or any of its subsidiaries, which materially adversely affects the business, operations, assets, liabilities, prospects for repayment, properties, condition (financial or otherwise) or results of operations of Maker or any of its subsidiaries;

(xi)     A case or proceeding shall have been commenced against Maker or any of its subsidiaries (each a “Proceeding Company”) in a court having competent jurisdiction seeking a decree or order in respect of a Proceeding Company (A) under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal, state or foreign bankruptcy or other similar law; (B) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of a Proceeding Company, or any of its properties; or (C) ordering the winding-up or liquidation of the affairs of a Proceeding Company, and such case or proceeding shall remain unstayed or undismissed for a period of thirty (30) consecutive days or such court shall enter a decree or order granting the relief sought in such case or proceeding; or

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(xii)     A Proceeding Company shall (A) file a petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal, state or foreign bankruptcy or other similar law; or (B) consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment of or the taking of possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of such Proceeding Company, or any of its properties.

“Change in Control” means the occurrence of any of the following events: (i) Any Person, other than Maker, its affiliates or any Maker employee benefit plan (including any trustee of such plan acting as trustee), is or becomes the, directly or indirectly, of Maker’s securities representing more than fifty percent (50%) of the combined voting power of the then outstanding securities entitled to vote generally in the election of Maker’s directors (“ Voting Securities ”); or (ii) Individuals who constitute Makers Board of Directors (the “ Incumbent Directors ”), as of the beginning of any twenty-four (24) month period commencing with the date hereof, cease for any reason to constitute at least a majority of the directors. Notwithstanding the foregoing, any individual becoming a director subsequent to the beginning of such period, whose election or nomination for election by Maker’s stockholders, was approved by a vote of at least two-thirds (2/3) of the directors then comprising the Incumbent Directors, shall be considered an Incumbent Director; or (iii) Consummation by Maker of a recapitalization, reorganization, merger, consolidation or other similar transaction (a “ Business Combination ”), with respect to which all or substantially all of the individuals and entities who were the beneficial owners of Maker’s voting securities (the “ Voting Securities ”) immediately prior to such Business Combination (the “Incumbent Shareholders”) do not, following consummation of all transactions intended to constitute part of such Business Combination, beneficially own, directly or indirectly, fifty percent (50%) or more of the Voting Securities of the corporation, business trust or other entity resulting from or being the surviving entity in such Business Combination (the “ Surviving Entit y”), in substantially the same proportion as their ownership of such Voting Securities immediately prior to such Business Combination; or (iv) Consummation of a complete liquidation or dissolution of Maker, or the sale or other disposition of all or substantially all of Maker’s assets, other than to a corporation, business trust or other entity with respect to which, following consummation of all transactions intended to constitute part of such sale or disposition, more than fifty percent (50%) of the combined Voting Securities is then owned beneficially, directly or indirectly, by the Incumbent Shareholders in substantially the same proportion as their ownership of the Voting Securities immediately prior to such sale or disposition. For purposes of this definition, the following terms shall have the meanings set forth as follows: (A) “Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act; and (B) “Person” shall have the meaning as used in Sections 13(d) and 14(d) of the Exchange Act.

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11.      Remedies .

11.1     Acceleration and Rights. Upon the occurrence of any Event of Default, the Secured Obligations will be immediately due and payable in full and Payee at any time thereafter may at its option accelerate the maturity of the Secured Obligations. Upon the occurrence of any such Event of Default, payee will have the following rights and remedies:

(a)     All of the rights and remedies of a secured party under the Uniform Commercial Code of the State of California or any other applicable state, or under other applicable law, all of which rights and remedies will be cumulative, and none of which will be exclusive, to the extent permitted by law, in addition to any other rights and remedies contained in this Note.

(b)     The right to: (i) enter upon the premises of Maker, any of its subsidiaries, or any other place or places where the Collateral is located and kept, through self-help and without judicial process, without first obtaining a final judgment or giving Maker or any of its subsidiaries, as applicable, notice and opportunity for a hearing on the validity of Payee’s claims and without any obligation to pay rent to Maker or any of its subsidiaries, as applicable, and take possession of and/or remove the Collateral therefrom to the premises of Payee or any agent of Payee for such time as Payee may desire, in order to effectively collect or liquidate the Collateral, and/or (ii) require Maker or any of its subsidiaries, as applicable, at it’s expense, to assemble any part of all of the Collateral and make it available to Payee at a place to be designated by Payee in its sole discretion. Maker or any of its subsidiaries, as applicable, shall be allowed up to five (5) business days to assemble Collateral not in Payee’s control.

(c)     The right to sell or otherwise dispose of all or any Collateral in its then existing condition at public or private sale or sales, with such notice as may be required by law, in lots or in bulk, for cash or on credit, all as Payee, in its sole discretion may deem advisable, free from right or equity of redemption of Maker or any of its subsidiaries, as applicable, which right or equity is hereby expressly waived and released. Such sales may be adjourned from time to time with or without notice. Payee will have the right to conduct such sales on the premises of Maker or any of its subsidiaries, as applicable, or elsewhere and will have the right to use the premises of Maker or any of its subsidiaries, as applicable, without charge for such sales for such time or times as Payee may see fit. Payee is hereby granted a license or other right to use, without charge, Maker’s or any of its subsidiaries’, as applicable, labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in advertising for sale and selling any Collateral and the rights of Maker or any of its subsidiaries, as applicable, under all licenses, and all franchise agreements will inure to Payee’s benefit. Payee will have the right to sell, lease or otherwise dispose of the Collateral, or any part thereof, for cash, credit or any combination thereof, and Payee may purchase all or any part of the Collateral at public or, if permitted by applicable law, private sale and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Secured Obligations. In the event Payee institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, Maker waives, and will cause any of its subsidiaries, as applicable, to waive the posting of any bond, which might otherwise be required.

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(d)     Any notice required to be given by Payee of a sale, lease, other disposition of the Collateral or any other intended action by Payee, given to Maker or any of its subsidiaries, as applicable, in the manner set forth in Section 14 (g) below ten (10) business days prior to such proposed action, will constitute commercially reasonable and fair notice thereof to Maker or any of its subsidiaries, as applicable.

(e)     Upon an Event of Default, Maker irrevocably designates, makes, constitutes, and appoints Payee (and all persons designated by Payee), and shall cause any of its subsidiaries, as applicable, to, irrevocably designate, make, constitute, and appoint Payee (and all persons designated by Payee) as the true and lawful attorney of Maker and any of its subsidiaries, as applicable, and Payee may, without notice and at such time or times thereafter as Payee in Payee’s sole discretion, may determine, in the name of Maker or any of its subsidiaries, as applicable, or Payee’s name: (i) demand payment of accounts; (ii) enforce payment of accounts by legal proceedings or otherwise; (iii) exercise all of Maker’s and any of its subsidiaries’, as applicable, rights and remedies regarding the collection of accounts; (iv) settle, adjust, compromise, extend or renew accounts; (v) settle, adjust or compromise any legal proceedings brought to collect accounts; (vi) if permitted by applicable law, sell or assign accounts and other Collateral upon such terms, for such amounts and at such time or times as Payee deems advisable; (vii) discharge and release accounts and other Collateral; (viii) prepare, file and sign the name of Maker or any of its subsidiaries, as applicable, on a proof of claim in bankruptcy or similar document against any account debtor and exercise Maker’s and any of Maker’s subsidiaries’, as applicable, rights to vote with respect thereto in such bankruptcy case; (ix) prepare, file and sign the name of Maker, or any of its subsidiaries, as applicable, on any notice of lien, assignment or satisfaction of lien or similar document in connection with accounts and other Collateral; (x) do all acts and things necessary, in Payee’s sole discretion, to fulfill the obligations of Maker under this Agreement; (xi) endorse the name of Maker, or any of its subsidiaries, as applicable, upon any of the items of payment or proceeds thereof and deposit the same to the account of Payee on account of the Secured Obligations; (xii) endorse the name of Maker, or any of its subsidiaries, as applicable, upon any chattel paper, document, instrument, invoice, freight bill, bill of lading, or similar document or agreement relating to the accounts, inventory and other Collateral; (xiii) use the stationery and sign the name of Maker, or any of its subsidiaries, as applicable, to verifications of such accounts and notices thereof to account debtors; and (xiv) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Collateral to which Maker and any of its subsidiaries, as applicable, has access.

(f)     Upon an Event of Default, unless expressly prohibited by any licensor thereof, Payee is hereby granted a license to use all computer software programs, data bases, processes, trademarks, trade names and materials used by Maker and any of its subsidiaries, as applicable, in connection with its respective business or in connection with the Collateral.

(g)     Payee, at its sole option and discretion, may delay enforcement of any such rights and remedies to allow officers of Maker, or any of its subsidiaries, as applicable, reasonable time to secure additional financing sufficient to satisfy the Secured Obligations.

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(h)     To the extent that applicable law imposes duties on Payee to exercise remedies in a commercially reasonable manner (which duties cannot be waived under such law), Maker acknowledges and agrees and Maker shall cause any of its subsidiaries, as applicable, to agree that it is not commercially unreasonable for Payee (i) to fail to incur expenses reasonably deemed significant by Payee to prepare Collateral for disposition or otherwise to complete raw material or work in process into finished goods or other finished products for disposition, (ii) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain consents of any governmental authority or other third party for the collection or disposition of Collateral to be collected or disposed of, (iii) to fail to exercise collection remedies against account debtors, secondary obligors or other persons obligated on Collateral or to remove liens or encumbrances on or any adverse claims against Collateral, (iv) to exercise collection remedies against account debtors and other persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (vi) to contact other persons, whether or not in the same business as Maker or any of its subsidiaries, as applicable, for expressions of interest in acquiring all or any portion of the Collateral, (vii) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the collateral is of a specialized nature, (viii) to dispose of Collateral by utilizing Internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail markets, (x) to disclaim disposition warranties, (xi) to purchase insurance or credit enhancements to insure Payee against risks of loss, collection or disposition of Collateral or to provide to Payee a guaranteed return from the collection or disposition of Collateral, or (xii) to the extent deemed appropriate by Payee, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist Payee in the collection or disposition of any of the Collateral. Maker acknowledges, and shall cause any of its subsidiaries, as applicable, to acknowledge, that the purpose of this paragraph is to provide non-exhaustive indications of what actions or omissions by Payee would not be commercially unreasonable in the exercise by Payee of remedies against the Collateral and that other actions or omissions by Payee shall not be deemed commercially unreasonable solely on account of not being indicated in this paragraph. Without limitation of the foregoing, nothing contained in this paragraph shall be construed to grant any rights to Maker or any of its subsidiaries, as applicable, or to impose any duties on Payee that would not have been granted or imposed by this Note or by applicable law in the absence of this paragraph.

11.2     Remedies Cumulative, No Waiver. No right, power or remedy conferred upon or reserved to Payee by this Note is intended to be exclusive of any other right, power or remedy, but each and every such right, power and remedy will be cumulative and concurrent and will be in addition to any other right, power and remedy given hereunder or now or hereafter existing at law, in equity or by statute. No delay or omission by Payee to exercise any right, power or remedy accruing upon the occurrence of any Event of Default will exhaust or impair any such right, power or remedy or will be construed to be a waiver of any such Event of Default or an acquiescence therein, and every right, power and remedy given by this Note to Payee may be exercised from time to time and as often as may be deemed expedient by Payee

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11.3     Proceeds of Remedies. Any or all proceeds resulting from the exercise of any or all of the foregoing remedies will be applied as set forth herein providing the remedy or remedies exercised; if none is specified, or if the remedy is provided by this Note, then as follows:

If any deficiency remains after the payments as set forth above, Maker shall remain liable to Payee for such deficiency.

12.      Acknowledgment of Payee’s Investment Representations . By accepting this Note, Payee acknowledge that this Note has not been and will not be registered under the Act or qualified under any state securities laws and that the transferability thereof is restricted by the registration provisions of the Act as well as the qualification provisions of such state laws. Based upon the representations and agreements being made by Payee herein, this Note is being issued to Payee pursuant to an exemption from such registration provided by Section 4 (a)(2) of the Act and Rule 506 promulgated thereunder, and such applicable state securities law qualification exemptions. Payee represents that it is acquiring this Note for its own account, for investment purposes only and not with a view to resale or other distribution thereof, or with the intention of selling, transferring or otherwise disposing of all or any part of it for any particular event or circumstance, except selling, transferring or disposing of it only upon full compliance with all applicable provisions of the Act, the Exchange Act, the Rules and Regulations promulgated by the Commission thereunder, and any applicable state securities laws. Payee further understands and agree that no transfer of this Note shall be valid unless made in compliance with the restrictions set forth on the front of this Note, effected on Maker's books by the registered holder hereof, in person or by an attorney duly authorized in writing, and similarly noted hereon. Maker may charge Payee a reasonable fee for any re registration, transfer or exchange of this Note.

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13.      Limitation of Interest Payments . Nothing contained in this Note or in any other agreement between Maker and Payee requires Maker to pay or Payee to accept Interest in an amount that would subject Maker to any penalty or forfeiture under applicable law. In no event shall the total of all charges payable hereunder, whether of Interest or of such other charges that may or might be characterized as interest, exceed the maximum rate permitted to be charged under the laws of the state of Payee’s residence or any other state or domestic or other jurisdiction in which either Maker or Payee may be located or may conduct business or the laws of any state or other jurisdiction applicable to this Note. Should Payee receive any payment, which is or would be in excess of that permitted to be charged under such laws, such payment shall have been and shall be deemed to have been made in error and shall automatically be applied to reduce the Principal outstanding on this Note.

14.      Miscellaneous .

(a)     Effect of Forbearance. No forbearance, indulgence, delay or failure to exercise any right or remedy by Payee with respect to this Note shall operate as a waiver or as an acquiescence in any default.

(b)     Effect of Single or Partial Exercise of Right. No single or partial exercise of any right or remedy by Payee shall preclude any other or further exercise thereof or any exercise of any other right or remedy by Payee.

(c)     Governing Law; Venue. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the internal laws of the State of Nevada applicable to contracts made and to be performed entirely within such State. Any action, suit or proceeding in connection with this Note may be brought against Maker in a federal or state court of record located in Clark County, Nevada, and Maker and Payee 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 Paragraph 14(g) below and that service so made shall be deemed to be completed upon the earlier of actual receipt or five (5) days after the same shall have been posted to its address.

(d)     Headings. The headings and captions of the various paragraphs herein are for convenience of reference only and shall in no way modify any of the terms or provisions of this Note.

(e)     Loss, Theft, Destruction or Mutilation. Upon receipt by Maker of evidence reasonably satisfactory to it of loss, theft, destruction or mutilation of this Note, Maker shall make and deliver or caused to be made and delivered to Payee a new Note of like date and tenor in lieu of this Note.

(f)     Modification of Note or Waiver of Terms Thereof. No modification or waiver of any of the provisions of this Note shall be effective unless in writing and signed by Maker and Payee and then only to the extent set forth in such writing, or shall any such modification or waiver be applicable except in the specific instance for which it is given. This Note may not be discharged orally but only in writing duly executed by Payee.

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(g)     Notice. All offers, acceptances, notices, requests, demands and other communications under this Note shall be in writing and, except as otherwise provided herein, shall be deemed to have been given only: (i) when delivered in person; (ii) one (1) day after deposit with a nationally recognized overnight courier service; or, (iii) five (5) days after having been mailed by certified or registered mail prepaid, to the parties at their respective addresses first set forth above, or at such other address as may be given in writing in future by either party to the other. Notice may also be given via electronic or facsimile transmission to a party who provides such party’s fax number or email address to the other party and shall be deemed to have been given if receipt thereof is confirmed by the recipient.

(h)     Transfer. This Note shall be transferable only on the books of Maker upon delivery thereof duly endorsed by Payee or by Payee’s duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment, or authority to transfer. In all cases of transfer by an attorney, executor, administrator, guardian, or other legal representative, duly authenticated evidence of its or its authority shall be produced. Upon any registration of transfer, Maker shall deliver a new Note or Notes to the person entitled thereto. Notwithstanding the foregoing, Maker shall have no obligation to cause Notes to be transferred on its books to any person if, in the reasonable opinion of counsel to Maker, such transfer does not comply with the provisions of the Act and the rules and regulations thereunder and/or applicable state securities laws.

(i)     Presumptions. Maker hereby represents and acknowledges that in connection with the negotiation of this Note it has been represented by its own counsel, who has reviewed this Note and advised it as to the legal significance and consequences of entering into this Note and has participated in the drafting hereof. Therefore, this Note shall be construed without regard to any presumption or rule requiring that it be construed against any one party causing this Note or any part hereof to be drafted.

(j)     Costs and Expenses. Maker agrees to pay all costs and expenses reasonably incurred by Payee as set forth in Section 1.2 above. Maker further agrees to pay all premiums for insurance required to be maintained pursuant to the terms of this Note and all of the out-of-pocket costs and expenses incurred by Payee in connection with the collection of the Secured Obligations upon an Event of Default, including but not limited to reasonable attorneys’ fees, promptly upon demand of Payee. Maker agrees to pay all reasonable attorneys’ fees incurred by Payee in connection with the amendment, modification, and/or waiver of any rights available to Payee pursuant to this Note from time to time. Maker also agrees, upon request from Payee, to have its counsel, on behalf of Payee, timely file all reports Payee may be required to file with the Commission resulting from his five (5%) percent or more ownership of an equity interest in Maker pursuant to the provisions of the Exchange Act subject to Payee timely providing such counsel with the information it needs to make such filings. Maker agrees to pay its counsel for its services relating to making these filings in amount not to exceed $2,000.

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(k)     Waivers.

(a)     Waiver of Trial by Jury. To the extent not prohibited by applicable law, MAKER and PAYEE hereby waive their respective rights to a jury trial of any claim or cause of action based upon or arising out of any of THIS NOTE or any of the transactions contemplated herein, including contract claims, tort claims, breach of duty claims and all other common law or statutory claims. Each party recognizes and agrees that the foregoing waiver constitutes a material inducement for it to enter into this NOTE. Each party represents and warrants that it/HE has reviewed this waiver with its/HIS legal counsel and that it/HE knowingly and voluntarily waives its/HIS jury trial rights following consultation with legal counsel.

(b)     Marshaling of Assets. Borrower hereby waives, to the extent permitted by law, the benefit of all appraisal, valuation, stay, extension, reinstatement and redemption laws now in force and those hereafter in force and all rights of marshaling in the event of any sale hereunder of the Collateral by Lender or any part or any interest therein.

(l)       Successors and Assigns. This Note shall be binding upon Maker, its successors, assigns and transferees, and shall inure to the benefit of and be enforceable by Payee and Payee’s successors and assigns.

(m)     Severability. If one or more of the provisions or portions of this Note 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.

(n)     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.

(signature page to follow)

DPW/SCN

October 21, 2016

 

IN WITNESS WHEREOF, Maker has caused this Note to be executed on its behalf by an officer thereunto duly authorized as of the date set forth above.

Agreed and Accepted:

[●]

___________________________

[●]

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the 12% Convertible Subordinated Note due October 20, 2019 of Digital Power Corporation , a California corporation (the “ Company ”), into shares of common stock (the “ Common Stock ”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

Conversion calculations:

Signature:_______________________

Name:

Address for Delivery of Common Stock Certificates:

______________________________

______________________________

______________________________

Or

DWAC Instructions:

Broker No:                                            

Account No:                                        

Exhibit 10.2

Warrant CS-1

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

OCTOBER 21 , 201 6

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) in connection with a 12% Secured Convertible Promissory Note (the “ Note ”) and another warrant (the “ Warrant -CS2 ”) that the Holder is also simultaneously acquiring from the Company. This Warrant is exercisable for up to an aggregate 265,000 shares of Common Stock, as defined below, subject to adjustment pursuant to the anti dilution provisions therein.

FOR VALUE RECEIVED, the Company hereby certifies that the registered holder hereof, the [●], with an address at [●], and its successors and assigns (the “ Holder ”), is entitled to purchase from the Company 265,000 duly authorized, validly issued, fully paid and nonassessable shares of common stock, no par value (the “ Common Stock ”), at a purchase price equal to $0.80 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 . Subject to the Company complying with Rule 713(a) of the NYSE Mkt, if applicable, this Warrant shall become exercisable six months after the date hereof.

2.       Expiration of Warrant . This Warrant shall expire on October 20, 2019 (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-$0.80

issued by Digital Power Corporation

Page 2

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).

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.

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 .

Redeemable Common Stock Purchase Warrant-$0.80

issued by Digital Power Corporation

Page 5

(b)     [Intentionally Deleted]

(c)     [Intentionally Deleted]

(d)     [Intentionally Deleted]

(e)     [Intentionally Deleted]

(f)     [Intentionally Deleted]

(g)     Number of Shares. Upon each adjustment of the Warrant Price as a result of the calculations made in Paragraphs 4 (a) through (d) 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

(h)     Transactions Not Requiring Adjustments. No adjustment need be made for a transaction referred to in Paragraphs (a) through ( e ) of this Section 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. No adjustment need be made for sales of Common Stock pursuant to a Company plan for reinvestment of dividends or interest, the granting of options and/or the exercise of options outstanding under any of the Company's currently existing stock option plans, the exercise of currently existing incentive stock options or incentive stock options which may be granted in the future, the exercise of any other of the Company's currently outstanding options, or any currently authorized warrants, whether or not outstanding. If this Warrant becomes exercisable solely into cash, no adjustment need be made thereafter. Interest will not accrue on the cash.

(i)     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.

(j)     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 ( j ) 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 ( j ) , 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.

Redeemable Common Stock Purchase Warrant-$0.80

issued by Digital Power Corporation

Page 6  

(k)     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.

(l)     Number of Shares. Upon each adjustment of the Warrant Price as a result of the calculations made in Paragraphs (a) through ( e ) 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.

(m)     [Intentionally Deleted]

(n)     [Intentionally Deleted]

(o)     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.

(p)     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.

(q)     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.

(r)     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.

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 the Warrant Shares may be sold publicly, 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 $3.00 per share for a period of 30 consecutive calendar 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.

Redeemable Common Stock Purchase Warrant-$0.80

issued by Digital Power Corporation

Page 8  

(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.

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.

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.

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 1 2 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.

Redeemable Common Stock Purchase Warrant-$0.80

issued by Digital Power Corporation

Page 11

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.

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.

Redeemable Common Stock Purchase Warrant-$0.80

issued by Digital Power Corporation

Page 12  

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.

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.

Redeemable Common Stock Purchase Warrant-$0.80

issued by Digital Power Corporation

Page 13

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 Nevada applicable to contracts made and to be performed entirely within such State. Any action, suit or proceeding in connection with this Warrant may be brought in a federal or state court of record located in Clark County, Nevada, and Holder and 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)

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:

[●]

___________________________

[●]

Warrant – CS1

$0.80 Exercise Price

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:

_________________________________________________________

  _________________________________________________________

Warrant – CS1

$0.80 Exercise Price

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

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:  ________________

Exhibit 10.3

Warrant CS-2

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

OCTOBER 21 , 201 6

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) in connection with a 12% Secured Convertible Promissory Note (the “ Note ”) and another warrant (the “ Warrant -CS1 ”) that the Holder is also simultaneously acquiring from the Company. This Warrant is exercisable for up to an aggregate 265,000 shares of Common Stock, as defined below, subject to adjustment pursuant to the anti dilution provisions therein.

FOR VALUE RECEIVED, the Company hereby certifies that the registered holder hereof, the [●], with an address at [●], and its successors and assigns (the “ Holder ”), is entitled to purchase from the Company 265,000 duly authorized, validly issued, fully paid and nonassessable shares of common stock, no par value (the “ Common Stock ”), at a purchase price equal to $0.90 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 . Subject to the Company complying with Rule 713(a) of the NYSE Mkt, if applicable, this Warrant shall become exercisable six months after the date hereof.

2.       Expiration of Warrant . This Warrant shall expire on October 20, 2019 (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-$0.90

issued by Digital Power Corporation

Page 2 

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).

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.

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 .

Redeemable Common Stock Purchase Warrant-$0.90

issued by Digital Power Corporation

Page 5 

(b)     [Intentionally Deleted]

(c)     [Intentionally Deleted]

(d)     [Intentionally Deleted]

(e)     [Intentionally Deleted]

(f)     [Intentionally Deleted]

(g)     Number of Shares. Upon each adjustment of the Warrant Price as a result of the calculations made in Paragraphs 4 (a) through (d) 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

(h)     Transactions Not Requiring Adjustments. No adjustment need be made for a transaction referred to in Paragraphs (a) through ( e ) of this Section 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. No adjustment need be made for sales of Common Stock pursuant to a Company plan for reinvestment of dividends or interest, the granting of options and/or the exercise of options outstanding under any of the Company's currently existing stock option plans, the exercise of currently existing incentive stock options or incentive stock options which may be granted in the future, the exercise of any other of the Company's currently outstanding options, or any currently authorized warrants, whether or not outstanding. If this Warrant becomes exercisable solely into cash, no adjustment need be made thereafter. Interest will not accrue on the cash.

(i)     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.

(j)     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 ( j ) 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 ( j ) , 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.

(k)     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.

(l)     Number of Shares. Upon each adjustment of the Warrant Price as a result of the calculations made in Paragraphs (a) through ( e ) 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.

(m)     [Intentionally Deleted]

(n)     [Intentionally Deleted]

(o)     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.

(p)     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.

(q)     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.

(r)     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.

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 the Warrant Shares may be sold publicly, 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 $3.00 per share for a period of 30 consecutive calendar 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 th0 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.

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.

Redeemable Common Stock Purchase Warrant-$0.90

issued by Digital Power Corporation

Page 9 

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.

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.

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 1 2 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.

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.

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 Nevada applicable to contracts made and to be performed entirely within such State. Any action, suit or proceeding in connection with this Warrant may be brought in a federal or state court of record located in Clark County, Nevada, and Holder and 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)

Redeemable Common Stock Purchase Warrant-$0.90

issued by Digital Power Corporation

Page 14 

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:

[●]

___________________________

[●]

Warrant – CS2

$0.90 Exercise Price

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:

_________________________________________________________

_________________________________________________________

Warrant – CS-2

$0.90 Exercise Price

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:  ________________

Exhibit 10.4

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “ Agreement ”) is made and entered into as of October 21, 2016, by and between Digital Power Corporation (the “Company”) , a California corporation, with offices at 49430 Lakeview Boulevard, Fremont, CA 94538 , and [●] with an address at [●] (the “ Purchaser ”).

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchaser agree as follows:

1.      Definitions . As used in this Agreement, the following terms shall have the respective meanings set forth in this Section 1 .

“ Advice ” shall have the meaning set forth in Section 6(c) .

“ Affiliate ” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144.

“ 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.

“ Commission ” means the Securities and Exchange Commission.

“ Common Stock ” means the Company’s common stock, no par value.

“ Effective Date ” means the date that the Registration Statement filed pursuant to Section 2(a) is first declared effective by the Commission.

“ Effectiveness Date ” means: (a) with respect to the initial Registration Statement required to be filed to cover the resale by the Holder of the Registrable Securities, the earlier of: (i) the 180th day following the date hereof or (ii) the fifth trading day following the date on which the Company is notified by the Commission that the initial Registration Statement will not be reviewed or is no longer subject to further review and comments, and (b) with respect to any additional Registration Statements that may be required pursuant to Sections 2(a) and (b) hereof, the earlier of: (i) the 90th day following the date on which the Company first knows, or reasonably should have known, that such additional Registration Statement is required under such Sections or (ii) the fifth trading day following the date on which the Company is notified by the Commission that such additional Registration Statement will not be reviewed or is no longer subject to further review and comments. “ Effectiveness Date ” shall also have the meaning specified in Section 2(b) .

“ Effectiveness Period ” shall have the meaning set forth in Section 2(a) .

“ Exchange Act ” means the Securities Exchange Act of 1934.

“ Filing Date ” means: (a) with respect to the initial Registration Statement required to be filed to cover the resale by the Holder of the Registrable Securities, the 120th day following the date hereof, and (b) with respect to any additional Registration Statements that may be required pursuant to Sections 2(a) and (b) hereof, the 30th day following the date on which the Company first knows, or reasonably should have known, that such additional Registration Statement is required under such Sections.

“ Holder ” or “ Holders ” means the holder or holders, as the case may be, from time to time of Registrable Securities.

“ Indemnified Party ” shall have the meaning set forth in Section 5(c) .

“ Indemnifying Party ” shall have the meaning set forth in Section 5(c) .

“ Losses ” shall have the meaning set forth in Section 5(a) .

“ Note ” means the 12% Secured Convertible Note that is convertible into Common Stock purchased by the Purchaser from the Company in the principal amount of $530,000.00 and dated as of the date hereof.

“ Person ” means an 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.

“ Proceeding ” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“ Prospectus ” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

“ Registrable Securities ” means the shares of Common Stock for which the Note may be converted and the Warrants may be exercised, together with any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event, or any Note conversion rate or Warrant exercise price adjustment with respect thereto.

“ Registration Statement ” means each of the following: (i) an initial registration statement which is required to register the resale of the Registrable Securities, and (ii) each additional registration statement, if any, contemplated by Sections 2(a) and (b) , and including, in each case, the Prospectus, amendments and supplements to each such registration statement or Prospectus, including pre-and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

“ Rule 144 ” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“ Rule 415 ” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“ Rule 424 ” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“ Securities Act ” means the Securities Act of 1933.

“ Selling Stockholders ” shall have meaning defined in Section 3(b)(iii)

“ Transfer Agent ” means the transfer agent for the Common Stock.

“ T ransaction Documents ” means this Agreement, the Note, the Warrants, and any other documents or agreements executed in connection with the transactions contemplated hereunder and in the Note and Warrants.

“ Warrants ” mean Warrants to purchase 265,000 shares of Common Stock at $0.80 and to purchase 265,000 shares of Common Stock at $0.90 per share of Common Stock respectively.

2.      Registration .

(a)     Initial Registration Statements. On or prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all Registrable Securities not already covered by an existing and effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-1, or another appropriate form for such purpose, and shall contain such other documentation as may be required by the Commission. The Company shall cause the Registration Statement to be declared effective under the Securities Act as soon as possible but, in any event, no later than the Effectiveness Date, and shall use its best efforts to keep the Registration Statement continuously effective under the Securities Act until the date that is two years after the date that the Registration Statement is declared effective by the Commission or such earlier date when all Registrable Securities covered by the Registration Statement have been sold or may be sold pursuant to Rule 144(b)(1) as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the affected Holder (the “ Effectiveness Period ”). It is agreed and understood that the Company shall, from time to time, be obligated to file an additional Registration Statement to cover any Registrable Securities that are not registered for resale pursuant to a pre-existing Registration Statement.

(b)     Additional Registration Statements. If for any reason the Commission does not permit all of the Registrable Securities to be included in the Registration Statement filed pursuant to Section 2(a) , then the Company shall prepare and file as soon as possible after the date on which the Commission shall indicate as being the first date or time that such filing may be made, but in any event by the 30 ^th day following such date, an additional Registration Statement covering the resale of all Registrable Securities not already covered by an existing and effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415, on Form S-1 or another appropriate form for such purpose. Each such Registration Statement shall contain such other documentation as may be required by the Commission. The Company shall cause each such Registration Statement to be declared effective under the Securities Act as soon as possible (the “ Effectiveness Date ”) and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act during the entire Effectiveness Period.

(c)     Issuance of Legal Opinion. Within three business days after the Effectiveness Date of a Registration Statement, the Company shall cause its counsel to issue a blanket opinion in the form attached hereto as Exhibit A , to the Transfer Agent stating that the Shares, as defined therein, are subject to an effective registration statement and can be reissued free of restrictive legend upon notice of a sale by the Purchaser and confirmation by the Purchaser that it has complied with the prospectus delivery requirements, provided that the Company has not advised the Transfer Agent in writing that the opinion has been withdrawn. Copies of the blanket opinion required by this Section 2(c) shall be delivered to the Purchaser within the time period set forth above.

3.      Registration Procedures . In connection with the Company’s registration obligations hereunder, the Company shall:

(a)     Not less than four trading days prior to the filing of a Registration Statement or any related Prospectus or any amendment or supplement thereto, furnish to the Holder copies of all such documents proposed to be filed, which documents (other than those incorporated by reference) will be subject to review by such Holder. The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities shall, in writing, reasonably object in good faith.

(b)     (i) Prepare and file with the Commission such amendments, including post-effective amendments, to each Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement continuously effective as to the applicable Registrable Securities for its Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible, and in any event within ten trading days, to any comments received from the Commission with respect to each Registration Statement or any amendment thereto and, as promptly as reasonably possible, provide the Holders true and complete copies of all correspondence from and to the Commission relating to such Registration Statement that pertains to the Holder as selling stockholder (the “ Selling Stockholder ”) but not any comments that would result in the disclosure to the Holder of material and non-public information concerning the Company; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the Registration Statements and the disposition of all Registrable Securities covered by each Registration Statement.

(c)     Notify the Holder as promptly as reasonably possible (and, in the case of (i)(A) below, not less than four trading days prior to such filing) and (if requested by any such Holder) confirm such notice in writing no later than one trading day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed; (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders that pertain to such Holder as a Selling Stockholder or to the Plan of Distribution, but not information which the Company believes would constitute material and non-public information); and (C) with respect to each Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information that pertains to the Holder as Selling Stockholder or the Plan of Distribution; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(d)     Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

(e)     Furnish to each Holder, without charge, at least one conformed copy of each Registration Statement and each amendment thereto and all exhibits to the extent requested by such Holder (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission; provided , however , that the Company shall have no obligation to provide any document pursuant to this clause that is available on the EDGAR system.

(f)     Promptly deliver to each Holder, without charge, as many copies of each Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Holder may reasonably request. The Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.

(g)     Prior to any public offering of Registrable Securities, use its best efforts to register or qualify or cooperate with the selling Holder in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of those jurisdictions within the United States set forth on Schedule 3(g ) hereto to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the Registration Statements; provided , however , that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or subject the Company to any material tax in any such jurisdiction where it is not then so subject or to take such actions in states that require merit review.

(h)     Cooperate with the Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to the Registration Statements, which certificates shall be free, to the extent permitted by the Transaction Documents and applicable securities laws, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holders may request. The Company shall cause the Transfer Agent to transmit the Registrable Securities to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission system if the Company is then a participant in such system.

(i)     Upon the occurrence of any event contemplated by Section 3(c)(v) , as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to the affected Registration Statements or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, no Registration Statement nor any Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and any Affiliate thereof.

4.      Registration Expenses . All fees and expenses incident to the Company’s performance of its obligation under this Agreement (excluding any underwriting discounts and selling commissions and all legal fees and expenses of legal counsel for any Holder) shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the trading market on which the Common Stock is then listed for trading, and (B) in compliance with applicable state securities or Blue Sky laws), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the holders of a majority of the Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder.

5.      Indemnification .

(a)     Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, attorneys, investment advisors, partners, members, shareholders and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents, attorneys and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparation and reasonable attorneys’ fees) and expenses (collectively, “ Losses ”), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto) or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (1) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (2) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(v) , the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of an Advice, as defined in Section 6(c) below, or an amended or supplemented Prospectus, but only if and to the extent that following the receipt of the Advice or the amended or supplemented Prospectus the misstatement or omission giving rise to such Loss would have been corrected. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement.

(b)     Indemnification by Holder. Each Holder shall, notwithstanding any termination of this Agreement, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents, attorneys and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents, attorneys or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising solely out of or based solely upon: (x) such Holder’s failure to comply with the prospectus delivery requirements of the Securities Act or (y) any untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely out of or based solely upon any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent, but only to the extent that, (1) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (2) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(v) , the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of an Advice or an amended or supplemented Prospectus, but only if and to the extent that following the receipt of the Advice or the amended or supplemented Prospectus the misstatement or omission giving rise to such Loss would have been corrected. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

(c)     Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “ Indemnified Party ”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “ Indemnifying Party ”) in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided , however , that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.

An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party); provided , however , that the Indemnifying Party shall not be liable for the fees and expenses of more than one separate firm of attorneys at any time for all Indemnified Parties. The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten trading days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided , however , that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder).

(d)     Contribution. If a claim for indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c) , any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d) , no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.

The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

6.     Miscellaneous

(a)     Remedies. In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

(b)     Compliance. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement.

(c)     Discontinued Disposition. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c) , such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the “ Advice ”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph.

(d)     Amendments and Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed by the Company and the Holder or Holders (as applicable) of no less than a majority of the then outstanding Registrable Securities. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.

(e)     Notices. All offers, acceptances, notices, requests, demands and other communications under this Agreement shall be in writing and, except as otherwise provided herein, shall be deemed to have been given only: (i) when delivered in person; (ii) one day after deposit with a nationally recognized overnight courier service; or, (iii) five days after having been mailed by certified or registered mail prepaid, to the parties at their respective addresses first set forth above, or at such other address as may be given in writing in future by either party to the other. Notice may also be given via electronic or facsimile transmission to a party who provides such party’s fax number or email address to the other party and shall be deemed to have been given if receipt thereof is confirmed by the recipient. If Notice is to be given to any other Person who is then the registered Holder, to the address of such Holder as it appears in the stock transfer books of the Company or such other address as may be designated in writing hereafter, in the same manner, by such Person.

(f)     Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder. Holders may assign their respective rights hereunder in the manner and to the Persons as permitted under the Transaction Documents.

(g)     Execution and Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile or electronic transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile or electronic signature were the original thereof.

(h)      Governing Law; Venue. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Nevada, without regard to the principles of conflicts of law thereof. Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective Affiliates, employees or agents) may be commenced in the state and federal courts sitting in Clark County, Nevada. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any Proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If any party shall commence a Proceeding to enforce any provisions of this Agreement, then the prevailing party in such Proceeding shall be reimbursed by the other party for its attorney’s fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.

(i)     Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

(j)     Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(k)     Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(l)     Independent Nature of Holder’s Obligations and Rights. The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose.

(m)     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.

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

DIGITAL POWER CORPORATION

By:_________________________________

Name: Amos Kohn

Title:     President and Chief Executive Officer

[●]

By:_________________________________

Name: [●]

Title:

EXHIBIT A

[Month __, 201-]

Ladies and Gentlemen:

As counsel to Digital Power Corporation , a California corporation (the “Company”), we have been requested to render our opinion to you in connection with the resale by the individuals or entities listed on Schedule A attached hereto (the “Selling Stockholders”), of an aggregate of [amount] shares (the “Shares”) of the Company’s Common Stock.

A Registration Statement on Form S-1 under the Securities Act of 1933 (the “Act”), with respect to the resale of the Shares was declared effective by the Securities and Exchange Commission on [date]. Enclosed is the Prospectus dated [date]. We understand that the Shares are to be offered and sold in the manner described in the Prospectus.

Based upon the foregoing, upon request by the Selling Stockholders at any time while the registration statement remains effective, it is our opinion that the Shares have been registered for resale under the Act and new certificates evidencing the Shares upon their transfer or re-registration by the Selling Stockholders may be issued without restrictive legend. We will advise you if the registration statement is not available or effective at any point in the future.

SCHEDULE 3( g )

BLUE SKY JURISDICTIONS

None