UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): March 9, 2017

 

 

 

DIGITAL POWER CORPORATION

(Exact name of registrant as specified in its charter)

 

 

California

 

001-12711

 

94-1721931

(State or other jurisdiction of

incorporation or organization)

 

(Commission File Number)

 

(I.R.S. Employer Identification No.)

 

48430 Lakeview Blvd, Fremont, CA 94538-3158

(Address of principal executive offices) (Zip Code)

 

(510) 657-2635

(Registrant's telephone number, including area code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

[  ]

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ]

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[  ]

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[  ]

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 
 

 

 

Item 1.01 Entry into a Material Definitive Agreement.

 

On March 9, 2017, Digital Power Corporation, a California corporation (the “Company”), entered into a Preferred Stock Purchase Agreement (the “Purchase Agreement”) with Philou Ventures, LLC (“Philou”). Philou is the Company’s largest stockholder and Kristine Ault, a director of the Company, controls and is a Manager of Philou. Pursuant to the terms of the Purchase Agreement, Philou will invest up to $5,000,000 in the Company through the purchase of Series B Preferred Stock (“Preferred Stock”) over the Term, as specified herein. Each share of Preferred Stock shall be purchased at $10.00 up to a maximum issuance of 500,000 shares of Preferred Stock. Philou guarantees to purchase by May 31, 2017, the greater of: (i) 100,000 shares of Preferred Stock or (ii) a sufficient number of shares of Preferred Stock to ensure that the Company has sufficient stockholders’ equity to meet the minimum continued listing standards of the NYSE MKT. In addition, for as long as the Preferred Stock is outstanding, Philou agrees to purchase additional shares of Preferred Stock in a sufficient amount in order for the Company to meet the NYSE MKT’s minimum stockholders’ equity continued listing requirement subject to the maximum number of 500,000 shares of Preferred Stock (collectively, “Guaranteed Purchases”). In addition, at any time during the Term, Philou may in its sole and absolute discretion purchase additional shares of Preferred Stock, up to the 500,000 share maximum (“Voluntary Purchases”). All consideration for Voluntary Purchases shall be delivered through a series of varying payments (“Payments”) by Philou, at its sole and absolute discretion, during the period commencing on the closing date and ending 36 months therefrom (the “Term”). The Company shall have the right to request, with 90-day written notice to Philou, that Guaranteed Purchases be accelerated to meet deadlines for maintaining the minimum stockholders’ equity required by the NYSE MKT. The Preferred Stock shall not be callable by the Company for 25 years from the closing date.

 

In addition, for each share of Preferred Stock purchased by Philou, Philou will receive warrants (“Warrants”) to purchase shares of common stock in a number equal to the stated value of each share of Preferred Stock of $10.00 purchased divided by $0.70 at an exercise price equal to $0.70 per share of common stock

 

Further, Philou shall have the right to participate in the Company’s future financings under substantially the same terms and conditions as other investors in those respective financings in order to maintain its then percentage ownership interest in the Company. Philou’s right to participate in such financings shall accrue and accumulate provided that it still owns at least 100,000 shares of Preferred Stock.

 

Additionally, in connection with the Purchase Agreement, the Company will entered into a registration rights agreement (the “Registration Rights Agreement”) with Philou.

 

The Company has agreed that at its next annual meeting of stockholders, the Company will recommend to its stockholders to approve the reincorporation of the Company from the State of California to the State of Delaware.

 

 
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Finally, in order to meet the requirement of the NYSE Mkt Rule 713, Philou will not (i) vote the shares of Preferred Stock; (ii) convert such shares of Preferred Stock into shares of Common Stock or (iii) exercise its rights under the Warrant until the requirement of NYSE Mkt Rule 713 has been met at a meeting, or by the requisite written consent, of the holders of the outstanding shares of Common Stock.

 

Description of the Series B Preferred Stock

 

Each share of Preferred Stock has a stated value of $10.00 per share. Each share of Preferred Stock may be convertible at the holder’s option into shares of Common Stock of the Company at a conversion rate of $0.70 per share, subject to customary adjustment, upon the earlier to occur of: (i) 60 months from the closing date, or (ii) upon the filing by the Company of one or more periodic reports that, singly or collectively, evidence(s) that the Company’s gross revenues have reached no less than $10,000,000 in the aggregate, on a consolidated reporting basis, over four consecutive quarters in accordance with U.S. Generally Accepted Accounting Principles.

 

The conversion price will be subject to standard anti-dilution provisions in connection with any stock split, stock dividend, subdivision or similar reclassification of the Common Stock.

 

Each share of Preferred Stock shall have the right to receive dividends equal to one ten millionth (0.0000001) of EBITDAS calculated for a particular calendar year. Assuming the purchase of the entire $5,000,000 of shares of Preferred Stock, the holders thereof will be entitled to receive dividends equal to five percent (5%) in the aggregate of EBITDAS. Payment of dividends shall be calculated for a calendar year, payable on a quarterly basis, with payments to occur no later than 90 days in arrears from each reporting period subject to a year-end reconciliation. EBITDAS shall mean earnings before interest, taxes, depreciation, amortization, and stock-based compensation.

 

Philou shall have the right to designate a number of directors to the Company’s Board of Directors equal to a percentage determined by the number of shares of Preferred Stock (determined on an “as converted” basis) divided by the sum of the number of shares of Common Stock outstanding plus the number of shares of Preferred Stock outstanding as determined on an as converted basis. Philou’s percentage to designate a number of directors shall be determined each time Philou makes a purchase of shares of Preferred Stock and cannot be decreased unless Philou converts or sells all or part of its shares of Preferred Stock in which case the number of directors that Philou may designate will be re-calculated. The right to designate a director shall be a contractual right granted to Philou and not to subsequent owner of shares of Preferred Stock.

 

In the case for the election of directors, the Preferred Stock shall be voted on an “as converted” basis together with the Common Stock. In all other cases, the Preferred Stock shall be voted in accordance with California law.

 

Each share of Preferred Stock shall have dividend and liquidation rights in priority to any shares of Common Stock, the Company’s Series A Preferred Stock (of which none are outstanding) and other subordinated securities.

 

 
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At such time as (i) all shares of Common Stock issuable upon conversion of all outstanding shares of Preferred Stock (the “Conversion Shares”) shall have been registered for resale pursuant to an effective Registration Statement covering such Conversion Shares, (ii) but no earlier than the twenty-fifth (25th) anniversary of the effective date, the shares of Preferred Stock shall be subject to redemption in cash at the option of the Company in an amount per share equal to 120% of the greater of (a) the stated value plus all accrued and unpaid dividends, if any and (b) the fair market value of such shares of Preferred Stock.

 

Warrants

 

For each share of Preferred Stock sold, Philou will receive a warrant (“Warrant”) to purchase shares of Common stock in a number equal to the amount of Preferred Stock sold divided by $0.70 for an exercise price equal to $0.70 per share. The exercise period will begin on the six month after, and end on the fifth year and six month anniversary of, the date of issuance. The exercise price of the Warrant is subject to adjustment for stock splits, stock dividends, combinations or similar events. The Warrant may be exercised for cash or, upon the failure to maintain an effective registration statement, on a cashless basis.

 

Registration Rights Agreement

 

The Company will entered into a Registration Rights Agreement pursuant to which the Company agreed to register (a) all of the shares of Common Stock issuable upon conversion in full of the Preferred Stock sold (assuming on such date the Preferred Stock is converted in full without regard to any conversion limitations therein), and (b) all shares of Common Stock then issued and issuable upon exercise of the Warrants (assuming on such date the Preferred Stock is converted in full without regard to any conversion limitations therein). Pursuant to the Registration Rights Agreement, the Company is required to file a registration statement with respect to (i) to the registration statement regarding the initial tranche of Preferred Stock, the 60th calendar month following the initial tranche closing date, and (ii) to any additional registration statements for subsequent tranches of Preferred Stock, the earliest practical date thereafter. The initial registration statement must have an effective date by the 90th calendar day following the filing date (or, in the event of a “full review” by the SEC, the 120th calendar day following the filing date) and with respect to any additional registration statement, the 90th calendar day following the date on which an additional registration statement is required to be filed hereunder (or, in the event of a “full review” by the SEC, the 120th calendar day).

 

If the Company is unable to meet its obligations under the Registration Rights Agreement, it may be required to pay certain cash damages to Philou.

 

The foregoing are only brief descriptions of the material terms of the Certificate of Determination for the Series B Preferred Stock and the Purchase Agreement, the Form of Warrants, and Form of Registration Rights Agreement, which are attached hereto as Exhibits 3.1, 4.1, 10.1 and 10.2, respectively, and are incorporated herein by reference. The foregoing does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to such exhibits.

 

 
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Item 7.01 Regulation FD Disclosure.

 

On March 9, 2017, the Company issued a press release announcing the Financing. A copy of the press release is furnished as Exhibit 99.1 of this report.

 

The information under Item 7.01 and in Exhibit 99.1 of this Current Report on Form 8-K is being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. The information under Item 7.01 and in Exhibit 99.1 of this Current Report on Form 8-K shall not be incorporated by reference into any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

Item 9.01 Fi nancial Statements and Exhibits.

 

(d) Exhibits.

 

3.1

Series B Convertible Preferred Stock, Certificate of Determination

4.1

Form of Warrant

10.1

Preferred Stock Purchase Agreement

10.2

Form of Registration Rights Agreement

99.1

Press release

 

 

 
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SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

Digital Power Corporation

a California corporation

 

 

 

 

 

Dated: March 9, 2017  

 

/s/ Amos Kohn

 

 

 

Amos Kohn

 

 

 

President and Chief Executive Officer

 

 

 

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Exhibit 3.1

 

DIGITAL POWER CORPORATION

 

CERTIFICATE OF DETERMINATION OF

PREFERENCES, RIGHTS AND LIMITATIONS

OF

SERIES B CONVERTIBLE PREFERRED STOCK

 

We, Amos Kohn and Daniel B. Eng, hereby certify that we are the President and Chief Executive Officer and Secretary, respectively, of Digital Power Corporation, a corporation organized and existing under the laws of the State of California (“Corporation”), and further do hereby certify:

 

That pursuant to the authority conferred upon the Board of Directors by the Corporation’s Articles of Incorporation, the Board of Directors on March 3, 2017 (“Effective Date”) adopted the following resolution creating a series of 500,000 shares of Preferred Stock designated as Series B Preferred Stock, none of which shares have been issued:

 

RESOLVED, that the Board of Directors of the Corporation designates the Series B Preferred Stock and the number of shares constituting such series, and fixes the rights, preferences, privileges and restrictions relating to such series in addition to any set forth in the Articles of Incorporation as follows:

 

Section 1.             Designation and Amount . Five hundred thousand (500,000) shares of the preferred stock of the Corporation, no par value, shall constitute a class of preferred stock designated as “ Series B Convertible Preferred Stock” (the “ Series B Preferred Stock ”). The relative rights, preferences and limitations of the Series B Preferred Stock shall be in all respects identical, share for share, to the Common Stock of the Corporation, except as otherwise provided herein.

 

Section 2.             Certain Definitions . The following terms shall have the meanings defined in this Section 2:

 

Affiliate ” shall have the meaning ascribed to such term in Rule 405 of the Securities Act.

 

B usiness Day means any day, other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law, regulation, or executive order to close.

 

Capital Stock ” means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interest in (however designated) capital stock.

 

Change of Control Event ” shall mean the occurrence of any of the following in one or a series of related transactions:

 

(i)   one or more acquisitions after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) under the Exchange Act), resulting in a majority or more of the voting rights or equity interests in the Corporation being transferred to such Persons or their Affiliates;

 

(ii)  a replacement of more than a majority of the members of the Board that is not approved by those individuals who are members of the Board on the date hereof (or other directors previously approved by such individuals);

 

(iii)   a merger or consolidation of the Corporation or any one or more Subsidiaries owning a majority of the consolidated assets of the Corporation and all Subsidiaries, or a sale of all or substantially all of the assets of the Corporation and its consolidated Subsidiaries in one or a series of related transactions, unless following such transaction or series of transactions, the Holders of the Corporation’s securities immediately prior to the first such transaction continue to hold at least a majority of the voting rights and equity interests in the surviving entity or acquirer of such assets;

 

 
 

 

 

(iv)    a recapitalization, reorganization or other transaction involving the Corporation or any Subsidiary that constitutes or results in a transfer of a majority or more of the voting rights or equity interests in the Corporation to any Persons; or

 

(v)      ()the execution by the Corporation or its controlling stockholders of an agreement providing for any of the foregoing events.

 

Commencement Date ” means January 1, 2018.

 

Commission means the United States Securities and Exchange Commission.

 

Common Stock ” means (i) the common stock, no par value, of the Corporation and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.

 

Conversion Date ” shall have the meaning set forth in Article 6(b)(ii).

 

Conversion Price ” shall have the meaning set forth in Article 6(a).

 

Disposition Proceeds ” shall have the meaning set forth in Article 4(d).

 

EBITDAS ” shall mean earnings before interest, taxes, depreciation, amortization, and stock-based compensation.

 

Effective Date shall have the meaning provided in the second paragraph of this Certificate of Determination.

 

Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder, all as in effect at the time.

 

Holder ” or “ Holders ” shall mean each holder of shares of Series B Preferred Stock.

 

Junior Securities ” shall have the meaning set forth in Section 4(a).

 

Liquidation ” shall have the meaning set forth in Article 4(b).

 

Majority Holders ” means any Holder(s) of a majority of the then outstanding shares of Series B Preferred Stock.

 

Notice of Conversion ” shall have the meaning set forth in Article 6(b).

 

Parity Securities ” shall have the meaning set forth in Article 4(a).

 

Person ” means an individual, a corporation, a partnership, an association, a limited liability company, an unincorporated business organization, a trust or other entity or organization, and any government or political subdivision or any agency or instrumentality thereof.

 

Redemption Price ” shall have the meaning set forth in Article 7.

 

Required Reserve Amount ” shall have the meaning set forth in Article 6(h).

 

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, all as in effect at the time.

 

Senior Securities ” shall have the meaning set forth in Article 4(a).

 

Share Delivery Date ” shall have the meaning set forth in Article 6(b)(ii).

 

 
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Stated Value ” means $10.00 per share of Series B Preferred Stock.

 

Subsidiary or Subsidiaries ” of any Person means (i) any corporation with respect to which more than 50% of the issued and outstanding voting equity interests of such corporation is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person’s other Subsidiaries, or (ii) any partnership or limited liability company in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than 50% or of which any such Person is a general partner or may exercise the powers of a general partner.

 

Section 3.     Dividends .

 

(a)     From after the Commencement Date, (A) the Holders shall be entitled to receive, on a quarterly basis with payments to occur no later than 90 days in arrears from each reporting period (each, a “ Dividend Payment Date ”), subject to a year-end reconciliation, out of funds legally available therefor, dividends on each share of Series B Preferred Stock equal to one ten millionth (0.0000001) of EBITDAS calculated for a particular calendar year; and in the event that a share of Series B Preferred Stock is issued during a calendar year, the dividend for such share of Series B Preferred Stock shall be pro rated for such calendar year; and (B) in the event that the Corporation shall declare and pay or make a dividend or any other distribution (including, without limitation, in cash, in Capital Stock (which shall include, without limitation, any options, warrants, convertible securities or other rights to acquire Capital Stock of the Corporation, whether or not pursuant to a shareholder rights plan, “poison pill” or similar arrangement), evidence of indebtedness issued by the Corporation or other Persons or other property or assets) on or with respect to shares of any class of Common Stock of the Corporation, then the Board of Directors shall declare, and the Holders shall be entitled to receive in respect of each share of Series B Preferred Stock, a dividend or distribution in an amount equal to the amount of such dividend or distribution received by a holder of the number of shares of Common Stock for which such share of Series B Preferred Stock is convertible on the date of the payment of such dividend or distribution to holders of Common Stock. All dividends provided for in clause (A) above shall be cumulative, whether or not earned or declared, accruing on an annual basis from the Effective Date.

 

In the event that the Corporation shall not have funds legally available for, or is otherwise prohibited by the CGCL, or any other applicable law, from paying any amounts under this Section 5(a), the obligation to pay such amounts shall be carried forward and fulfilled when such funds are legally available and the Corporation is permitted to do so under the CGCL or any other applicable law.

 

Each dividend shall be payable to the Holders of record as they appear on the stock books of the Corporation on the applicable record date therefor; provided that any dividend or distribution payable pursuant to clause (B) above of the first paragraph of this Section 5(a) shall be paid to the Holders of shares of record as they appear on the stock books of the Corporation on the record date applicable to holders of Common Stock and shall be paid to the Holders at the same time such dividend or distribution is made to holders of Common Stock, provided that such payment to all holders of Common Stock is not then prohibited under the CGCL or any other applicable law.

 

(b)     (i)      No full dividends shall be declared by the Board of Directors or paid or set apart for payment by the Corporation on any Parity Securities for any period unless full cumulative dividends have been or contemporaneously are declared and paid in full, or declared and a sum in cash set apart sufficient for such payment, on the Series B Preferred Stock for all periods terminating on or prior to the date of payment of such full dividends on such Parity Securities. If any dividends are not so paid in full, all partial dividends declared upon shares of the Series B Preferred Stock and any Parity Securities shall be declared pro rata so that the amount of dividends declared per share on the Series B Preferred Stock and such Parity Securities shall in all cases bear to each other the same ratio that accrued dividends per share on the Series B Preferred Stock and such Parity Securities bear to each other.

 

 
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(ii)      So long as any share of the Series B Preferred Stock is outstanding, the Corporation shall not declare, pay or set apart for payment any dividend on any of the Junior Securities, or make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any of the Junior Securities or any warrants, rights, calls or options exercisable for or convertible into any of the Junior Securities, whether in cash, obligations or shares of the Corporation or other property, and shall not permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase or redeem any of the Junior Securities or any such warrants, rights, calls or options (other than in exchange for Junior Securities) unless full cumulative dividends determined in accordance herewith on the Series B Preferred Stock have been paid in full for all periods ended prior to the date of such.

 

(iii)      So long as any share of the Series B Preferred Stock is outstanding, the Corporation shall not (except with respect to dividends as permitted by Section 5(c)(i)) make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any of the Parity Securities or any warrants, rights, calls or options exercisable for or convertible into any of the Parity Securities, whether in cash, obligations or shares of the Corporation or other property, and shall not permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase or redeem any of the Parity Securities or any such warrants, rights, calls or options.

 

(c)     Dividends payable on the Series B Preferred Stock for any period less than a year shall be computed on the basis of a 360-day year of twelve 30-day months and, for periods not involving a full calendar month, the actual number of days elapsed (not to exceed 30 days).

 

(d)     Dividends payable on the Series B Preferred Stock pursuant to Section 3(a)(A) shall be payable in cash only.

 

(e)     Dividends payable on the Series B Preferred Stock shall be prior in payment of any dividends payable with respect to the Series A Preferred Stock and all Junior Securities.

 

Section 4.     Rank; Rights on Liquidation, Merger, Sale, etc .

 

(a)      Rank . All shares of Series B Preferred Stock shall rank (i) senior to (A) the Corporation’s Series A preferred stock, (B) all classes of Common Stock, and (C) any other class or series of capital stock of the Corporation hereafter created that specifically subordinates such class or series to the Series B Preferred Stock (collectively with the Series A preferred stock and Common Stock, “ Junior Securities ”), and (ii) pari passu with any class or series of capital stock of the Corporation hereafter created specifically ranking, by its terms, on parity with the Series B Preferred Stock (the “ Parity Secu rities ”). Without the prior written consent of the Majority Holders, the Corporation shall not create or issue any class or series of capital stock specifically ranking, by its terms, senior to the Series B Preferred Stock (collectively, the “ Senior Securities ”), as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.

 

(b)     In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation (a “ Liquidation ”), the assets of the Corporation available for distribution to its shareholders whether from capital, surplus or earnings, shall be distributed as follows:

 

(i)     The Holders of Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution to the Holders of the Common Stock or any other class of the Corporation’s capital stock, whether now existing or hereafter created, for each share of Series B Preferred Stock held by such Holders, an amount equal to the Stated Value. If upon any Liquidation, the assets of the Corporation available for distribution to its stockholders are insufficient to pay all Holders of Series B Preferred Stock the full preference amount to which they shall be entitled, the Holders of Series B Preferred Stock shall share pro rata in any distribution of assets in accordance with their applicable full preference amounts;

 

(ii)     After distribution of the amounts set forth in Section 4(b)(i) hereof to the Holders of the Series B Preferred Stock, the remaining assets of the Corporation available for distribution, if any, to the stockholders of the Corporation shall be distributed to the holders of outstanding Common Stock and to all Holders of Series B Preferred Stock, on a pro rata basis, as if such Holders of Series B Preferred Stock had converted all outstanding shares of such Series B Preferred Stock into Common Stock pursuant to Section 6 hereof immediately prior to the Liquidation or Change of Control Event, based upon their respective holdings.

 

 
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(c)     Unless otherwise approved by the prior written consent of all Holders of Series B Preferred Stock, for purposes of this Section 4, any transaction constituting a Change of Control Event shall be treated as and deemed to be a Liquidation.

 

(d)     Unless otherwise approved by the prior written consent of the Majority Holders, voting as a separate class, upon consummation of a Change of Control Event, the Corporation shall pay or cause to be paid to the Holders of Series B Preferred Stock an amount equal to the amount they would be entitled to receive pursuant to Section 4(b) hereof as if the Corporation, on the date of consummation of such Change of Control Event, had assets available for distribution equal to the aggregate amount payable to the Corporation and all stockholders thereof in connection with such Change of Control Event (the “ Disposition Proceeds ”). The amount payable pursuant to this Section 4(d) shall be payable in accordance with and in order of the priorities set forth in Section 4(b) immediately following the closing of the Change of Control Event.

 

Section 5.

Voting Rights .

 

(a)      Voting Generally . Each Holder shall be entitled to vote with holders of outstanding shares of Common Stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Corporation for their action or consideration (whether at a meeting of stockholders of the Corporation, by written action of stockholders in lieu of a meeting or otherwise), except as provided by law or by the provisions of Section 5(c) below. In any such vote, (i) in the case of the election of directors, the Series B Preferred Stock shall be voted on an “as converted” basis together with the Common Stock, and (ii) in all other cases, the Series B Preferred Stock shall be voted on an “as converted” basis together with the Common Stock, subject to the provisions of the CGCL. Each holder of outstanding Shares of Series B Preferred Stock shall be entitled to notice of all stockholder meetings (or requests for written consent) in accordance with the Corporation's bylaws.

 

(b)      Election of Directors . The Holder may designate a number of directors to the Company’s Board of Directors equal to a percentage determined by the number of Series B Preferred Stock beneficially owned (determined on an “as converted” basis) divided by the sum of the number of shares of Common Stock plus the number of Preferred Shares outstanding as determined on an as converted basis. As by way of example only, if the number of Series B Preferred Stock owned by the Holder represents 20% of the outstanding shares of Common Stock and Series B Preferred Stock (as determined on an as converted basis), the Holder shall, through its ownership of Series B Preferred Stock, have the right to designate one director of a five member board. The Holder’s applicable percentage right to designate a number of directors shall be determined each time the Investor makes a purchase of Series B Preferred Stock and cannot be decreased unless the Holder converts or sells all or part of its Series B Preferred Stock in which case the number of directors that the Holder may designate will be re-calculated. The right to designate a director is a contractual right granted to the Holder and not to a subsequent owner of Series B Preferred Stock . In the event that a vacancy is created on the Board at any time due to the death, disability, retirement, resignation or removal of a Series B Director, then the Holders (voting as a separate class by majority vote with each share of Series B Preferred Stock entitled to one vote) shall have the right to designate an individual to fill such vacancy. In the event that the Holders shall fail to designate in writing a representative to fill the vacant Series B Director seat on the Board, such Board seat shall remain vacant until such time as the Holders elect an individual to fill such seat in accordance with this Section 5(b), and during any period where such seat remains vacant, the Board nonetheless shall be deemed duly constituted.

 

(c)      Protective Provisions . Without limiting the foregoing , as long as any shares of Series B Preferred Stock are outstanding, the Corporation shall not, without the prior written consent of the Majority Holders , (a) alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock or alter or amend this Certificate of Determination, (b) amend its Articles of Incorporation or other charter documents in any manner that adversely affects any rights of the Holders of Series B Preferred Stock , (c) increase or decrease the number of authorized shares of Series B Preferred Stock, (d) whether or not prohibited by the terms of the Series B Preferred Stock, circumvent a right or preference of the Series B Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing. Holders shall be entitled to written notice of all shareholder meetings or written consents (and copies of proxy materials and other information sent to shareholders) with respect to which they would be entitled to vote, which notice shall be provided pursuant to the Corporation’s Bylaws and the CGCL.

 

 
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Section 6.      Conversion of Series B Preferred Stock.

 

(a)      Optional Conversion; Conversion Price . Each share of Series B Preferred Stock shall become convertible, at the option of the Holder, upon the earlier to occur of (i) sixty (60) months from the Effective Date or (ii) upon the filing by the Corporation of an annual report on Form 10-K or quarterly report on Form 10-Q which evidences that the Corporation’s gross revenues are no less than ten million ($10,000,000) dollars in the aggregate, on a consolidated reporting basis, over four (4) consecutive quarters in accordance with U.S. generally accepted accounting principles, into such number of fully paid and non-assessable shares of Common Stock determined by dividing the Stated Value of such share of Series B Preferred Stock by the then applicable Conversion Price (defined below) (the “ Conversion Price ”). The Conversion Price shall be subject to adjustment as provided in Section 6(d) below.

 

For purposes hereof, the term “ Conversion Price ” shall mean a per share price equal to $0.70 (subject to adjustment as provided in Section 6(d) below).

 

(b)      Mechanics of Conversion .

 

(i)     Before any Holder of Series B Preferred Stock shall be entitled to convert the same into shares of Common Stock pursuant to Section 6(a) hereof, such Holder shall give written notice to the Corporation at its principal corporate office of the election to convert shares of Series B Preferred Stock, the number of shares of Series B Preferred Stock to be converted, t he number of shares of Series B Preferred Stock owned subsequent to the conversion at issue, and the name or names in which the certificate or certificates for shares of Common Stock are to be issued (each, a “ Notice of Conversion ”). No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. To effect conversions of shares of Series B Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing the shares of Series B Preferred Stock to the Corporation unless all of the shares of Series B Preferred Stock represented thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of Series B Preferred Stock promptly following the Conversion Date at issue.

 

 
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(ii)      Shares of Series B Preferred Stock converted into Common Stock or redeemed in accordance with the terms hereof shall be canceled and shall not be reissued. The Corporation shall, as soon as practicable after delivery of the Notice of Conversion, and as soon as practicable after delivery of the certificate(s) evidencing the Series B Preferred Stock, and in any event within three (3) Business Days thereafter (the “ Share Delivery Date ”), issue and deliver or cause to be delivered to such Holder or Holders of Series B Preferred Stock, or to the nominee or nominees thereof, a certificate or certificates representing the number of validly issued, fully paid and non-assessable shares of Common Stock to which such Holder or Holders shall be entitled as aforesaid. Conversion under this Section 6 shall be deemed to have been made immediately prior to the close of business on the date of delivery of the Notice of Conversion, unless a later date is specified in the Notice of Conversion, and the Person or Persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date (such date, the “ Conversion Date ”). If, in the case of any conversion of the Series B Preferred Stock pursuant to Section 6, such shares of Common Stock are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on or before its receipt of such shares of Common Stock, to rescind such conversion, in which event the Corporation shall promptly return to the Holder any original Series B Preferred Stock certificate delivered to the Corporation and the Holder shall promptly return to the Corporation the shares of Common Stock issued to such Holder pursuant to the rescinded conversion. The Corporation’s obligation to issue and deliver the shares of Common Stock upon conversion of Series B Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such shares of Common Stock. In the event a Holder shall elect to convert any or all of the Stated Value of its Series B Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holder or anyone associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Series B Preferred Stock of such Holder shall have been sought and obtained, and the Corporation posts a surety bond for the benefit of such Holder in the amount of 150% of the Stated Value of Series B Preferred Stock which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such injunction, the Corporation shall issue shares of Common Stock and, if applicable, cash, upon a properly noticed conversion. If the Corporation fails to deliver to a Holder such shares of Common Stock pursuant to Section 6 by the Share Delivery Date applicable to such conversion, the Corporation shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $5,000 of Stated Value of Series B Preferred Stock being converted, $50 per Business Day (increasing to $100 per Business Day on the third (3 rd ) Business Day and increasing to $200 per Business Day on the sixth (6 th ) Business Day after such damages begin to accrue) for each Business Day after the Share Delivery Date until such Shares of Common Stock are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages for the Corporation’s failure to deliver shares of Common Stock within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

 

(c)

Fractional Shares; Computation Certificates .

 

(i)     No fractional shares shall be issued upon conversion of the Series B Preferred Stock into shares of Common Stock and, in lieu thereof, the holder will receive the fair value thereof in cash in an amount equal to the fractional share times the closing price for a share of Common Stock as determined immediately prior to the conversion based on the Common Stock’s trading market.

 

(ii)     Upon the occurrence of each adjustment of the Conversion Price of Series B Preferred Stock pursuant to this Section 6, the Corporation, at its expense, shall promptly compute such adjustment in accordance with the terms hereof and prepare and furnish to each Holder of Series B Preferred Stock no less than ten (10) calendar days prior to such adjustment a statement setting forth such adjustment and showing in reasonable detail the facts upon which such adjustment is based. The Corporation shall, upon the written request at any time of any Holder of Series B Preferred Stock, furnish or cause to be furnished to such Holder a like certificate setting forth (A) such adjustment, (B) the Conversion Price for such Series B Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of such Series B Preferred Stock.

 

(d)      Adjustments of the Conversion Price . The Conversion Price of the Series B Preferred Stock shall be subject to adjustment from time to time as follows:

 

(i)      Adjustments for Recapitalization . If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 6), provision shall be made so that the Holders of the Series B Preferred Stock shall thereafter be entitled to receive upon conversion of the Series B Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 6 with respect to the rights of the Holders of the Series B Preferred Stock after the recapitalization to the end that the provisions of this Section 6 (including, without limitation, provisions for adjustments of the Conversion Price and the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable.

 

 
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(ii)      Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Effective Date effect a subdivision of the outstanding Common Stock, the Series B Conversion Price in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Effective Date combine the outstanding shares of Common Stock, the Series B Conversion Price in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

(iii)      Adjustment for Certain Dividends and Distributions . In the event the Corporation at any time or from time to time after the Effective Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the Series B Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Conversion Price then in effect by a fraction:

 

(1)     the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and

 

(2)     the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.

 

Notwithstanding the foregoing (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and (b) that no such adjustment shall be made if the Holders simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Series B Preferred Stock had been converted into Common Stock on the date of such event.

 

(iv)      Adjustments for Other Dividends and Distributions . In the event the Corporation at any time or from time to time after the Effective Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property, then and in each such event the Holders shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of Series B Preferred Stock had been converted into Common Stock on the date of such event.

 

 
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(v)      Adjustment for Reorganization or Reclassification . If any capital reorganization or reclassification of the capital stock of the Corporation or a Change of Control Event, shall be effected while any shares of Series B Preferred Stock are outstanding in such a manner that holders of shares of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, or Change of Control Event, lawful and adequate provision shall be made whereby each Holder who has not received the amounts to be distributed to such holder in accordance with this Certificate of Designation shall thereafter have the right to receive, upon the basis and upon the terms and conditions specified herein, and in lieu of the shares of Common Stock immediately theretofore receivable upon conversion of Series B Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore so receivable had such reorganization, reclassification or Change of Control Event not taken place, and in such case appropriate provision shall be made with respect to the rights and interests of the Holders of Series B Preferred Stock to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Conversion Price, and the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock) shall thereafter be applicable, as nearly as may be possible, in relation to any shares of stock, securities or assets thereafter deliverable upon the conversion of such shares of Series B Preferred Stock. Prior to or simultaneously with the consummation of any such reorganization, reclassification or Change of Control Event, the survivor or successor corporation (if other than the Corporation) resulting from such reorganization, reclassification or Change of Control Event shall assume by written instrument executed and mailed or delivered to each Holder of Series B Preferred Stock, the obligation to deliver to such Holders of Series B Preferred Stock such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder of Series B Preferred Stock may be entitled to receive, and containing the express assumption by such successor corporation of the due and punctual performance and observance of every provision of this Certificate of Determination to be performed and observed by the Corporation and of all liabilities and obligations of the Corporation hereunder with respect to the Series B Preferred Stock.

 

(e)      Certificate as to Adjustments . Upon the occurrence of each adjustment or readjustment of the Series B Conversion Price pursuant to this Section 6, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than five (5) days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series B Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Series B Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Series B Preferred Stock (but in any event not later than five (5) days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Series B Conversion Price then in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of Series B Preferred Stock.

 

(f)      Good Faith Assistance . The Corporation will not, by amendment of its Articles of Incorporation or Bylaws or through any reorganization, recapitalization, transfer of assets, consolidation, merger, 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 to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 6 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the Holders of the Series B Preferred Stock against impairment.

 

(g)      Notice of Record Taking . In the event of any taking by the Corporation of a record of the Holders of any class of securities for the purpose of determining the Holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each Holder of Series B Preferred Stock, at least ten (10) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right.

 

 
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(h)      Reservation of Shares . The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series B Preferred Stock, 150% of the number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series B Preferred Stock (the “ Required Reserve Amount ”); and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to enable the Corporation to satisfy its obligation to have available for issuance upon conversion of the Series B Preferred Stock at least a number of shares of Common Stock equal to the Required Reserve Amount, then, in addition to such other remedies as shall be available to the Holder of such Series B Preferred Stock, the Corporation will immediately take all such corporate action as may, in the opinion of its counsel, be necessary to increase its 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 of any necessary amendment to these provisions as soon as possible.

 

(i)      Payment of Taxes . The Corporation shall pay all documentary, stamp or other transactional taxes (exclusive of income taxes) attributable to the issuance or delivery of shares of capital stock of the Corporation upon conversion of any shares of Series B Preferred Stock; provided , however , that the Corporation shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares in a name other than that of the holder of the shares of Series B Preferred Stock in respect of which such shares are being issued.

 

(j)      Status of Shares . All shares of Common Stock that may be issued in connection with the conversion provisions set forth herein will, upon issuance by the Corporation, be validly issued, fully paid and non-assessable and free from all taxes, liens or charges with respect thereto.

 

(k)      Notice . Any notice required by the provisions of this Section 6 to be given to the Holders of shares of Series B Preferred Stock shall be deemed given upon hand delivery, one (1) Business Day after the notice is sent by overnight courier or three (3) Business Days after the notice is deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the stock books of the Corporation. The Corporation shall provide each Holder of Series B Preferred Stock with prompt written notice of all actions taken pursuant to the terms of this Certificate of Determination, including in reasonable detail a description of such action and the reason therefor. Without limiting the generality of the foregoing, the Corporation shall give written notice to each Holder (i) ten (10) calendar days prior to any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least ten (10) days prior to the date on which the Corporation closes its books or takes a record (A) with respect to any dividend or Distribution upon the Common Stock, (B) with respect to any grant, issuances, or sales of any Common Stock, Common Stock Equivalents, assets or other property to all holders of shares of Common Stock as a class or (C) for determining rights to vote with respect to any matter on which the holders of Common Stock shall have the right to vote.

 

(l)      Cancellation of Series B Preferred Stock . In the event any shares of Series B Preferred Stock shall be converted pursuant to Section 6 hereof or otherwise reacquired by the Corporation, the shares so converted or reacquired shall be canceled and may not be reissued. The Articles of Incorporation of the Corporation may be appropriately amended from time to time to effect the corresponding reduction in the Corporation’s authorized capital stock.

 

(m)      Conversion Disputes . In the case of any dispute with respect to a conversion, the Corporation shall promptly issue such number of shares of Common Stock in accordance with subparagraph (b) above as are not disputed.  If such dispute involves the calculation of the Conversion Price, and such dispute is not promptly resolved by discussion between the relevant Holder and the Corporation, the Corporation shall submit the disputed calculations to an independent outside accountant via facsimile within ten (10) Business Days of receipt of notice of such dispute. The accountant, at the Corporation’s sole expense, shall promptly audit the calculations and notify the Corporation and the Holder of the results no later than ten (10) Business Days from the date it receives the disputed calculations. The accountant’s calculation shall be deemed conclusive, absent manifest error.  The Corporation shall then issue the appropriate number of shares of Common Stock in accordance with subparagraph (a) above. If the accountant determines the Corporation’s calculations are correct, the Holder shall reimburse the Corporation for the accountant’s expense.

 

(n)      Floor Price . Notwithstanding the provisions of this Section 6, no adjustment made in accordance with this Section 6 shall cause the Conversion Price of the Preferred Stock to be less than $0.05 (the “ Floor Price ”).

 

 
10

 

 

Section 7.      Redemption . At such time (and only at such time) as (i) all shares of Common Stock issuable upon conversion of all outstanding shares of Series B Preferred Stock (the “ Conversion Shares ”) shall have been registered for resale under the Securities Act, pursuant to an effective Registration Statement covering such Conversion Shares, (ii) but no earlier than the twenty-fifth (25th) anniversary of the Effective Date, the shares of Series B Preferred Stock shall be subject to redemption in cash at the option of the Corporation in an amount per share equal to 120% of the greater of (a) the Stated Value plus all accrued and unpaid dividends, if any and (b) the fair market value of such shares of Series B Preferred Stock. Funds available for redemption will be paid prior to any payment to any holder of any other class or series of capital stock (the “ Redemption Price ”). Such shares of Series B Preferred Stock shall be redeemed and the Redemption Price shall be paid on a date that shall be not more than ten (10) days following the date that written notice to the Holder is given by the Corporation’s intention to redeem such shares and the number of shares of Series B Preferred Stock to be redeemed.

 

Section 8.      Restriction and Limitations . Except as expressly provided herein or as required by law so long as any shares of Series B Preferred Stock remain outstanding, the Corporation shall not, without the vote or written consent of the Majority Holders, take any action which would adversely and materially affect any of the preferences, limitations or relative rights of the Series B Preferred Stock.

 

Section 9 .     Waiver . Any right or privilege of the Series B Preferred Stock may be waived (either generally or in a particular instance and either retroactively or prospectively) by and only by the written consent of the Corporation and the Majority Holders and any such waiver shall be binding upon each holder of Series B Preferred Stock or other securities exercisable for or convertible into Series B Preferred Stock. No failure or delay on the part of a Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

 

Section 10 .     Lost or Stolen Certificates . Upon receipt by the Corporation of evidence reasonably satisfactory to the Corporation of the loss, theft, destruction or mutilation of any certificates representing Series B Preferred Stock (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of an indemnification undertaking by the applicable Holder to the Corporation in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of the certificate(s), the Corporation shall execute and deliver new certificate(s) of like tenor and date.

 

Section 11 .     Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Certificate of Determination shall be cumulative and in addition to all other remedies available under this Certificate of Determination and any of the other transaction documents, at law or in equity (including a decree of specific performance and/or other injunctive relief), and no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy. Nothing herein shall limit any Holder’s right to pursue actual and consequential damages for any failure by the Corporation to comply with the terms of this Certificate of Determination. The Corporation covenants to each Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by a Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Corporation (or the performance thereof). The Corporation acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holders and that the remedy at law for any such breach may be inadequate. The Corporation therefore agrees that, in the event of any such breach or threatened breach, each Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required, to the extent permitted by applicable law. The Corporation shall provide all information and documentation to a Holder that is requested by such Holder to enable such Holder to confirm the Corporation’s compliance with the terms and conditions of this Certificate of Determination.

 

 
11

 

 

Section 12 .     Non - circumvention . The Corporation hereby covenants and agrees that the Corporation will not, by amendment of its Articles of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, 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 this Certificate of Determination, and will at all times in good faith carry out all the provisions of this Certificate of Determination and take all action as may be required to protect the rights of the Holders. Without limiting the generality of the foregoing or any other provision of this Certificate of Determination, the Corporation (i) shall not increase the par value of any shares of Common Stock receivable upon the conversion of any shares of Series B Preferred Stock above the Conversion Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock upon the conversion of Series B Preferred Stock and (iii) shall, so long as any shares of Series B Preferred Stock are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Series B Preferred Stock, the Required Reserve Amount.

 

Section 13 .     Transfer of Series B Preferred Stock . A Holder may transfer some or all of its shares of Series B Preferred Stock without the consent of the Corporation. Any such transfer shall comply with all applicable securities laws.

 

Section 14 .     Register . The Corporation shall maintain at its principal executive offices (or such other office or agency of the Corporation as it may designate by notice to the Holders), a register for the shares of Series B Preferred Stock, in which the Corporation shall record the name, address and facsimile number of the Persons in whose name the shares of Series B Preferred Stock have been issued, as well as the name and address of each transferee. The Corporation may treat the Person in whose name any shares of Series B Preferred Stock is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any properly made transfers.

 

Section 15 .     Amendment . This Certificate of Determination or any provision hereof may be amended by obtaining the affirmative vote at a meeting duly called for such purpose, or by written consent without a meeting in accordance with the CGCL, of the Majority Holders, voting separately as a single class, and with such other shareholder approval, if any, as may then be required pursuant to the CGCL and the Corporation’s Articles of Incorporation and Bylaws.

 

Section 16 .     Severability . If any provision of this Certificate of Determination is invalid, illegal or unenforceable, the balance of this Certificate of Determination shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.

 

Section 17 .     Next Business Day . Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

Section 18 .     Headings . The headings contained herein are for convenience only, do not constitute a part of this Certificate of Determination and shall not be deemed to limit or affect any of the provisions hereof.

 

 
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The undersigned declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of their own knowledge.

 

The undersigned have executed this certificate in Fremont, California on March 3, 2017.

 

 

 

/s/ Amos Kohn

 

/s/ Daniel B. Eng

Name: 

Amos Kohn 

Name:

Daniel B. Eng

Title: 

President and Chief Executive Officer

Title:

Secretary

 

 

 

Signature Page to Series B Convertible Preferred Stock

Exhibit 4.1

 

NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE HEREUNDER HAVE BEEN REGISTERED UNDER THE SECURITIES ACT (AS DEFINED BELOW), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT (II) UNLESS SOLD OR TRANSFERRED TO A “QUALIFIED INSTITUTIONAL BUYER” WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT OR (III) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.

 

DIGITAL POWER CORPORATION

 

COMMON STOCK PURCHASE WARRANT

 

 

_______ __, 2017

 

THIS CERTIFIES THAT, for value received, the Holder is entitled to purchase, and DIGITAL POWER CORPORATION ., a California corporation (the “ Company ”), promises and agrees to sell and issue to the Holder, at any time, or from time to time, during the Exercise Period, up to ______________ shares of Common Stock, no par value per share (the “ Common Stock ”), of the Company, at the Exercise Price, subject to the provisions and limitations and upon the terms and conditions hereinafter set forth. This Warrant is one of the Warrants issued by the Company pursuant to that certain Preferred Stock Purchase Agreement dated as of February __, 2017 (the “ Purchase Agreement ”) pursuant to which the Company has offered and sold to the purchaser named therein shares of its Series B Preferred Stock (the “ Preferred Shares ”) and Warrants.

 

1.           Definitions of Certain Terms . Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Purchase Agreement. In addition to the terms defined elsewhere in this Warrant, the following terms have the following meanings:

 

(a)     “ Business Day ” means a day on which banks are open for business in the city of New York.

 

(b)     “ Commission ” means the U.S. Securities and Exchange Commission.

 

(c)     “ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

(d)     “ Exercise Price ” means the price at which the Holder may purchase one share of Common Stock upon exercise of this Warrant as determined from time to time pursuant to the provisions hereof. The initial Exercise Price is $0.70 per share, subject to adjustment as provided herein.

 

(e)      “ Expiration Date ” means the 60-month anniversary of the Initial Exercise Date.

 

(f)     “ Holder ” means a record holder of the Warrant or shares of Common Stock obtained or obtainable upon exercise of the Warrant, as applicable. The initial Holder is Philou Ventures, LLC.

 

(g)     “ Initial Exercise Date ” means the first Business Day following the six-month anniversary of the Issue Date.

 

(h)     “ Issue Date ” means February __, 2017.

 

(i)     “ Securities Act ” means the Securities Act of 1933, as amended.

 

(j)     “ Warrant ” means this Common Stock purchase warrant and any warrant or warrants hereafter issued as a consequence of the exercise or transfer of this warrant in whole or in part.

 

 
 

 

 

2.

Exercise of Warrant.

 

 

(a)

Manner of Exercise .

 

(i)        Cash Exercise . This Warrant may be exercised, in whole or in part, at any time or from time to time, during the period commencing as of 9:30:01 a.m., New York time, on the Initial Exercise Date and ending as of 5:30 p.m., New York time, on the Expiration Date (the “ Exercise Period ”), for ____________ fully paid and non-assessable shares of Common Stock (the “ Warrant Shares ”), for an exercise price per share equal to the Exercise Price, by delivery to the Company at its headquarters, or at such other place as is designated in writing by the Company, of:

 

(1)     a duly executed Notice of Exercise, substantially in the form of Attachment I attached hereto and incorporated by reference herein;

 

(2)     this Warrant; and

 

(3)     subject to Section 2(a)(ii) below, payment of an amount in cash equal to the product of the Exercise Price multiplied by the number of Warrant Shares being purchased upon such exercise, with such payment being in the form of a wire transfer of immediately available U.S. funds to an account designated in writing by the Company.

 

The date on which the Company receives the Notice of Exercise, this Warrant, and the Exercise Price payable with respect to the Warrant Shares being purchased shall be deemed to be the date of exercise (the “ Date of Exercise ”).

 

(ii)       Cashless Exercise . Notwithstanding the provisions of Section 2(a)(i)(3) above (requiring payment by wire transfer), the Company agrees that, if at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for, the issuance of the Warrant Shares to the Holder, then unless otherwise prohibited by applicable law, the Holder shall have the right to exercise this Warrant in full or in part on a cashless basis, computed using the following formula:

 

X = Y (A - B)

        A

Where:

 

X = The number of Warrant Shares to be issued to the Holder pursuant to this cashless exercise;

 

Y = The number of Warrant Shares in respect of which the net issue election is made;

 

A = The Fair Market Value (as defined below) of one Warrant Share at the time the cashless exercise election is made; and

 

B = The Exercise Price then in effect at the time of such exercise.

 

The term “Fair Market Value” shall mean, on any given day: (A) if the class of Warrant Shares is exchange-traded, the average of the closing sales prices per share of the class of Warrant Shares for the ten (10) consecutive trading days ending on the day that is two (2) trading days prior to the applicable date of determination of Fair Market Value; or (B) if the class of Warrant Shares is not listed or admitted to trading on any securities exchange but is regularly traded in any over-the-counter market, then the average of the bid and ask prices per share of the class of Warrant Shares for the ten (10) consecutive trading days ending on the day that is two (2) trading days prior to the applicable date of determination of Fair Market Value; or (C) if the class of Warrant Shares is not traded as described in clauses (A) or (B), then the per share fair market value of the class of Warrant Shares as determined in good faith by the Company’s Board of Directors.

 

 
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(b)      Delivery of Certificates . Certificates for Warrant Shares purchased hereunder shall be transmitted by the transfer agent of the Company to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company (“ DTC ”) through its Deposit/Withdrawal at Custodian system if the Company is a participant in such system and such Warrant Shares are eligible for delivery in such a manner, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within three Business Days from the delivery to the Company of the Notice of Exercise, surrender of this Warrant and payment of the aggregate Exercise Price as set forth above (the “ Delivery Period ”). This Warrant shall be deemed to have been exercised on the date on which this Warrant is surrendered and payment of the Exercise Price is received by the Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date on which all of the criteria described in the immediately preceding sentence have occurred, irrespective of the date of delivery of such certificate or certificates, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. If fewer than all of the Warrant Shares purchasable under the Warrant are purchased, the Company will, upon such partial exercise, execute and deliver to the Holder a new Warrant (dated as of the Issue Date), in the same form and tenor as this Warrant, evidencing that portion of the Warrant not exercised.

 

(c)      Intentionally Omitted .

 

(d)      No Fractional Shares . If a fractional share of Warrant Shares would, but for the provisions of this Section 2(e) , be issuable upon exercise of the rights represented by this Warrant, the Company shall round a fractional share to be delivered to Holder up to the next whole share.

 

(e)      Buy-In . Notwithstanding anything else to the contrary contained herein, in addition to any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the applicable Warrant Shares purchased upon exercise hereof or credit the Holder’s balance account with DTC, as applicable (a “ Delivery Failure ”), on or before the end of the Delivery Period (other than a failure caused by any incorrect or incomplete information provided by Holder to the Company hereunder), and if after such date the Holder purchases shares of Common Stock to deliver in satisfaction of a sale by the Holder of Warrant Shares that the Holder anticipated receiving from the Company upon exercise of this Warrant (a “ Buy-In ”), then the Company shall, within three Business Days after the Holder’s request, (1) pay cash to the Holder in the amount by which (x) the Holder’s total purchase price (including commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue, by (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) 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, or deliver to the Holder the number of Warrant Shares that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Company. Nothing herein shall limit the 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 the Warrant Shares as required pursuant to the terms hereof.

 

(f)      No Charge to Holder u pon Issuance . The issuance of Warrant Shares upon exercise of this Warrant shall be made without charge to Holder for any issuance tax in respect thereof or other cost incurred by the Company in connection with such exercise and the related issuance of Warrant Shares (other than any transfer taxes resulting from the issuance of Warrant Shares to any person other than Holder).

 

(g)      Reservation of Shares . During the Exercise Period, the Company shall reserve and keep available out of its authorized but unissued Common Stock equal to 125% of the number of Warrant Shares issuable upon the full exercise of this Warrant. All Warrant Shares which are so issuable shall, when issued and upon the payment of the applicable Exercise Price, be duly and validly issued, fully paid and non-assessable and free from all taxes, liens and charges and not subject to the pre-emptive rights of any holder of Common Stock or any other class or series of stock of the Company. During the Exercise Period, the Company shall not take any action which would cause the number of authorized but unissued Common Stock to be less than the number of such shares required to be reserved hereunder for issuance upon exercise of this Warrant.

 

 
-3-

 

 

(h)      Limitations on Exercises . Notwithstanding anything herein to the contrary, if the Company is required to but has not obtained shareholder approval, then (A) the Company may not issue upon exercise of this Warrant a number of shares of Common Stock, which, when aggregated with any shares of Common Stock issued on or after the Closing Date and prior to such exercise (i) in connection with the conversion of any Preferred Shares issued pursuant to the Purchase Agreement and (ii) in connection with the exercise of any Warrants issued pursuant to the Purchase Agreement, would exceed 19.99% of the number of shares of the Company’s Common Stock outstanding on the Trading Day immediately preceding the Issue Date (subject to adjustment for forward and reverse stock splits, recapitalizations and the like) (such number of shares, the “ Issuable Maximum ”) and (B) the Company shall not be obligated to issue any Warrant Shares if such issuance would otherwise violate the Company’s obligations under the rules or regulations of its principal Trading Market. The Company and the Holder understand and agree that shares of Common Stock issued to and then held by the Holder as a result of exercises of Warrants shall not be entitled to cast votes on any resolution to obtain shareholder approval pursuant hereto.

 

3.       Adjustments in Certain Events . The number, class, and price of Warrant Shares for which this Warrant may be exercised are subject to adjustment from time to time upon the happening of certain events as follows:

 

(a)      Subdivisions, Combinations and Other Issuances . If the outstanding shares of the Company’s Common Stock are divided into a greater number of shares, by forward stock split or otherwise, or a dividend in stock is paid on the Common Stock, then the number of shares of Warrant Shares for which the Warrant is then exercisable will be proportionately increased and the Exercise Price will be proportionately reduced. Conversely, if the outstanding shares of Common Stock are combined into a smaller number of shares of Common Stock, by reverse stock split or otherwise, then the number of Warrant Shares for which the Warrant is then exercisable will be proportionately reduced and the Exercise Price will be proportionately increased. The increases and reductions provided for in this Section 3(a) will be made with the intent and, as nearly as practicable, the effect that neither the percentage of the total equity of the Company obtainable on exercise of the Warrants nor the price payable for such percentage upon such exercise will be affected by any event described in this Section 3(a) .

 

(b)      Merger, Consolidation, Reclassification, Reorganization, Etc . In case of any change in the Common Stock through merger, consolidation, reclassification, reorganization, partial or complete liquidation, purchase of all or substantially all the assets of the Company, or other change in the capital structure of the Company, then, as a condition of such change, lawful and adequate provision will be made so that the Holder will have the right thereafter to receive upon the exercise of the Warrant the kind and amount of shares of stock or other securities or property to which he would have been entitled if, immediately prior to such event, he had held the number of Warrant Shares obtainable upon the exercise of the Warrant. In any such case, appropriate adjustment will be made in the application of the provisions set forth herein with respect to the rights and interest thereafter of the Holder, to the end that the provisions set forth herein will thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the exercise of the Warrant. The Company will not permit any change in its capital structure to occur unless the issuer of the shares of stock or other securities to be received by the Holder, if not the Company, agrees to be bound by and comply with the provisions of this Warrant.

 

(c)      Pro Rata Distributions . If securities of the Company or securities of any subsidiary of the Company are distributed pro rata to holders of Common Stock, such number of securities will be distributed to the Holder or its assignee upon exercise of its rights hereunder as such Holder or assignee would have been entitled to if this Warrant had been exercised prior to the record date for such distribution.

 

4.       No Rights as a Stockholder . Nothing contained in this Agreement shall be construed as conferring upon the Holder any rights whatsoever as a stockholder of the Company, either at law or in equity, including without limitation, the right to vote or to consent or to receive notice as a stockholder in respect of any meetings of stockholders for the election of directors, the right to receive dividends or any other matter.

 

 
-4-

 

 

5.

Restrictions on Transfer; Legends.

 

(a)      Registration or Exemption Required . Assuming the accuracy of the representations and warranties of the Holder contained herein, this Warrant has been issued in a transaction exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder and exempt from state registration or qualification under applicable state laws. The Holder acknowledges that it has been advised by the Company that this Warrant and the Warrant Shares issuable upon exercise thereof have not been registered under the Securities Act. Neither this Warrant nor the Warrant Shares may be pledged, transferred, sold or assigned except pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act and applicable state laws. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the Holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an “accredited investor” as defined in Rule 501(a) promulgated under the Securities Act or a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.

 

(b)      Representations of Holder . The Holder represents and warrants that it has acquired this Warrant and will acquire the Warrant Shares for its own account for investment and not with a view to the sale or distribution thereof or the granting of any participation therein, and that it has no present intention of distributing or selling to others any of such interest or granting any participation therein. The Holder acknowledges that the Warrant and Warrant Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or registered or qualified under any applicable state securities or “blue-sky” laws or is exempt from registration and/or qualification. The Holder has no need for liquidity in its investment in the Company, and is able to bear the economic risk of such investment for an indefinite period and to afford a complete loss thereof. The Holder is an “accredited investor” as such term is defined in Rule 501 (the provisions of which are known to the Holder) promulgated under the Securities Act.

 

(c)      Restrictive Legend . The Holder understands that until such time as the Warrant Shares have been registered under the Securities Act, or otherwise may be sold pursuant to Rule 144 under the Securities Act or an exemption from registration under the Securities Act without any restriction as to the number of securities as of a particular date that can then be immediately sold, this Warrant and the Warrant Shares, as applicable, shall bear a restrictive legend in substantially the form set forth on the cover page of this Warrant (and a stop-transfer order may be placed against transfer of the certificates for such securities in accordance with the applicable provisions of the Purchase Agreement).

 

(d)      Disposition of Warrant or Warrant Shares .  With respect to any offer, sale or other disposition of this Warrant or any Warrant Shares prior to registration of such Warrant Shares, the Holder agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with evidence, reasonably satisfactory to the Company (which shall include such representation of the transferee regarding investment intent as the Company may request, to the effect that such offer, sale or other disposition may be effected without registration or qualification (under the Securities Act as then in effect or any federal or state securities law then in effect) of this Warrant or such Warrant Shares and indicating whether or not under the Securities Act certificates for this Warrant or Warrant Shares to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to ensure compliance with such law.  Upon receiving such written notice and reasonably satisfactory evidence, the Company, as promptly as practicable but no later than three (3) days after receipt of the written notice, shall notify the Holder that the Holder may sell or otherwise dispose of this Warrant or Warrant Shares, all in accordance with the terms of the notice delivered to the Company.  If the Company determines that the evidence is not reasonably satisfactory to the Company, the Company shall so notify the Holder promptly with details thereof after such determination has been made. Notwithstanding the foregoing, any Warrant Shares may be offered, sold or otherwise disposed of in accordance with Rule 144 under the Act and in compliance with the applicable statutory resale restrictions imposed by state securities laws, provided that the Company shall have been furnished with such information as the Company may reasonably request to provide a reasonable assurance that the provisions of Rule 144 and the applicable resale restrictions imposed by state securities laws have been satisfied.  Each certificate representing this Warrant or the Warrant Shares thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless pursuant to an opinion of counsel for the Holder, such legend is not required in order to ensure compliance with such laws.  The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.

 

 
-5-

 

 

(e)      Removal of Restrictive Legends . The certificates evidencing the Warrant Shares shall not contain any legend restricting the transfer thereof: (A) while a registration statement covering the sale or resale of the Warrant Shares is effective under the Securities Act and such legend removal is permitted under applicable securities laws (including compliance with the prospectus delivery requirements of the Securities Act), or (B) following any sale of such Warrant Shares pursuant to Rule 144, or (C) if such Warrant Shares are eligible for sale under Rule 144(b)(1), or (D) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) and the Company shall have received an opinion of counsel to the Holder in form reasonably acceptable to the Company to such effect (collectively, the “ Unrestricted Conditions ”). The Company shall cause its counsel to issue a legal opinion to its transfer agent if required by the transfer agent to effect the issuance of the Warrant Shares, as applicable, without a restrictive legend or removal of the legend hereunder. The Company agrees that at such time as the Unrestricted Conditions are met, it will, no later than three (3) Trading Days following the delivery by the Holder to the Company or the transfer agent of a certificate representing Warrant Shares, issued with a restrictive legend, deliver or cause to be delivered to such Holder a certificate (or electronic transfer) representing such Warrant Shares that is free from all restrictive and other legends.

 

6.       Registration Rights . The Holder shall be entitled to all of the rights and subject to all of the obligations regarding registration of the shares of Common Stock issuable upon the exercise of this Warrant as described in the Registration Rights Agreement between the Holder and the Company dated February [ ], 2017.

 

7.     Notices; Adjustments .

 

(i)     All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified; (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not, then on the next business day; (iii) two (2) Business Days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) Business Day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company or to Holder, as applicable, at the respective addresses set forth on the signature page to the Purchase Agreement or at such other address(es) as they may designate, respectively, by ten (10) days advance written notice to the other party hereto.

 

(ii)     Upon the occurrence of any adjustments pursuant to Sections 3(a) or 3( b ) hereof, the Company at its expense shall, as promptly as reasonably practicable but in any event not later than 10 days thereafter, compute such adjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based. In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, the Company shall mail to the Holder, at least ten (10) days prior to the date on which any such record is to be taken for the purpose of such dividend or distribution, a notice specifying such date. In the event of any voluntary dissolution, liquidation or winding up of the Company, the Company shall mail to the Holder, at least ten (10) days prior to the date of the occurrence of any such event, a notice specifying such date. If the approval of any stockholders of the Company shall be required in connection with any transaction contemplated by Section 3( b ) above, then, the Company shall cause to be mailed to the Holder at least 10 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating the date on which such transaction is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such transaction. Notwithstanding the immediately preceding sentences, however, if the date on which the Company is obliged to provide notice hereunder to the Holders is prior to a public announcement relating to the events set forth and on such date the Company’s securities are traded or quoted on any recognized national securities exchange or quotation system, then such notice shall be provided to each Holder simultaneously with the notice provided to the Company’s common stockholders. Failure to give such notice, or any defect therein, shall not, however, affect the legality or validity of any such action.

 

 
-6-

 

 

8.     Non-Circumvention . The Company hereby covenants and agrees that the Company will not, by amendment of its articles of incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be reasonably required to protect the rights of the Holder.

 

9.     Governing Law . This Warrant shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of law principles, and notwithstanding the fact that one or more counterparts hereof may be executed outside of the state, or one or more of the obligations of the parties hereunder are to be performed outside of the state.

 

10.     Loss, Theft, Destruction or Mutilation of Warrant . Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft, or destruction, of indemnity reasonably satisfactory to it, and, if mutilated, upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant, having terms and conditions identical to this Warrant, in lieu hereof.

 

11.     Modification and Waiver of Warrants . Any term of this Warrant may be amended, waived, discharged or terminated (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the Company and the holders of the Warrants representing at least 51% of the number of shares of Common Stock then subject to outstanding Warrants issued pursuant to the Purchase Agreement. Notwithstanding the foregoing, (a) this Warrant may be amended and the observance of any term hereunder may be waived without the written consent of the Holder only in a manner which applies to all Warrants issued pursuant to the Purchase Agreement in the same fashion and (b) other than in connection with a transaction contemplated by Section 3 of this Warrant, the number of Warrant Shares subject to this Warrant and the Exercise Price of this Warrant may not be amended, and the right to exercise this Warrant may not be waived, without the written consent of the Holder. The Company shall give prompt written notice to the Holder of any amendment hereof or waiver hereunder that was effected without the Holder’s written consent. No waivers of any term, condition or provision of this Warrant, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.

 

12.     Successors .  This Warrant shall be binding and inure to the benefit of the parties and their respective successors and assigns hereunder; provided that this Warrant may be assigned by Holder only in compliance with the conditions specified in and in accordance with all of the terms of this Warrant. This Warrant does not create and shall not be construed as creating any rights enforceable by any other person or corporation.

 

13.     Headings .  The headings used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant.

 

14.     Saturdays, Sundays, Holidays .  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday in the State of New York, then such action may be taken or such right may be exercised on the next succeeding day not a legal holiday.

 

15.     Severability . If any provision of this Warrant shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions of this Warrant.

 

16.     Acceptance . Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.

 

Signature page to Common Stock Purchase Warrant follows.

 

 
-7-

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed and delivered as of the Issue Date by an officer thereunto duly authorized.

 

 

 

DIGITAL POWER CORPORATION

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name: Amos Kohn

 

 

 

Title:   Chief Executive Officer

 

       
       
 

Address for Notice:

 
     
  48430 Lakeview Blvd.
Fremont, CA 94538
 

 

 

 
-8-

 

 

ATTACHMENT I

 

NOTICE OF EXERCISE

 

TO:     DIGITAL POWER CORPORATION

Attention: Chief Financial Officer

 

The undersigned hereby elects to purchase, pursuant to the provisions of the Common Stock Warrant issued by Digital Power Corporation as of February __, 2017, and held by the undersigned, the original of which is attached hereto, and (check the applicable box):

 

Tenders herewith payment of the Exercise Price in the form of cash, via wire transfer of immediately available funds, in the amount of $____________ for _________ shares of Common Stock.

 

Elects the cashless exercise option pursuant to Section 2(a)(ii) of the Warrant, and accordingly requests delivery of _________ shares of Common Stock, net, pursuant to the following calculation:

 

X = Y (A-B)/A

 

( ) = (_____) [(_____) - (_____)]/(_____)

 

Where

 

X =      The number of shares of Common Stock to be issued to the Holder pursuant to this cashless exercise;

 

Y =      The number of shares of Common Stock in respect of which the net issue election  is made;

 

A =      The Fair Market Value of one share of Common Stock, as calculated per the terms of the Warrant; and

 

B =      The Exercise Price then in effect as of the date of exercise.

 

If this box is checked, as long as the Company’s transfer agent participates in the DTC Fast Automated Securities Transfer program (“ FAST ”), and except as otherwise provided in the next following sentence, the Company shall effect delivery of the shares of Common Stock to the Holder by crediting to the account of the Holder or its nominee at DTC (as specified in this Exercise Notice) with the number of shares of Common Stock required to be delivered. In the event that the Company’s transfer agent is not a participant in FAST, or if the shares of Common Stock are not otherwise eligible for delivery through FAST, the Company shall effect delivery of the shares of Common Stock by delivering to Holder or its nominee physical certificates representing such shares.

 

Information for Delivery of uncertificated Shares by DWAC:

 

Account Number:                                                  

Account Name:                                                                   

DTC Number:                                                                      

 

 

☐      If this box is checked, the Holder requests delivery of physical certificates representing the Warrant Shares and requests that such certificates be delivered to the following address:

 

 

Name: ____________________________________________________________

(please typewrite or print in block letters)

 

 

 

 

 

Address: __________________________________________________________

 

 

Tax I.D. No. or Social Security No.: ____________________________________

 

If such number of shares shall not be all the shares purchasable upon the exercise of the Warrants evidenced by this Warrant, a new warrant certificate for the balance of such Warrants remaining unexercised shall be registered in the name of and delivered to:

 

Name: ____________________________________________________________

(please typewrite or print in block letters)

 

Address: __________________________________________________________

 

 

Tax I.D. No. or Social Security No.: ____________________________________

 

 

 

HOLDER:

 

 

 

 

 

 

 

 

 

 

Name:

 

 

 

Title:

 

 

       
  Date:    

 

 

 

 

 

ATTACHMENT II

 

[FORM OF ASSIGNMENT]

 

(To be executed by the registered holder if such holder

desires to transfer the Warrant Certificate.)

 

 

 

FOR VALUE RECEIVED, the undersigned Holder of this Warrant hereby sells, assigns and transfers the foregoing Warrant and all rights evidenced thereby to

 

Name:

 
 

(Please Print)

Address:

 
 

(Please Print)

Tax ID No.:

______________________________________

 

and does hereby irrevocably constitute and appoint                                           , Attorney, to transfer the within Warrant Certificate on the books of Digital Power Corporation, with full power of substitution.

 

 

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

 

 

Dated:                                       

 Holder: ______________________

 

 

 

______________________________  

 

(Print Name)

 

______________________________  

 

______________________________

  (Signature)

        

 

 

 

 

 

 

 

STATE OF ___________)

COUNTY OF _________) ss:

 

On this __ day of ___________, before me personally came ________, to me known, who being by me duly sworn, did depose and say that he resides at __________________, that he is the holder of the foregoing instrument and that he executed such instrument and duly acknowledged to me that he executed the same.

 

_____________________________

Notary Public

 

Exhibit 10.1

 

PREFERRED STOCK PURCHASE AGREEMENT

 

This Preferred Stock Purchase Agreement (the “ Agreement ”) is entered into and effective
as of March 9, 2017 (the “ Effective Date ”), by and between Digital Power Corporation, a California corporation (the “ Company ”) and Philou Ventures, LLC, a Wyoming limited liability company (including its designees, successors and assigns, the “ Investor ”).

 

RECITALS

 

A.     The parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue to Investor, and Investor shall purchase from the Company, from time to time as provided herein, up to $5,000,000 of shares of Series B Preferred Stock; and

 

B.     The offer and sale of the Securities provided for herein are being made without registration under the Securities Act, in reliance upon the provisions of Section 4(a)(2) of the Securities Act, Regulation D promulgated under the Securities Act, and such other exemptions from the registration requirements of the Securities Act as may be available with respect to any or all of the purchases of Securities to be made hereunder.

 

AGREEMENT

 

In consideration of the premises, the mutual provisions of this Agreement, and other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, Company and Investor agree as follows:

 

ARTICLE 1
DEFINITIONS

 

In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Certificate of Determination, and (b) the following terms have the meanings indicated in this Article I :

 

Affiliate ” means any Person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to Investor, without limitation, any Person owning, owned by, or under common ownership with Investor, and any investment fund or managed account that is managed on a discretionary basis by the same investment manager as Investor will be deemed to be an Affiliate.

 

Agreemen t ” means this Preferred Stock Purchase Agreement including the exhibits and schedules hereto.

 

Applicable Date ” has the meaning set forth in Section 4.1(h)(i) .

 

Balance Sheet Date ” has the meaning set forth in Section 4.1(f)(i) .

 

Certificate of Determination ” means the certificate to be filed with the Secretary of State of the State of California, in the form attached hereto as Exhibit A .

 

Change in Control ” has the meaning set forth within the definition of Fundamental Transaction, below.

 

Charter Documents ” has the meaning set forth in Section 4.1(a) .

 

Closing ” means any one of (i) the Commitment Closing and (ii) each Tranche Closing.

 

Commission ” means the United States Securities and Exchange Commission.

 

Commitment Closing ” has the meaning set forth in Section 2.2(a) .

 

 
 

 

 

Common Stock ” means the common stock, no par value, of the Company, and any replacement or substitute thereof, or any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

 

Contracts ” means any and all contracts, agreements, commitment, franchises, understandings, arrangements, leases, licenses, registrations, authorizations, easements, servitudes, rights of way, mortgages, bonds, notes, guaranties, Encumbrances, evidence of indebtedness, approvals or other instruments or undertakings to which such person is a party or to which or by which such person or the property of such person is subject or bound, whether written or oral and whether or not entered into in the ordinary and usual course of the Person’s business, excluding any Permits, provided that each such Contract shall provide for the payment of no less than $15,000.

 

Control Person ” means each director, executive officer, promoter, and such other Persons as may be deemed in control of the Company, as such term is defined by Rule 405 under the Securities Act .

 

Conversion Shares ” means the shares of Common Stock issuable upon conversion of the Preferred Shares.

 

Delisting Period ” means any time during the term of this Agreement, that the Common Stock is not listed for and actively and/or regularly trading on a Trading Market, or is suspended or delisted with respect to the trading of the shares of Common Stock on a Trading Market.

 

Disclosure Schedules ” means the disclosure schedules of the Company delivered concurrently herewith, attached hereto, and incorporated herein by reference. The Disclosure Schedules shall contain no material non-public information .

 

DTC ” means The Depository Trust Company, or any successor performing substantially the same function for Company.

 

DWAC Shares ” means, except as expressly stated otherwise herein, all shares of Common Stock issued or issuable to Investor or any Affiliate, successor or assign of Investor pursuant to any of the Transaction Documents, all of which shall be (a) issued in electronic form, (b) freely tradable and without restriction on resale, and (c) timely credited by Company to the specified Deposit/Withdrawal at Custodian (DWAC) account with DTC under its Fast Automated Securities Transfer (FAST) Program or any similar program hereafter adopted by DTC performing substantially the same function, in accordance with irrevocable instructions issued to and countersigned by the Transfer Agent, in the form attached hereto as Exhibit B or in such other form agreed upon by the parties.

 

EBITDAS ” means earnings before interest, taxes, depreciation, amortization and stock-based compensation .

 

Encumbrances ” means any and all claims, liabilities and obligations and all liens, pledges, charges, mortgages, security interests, restrictions, leases, licenses, easements, liabilities, claims, encumbrances, preferences, priorities or rights of others of every kind and description.

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

Firm ” has the meaning set forth in Section 4.1(f)(i) .

 

FINRA ” means the Financial Industry Regulatory Authority, Inc.

 

Fundamental Transaction ” means and shall be deemed to have occurred at such time upon any of the following events:

 

(i)     a consolidation, merger or other business combination or event or transaction, following which the holders of Common Stock immediately preceding such consolidation, merger, combination or event either (a) no longer hold a majority of the shares of Common Stock or (b) no longer have the ability to elect a majority of the board of directors of the Company (a “ Change in Control ”);

 

 
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(ii)     the sale or transfer of all or substantially all of the Company’s assets; or

 

(iii)     a purchase, tender or exchange offer made to the holders of the outstanding shares of Common Stock.

 

GAAP ” means United States generally accepted accounting principles applied on a consistent basis during the periods involved.

 

GAAP Financial Statements ” has the meaning set forth in Section 4.1(f)(i) .

 

Governmental Authority ” means any nation or country (including but not limited to the United States) and any commonwealth, territory or possession thereof and any government or governmental or regulatory, legislative, executive authority thereof, or commission, department or political subdivision thereof, whether federal, state, regional, municipal, local or foreign, or any department, board, bureau, agency, instrumentality or authority thereof, or any court or arbitrator (public or private), including, but not limited to, the Commission and FINRA.

 

Guaranteed Purchase(s) ” means (a) the purchase by the Investor by no later than May 31, 2017, the greater of: (i) 100,000 Preferred Shares or (ii) a sufficient number of Preferred Shares to ensure that the Company has sufficient stockholders’ equity to meet the minimum continued listing standards of the NYSE MKT, and (b) provided , however, for as long as any Preferred Share remains outstanding, the term “Guaranteed Purchase(s)” shall also mean the Investor’s agreement to purchase additional Preferred Shares in an amount sufficient for the Company to meet the NYSE MKT’s minimum stockholders’ equity continued listing requirement, provided further , however, that Guaranteed Purchase shall not include any purchase in excess of the Maximum Investment.

 

Intellectual Property ” means any patent, patent right, trademark, trademark right, trade name, trade name right, service mark, service mark right, copyright and other proprietary intellectual property right and computer program.

 

Investigation has the meaning set forth in Section 4.2(d)(vi) .

 

Knowledge ” means, with respect to any Person, (x) such Person is actually aware of such fact or matter or (y) such Person should reasonably have been expected to discover or otherwise become aware of such fact or matter after reasonable investigation, and for purposes hereof it shall be assumed that such Person has conducted a reasonable investigation of the accuracy of the representations and warranties set forth herein.

 

Leased Properties has the meaning set forth in Section 4.1(n)(ii) .

 

Legal Requirements ” means any and all laws (statutory, judicial or otherwise), ordinances, regulations, judgments, orders, directives, injunctions, writs, decrees or awards of, and any Contracts with, any Governmental Authority, in each case as and to the extent applicable to such person or such person’s business, operations or Properties.

 

Liability ” means any liability, obligation or indebtedness of whatever kind or nature (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes.

 

Loss ” or “ Losses ” means any and all Liability, damages, fines, fees, penalties and expenses whether or not arising out of litigation, including without limitation, interest, reasonable expenses of investigation, court costs, reasonable out-of-pocket fees and expenses of attorneys, accountants and other experts or other reasonable out-of-pocket expenses of litigation or other legal proceedings, incurred in connection with the rightful enforcement of rights under this Agreement against any party hereto, and whether or not arising out of third party claims against an indemnified party.

 

 
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Material Adverse Effect ” means any material adverse effect on (i) the legality, validity or enforceability of any Transaction Document, (ii) the results of operations, assets, business, prospects or financial condition of the Company and the Subsidiaries, taken as a whole, or (iii) the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document.

 

Material Agreement ” means any material loan agreement, financing agreement, equity investment agreement or securities instrument to which Company is a party, any agreement or instrument to which Company and Investor or any Affiliate of Investor is a party, and any other material agreement listed, or required to be listed, on any of Company’s reports filed or required to be filed with the Commission, including without limitation Forms 10-K, 10-Q or 8-K.

 

Maximum Investment ” means $5,000,000.

 

Maximum Tranche Amount ” means, subject to any other applicable limitations set forth in this Agreement, the Maximum Investment less the amount of any previously noticed and funded Tranches.

 

Officer’s Certificate ” means a certificate in customary form reasonably acceptable to Investor, executed by an authorized officer of the Company.

 

Opinion ” means an opinion from Company’s independent legal counsel, in the form attached as Exhibit C or in such other form agreed upon by the parties, to be delivered in connection with the Commitment Closing and any Tranche Closing.

 

Permits ” means any and all permits, rights, approvals, licenses, authorizations, legal status, orders or Contracts under any Legal Requirement or otherwise granted by any Governmental Authority.

 

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.

 

Preferred Shares ” means shares of Series B Preferred Stock of the Company provided for in the Certificate of Determination, to be issued to Investor pursuant to this Agreement.

 

Properties ” means any and all properties and assets (real, personal or mixed, tangible or intangible) owned or used by the Company.

 

Prospectus ” includes each prospectus and prospectus supplement (within the meaning of the Securities Act) related to the sale or offering of any Common Stock, including without limitation any prospectus or prospectus supplement contained within the Registration Statement.

 

Purchase Right ” with respect to any Person means any security, right, subscription, warrant, option or other Contract that gives the right to purchase or otherwise receive or be issued any shares of capital stock or other equity interests of such Person or any security of any kind convertible into or exchangeable or exercisable for any shares of capital stock or other equity interests of such Person.

 

Purchase ” means a Guaranteed Purchase or a Voluntary Purchase.

 

Records ” means all originals and copies of agreements, instruments, documents, deeds, books, records, files, corporate franchises, stock record books, corporate books containing the minutes of meetings of directors and shareholders and any and all other data and information within the possession of a party or any Affiliate thereof.

 

Registration Statement ” means a valid, current and effective registration statement registering for resale the Conversion Shares hereunder, and except where the context otherwise requires, means such registration statement, as amended, including (i) all documents filed as a part thereof or incorporated by reference therein, and (ii) any information contained or incorporated by reference in a prospectus filed with the Commission in connection with such registration statement, to the extent such information is deemed under the Securities Act to be part of such registration statement.

 

 
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Regulation D ” means Regulation D promulgated under the Securities Act .

 

Required Approval ” means any approval of the NYSE Mkt or the Company’s stockholders required to be obtained by Company pursuant to any applicable rules of the NYSE Mkt .

 

Required Tranche Documents ” has the meaning set forth in Section 2.3(d) .

 

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.

 

Rule 144 Eligible ” means eligible for immediate resale under Rule 144 without limitation on the amount of securities sold under Rule 144(e) and without requiring discharge by payment in full of any promissory notes given to the Company prior to the sale of the securities under Rule 144(d)(2)(iii).

 

SEC Reports ” includes all reports required to be filed by the Company under the Securities Act and/or the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two (2) years preceding the Effective Date (or such shorter period as the Company was required by law to file such material) and for the period in which this Agreement is in effect.

 

Securities ” means the Preferred Shares and the Conversion Shares.

 

Securities Act ” means the Securities Act of 1933, as amended.

 

Subsidiary ” means any Person the Company owns or controls, or in which the Company, directly or indirectly, owns a majority of the capital stock or similar interest that would be disclosable pursuant to Regulation S-K, Item 601(b)(21).

 

Tax ” means any and all taxes, charges, fees, levies or other assessments, including, without limitation, local and/or foreign income, net worth, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, share capital, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, service, service use, transfer, registration, recording, ad valorem, value-added, alternative or add-on minimum, estimated, or other taxes, assessments or charges of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.

 

Tax Return ” means any federal, state, local and foreign tax return, report or similar statement required to be filed with respect to any Tax (including any attached Schedules), including, without limitation, any information return, claim for refund, amended return or declaration of estimated Tax.

 

Taxing Authority ” means the Internal Revenue Service and any other Governmental Authority responsible for the administration of any Tax.

 

Term ” means the period commencing on the Initial Tranche Closing Date and ending thirty-six (36) months therefrom.

 

Termination ” has the meaning set forth in Section 3.1 .

 

Termination Date ” means the earlier of (i) the date that is the three-year anniversary of the Effective Date, or (ii) the Tranche Closing Date on which the sum of the aggregate Tranche Purchase Price for all Tranche Shares equals the Maximum Investment .

 

 
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Trading Day ” means any day on which the Common Stock is traded on the Trading Market; provided that it shall not include any day on which the Common Stock is (a) scheduled to trade for less than 5 hours, or (b) suspended from trading.

 

Trading Market ” means the OTCQB, the OTCQX, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the NYSE MKT LLC, or the New York Stock Exchange, whichever is at the time the principal trading system, exchange or market for the Common Stock, but does not include the OTC Pink Sheets inter-dealer electronic quotation and trading system.

 

Tranche ” has the meaning set forth in Section 2.3(a) .

 

Tranche Amount ” means the amount of any individual purchase of Preferred Shares under this Agreement, as specified by the Investor in its sole and absolute discretion, and shall not exceed the Maximum Tranche Amount.

 

Tranche Closing ” has the meaning set forth in Section 2.3(e)(v) .

 

Tranche Closing Date ” has the meaning set forth in Section 2.3(e)( i i) .

 

Tranche Notice ” has the meaning set forth in Section 2.3(b) .

 

Tranche Notice Date ” has the meaning set forth in Section 2.3(b) .

 

Tranche Purchase Price ” has the meaning set forth in Section 2.3(b) , and shall be specified in writing by the Investor.

 

Tranche Share Price ” means $10 .00 per Preferred Share. The Company may not issue fractional Preferred Shares.

 

Tranche Shares ” means the Preferred Shares that are purchased by Investor pursuant to a Tranche Notice.

 

Transaction Documents ” means this Agreement, the other agreements and documents referenced herein, and the exhibits and schedules hereto and thereto.

 

Transfer Agent ” means Computershare or any successor transfer agent for the Common Stock.

 

Use of Proceeds Certificate ” means a certificate, in substantially the form attached as Exhibit D , signed by an officer of the Company, setting forth how the Tranche Purchase Price will be applied by the Company.

 

Voluntary Purchase(s) ” means any additional Tranche Purchases that the Investor may make, in each case in its sole and absolute discretion, subject to the Maximum Investment.

 

Warrants ” means, collectively, the Common Stock purchase warrants delivered to the Investor at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be in the form of Exhibit E attached hereto.

 

ARTICLE 2     
PURCHASE AND SALE

 

2.1     Agreement to Purchase . Subject to the terms and conditions herein and the satisfaction of the conditions to closing set forth in this Article 2 :

 

(a)     The Investor hereby agrees, during the Term, to acquire Preferred Shares in an amount that shall be no less than the Guaranteed Purchase in one or more Tranches in accordance with Section 2.3 below with the first Guaranteed Purchase (as contemplated by section (a)(i) of the definition thereof) of 100,000 shares occurring upon the execution of this Agreement, and thereafter in accordance with the definition of “Guaranteed Purchase”; and

 

 
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(b)     During the Term, the Investor hereby agrees, in its sole and absolute discretion, to make Voluntary Purchases in an amount that shall not exceed the Maximum Investment less the Maximum Tranche Amount in one or more Tranches in accordance with Section 2.3 below.

 

2.2     Investment Commitment

 

(a)      Investment Commitment . The closing of this Agreement (the “ Commitment Closing ”) shall be deemed to occur when this Agreement has been duly executed by both Investor and the Company, and the other Conditions to the Commitment Closing set forth in Section 2.2(b) and Section 2.2(c) have been met.

 

(b)      Conditions to Investment Commitment . As a condition precedent to the Commitment Closing, all of the following (the “ Conditions to Commitment Closing ”) shall have been satisfied prior to or concurrently with the Company’s execution and delivery of this Agreement:

 

(i)     the following documents shall have been delivered to Investor: (A) this Agreement (including the Disclosure Schedules), executed by the Company; (B) a Secretary’s Certificate as to (x) the resolutions of the Company’s board of directors authorizing this Agreement and the Transaction Documents, and the transactions contemplated hereby and thereby, and (y) a copy of the Company’s Charter Documents and other governing documents; (C) the Certificate of Determination executed by the Company and filed with the California Secretary of State; (D) the Opinion; (E) a copy of the Company’s press release announcing the transactions contemplated by this Agreement; and (F) a copy of the Company’s Current Report on Form 8-K, as filed with the Commission, describing the transaction contemplated by, and attaching a complete copy of, the Transaction Documents (all documents listed in this Section 2.2(b) are referred to herein as the “ Commitment Closing Escrow Deliverables ”);

 

(ii)     other than for losses incurred in the ordinary course of business, there has not been any Material Adverse Effect on the Company since the date of the last SEC Report filed by the Company, including but not limited to incurring material liabilities;

 

(iii)     the representations and warranties of the Company in this Agreement shall be true and correct in all material respects and the Company shall have delivered an Officer’s Closing Certificate to such effect to Investor, signed by an officer of the Company; and

 

(iv)     any Required Approval by the NYSE Mkt shall have been obtained.

 

(c)      Investor’s Obligation to make the Guaranteed Purchase(s) . Subject to the prior satisfaction of all conditions set forth in this Agreement, following the Company’s receipt of a validly delivered Tranche Notice from the Investor, Investor shall be required to purchase from the Company a number of Tranche Shares equal to the permitted Tranche Share Amount, in the manner described below.

 

2.3     Tranches to Investor

 

(a)      Procedure to Elect a Tranche . Subject to the Maximum Tranche Amount, the Maximum Investment and the other conditions and limitations set forth in this Agreement, at any time beginning on the Effective Date, the Investor may, in its sole and absolute discretion, elect to exercise one or more individual purchases of Preferred Shares under this Agreement (each a “ Tranche ”) according to the following procedure, provided that Investor has the obligation to submit Tranche Notice(s) (as hereinafter defined) for no less than the Guaranteed Purchases by no later than May 31, 2017 .

 

 
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(b)      Delivery of Tranche Notice . The Investor shall, from time to time in its sole and absolute discretion, deliver an irrevocable written notice (the “ Tranche Notice ”), in the form attached hereto as Exhibit F , to the Company stating that the Investor shall exercise a Tranche and stating the number of Preferred Shares which the Investor will purchase from the Company at the Tranche Share Price, and the aggregate purchase price for such Tranche (the “ Tranche Purchase Price ”). A Tranche Notice delivered by the Investor to the Company by 4:30 p.m. Eastern time on any Trading Day shall be deemed delivered on the same day. A Tranche Notice delivered by the Investor to the Company after 4:30 p.m. Eastern time on any Trading Day, or at any time on a non-Trading Day, shall be deemed delivered on the next Trading Day. The date that the Tranche Notice is deemed delivered is the “ Tranche Notice Date .” Each Tranche Notice shall be delivered via facsimile or electronic mail, with confirming copy by overnight carrier, in each case to the address set forth after the signature page hereof.

 

(c)      Conditions Precedent to Right to Deliver a Tranche Notice . The obligation of the Investor to deliver, from time to time or at any time, a Tranche Notice for an amount up to the Guaranteed Purchase, and its right to deliver a Tranche Notice for an amount up to the Voluntary Purchase less the Guaranteed Purchase, is subject to the satisfaction, on the date of delivery of such Tranche Notice, of each of the following conditions:

 

(i)     the Common Stock shall be listed for and currently trading on the Trading Market, and to the Company’s Knowledge there is no notice of any suspension or delisting with respect the trading of the shares of Common Stock on such Trading Market;

 

(ii)     the representations and warranties of the Company set forth in this Agreement shall be true and correct in all material respects as if made on such date (except for any representations and warranties that are expressly made as of a particular date, in which case such representations and warranties shall be true and correct as of such particular date), and no default shall have occurred under this Agreement, or any other agreement with Investor or any Affiliate of Investor, or any other Material Agreement, and the Company shall deliver an Officer’s Closing Certificate to such effect to Investor, signed by an officer of the Company;

 

(iii)     other than losses incurred in the ordinary course of business, there has been no Material Adverse Effect on the Company since the Commitment Closing;

 

(iv)     the Company is not, and will not be as a result of the applicable Tranche, in default of this Agreement, any other agreement with Investor or any Affiliate of Investor, or any other Material Agreement;

 

(v)     there is not then in effect any law, rule or regulation prohibiting or restricting the transactions contemplated in this Agreement or any other Transaction Document, or requiring any consent or approval which shall not have been obtained, nor is there any pending or threatened proceeding or investigation which may have the effect of prohibiting or adversely affecting any of the transactions contemplated by this Agreement; no statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or adopted by any court or governmental authority of competent jurisdiction that prohibits the transactions contemplated by this Agreement, and no actions, suits or proceedings shall be in progress, pending or, to the Company’s knowledge threatened, by any person (other than Investor or any Affiliate of Investor), that seek to enjoin or prohibit the transactions contemplated by this Agreement;

 

(vi)     the Company is in compliance with all requirements to maintain its then-current listing on the Trading Market; and

 

(vii)     the Company has a sufficient number of duly authorized shares of Common Stock reserved for issuance in such amount as may be required to fulfill its obligations pursuant to the Transaction Documents and any outstanding agreements with Investor and any Affiliate of Investor, including without limitation all conversion shares issuable upon conversion of the Preferred Shares issued in connection with such Tranche.

 

(d)      Documents to be Delivered at Tranche Closing . The Closing of any Tranche and Investor’s obligations and/or options, as the case may be, hereunder shall additionally be conditioned upon the delivery, unless otherwise provided otherwise below, to Investor of each of the following (the “ Required Tranche Documents ”) on or before the applicable Tranche Closing Date:

 

(i)     this Agreement duly executed by the Company

 

 
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(ii)     certificate(s) evidencing a number of Preferred Shares equal to the Tranche Purchase Price divided by the Tranche Share Price shall have been delivered to Investor or an account specified by the Investor for the Tranche Shares;

 

(iii)     the Opinion;

 

(iv)     the Officer’s Certificate, signed by an officer of the Company;

 

(v)     a Secretary’s Certificate executed by the Corporate Secretary of the Company;

 

(vi)     a Use of Proceeds Certificate, signed by an officer of the Company, and setting forth how the Tranche Purchase Price will be applied by the Company;

 

(vii)     the delivery of all Conversion Shares on a timely basis in accordance with any conversion notice delivered to Company prior to the Tranche Closing Date;

 

(viii)     Certificates of Good Standing of the Company and each Subsidiary from each such entity’s jurisdiction of incorporation and any jurisdiction in which any such entity is qualified to do business;

 

(ix)     the Escrow Agreement, duly executed by the Company;

 

(x)     as contemplated by Section 5.18, a Warrant with an exercise price per share equal to $0.70, subject to adjustment as provided therein (such original Warrant certificate may be delivered within three Trading Days following any Tranche Closing Date) registered in the name of the Investor to purchase such number of shares of Common Stock as is equal to the Tranche Purchase Price divided by $0.70; and

 

(xi)     all documents, instruments and other writings required to be delivered by the Company to Investor on or before the Tranche Closing Date pursuant to any provision of this Agreement or in order to implement and effect the transactions contemplated herein .

 

(e)      Mechanics of Tranche Closing .

 

(i)     Transfer Online, Inc. shall act as escrow agent (the “ Escrow Agent ”) pursuant to the terms and conditions of the escrow agreement in substantially the form attached hereto as Exhibit G (the “ Escrow Agreement ”). On or before any Tranche Closing, the Investor shall deposit the Tranche Purchase Price into the Escrow Agent’s escrow account (the “ Escrow Account ”) as consideration to be used for the purchase of the Preferred Shares (the “ Escrowed Funds ”). Payment of the Escrowed Funds shall be made by wire transfer of immediately available funds into the Escrow Account pursuant to wire instructions delivered to the Purchaser by the Escrow Agent.

 

(ii)     The Company shall deliver to Escrow Agent all Required Tranche Documents required to be delivered by it pursuant to Section 2.3(d) of this Agreement at or prior to each Tranche Closing. Subject to such delivery and the satisfaction of the conditions set forth in Section 2.3(c) as of the Tranche Closing Date, the closing of the purchase by the Investor of Preferred Shares shall occur by 5:00 p.m. Eastern time, on the date which is five (5) Trading Days following (and not counting) the Tranche Notice Date (each a “ Tranche Closing Date ”) at the offices of the Escrow Agent. The initial Tranche Closing Date is referred to herein as the initial Tranche Closing Date.”

 

(iii)     If any portion of the Preferred Shares is converted by the Investor on or after the Tranche Notice Date and prior to or on the Tranche Closing Date (which conversion shall be effected by Investor sending the conversion notice to the Company), the Company shall send Investor an electronic copy of its share issuance instructions to the Transfer Agent and shall, if the restrictive legend prescribed by Section 5.1 is not required because of compliance with the provisions with that section, cause the requisite number of shares of Common Stock to be credited to Investor’s account with DTC as DWAC Shares by 12:00 p.m. Eastern time on the second Trading Day after the date the Company receives the conversion notice from Investor. If DWAC Shares are not timely credited pursuant to this Section 2.3(e)(ii) , then the Tranche Closing Date shall be extended by one (1) Trading Day for each Trading Day that such timely credit of DWAC Shares is not made.

 

 
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(iv)     On or before each Tranche Closing Date, the Investor shall deliver to the Escrow Agent, in cash or immediately available funds, the Tranche Purchase Price to be paid for such Tranche Shares.

 

(v)     The closing (each , a “ Tranche Closing ”) for each Tranche shall occur on the date that both (i) the Company has delivered to the Escrow Agent all Required Tranche Documents, and (ii) Investor has delivered to the Escrow Agent the Tranche Purchase Price.

 

2.4      Commitment to Purchase . The Investor shall purchase a minimum of 100,000 Preferred Shares by May 31, 2017.

 

2. 5      Acceleration of Tranche Amount. The Company shall have the right to request, with ninety (90) days’ prior written notice to the Investor, that Guaranteed Purchases be accelerated so that the Company can maintain its equity requirements with the NYSE MKT. The Investor shall exercise its commercially reasonable best efforts to comply with the timing requirements of any such request.

 

2.6     Share Sufficiency . On or before the date on which any portion of the Preferred Stock becomes convertible, the Company shall have a sufficient number of duly authorized shares of Common Stock for issuance in such amount as may be required to fulfill its obligations pursuant to the Transaction Documents and any outstanding agreements with Investor and any Affiliate of Investor.

 

2.7     Maximum Investment . Investor shall not be obligated to purchase any additional Tranche Shares once the aggregate Tranche Purchase Price paid by Investor equals the Maximum Investment.

 

ARTICLE 3

TERMINATION

 

3.1     Termination . The Investor may elect to terminate this Agreement and the Company’s right with respect to the Guaranteed Purchases or the Investor’s right with respect to any Voluntary Purchases under this Agreement (each, a “ Termination ”) upon the occurrence of any of the following:(a)

     

(a)     if, at any time, either the Company or any director or executive officer (excluding any director or executive officer who is a manager, member or affiliate of Investor) of the Company has engaged in a transaction or conduct related to the Company that has resulted in (i) an SEC enforcement action, including without limitation such director or executive officer being sanctioned by the Commission, or (ii) a civil judgment or criminal conviction for fraud or misrepresentation, or for any other offense that, if prosecuted criminally, would constitute a felony under applicable law;

 

(b)     on any date after a Delisting Period that lasts for an aggregate of twenty (20) Trading Days during any calendar year;

 

(c)     if at any time the Company has filed for and/or is subject to any bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors instituted by or against the Company or any Subsidiary of the Company;

 

(d)     the Company is in breach or default of any Material Agreement, which breach or default could have a Material Adverse Effect;

 

(e)     the Company is in breach or default of this Agreement, any Transaction Document, or any agreement with Investor or any Affiliate of Investor;

 

(f)     upon the occurrence of a Fundamental Transaction;

 

 
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(g)     so long as any Preferred Shares are outstanding, the Company effects or publicly announces its intention to create a security senior to the Series B Preferred Stock, or substantially altering the capital structure of the Company in a manner that, in the Investor’s opinion, materially adversely affects the rights or preferences of the Series B Preferred Stock; or

 

(h)     on the Termination Date.

 

3.2     Effect of Termination . Except as otherwise provided herein, the termination of this Agreement will have no effect on any Preferred Shares or DWAC Shares previously issued, delivered or credited, or on any then-existing rights of any holder thereof.

 

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

 

4.1     Representations and Warranties of the Company . Except as set forth under the corresponding section of the Disclosure Schedules, which shall be deemed a part hereof and which shall not contain any material non-public information, the Company hereby represents and warrants to, and as applicable covenants with, Investor as of each Closing:

 

(a)      Corporate Organization . The Company (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and has full corporate power and authority to carry on its business as it is now being conducted and to own the Properties it now owns, and (ii) is duly qualified or licensed to do business as a foreign corporation in good standing in such other states in which it does business, except where such failure to be so qualified or licensed would not have a Material Adverse Effect on the Company’s business; the Company is duly and properly registered pursuant to applicable state laws and regulations in all states where the conduct of the Company’s business as presently conducted requires such registration. The copies of the Articles of Incorporation and Bylaws of the Company (the “ Charter Documents ”) annexed hereto as   Schedule   4.1(a)  are complete and correct copies of such instruments as presently in effect.

 

(b)      Authority . The Company has the corporate power and the authority to execute, deliver and perform this Agreement and each other document contemplated by this Agreement and the Transaction Documents. The execution, delivery and performance of the Transaction Documents by the Company have been duly authorized by its board of directors. No other corporate proceedings on the part of the Company are necessary to authorize the execution, delivery and performance of the Transaction Documents. The Transaction Documents have been duly executed and delivered by the Company and, assuming due execution and delivery hereof by the Investor, are valid and legally binding agreements of the Company, enforceable in accordance with their terms, subject to bankruptcy, insolvency, moratorium, reorganization and similar laws of general applicability relating to or affecting creditors’ rights, to general equity principles, and public policy considerations underlying the securities laws, to the extent that such public policy considerations limit the enforceability of the provisions of the Transaction Documents that purport to provide indemnification for securities laws liabilities.

 

(c)      Capitalization . As of the date hereof, the authorized capital stock of the Company consists of (i) 30,000,000 shares of Common Stock and (ii) 2,000,000 shares of preferred stock, no par value per share, of which (A) 500,000 of such shares have been designated Series A Preferred Stock, and (B) 1,500,000 of such shares constitute “blank check” preferred stock. As of the date hereof (i) 8,356,851 shares of Common Stock are issued and outstanding, (ii) no shares of Common Stock are held by the Company in its treasury, and (iii) no shares of preferred stock are issued or outstanding. After giving effect to the Maximum Investment (assuming no exercises of stock options, warrants and convertible debt), the Company will continue to have 8,356,851 shares of Common Stock issued and outstanding and 500,000 shares of Series B Preferred Stock outstanding which are convertible into approximately 7,142,857 shares of Common Stock which will constitute approximately 46% of the issued and outstanding Common Stock (34% on fully diluted basis) . As of December 31, 2016 , there were outstanding 2,256,000 options exercisable for Company Common Stock.

 

 
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Other than as set forth above or on Schedule 4.1(c), no shares of capital stock or other voting or non-voting securities of the Company are issued, reserved for issuance or outstanding. All outstanding shares of the capital stock of the Company are duly authorized, validly issued, fully paid and non-assessable and not subject to or issued in violation of any Purchase Right, right of first refusal, preemptive right, subscription right or any similar right under any provision of the applicable corporate laws of the State of California, the Charter Documents, or any Contract to which the Company is a party or otherwise bound. Except as set forth on   Schedule 4.1(c) , there are no oral and/or written, direct and/or indirect options, warrants, rights, convertible or exchangeable securities, “phantom” stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of any kind to which the Company is a party or by which it is bound; (a) obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity interests in, or any security convertible or exercisable for or exchangeable into any capital stock of or other equity interest in, the Company, (b) obligating the Company to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, Contract, arrangement or undertaking or (c) that give any Person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights occurring to holders of the capital stock of the Company. As of the date of this Agreement, there are no outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any shares of capital stock of the Company. To the Company’s Knowledge, the offer and sale of all capital stock, convertible securities, rights, warrants, or options of the Company issued prior to the Closing complied with all applicable federal and state securities laws and the Company has not been notified by the Commission, the NYSE MKT LLC, any state securities commission or any other Governmental Authority of the absence of compliance by the Company with any federal and state securities laws or other Legal Requirements. No stockholder has a matured and/or unmatured right of rescission or claim for damages with respect thereto.

 

(d)      Consents; Permits; Defaults . Assuming the accuracy of the representations and warranties of the Investor in Section 4.2 , other than as contemplated in the Transaction Documents, none of the execution, delivery or performance of the Transaction Documents by the Company, the consummation by the Investor of any transaction contemplated by the Transaction Documents, or compliance by the Company with any of the provisions of the Transaction Documents will require (with or without notice or lapse of time, or both) any consent, approval, authorization or permit of, or filing or registration with or notification to, any Governmental Authority or any other Person, other than the failure to obtain such consents, approvals, authorizations or permits of, or to make such filings, registrations with or notifications to any Governmental Authority or any other Person, individually or in the aggregate, has not had a Material Adverse Effect on the Company.

 

(e)      Non-Contravention .  The execution, delivery and performance the Transaction Documents by the Company does not and will not (i) result in a breach of, or constitute a default under the Charter Documents, (ii) result in a breach of, or constitute a default under, any loan agreement, indenture or mortgage or any material lease, agreement, franchise, license, permit or other undertaking or Contract to which the Company is a party or any of its Properties may be subject or bound, (iii) result in a violation of any order, writ, injunction, decree or award of any court or Governmental Authority including, but not limited to, the Commission, to the Company or relating to any of its Properties, or (iv) result in a violation of any federal or state law, statute, ordinance, rule or regulation or other Legal Requirement applicable the Company.

 

(f)      Financial Statements .

 

(i)     The  Company has delivered or made available (for purposes of this section, filings that are publicly available prior to the date hereof on the EDGAR system of the Commission under the name of the Company are deemed to have been made available) to the Investor: (i) a true and complete copy of the Company’s unaudited consolidated balance sheet as of September 30, 2016 (the “ Balance Sheet Date ”) and the related unaudited consolidated statements of operations, changes in the Company stockholder’s deficit and cash flows for the period then ended and (ii) a true and complete copy of the Company’s audited balance sheet as of December 31, 2015 and December 31, 2014 and the related audited statements of operations, changes in the Company stockholder’s deficit and cash flows for each of the years ended December 31, 2015 and December 31, 2014, prepared in accordance with GAAP, together with the report of  Kost Forer Gabbay & Kasierer, the Company’s independent registered public accounting firm (the “ Firm ”), which has served as the Company’s auditors since the audit of its 2002  financial statements (such statements, including the related notes and schedules thereto, are referred to herein as the “ GAAP Financial Statements ”). The GAAP Financial Statements have been prepared from, are in accordance with, and accurately reflect, the books and records of the Company, comply in all material respects with applicable accounting requirements in the case of the GAAP Financial Statements; fairly present in all material respects the financial position and the results of operations and cash flows (and changes in financial position, if any) of the Company as of the times and for the periods referred to therein (subject, in the case of unaudited statements, to normally recurring year-end adjustments that are not material either individually or in the aggregate and the absence of footnotes). The GAAP Financial Statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as set forth in the notes thereto). The GAAP Financial Statements are in form appropriate for filing with the Commission.

 

 
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(ii)     The Firm, which has certified the Company’s GAAP Financial Statements and related schedules, is an independent registered public accounting firm with respect to the Company as required by the Securities Act and the rules and regulations promulgated thereunder and the Public Company Accounting Oversight Board (United States).

 

(iii)     There are no relationships or services, or any other factors that may affect the objectivity and independence of the Firm under applicable auditing standards. The Firm has not performed any non-audit services for any Person related to the Company.

 

(g)      Contracts .

 

(i)      Schedule   4.1(g)(i)  contains an accurate and complete list and terms  of all the Company’s Contracts. Other than as set forth on   Schedule   4.1(g)(i)  , the Company is not a party to or bound by any of the following, whether written or oral:

 

(A)     Any Contract that cannot by its terms be terminated by the Company with thirty (30) days’ or less notice without penalty or whose term continues beyond one (1) year after the date of this Agreement;

 

(B)     Any Contract or commitment for capital expenditures for non-product orders by the Company in excess of $25,000 per calendar quarter in the aggregate other than purchase order to vendors to manufacture products sold to customers;

 

(C)     Any lease or license with respect to any material Properties, whether as landlord, tenant, licensor or licensee;

 

(D)     Any Contract or other instrument relating to the borrowing of money or the guarantee of any obligation or the deferred payment of the purchase price of any Properties;

 

(E)     Any Contract with any Affiliate of the Company relating to the provision of goods or services by or to the Company other than purchase orders to vendors to manufacture products sold to customers;

 

(F)     Any Contract for the sale of any assets;

 

(G)     Any Contract that purports to limit the Company’s freedom to compete freely in any line of business or in any geographic area;

 

(H)     Any preferential purchase right, right of first refusal, or similar agreement; or

 

(I)     Any other Contract that is material to the business of the Company.

 

(ii)     All of the Contracts listed or required to be listed in   Schedule   4.1(g)(i)  are valid, binding and to the Knowledge of the Company, in full force and effect, and the Company has not been notified or advised by any party thereto of such party’s intention or desire to terminate or modify any such Contract in any respect. To the Knowledge of the Company no other party is in breach of any of the terms or covenants of any Contract listed or required to be listed on   Schedule   4.1(g)(i)   that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Following the Closing, the Company will continue to be entitled to all of the benefits currently held by the Company under each Contract listed or required to be listed on   Schedule   4.1(g)(i) .

 

 
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(iii)     The Company is not a party to or bound by any Contract or Contracts the terms of which were arrived at by, or otherwise reflect, less-than-arm’s-length negotiations or bargaining.

 

(h)      Absence of Certain Changes or Events .

 

(i)     Except as set forth on Schedule 4.1(h)(i) , since December 31, 2015 (the “ Applicable Date ”), there has not been:

 

(A)     any event, circumstance or change that had or would reasonably be expected to result in a Material Adverse Effect on the Company;

 

(B)     any damage, destruction or loss (whether or not covered by insurance) that had or would reasonably be expected to result in a Material Adverse Effect of the Company; or

 

(C)     any Material Adverse Effect in the Company’s sales patterns, pricing policies, accounts receivable or accounts payable.

 

(ii)     Except as set forth on Schedule 4.1(h)(ii) , since the Applicable Date, the Company has not:

 

(A)     merged into or with or consolidated with, any other corporation or acquired the business or assets of any Person;

 

(B)     purchased securities from any Person;

 

(C)     created, incurred, assumed, guaranteed or otherwise become liable or obligated with respect to any Liabilities, or made any loan or advance to, or any investment in, any person, except in each case in the ordinary course of business;

 

(D)     made any change in any existing election, or made any new election, with respect to any tax law in any jurisdiction which election could have an effect on the tax treatment of the Company or the Company’s business operations;

 

(E)     entered into, amended or terminated a material Contract;

 

(F)     sold, transferred, leased, mortgaged, encumbered or otherwise disposed of, or agreed to sell, transfer, lease, mortgage, encumber or otherwise dispose of, any Properties;

 

(G)     settled any claim or litigation, or filed any motions, orders, briefs or settlement agreements in any proceeding before any Governmental Authority or any arbitrator;

 

(H)     incurred or approved, or entered into any Contract, agreement or commitment to make, any expenditures in excess of $25,000;

 

(I)     maintained its Records and/or any other books of account other than in the usual, regular and ordinary manner in accordance with GAAP and on a basis consistent with prior periods and has not made any change in any of its accounting methods or practices that would be required to be disclosed under GAAP;

 

(J)     granted any increase in the compensation payable or to become payable to directors, officers or employees (including, without limitation, any such increase pursuant to any bonus, profit-sharing or other plan or commitment);

 

 
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(K)     suffered any extraordinary losses or waived any rights of material value;

 

(L)     made any payment to any Affiliate or forgiven any indebtedness due or owing from any Affiliate to the Company other than director fees and other payments described in the SEC Reports;

 

(M)     engaged in any one or more activities or transactions with an Affiliate outside the ordinary course of business;

 

(N)     declared, set aside or paid any dividends, or made any distributions or other payments in respect of its equity securities, or repurchased, redeemed or otherwise acquired any such securities;

 

(O)     amended its Charter Documents;

 

(P)     issued any capital stock or other securities, or granted, or entered into any agreement to grant, any options, convertible rights, other rights, warrants, calls or agreements relating to its capital stock; or

 

(Q)     agreed or committed to do any of the foregoing.

 

(i)      Absence of Undisclosed Liabilities and Agreements . The Company does not have any debt, loss, damage, adverse claim, liability or obligation (whether direct or indirect, known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, or due or to become due, and whether in contract, tort, strict liability or otherwise) which are not accurately reflected or provided for in the balance sheet dated as of the Balance Sheet Date included within the GAAP Financial Statements (whether or not they are required to be disclosed under GAAP), other than (a) those incurred in the ordinary course of the Company’s business since Applicable Date, (b) those disclosed in this Agreement or the disclosure schedules and (c) those material obligations arising subsequent to the date hereof pursuant to the express terms of executory Contracts, which executory Contracts (to the extent such Contracts are material to the business of the Company) are identified on   Schedule 4.1(i) . Neither the Company nor any of its officers or directors has effected any securitization transactions or “off-balance sheet arrangements” (as defined in Item 303(c) of Regulations S-K of the Commission) since the Balance Sheet Date. Except as set forth on   Schedule   4.1(i)  or otherwise contemplated by this Agreement, as of the Closing there will be no Liabilities of the Company.

 

(j)      Compliance with Law . The business of the Company has been operated in compliance with all Legal Requirements, including all laws, ordinances, rules, regulations and orders of all Governmental Authorities and the NYSE MKT LLC, except where such failure would not have a Material Adverse Effect on the Company or its business. The Company has filed all reports and statements, including but not limited to the SEC Reports, together with any amendments required to be made with respect thereto, that it was required to file with any Governmental Authority or any other body having jurisdiction over the Company’s operations. The Company has not received any written communication from a Governmental Authority that alleges that the Company is not in compliance with any federal, state, local or foreign laws, ordinances and regulations or has not made all of the filings required by all such authorities, organizations and agencies.

 

(k)      Tax Matters . All Tax Returns required to be filed by or on behalf of the Company have been duly and timely filed with the appropriate Taxing Authority in all jurisdictions in which such Tax Returns are required to be filed (after giving effect to any valid extensions of time in which to make such filings), and all such Tax Returns are true, complete and correct in all material respects. All Taxes payable by or on behalf of the Company (whether or not shown on any Tax Return) have been fully and timely paid. With respect to any period for which Tax Returns have not yet been filed or for which Taxes are not yet due or owing, the Company has made due and sufficient accruals for such Taxes in the GAAP Financial Statements and in its books and records. All required estimated Tax payments sufficient to avoid any underpayment penalties or interest have been made by or on behalf of the Company. The Company has complied in all material respects with all applicable laws relating to the payment and withholding of Taxes in connection with amounts paid or owing to any employee, independent contractor, creditor, equity owner or other third party and has duly and timely withheld and paid over to the appropriate Taxing Authority all amounts required to be so withheld and paid under all applicable laws.

 

 
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(l)      Absence of Questionable Payments . Neither the Company nor any Affiliate, director, officer, partner, employee, agent, representative or other Person acting on behalf of the Company has: (i) used any funds for contributions, payments, gifts or entertainment, or made any expenditures relating to political activities of foreign, federal, state or local government officials or others in violation of any law (including the Foreign Corrupt Practices Act of 1977, as amended), or (ii) accepted or received any unlawful contributions, payments, gifts or expenditures.

 

(m)      Litigation . There is no claim, action, suit or proceeding pending or, to the Knowledge of the Company, threatened against any of the Company or its Properties which, if adversely determined, will affect or can reasonably be expected to affect materially and adversely, the Company, or which seeks to prohibit, restrict or delay consummation of the transaction contemplated hereby or any of the conditions to consummation of such transaction, nor to the Knowledge of the Company is there any judgment, decree, injunction, ruling or order of any court, Governmental Authority, including, but not limited to, the Commission, any commission, agency or instrumentality or arbitrator outstanding against the Company having, or which may in the future have, any such effect. Neither the Company nor any Affiliate thereof is under investigation with respect to, any violation of any provision of any federal or state law or administrative regulation in respect of the business of the Company. The Company is not a party to or bound by any judgment, decree, injunction, ruling or order of any Governmental Authority or any other person which has affected or may affect materially and adversely the Preferred Shares.

 

(n)      Title to Property .

 

(i)      Personal Property . All material items of personal property used in the business of the Company are in good operating condition and fit for operation in the ordinary course of the Company’s business (subject to normal wear and tear) with no defects that could reasonably be expected to interfere with the conduct of the normal operation of such items and are suitable for the purposes for which they are currently being used.

 

(ii)      Real Property . The Company owns no real property. The Company’s only leased properties are the properties in Fremont, California and Salisbury, the United Kingdom (collectively, the “ Leased Properties ”). All real estate Taxes for which the Company is responsible with respect to any Leased Property (and which are not otherwise incorporated into payments made under any lease), have been paid in full, as and when due.

 

(o)      Intellectual Property . The Company has, or has rights to use, all Intellectual Property necessary for the conduct of the business of the Company as currently conducted. The Company has received no written notice that the Intellectual Property used by it violates or infringes upon the rights of any Person. All rights to such Intellectual Property are enforceable and to the Knowledge of the Company, there is no existing infringement by another Person of any of the rights to the Company’s Intellectual Property of others. All the Company’s Intellectual Property rights registered or applied for registration under the name of the Company are set forth on   Schedule 4.1(o) .

 

(p)      Absence of Certain Business Practices . Neither the Company not any other Affiliate or agent of the Company, or any other person acting on behalf of or associated with the Company, acting alone or together, has (a) received, directly or indirectly, any rebates, payments, commissions, promotional allowances or any other economic benefits, regardless of their nature or type, from any customer, supplier, employee or agent of any customer or supplier of the Company; or (b) directly or indirectly given or agreed to give any money, gift or similar benefit to any customer, supplier, employee or agent of any customer or supplier, any official or employee of any government (domestic or foreign), or other person who was, is or may be in a position to help or hinder the business of the Company (or assist the Company in connection with any actual or proposed transaction), in each case which (i) may subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, may have had an adverse effect on the business, financial condition, operations or prospects of the Company, or (iii) if not continued in the future, may adversely affect the business, financial condition, operations or prospects of the Company.

 

 
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(q)      Transactions With Affiliates . Except as set forth on   Schedule 4.1(q) , the Company has not purchased, acquired or leased any Property or services from, or sold, transferred or leased any Property or services to, or loaned or advanced any money to, or borrowed any money from, or entered into or been subject to any management, consulting or similar agreement with, or engaged in any other significant transaction with any officer, director or shareholder of the Company or any of their respective Affiliates. No Affiliate of the Company is indebted to the Company for money borrowed or other loans or advances, and the Company is not indebted to any such Affiliate.

 

(r)      Absence of Certain Control Person Actions or Events . To the Company’s Knowledge, none of the following has occurred during the past three (3) years with respect to a Control Person:

 

(i)     A petition under the federal bankruptcy laws or any provincial or state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or Property of such Control Person, or any partnership in which he was a general partner at or within two (2) years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two (2) years before the time of such filing;

 

(ii)     Such Control Person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

(iii)     Such Control Person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, his engagement in (A) any type of business practice, or (B) any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;

 

(iv)     Such Control Person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than sixty (60) days the right of such Control Person to engage in any activity described in paragraph (iii) of this item, or to be associated with Persons engaged in any such activity; or

 

(v)     Such Control Person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any federal or state securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated.

 

(s)      SEC Reports . The Company has filed with the Commission all SEC Reports required to be filed pursuant to the Securities Act and Exchange Act and is current in its reporting obligations. As of their respective dates, all SEC Reports complied in all material respects with requirements of the Securities Act and Exchange Act and the rules and regulations promulgated thereunder and none of the SEC Reports when they were filed contained an untrue statement of 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.

 

(t)      Books and Records; Internal Accounting Controls . The Records of the Company accurately reflect in all material respects the information relating to the business of the Company, the location and collection of its Properties and the nature of all transactions giving rise to the obligations or accounts receivable of the Company to the extent required to be contained therein. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate actions is taken with respect to any differences. All such Records relating to internal accounting controls are appended to, and a description of the internal accounting controls is listed on,   Schedule 4.1(t) .

 

 
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(u)      Broker . Except as specified in   Schedule 4.1(u) , the Company has not retained any broker in connection with any transaction contemplated by this Agreement. The Company shall not be obligated to pay any fee or commission associated with the retention or engagement by the Company of any broker in connection with any transaction contemplated by this Agreement.

 

(v)      Common Stock Symbol . The Company Common Stock is currently listed on the NYSE MKT LLC under the symbol “DPW.”

 

(w)      No Commission or NYSE MKT Inquiries; Delisting . Except as set forth on   Schedule 4.1(w) , to the best of the Company’s Knowledge, the Company is not, and has never been, the subject of any formal or informal inquiry or investigation by the Commission or the NYSE MKT. Except as set forth on   Schedule   4.1(w) , the Company has no Knowledge of any action by the Commission or the NYSE MKT that seeks to deregister or delist the Common Stock from the NYSE MKT or otherwise render such shares ineligible for listing and trading on the NYSE MKT.

 

(x)      Securities . Each of the Preferred Shares and the Conversion Shares, upon each issuance whether pursuant to Tranche Notice or conversion of the Preferred Shares, will be duly authorized, fully paid and non-assessable and vest in the holder thereof title thereto free and clear of any restrictions on transfer (other than any restrictions under applicable state or federal securities laws), Taxes, Encumbrances, options, warrants, Purchase Rights, Contracts, commitments, equities, claims, and demands and will not be subject to any pre-emptive or other similar rights.

 

(y)      Disclosure of Material Information . Neither the Company nor any other Person acting on its behalf has provided or will provide the Investor or its agents or counsel with any information that the Company believes constitutes material non-public information (other than with respect to the transactions contemplated by this Agreement and the Transaction Documents). The Company understands and confirms that the Investor will be relying on the foregoing representations in effecting transactions in the Securities.

 

(z)      Labor Matters . The Company is not a party to any representation or collective bargaining agreement with any employees.

 

(aa)      Employment Agreements and Plans .  The Company has furnished the Investor with a list of all employment, consulting, advisory and confidentiality agreements to which the Company is a party. The Company has delivered to the Investor true and complete copies of each such agreement (or written descriptions thereof for any such agreements which are not in writing). Except as set forth on   Schedule 4.1(aa ) , the Company has not and does not maintain or contribute to any outstanding incentive compensation, deferred compensation, profit sharing, stock option, stock bonus, stock purchase, savings, consultant, retirement, pension, medical, dental, disability or other benefit plans or arrangements with or for the benefit of any officer, employee or former officer, employee of the Company or for the benefit of any distributor, sales representative or other person resulting from a relationship with the Company.

 

(bb)      Insurance . The Company has furnished the Investor with a list of all material bonds and liability, fire and other insurance contracts of whatsoever description to which the Company is a party, and under which the Company is or was a beneficiary.

 

(cc)      Director and Officer Insurance . The Company has maintained insurance for their officers and directors for the last five (5) years without any lapse in coverage. As of the Closing, no claims have been filed against any officer or director of the Company.

 

(dd)      Prior Sales of Securities . All prior sales of securities by the Company were either properly registered under the federal and/or state securities laws or issued pursuant to an exemption therefrom and all such sales were all done in compliance with all Legal Requirements and no Person/entity has any rescission and/or similar rights with respect to such securities.

 

 
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(ee)      DTC Eligibility . The Company’s Transfer Agent is a participant in and the Common Stock is eligible for transfer pursuant to the Depository Trust Company’ Fast Automated Securities Transfer Program.

 

(ff)      No Subsidiaries . The Company has no Subsidiaries other than Digital Power Limited and Digital Power Lending, LLC .

 

(gg)      Disclosure . No representation or warranty by the Company in this Agreement, the Exhibits or the Schedules hereto and thereto and no statement contained in any document, certificate, or other writing furnished or to be furnished by the Company to the Investor or any of its representatives or agents pursuant to the provisions hereof or in connection with the transactions, contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary in order to make the statements herein or therein made, in the light of the circumstances under which they were made, not misleading.

 

4.2     Representations and Warranties of Investor . Investor hereby represents and warrants as of the Effective Date as follows:

 

(a)      Authority . The Investor has all necessary company power and company authority to execute and deliver the Transaction Documents, to perform its obligations hereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Transaction Documents by the Investor, and the consummation by the Investor of the transactions contemplated hereby have been duly and validly authorized by all necessary company action, and no other company proceedings on the part of the Investor are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement and the Transaction Documents have been duly validly executed and delivered by the Investor and, assuming due authorization, execution and delivery by the Company, constitutes a legally valid and binding obligation of the Investor, enforceable against the Investor in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar laws affecting creditors’ rights generally and subject to the effect of general principles of equity, whether considered in a proceeding in equity or at law).

 

(b)      No Conflict . None of the execution, delivery or performance of the Transaction Documents by the Investor, the consummation by the Investor of the transactions contemplated by this Agreement, or compliance by the Investor with any of the provisions of this Agreement will (with or without notice or lapse of time, or both): (a) conflict with or violate any provision of the organizational or governing documents of the Investor, or (b) assuming that all consents, approvals, authorizations and permits described in Section 4.1(d) have been obtained and all filings and notifications described in Section 4.1(d) have been made and any waiting periods thereunder have terminated or expired, conflict with or violate any law applicable to the Investor, except, with respect to clause (b), for any such conflicts, violations, consents, breaches, losses, defaults, other occurrences which, individually or in the aggregate, have not had a Material Adverse Effect on the Investor.

 

(c)      Information in the Form 8-K . The information supplied by the Investor in writing expressly for inclusion or incorporation by reference in the Form 8-K (as hereinafter defined) and any amendment thereof or supplement thereto, will not, on the date submitted to the Company, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they are made, not misleading.

 

(d)      Securities Act Representations .

 

(i)      Restricted Shares . The Investor represents that it understands that the Securities to be sold to it pursuant to this Agreement will not be registered pursuant to the registration requirements of the Securities Act and that the resale of such Securities is subject to certain restrictions hereunder and under federal and state securities laws. The Investor represents that it is acquiring such Securities for its own account, not as a nominee or agent, and not with a view to the distribution thereof in violation of applicable securities laws. The Investor further represents that it has been advised and understands that since such Securities have not been registered under the Securities Act, such Securities must be held indefinitely unless (A) the resale of such Securities has been registered under the Securities Act, (B) a sale of such Securities is made in conformity with the holding period, volume and other limitations of Rule 144 promulgated by the Commission under the Securities Act, or (C) in the opinion of counsel reasonably acceptable to the Company, some other exemption from registration is available with respect to any proposed sale, transfer or other disposition of such Securities.

 

 
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(ii)      Legend . The Investor represents that it has been advised and understands that, subject to applicable securities laws, stop transfer instructions will be given to the Company’s Transfer Agent with respect to the Securities and that a legend, substantially in the form provided for in Section 5.1(b) , setting forth the restrictions on transfer will be set forth on the certificates for the Securities or any substitutions therefor.

 

(iii)      Accredited Investor . The Investor is an “accredited investor” (as such term is defined in Regulation D under the Securities Act).

 

(iv)      Sufficiency of Funds . On each Tranche Closing Date, the Investor will have sufficient funds to pay the Tranche Share Price.

 

(v)      Litigation . There are no actions, suits, arbitrations, mediations, proceedings or claims pending or, to the knowledge of the Investor, threatened against Investor that seek to restrain or enjoin the consummation of the transactions contemplated hereby.

 

(vi)      Acknowledgement of Receipt of Information . The Investor has had an opportunity to ask questions and receive answers and materials, and to discuss the business of the Company and its Subsidiaries and related matters, with certain key officers of the Company and its Subsidiaries regarding the transactions contemplated hereunder (the “ Investigation ”). Purchaser hereby acknowledges and agrees that other than the Company’s representations and warranties set forth in Section 4.1 , neither the Company nor any of its representatives makes or has made any representation or warranty, express or implied, at law or in equity, with respect to the business of the Company or any Subsidiary thereof nor with respect to the Securities. Nothing in this Section 4.2(d)(vi ) (including any information provided to the Investor by the Company pursuant to the Investigation) shall derogate from the representations and warranties of the Company contained in Section 4.1 hereof or from the ability of Investor to rely on such representations and warranties or to seek indemnification for Losses in respect of such representations and warranties.

 

ARTICLE 5
OTHER AGREEMENTS OF THE PARTIES

 

5.1     Transfer Restrictions

 

(a)     The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than (i) pursuant to an effective Registration Statement or Rule 144, (ii) to the Company, (iii) to an Affiliate of Investor, or (iv) in connection with a pledge as contemplated in Section 5.1(b) , the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act .

 

(b)     Investor agrees to the imprinting, so long as is required by this Section 5.1 of the following legend, or substantially similar legend, on any certificate evidencing Securities other than DWAC Shares that qualify to have the legend removed as provided below:

 

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

 
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The Company agrees to cause such legend to be removed immediately upon effectiveness of a Registration Statement, or when any securities are eligible for sale under Rule 144 and, if requested by Investor or the Transfer Agent, to promptly provide at the Company’s expense a legal opinion of counsel to the Company confirming that such legend may be removed. Company further acknowledges and agrees that Investor may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, Investor may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At Investor’s reasonable expense, the Company will execute and deliver such documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities.

 

5.2     Furnishing of Information . As long as Investor owns Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the Effective Date pursuant to the Exchange Act. Upon the request of Investor, the Company shall deliver to Investor a written certification of a duly authorized officer as to whether it has complied with the preceding sentence. As long as Investor owns Securities, if the Company is not required to file reports pursuant to such laws, it will prepare and furnish to Investor and make publicly available in accordance with Rule 144(c) such information as is required for Investor to sell the Securities under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144.

 

5.3     Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to Investor or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require stockholder approval prior to the closing of such other transaction unless stockholder approval is obtained before the closing of such subsequent transaction.

 

5.4     Securities Laws Disclosure; Publicity . The Company shall timely file a Current Report on Form 8-K as required by this Agreement, and shall file a press release, in each case reasonably acceptable to Investor, disclosing the material terms of the transactions contemplated hereby. The Company and Investor shall consult with each other in issuing any press releases with respect to the transactions contemplated hereby, and neither the Company nor Investor shall issue any such press release or otherwise make any such public statement without the prior consent of the Company, with respect to any such press release of Investor, or without the prior consent of Investor, with respect to any such press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law or Trading Market regulations, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of Investor, or include the name of Investor in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of Investor, except (i) as contained in the Current Report on Form 8-K and press release described above, (ii) as required by federal securities law in connection with any registration statement under which the securities are registered, (iii) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide Investor with prior notice of such disclosure, or (iv) to the extent such disclosure is required in any SEC Report filed by the Company.

 

 
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5.5     S hareholders Rights Plan . No claim will be made or enforced by the Company or, to the Knowledge of the Company, any other Person that Investor is an “Acquiring Person” under any shareholders rights plan or similar plan or arrangement in effect or hereafter adopted by the Company, or that Investor could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and Investor. The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act of 1940, as amended. 5.5     

 

5.6      Non-Public Information. T he Company covenants and agrees that neither it nor any other Person acting on its behalf will provide Investor or its agents or counsel with any information that the Company believes or reasonably should believe constitutes material non-public information, unless prior thereto Investor shall have executed a written agreement regarding the confidentiality and use of such information. On and after the Effective Date, neither Investor nor any Affiliate Investor shall have any duty of trust or confidence that is owed directly, indirectly, or derivatively, to the Company or the shareholders of the Company, or to any other Person who is the source of material non-public information regarding the Company. The Company understands and confirms that Investor shall be relying on the foregoing in effecting transactions in securities of the Company.

 

5.7     Reimbursement. If Investor becomes involved in any capacity in any proceeding by or against any Person who is a stockholder of the Company (except as a result of sales, pledges, margin sales and similar transactions by Investor to or with any current stockholder), solely as a result of Investor’s acquisition of the Securities under this Agreement, the Company will reimburse Investor for its reasonable legal and other expenses (including the cost of any investigation preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred, or will assume the defense of Investor in such matter. The reimbursement obligations of the Company under this Section 5.7 shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of Investor who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling persons (if any), as the case may be, of Investor and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, Investor and any such Affiliate and any such Person. The Company also agrees that neither Investor nor any such Affiliates, partners, directors, agents, employees or Controlling Persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company solely as a result of acquiring the Securities under this Agreement.

 

5.8     Indemnification of Investor

 

(a)      Company Indemnification Obligation . Subject to the provisions of this Section 5.8 , the Company will indemnify and hold Investor, its Affiliates and attorneys, and each of their directors, officers, shareholders, partners, employees, agents, and any person who controls the Investor within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the “ Investor Parties ” and each an “ Investor Party ”), harmless from any and all Losses that any Investor Party may suffer or incur as a result of or relating to (i) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents, or (ii) any action instituted against any Investor Party, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of an Investor Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of Investor’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings Investor may have with any such stockholder or any violations by Investor of state or federal securities laws or any conduct by Investor which constitutes fraud, gross negligence, willful misconduct or malfeasance), (iii) any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement (or in a Registration Statement as amended by any post-effective amendment thereof by the Company) or arising out of or based upon any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and/or (iv) any untrue statement or alleged untrue statement of a material fact included in any Prospectus (or any amendments or supplements to any Prospectus), in any free writing prospectus, in any “issuer information” (as defined in Rule 433 under the Securities Act) of the Company, or in any Prospectus together with any combination of one or more of the free writing prospectuses, if any, or arising out of or based upon any omission or alleged omission to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

 
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(b)      Indemnification Procedures . If any action shall be brought against an Investor Party in respect of which indemnity may be sought pursuant to this Agreement, such Investor Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing. The Investor Parties shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Investor Parties except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict with respect to the dispute in question on any material issue between the position of the Company and the position of the Investor Parties such that it would be inappropriate for one counsel to represent the Company and the Investor Parties. The Company will not be liable to the Investor Parties under this Agreement (i) for any settlement by an Investor Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a loss, claim, damage or liability is either attributable to Investor’s breach of any of the representations, warranties, covenants or agreements made by Investor in this Agreement or in the other Transaction Documents.

 

5.9     Reservation of Securities . The Company shall maintain a reserve from its duly authorized shares of Common Stock and the designated Preferred Shares for issuance pursuant to the Transaction Documents in such amounts as may be required to fulfill its obligations in full under the Transaction Documents.

 

 

5.10     Required Approval. Other than Required Approval of the NYSE Mkt and Required Approval pursuant to NYSE Mkt Rule 713 to issue the Conversion Shares, no transactions contemplated under this Agreement or the Transaction Documents shall be consummated for an amount that would require any other approval by any Trading Market or Company stockholders. The Company shall use best efforts to obtain Required Approval pursuant to NYSE Mkt Rule 713 as soon as possible.

 

5.11     Appointment of Directors.

 

(a)     The Investor may designate a number of directors to the Company’s Board of Directors equal to a percentage determined by the number of Preferred Shares beneficially owned (determined on an “as converted” basis) divided by the sum of the number of shares of Common Stock plus the number of Preferred Shares outstanding as determined on an as converted basis. As by way of example only, if the number of Preferred Shares owned by the Investor represents 20% of the outstanding shares of Common Stock and Preferred Shares (as determined on an as converted basis), the Investor shall, through its ownership of Preferred Shares, have the right to designate one director of a five member board. The Investor’s applicable percentage right to designate a number of directors shall be determined each time the Investor makes a purchase of Tranche Shares and cannot be decreased unless the Investor converts or sells all or part of its Preferred Shares in which case the number of directors that the Investor may designate will be re-calculated. The right to designate a director is a contractual right granted to the Investor and not to a subsequent owner of Preferred Shares.

 

(b)     In the case for the election of directors, the Preferred Shares shall be voted on an “as converted” basis together with the Common Stock. In all other cases, the Preferred Shares shall be voted in accordance with California law.

 

5.12     Redemption. The Company shall not have the right to redeem the Preferred Shares until twenty-five (25) years after the Effective Date as further described in the Certificate of Determination .

 

5.13     Profit Participation . Pursuant to the Certificate of Determination, the holder shall have a profit participation in the Company based upon a maximum percentage rate of five percent (5%) of EBITDAS, assuming the purchase of the Maximum Investment, payable on a quarterly basis, with payment to occur ninety (90) days in arrears from each reporting period, subject to a year-end reconciliation . As set forth in the Certificate of Determination, the applicable percentage rate shall be pro-rated based on the aggregate Tranche Amount purchased.

 

 
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5.14     Registration Statement . The Company shall, at the Investor’s request, file a Registration Statement at any time commencing five (5) years from the execution date of this Agreement, which Registration Statement shall if permissible be filed on Form S-3 and shall register as many Conversion Shares as then permitted by Rule 415 of the Securities Act. The registration rights agreement providing for the Company’s obligation to file the Registration Statement shall be in the form substantially as attached hereto as Exhibit H .

 

5.15     Reincorporation . At its next Annual Meeting of shareholders, the Board of Directors will recommend to the Company’s shareholders that they approve the reincorporation of the Company from the State of California to the State of Delaware.

 

5.16     Non-Public Information . Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that after the Closing Date neither it, nor any other Person acting on its behalf, will provide the Investor or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto the Investor shall have executed a written agreement regarding the confidentiality and use of such information or Investor’s affiliates serve in the capacity of a director or executive officer of the Company. The Company understands and confirms that the Investor shall be relying on the foregoing covenant in effecting transactions in securities of the Company. Investor acknowledges that it is aware that the United States securities laws prohibit any person who has material non-public information about a company from purchasing or selling securities of such company, or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities, and the Investor agrees not to engage in any unlawful trading in securities of the Company or unlawful misuse or misappropriation of any such information. The Investor agrees to maintain the confidentiality of and not disclose or use (except for purposes relating to the transactions contemplated by this Agreement) any confidential, proprietary or non-public information disclosed by the Company to the Investor.

 

5.17     Right of Participation in Future Financings . If the Company, at any time while no fewer than one hundred thousand (100,000) Preferred Shares are issued and outstanding and held by the Investor, shall issue shares of capital stock, convertible securities, rights, options, warrants or any other kind of its securities in a financing, then the Investor shall have the right to participate in any such financing under the same terms and conditions as the investors in any such financing in order to maintain its then percentage ownership interest in the Company. Such right of participation shall apply to securities issued in a financing subsequent to the Effective Date, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

 

5.18     Issuance of Warrant . Concurrent with any purchase of Preferred Shares by the Investor, Investor will be granted Warrants to purchase shares of the Company’s Common Stock in a number equal to the Tranche Purchase Price divided by $0.70 at an exercise price equal to $0.70 per share of Common Stock subject to adjustment as set forth in the Warrant agreement.

 

5.19     Approval by holders of Common Stock . The Company will seek the Required Approval of the Company’s stockholders for the Conversion Shares and Warrants for the sole purpose of meeting the requirements of NYSE Mkt Rule 713. Until such Required Approval, the Investor will not (i) vote its Preferred Shares; (ii) convert its Preferred Shares into Conversion Shares; or (iii) exercise its right under the Warrants issued pursuant to Section 5.18.

 

ARTICLE 6
MISCELLANEOUS

 

6.1     Fees and Expenses . Except for the $20,000 which shall be paid by the Company to the Investor for costs and fees incurred in connection with document preparation and the transactions contemplated hereunder, each party shall pay the fees and expenses of its own advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of the Transaction Documents. The Company shall pay all stamp and other taxes and duties levied in connection with the sale of the Securities, if any.

 

 
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6.2     Notices . Unless a different time of day or method of delivery is set forth in the Transaction Documents, any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile or electronic mail prior to 5:30 p.m. Eastern time on a Trading Day and an electronic confirmation of delivery is received by the sender, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered later than 5:30 p.m. Eastern time or on a day that is not a Trading Day, (c) three (3) Trading Days following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The addresses for such notices and communications are those set forth following the signature page hereof, or such other address as may be designated in writing hereafter, in the same manner, by such Person.

 

6.3     Amendments; Waivers . No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and Investor or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. 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.

 

6.4     Headings . The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

6.5     Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of Investor, which consent shall not be unreasonably withheld or delayed. Investor may assign any or all of its rights under this Agreement (a) to any Affiliate, or (b) to any Person to whom Investor assigns or transfers any Securities.

 

6.6     No Third-Party Beneficiaries . This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 5.8 .

 

6.7     Governing Law; Dispute Resolution . All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the laws of the State of New York, without regard to the principles of conflicts of law that would require or permit the application of the laws of any other jurisdiction. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or 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. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. The parties hereby waive all rights to a trial by jury. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses reasonably incurred in connection with the investigation, preparation and prosecution of such action or proceeding.

 

 
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6.8     Survival . The representations and warranties contained herein shall survive the Closing and the delivery and conversions of the Securities.

 

6.9     Execution . This Agreement may be executed in one or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or in a PDF by e-mail transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

 

6.10     Severability . If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

 

6.11     Replacement of Securities . If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities.

 

6.12     Remedies . In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of Investor and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate. Neither the Company nor Investor shall be liable for special, indirect, consequential or punitive damages suffered or alleged to be suffered by the other party or any third party, whether arising from or related to the Transaction Documents or otherwise.

 

6.13     Payment Set Aside . To the extent that the Company makes a payment or payments to Investor pursuant to any Transaction Document or Investor enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

6.14     Liquidated Damages . The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been cancelled.

 

6.15     Time of the Essence . Time is of the essence with respect to all provisions of this Agreement that specify a time for performance.

 

6.16     Construction . The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

 

 
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6.17     Entire Agreement . This Agreement, together with the Exhibits, Appendices and Schedules hereto, contains the entire agreement and understanding of the parties, and supersedes all prior and contemporaneous agreements, term sheets, letters, discussions, communications and understandings, both oral and written, which the parties acknowledge have been merged into this Agreement. No party, representative, attorney or agent has relied upon any collateral contract, agreement, assurance, promise, understanding or representation not expressly set forth hereinabove. The parties hereby expressly waive all rights and remedies, at law and in equity, directly or indirectly arising out of or relating to, or which may arise as a result of, any Person’s reliance on any such assurance.

 

 
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

 

DIGITAL POWER CORPORATION

 

 

By:   /s/ Amos Kohn                                                                    

Name: Amos Kohn,

Title: Chief Executive Officer

 

 

 

PHILOU VENTURES, LLC

 

 

By:  /s/ Kristine L. Ault                                                               

Name: Kristine L. Ault

Title: Manager   

 

 

 

 

Addresses for Notice

 

 

To Company:

 

Digital Power Corporation

48430 Lakeview Blvd

Fremont, California 94538-3158

Attention: Amos Kohn, Chief Executive Officer

 

 Telephone: (510) 657-2635

 Facsimile: (510) 657-6634

Email: akohn@digipwr.com

 

with a copy (which shall not constitute notice) to:

 

Weintraub Tobin Chediak Coleman Grodin Law Corporation

475 Sansome Street, Suite 1800

San Francisco, CA 94111

Attention: Daniel B. Eng, Esq. 

 

Telephone: (415) 433 -1400

Facsimile: (415) 433 -3883

Email: deng@weintraub.com

 

To Investor:

 

Philou Ventures, LLC

P.O. Box 3587

Tustin, CA 92705

Attention: Kristine L. Ault, Manager

 

Telephone: (949) 483-0422

Facsimile: (714) 966-2649

Email: kristy@mckea.com

 

with a copy (which shall not constitute notice) to:

 

Sichenzia Ross Ference Kesner LLP

61 Broadway, 32 nd Floor

New York, New York 10006

Attention: Marc J. Ross, Esq.

 

Telephone: (212) 930-9700

Facsimile: (212) 930- 9725

Email: mross@srfkllp.com

 

Exhibit 10.2

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “ Agreement ”) is made and entered into as of February __, 2017, between Digital Power Corporation, a California corporation (the “ Company ”), and Philou Ventures, LLC, a Wyoming limited liability company (the “ Purchaser ”).

 

This Agreement is made pursuant to the Preferred Stock Purchase Agreement, dated as of the date hereof, between the Company and the Purchaser (the “ Purchase Agreement ”).

 

The Company and the Purchaser hereby agrees as follows:

 

1      Definitions . Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:

 

Advice ” shall have the meaning set forth in Section 3(B)(d).

 

Effectiveness Date ” means, with respect to the Initial Registration Statement required to be filed hereunder, the 90 th calendar day following the Filing Date (or, in the event of a “full review” by the Commission, the 120 th calendar day following the Filing Date) and with respect to any additional Registration Statements which may be required pursuant to Section 2(c), the 90 th calendar day following the date on which an additional Registration Statement is required to be filed hereunder (or, in the event of a “full review” by the Commission, the 120 th calendar day following the date such additional Registration Statement is required to be filed hereunder); provided , however , that in the event the Company is notified by the Commission that one or more of the above Registration Statements will not be reviewed or is no longer subject to further review and comments, the Effectiveness Date as to such Registration Statement shall be the fifth Trading Day following the date on which the Company is so notified if such date precedes the dates otherwise required above, provided, further, if such Effectiveness Date falls on a day that is not a Trading Day, then the Effectiveness Date shall be the next succeeding Trading Day.

 

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

 

Event ” shall have the meaning set forth in Section 2(d).

 

Event Date ” shall have the meaning set forth in Section 2(d).

 

Filing Date ” means, (i) with respect to the Initial Registration Statement required hereunder, the 60 th calendar month following the Initial Tranche Closing Date, and (ii) with respect to any additional Registration Statements which may be required pursuant to Section 2(c), the earliest practical date on which the Company is permitted by SEC Guidance to file such additional Registration Statement related to the Registrable Securities.

 

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).

 

Initial Registration Statement ” means the initial Registration Statement filed pursuant to this Agreement.

 

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

 

Plan of Distribution ” shall have the meaning set forth in Section 2(a).

 

 
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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 by the Commission pursuant to 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, as of any date of determination, (a) all of the shares of Common Stock then issued and issuable upon conversion in full of the Preferred Shares (assuming on such date the Preferred Shares are converted in full without regard to any conversion limitations therein), (b) all Warrant Shares then issued and issuable upon exercise of the Warrants (assuming on such date the Warrants are exercised in full without regard to any exercise limitations therein), (c) any additional shares of Common Stock issued and issuable in connection with any anti-dilution provisions in the Preferred Shares or the Warrants (in each case, without giving effect to any limitations on conversion set forth in the Preferred Shares or limitations on exercise set forth in the Warrants), and (d) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing; provided , however , that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (i) a Registration Statement with respect to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such Registrable Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (ii) such Registrable Securities have been previously sold in accordance with Rule 144, or (iii) such securities become eligible for resale without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 as set forth in a written opinion letter to such effect, addressed, delivered and acceptable to the Transfer Agent and the affected Holders (assuming that such securities and any securities issuable upon exercise, conversion or exchange of which, or as a dividend upon which, such securities were issued or are issuable, were at no time held by any Affiliate of the Company, and all Warrants are exercisable by “cashless exercise” as provided in Section 2(a)(ii) of each of the Warrants, as reasonably determined by the Company, upon the advice of counsel to the Company).

 

Registration Statement ” means any registration statement required to be filed hereunder pursuant to Section 2(a) and any additional registration statements contemplated by Section 2(c), including (in each case) the Prospectus, amendments and supplements to any 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 any such registration statement.

 

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

 

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

 

Selling Stockholder Questionnaire ” shall have the meaning set forth in Section 3(B)(a).

 

SEC Guidance ” means (i) any publicly-available written or oral guidance of the Commission staff, or any comments, requirements or requests of the Commission staff and (ii) the Securities Act.

 

 
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2.      Required Registration .

 

(a)      On or prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all of the Registrable Securities that are not then registered on an effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415. The number of Registrable Securities that the Company will include in the Initial Registration Statement shall cover the Initial Required Registration Amount, which is 125% of the sum of (i) the maximum number of shares of Common Stock issuable upon conversion of the Preferred Shares at the initial conversion price thereof and (ii) the maximum number of shares of Common Stock issuable upon exercise of the Warrants, and all subject to adjustment as provided in Section 2(c). Each Registration Statement filed hereunder shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith, subject to the provisions of Section 2(e)) and shall contain (unless otherwise directed by at least a Majority in Interest of the Holders) substantially the “ Plan of Distribution ” attached hereto as Annex A . Subject to the terms of this Agreement, the Company shall use its commercially reasonable efforts to cause a Registration Statement filed under this Agreement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the applicable Effectiveness Date, and shall use its commercially reasonable efforts to keep such Registration Statement continuously effective under the Securities Act until the earlier of (i) the date that all Registrable Securities covered by such Registration Statement no longer constitute Registrable Securities or (ii) the two year anniversary of the date of this Agreement (the “ Effectiveness Period ”). The Company shall telephonically request effectiveness of a Registration Statement as of 5:00 p.m. Eastern Time on a Trading Day. The Company shall promptly notify the Holders via facsimile or by e-mail of the effectiveness of a Registration Statement on the same Trading Day that the Company telephonically confirms effectiveness with the Commission, which shall be the date requested for effectiveness of such Registration Statement. The Company shall, by 9:30 a.m. Eastern Time on the Trading Day after the effective date of such Registration Statement, file a final Prospectus with the Commission as required by Rule 424.

 

(b)     Notwithstanding the registration obligations set forth in Section 2(a), if the Commission informs the Company that all of the Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly inform each of the Holders thereof and use its commercially reasonable efforts to file amendments to the Initial Registration Statement as required by the Commission, covering the maximum number of Registrable Securities permitted to be registered by the Commission, on Form S-3 or such other form available to register for resale the Registrable Securities as a secondary offering, subject to the provisions of Section 2(e); with respect to filing on Form S-3 or other appropriate form; provided , however , that prior to filing such amendment, the Company shall be obligated to use diligent efforts to advocate with the Commission for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, Compliance and Disclosure Interpretation 612.09.

 

(c)     Notwithstanding any other provision of this Agreement, if the Commission or any SEC Guidance sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering (and notwithstanding that the Company used diligent efforts to advocate with the Commission for the registration of all or a greater portion of Registrable Securities), unless otherwise (i) directed in writing by a Holder as to its Registrable Securities, or (ii) directed by the Commission as to the limitations or restrictions that it would require, the number of Registrable Securities to be registered on such Registration Statement will be reduced as follows:

 

 

a.

First, the Company shall reduce or eliminate any securities to be included by any Person other than a Holder;

 

 

b.

Second, the Company shall reduce or eliminate Registrable Securities contemplated by clause (c) of the definition of Registrable Securities (applied, in the case that only some such Registrable Securities may be registered, to the Holders on a pro rata basis based on the total number of such unregistered Registrable Securities held by such Holders); and

 

 

c.

Third, the Company shall reduce Registrable Securities represented by Warrant Shares (applied, in the case that only some such Registrable Securities may be registered, to the Holders on a pro rata basis based on the total number of such unregistered Registrable Securities held by such Holders); and

 

 

d.

Fourth, the Company shall reduce Registrable Securities represented by Conversion Shares (applied, in the case that some Conversion Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Conversion Shares held by such Holders).

 

 
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In the event of a cutback hereunder, the Company shall give the Holder at least five (5) Trading Days prior written notice along with the calculations as to such Holder’s allotment. In the event the Company amends the Initial Registration Statement in accordance with the foregoing, or determines to file an additional Registration Statement, the Company will use its commercially reasonable efforts to file with the Commission, as promptly as allowed by Commission or SEC Guidance provided to the Company or to registrants of securities in general, one or more Registration Statements on Form S-3 or such other form available to register for resale those Registrable Securities that were not registered for resale on the Initial Registration Statement, as amended, as a result of any cutback of Registrable Securities of the Holders or any Registrable Securities not included in the Initial Registration Statement. In any additional Registration Statement filed because of a cutback in the number of Registrable Securities included in the Initial Registration Statement, all holders of shares of Common Stock included in such additional Registration Statement shall be subject to any additional cutbacks that may be required by the Commission on a pro rata basis.

 

(d)      If: (i) the Initial Registration Statement is not filed on or prior to its Filing Date, or (ii) the Company fails to file with the Commission a request for acceleration of a Registration Statement in accordance with Rule 461 promulgated by the Commission pursuant to the Securities Act, within five Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that such Registration Statement will not be “reviewed” or will not be subject to further review, or (iii) a Registration Statement registering for resale all of the Initial Required Registration Amount is not declared effective by the Commission by the Effectiveness Date of the Initial Registration Statement, or (iv) after the effective date of a Registration Statement, the Holders are not permitted to utilize the Prospectus therein to resell such Registrable Securities, for more than thirty (30) consecutive calendar days or more than an aggregate of sixty (60) calendar days (which need not be consecutive calendar days) during any 12-month period (any such failure or breach being referred to as an “ Event ”, and for purposes of clauses (i) and (iii), the date on which such Event occurs, and for purpose of clause (ii) the date on which such five (5) Trading Day period is exceeded, and for purpose of clause (iv) the date on which such thirty (30) or sixty (60) calendar day period, as applicable, is exceeded being referred to as “ Event Date ”), then, in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of (1) the product of (A) 1.0% multiplied by (B) the quotient of (I) the number of such Holder’s Registrable Securities that are not then covered by a Registration Statement that is then effective and available for use by such Holder divided by (II) the total number of such Holder’s Registrable Securities multiplied by (2) the aggregate purchase price paid for such Holder’s Registrable Securities pursuant to the Purchase Agreement; provided , however , that, in the event that none of such Holder’s Registrable Securities are then covered by a Registration Statement that is effective and available for use by such Holder, the quotient of (I) divided by (II) in this clause (1)(B)(X) herein shall be deemed to equal 1.

 

The parties agree that the maximum aggregate liquidated damages payable to a Holder under this Agreement shall be 6% of the aggregate amount paid by such Holder pursuant to the Purchase Agreement with respect to any Registrable Securities related to the Preferred Shares and the Warrants. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro rata basis for any portion of a month prior to the cure of an Event.  Furthermore, if an Event occurs (or is continuing) on a date more than six months after the Holder acquired the Registrable Securities (and thus the six month  holding period under Rule 144(d) has elapsed), liquidated damages shall be paid only with respect to that portion of the Holder’s Registrable Securities that cannot then be immediately resold in reliance on Rule 144. Further, amounts payable as liquidated damages to each Holder hereunder with respect to each share of Registrable Securities shall cease when the Purchaser no longer holds such shares of Registrable Securities. No Event shall be deemed to occur or continue if such Registration Event is caused by delays which are solely attributable to (i) the failure of a Holder to timely advise the Company of any information regarding such Holder for inclusion in the Registration Statement, but any such failure shall apply only to that particular Holder, or (ii) the resolution of comments from the Commission pertaining to the Holders.

 

For the purposes of clarity, it is hereby agreed that no liquidated damages shall accrue or be due in the event that the Prospectus included in any Registration Statement contemplated by this Registration Rights Agreement is suspended or otherwise unavailable for up to the (i) 30 consecutive day period or (ii) 45 days in total during any twelve month period, as provided for above (such 30 consecutive and 45 total day periods may be referred to herein as an “ Allowed Delay ”).

 

(e)      No liquidated damages shall accrue as to any Registrable Securities that are subject to a cut-back pursuant to Section 2(c) (“ Cut Back Shares ”) until such date as the Company is able to effect the registration of such Cut Back Shares in accordance with any restrictions required by the Commission. From and after the date that such restrictions are terminated, all of the provisions of this Section 2 (including the liquidated damages provisions) shall again be applicable to such Cut Back Shares; provided, however, that the Filing Date and Effectiveness Date for the Registration Statement including such Cut Back Shares shall be based on the termination date of such restrictions.

 

 
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(f)      If Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (i) register the resale of the Registrable Securities on another appropriate form and (ii) undertake to register the Registrable Securities on Form S-3 as soon as such form is available, if at all, during the Effectiveness Period; provided that the Company shall only be required to maintain the effectiveness of the Registration Statement then in effect until the earlier of (A) such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the Commission or (B) the expiration of the Effectiveness Period.

 

3.      Registration Procedures .

 

(A)      Company Obligations . In connection with the Company’s registration obligations hereunder, the Company shall:

 

(a)     Not less than five (5) Trading Days prior to the filing of each Registration Statement and not less than two (2) Trading Days prior to the filing of any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to each Holder copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent registered public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to each Holder, to conduct a reasonable investigation within the meaning of the Securities Act. Notwithstanding the above, the Company shall not be obligated to provide the Holders advance copies of any universal shelf registration statement registering securities in addition to those required hereunder, or any Prospectus prepared thereto. 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 reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than three (3) Trading Days after the Holders have been so furnished copies of a Registration Statement or one (1) Trading Day after the Holders have been so furnished copies of any related Prospectus or amendments or supplements thereto.

 

(b)      (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the 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 (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424, (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto, and (iv) comply in all material respects with the applicable provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.

 

(c)     If during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common Stock then registered in a Registration Statement, then the Company shall file as soon as reasonably practicable, but in any case prior to the applicable Filing Date (which date shall be subject to any applicable SEC Guidance or limitation required by the Commission), an additional Registration Statement covering the resale by the Holders of not less than the number of such Registrable Securities.

 

 
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(d)     Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement has been filed, (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement, and (C) with respect to a 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, in each case, after the such Registration Statement has been declared effective, (iii) of the issuance by the Commission or any other federal or state governmental authority 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, (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 a 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 a Registration Statement, Prospectus or other documents so that, in the case of a 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, and (vi) of the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus, provided , however , in no event shall any such notice contain any information which would constitute material, non-public information regarding the Company or any of its Subsidiaries.

 

(e)     Use its commercially reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order stopping or 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.

 

(f)     Furnish to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission; provided, that any such item which is available on the EDGAR system (or successor thereto) need not be furnished.

 

(g)     The Company shall provide reasonable cooperation with any broker-dealer through which a Holder proposes to resell its Registrable Securities in effecting a filing with the FINRA Corporate Financing Department pursuant to FINRA Rule 5110, as requested by any such Holder.

 

(h)     Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the Registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that, the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.

 

(i)     If requested by a Holder, cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request.

 

 
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(j)      Upon the occurrence of any event contemplated by clause (v) or (vi) of Section 3(A)(d), as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement 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, neither a Registration Statement nor such 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. If the Company notifies the Holders in accordance with clauses (iii) through (vi) of Section 3(A)(d) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus. The Company will use its commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable.

 

(k)      Comply with all applicable rules and regulations of the Commission.

 

(l)     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, if required by the Commission, the natural persons thereof that have voting and dispositive control over the shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company’s request, any liquidated damages that are accruing at such time shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended until such information is delivered to the Company.

 

B.      Obligations of the Holders .

 

(a)     Each Holder agrees to furnish to the Company a completed questionnaire in the form attached to this Agreement as Annex B (a “ Selling Stockholder Questionnaire ”) on a date that is not less than ten (10) days prior to the Filing Date or by the end of the fourth (4 th ) Trading Day following the date on which such Holder receives draft materials in accordance with this Section. Each Holder shall furnish in writing to the Company such additional information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. A Holder shall provide such information to the Company at least two (2) Business Days prior to the first anticipated filing date of such Registration Statement if such Holder elects to have any of the Registrable Securities included in the Registration Statement. The Company shall not be required to include the Registrable Securities of a Holder in a Registration Statement and shall not be required to pay any liquidated or other damages hereunder to such Holder who fails to furnish to the Company a fully completed selling holder questionnaire at least two Business Days prior to the Filing Date.

 

(b)     Each Holder agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of a Registration Statement hereunder, unless such Holder has notified the Company in writing of its election to exclude all of its Registrable Securities from such Registration Statement.

 

(c)      Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it (unless an exemption therefrom is available) in connection with sales of Registrable Securities pursuant to a Registration Statement.

 

(d)     Each Holder agrees that, upon receipt of any notice from the Company of either (i) the commencement of an Allowed Delay or (ii) the happening of an event pursuant to Section 3(A)(d)(iii) – (vi) hereof, such Holder will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities, until it is advised in writing (the “ Advice ”) by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed. The Company will use its commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable.

 

 
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4.      Registration Expenses . All fees and expenses incident to the performance of or compliance with, this Agreement by the Company 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 of the Company’s counsel and independent registered public accountants) (A) with respect to filings made with the Commission, (B) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, and (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities), (iii) messenger, telephone and delivery expenses of the Company, (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 no event shall the Company be responsible for any broker or similar commissions of any Holder or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.

 

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, members, partners, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees of the Company, 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, members, stockholders, partners, agents, investment advisors 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 attorneys’ fees) and expenses (collectively, “ Losses ”), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a 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 supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (i) 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 a Registration Statement, such Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(A)(d)(iii)-(vi), the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplated in Section 3(B)(d). The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified person and shall survive the transfer of any Registrable Securities by any of the Holders in accordance with Section 6(e).

 

 
8

 

 

(b)       Indemnification by Holders . Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents 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 or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: (x) such Holder’s failure to comply with any applicable prospectus delivery requirements of the Securities Act through no fault of the Company or (y) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any 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 supplement thereto, in light of the circumstances under which they were made) not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company expressly for inclusion in such Registration Statement or such Prospectus or (ii) to the extent, but only to the extent, that such information relates to 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 a Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or in any amendment or supplement thereto or (iii) in the case of an occurrence of an event of the type specified in Section 3(A)(d)(iii)-(vi), to the extent, but only to the extent, related to the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplated in Section 3(B)(d). In no event shall the liability of any selling Holder under this Section 5(b) 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, except in the case of fraud or willful misconduct by such Holder.

 

(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 have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all reasonable fees and expenses incurred in connection with defense thereof; provided, 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 materially and 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 counsel to the Indemnified Party shall reasonably believe that a material 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 the reasonable fees and expenses of no more than one separate counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent. 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. Subject to the terms of this Agreement, all reasonable 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 thirty (30) calendar days of written notice thereof to the Indemnifying Party; provided, that, the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) not to be entitled to indemnification hereunder.

 

 
9

 

 

(d)       Contribution . If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, 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 this Agreement, any reasonable attorneys’ or other 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 pursuant to this Section 5(d), in the aggregate, any amount in excess of the amount by which the net 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.

 

(e)           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 respective 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, shall be entitled to specific performance of its rights under this Agreement. Each of the Company and each Holder agrees 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 not assert or shall waive the defense that a remedy at law would be adequate.

 

(b)      Piggy-Back Registrations . If, at any time during the Effectiveness Period, there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the Company’s stock option or other employee benefit plans, then the Company shall deliver to each Holder a written notice of such determination and, if within fifteen days after the date of the delivery of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered.

 

(c)      Amendments and Waivers . The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of 51% or more of the then outstanding Registrable Securities (for purposes of clarification, this includes any Registrable Securities issuable upon exercise or conversion of any Security). If a Registration Statement does not register all of the Registrable Securities pursuant to a waiver or amendment done in compliance with the previous sentence, then the number of Registrable Securities to be registered for each Holder shall be reduced pro rata among all Holders and each Holder shall have the right to designate which of its Registrable Securities shall be omitted from such Registration Statement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder or some Holders and that does not directly or indirectly affect the rights of other Holders may be given only by such Holder or Holders of all of the Registrable Securities to which such waiver or consent relates; provided , however , that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the first sentence of this Section 6(c). No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.

 

 
10

 

 

(d)       Notices . Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement.

 

(e)      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 (except by merger) its rights or obligations hereunder without the prior written consent of all of the Holders of the then outstanding Registrable Securities. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.

 

(f)      Execution and Counterparts . This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

(g)      Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement.

 

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

 

(i)       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 commercially 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.

 

(j)      Headings . The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

 

********************

(Signature Pages Follow)

 

 
11

 

 

 

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 CEO

 

 

 

 

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

 

 
12

 

 

 

[SIGNATURE PAGE OF HOLDERS]

 

 

 

Name of Holder:                          ____________________________________________           

 

 

 

Signature of Authorized Signatory of Holder                                                                                     

 

 

 

Name of Authorized Signatory:                                                                                                              

 

 

 

Title of Authorized Signatory:                                                                                                                

 

 

 

 

 

 

 

[SIGNATURE PAGES CONTINUE]

 

 
13

 

 

 

Annex A

 

Plan of Distribution

 

Each Selling Stockholder (the “ Selling Stockholders ”) of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the principal Trading Market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling securities:

 

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

 

block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

 

purchases by a broker-dealer as principal and resales by the broker-dealer for its account;

 

 

an exchange distribution in accordance with the rules of the applicable exchange;

 

 

privately negotiated transactions;

 

 

settlement of short sales;

 

 

in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security;

 

 

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

 

a combination of any such methods of sale; or

 

 

any other method permitted pursuant to applicable law.

 

The Selling Stockholders may also sell securities under Rule 144 under the Securities Act of 1933, as amended (the “ Securities Act ”), if available, rather than under this prospectus.

 

Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

 

In connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

The Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.

 

 
14

 

 

  The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The Selling Stockholders have advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale securities by the Selling Stockholders.

 

We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of securities of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to the Purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

 

 

 
15

 

 

Annex B

 

DIGITAL POWER CORPORATION

 

Selling Stockholder Notice and Questionnaire

 

The undersigned beneficial owner of common stock (the “ Registrable Securities ”) of Digital Power Corporation, a California corporation (the “ Company ”), understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “ Commission ”) a registration statement (the “ Registration Statement ”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “ Securities Act ”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement (the “ Registration Rights Agreement ”) to which this document is annexed. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

 

Certain legal consequences arise from being named as a selling stockholder in the Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling stockholder in the Registration Statement and the related prospectus.

 

NOTICE

 

The undersigned beneficial owner (the “ Selling Stockholder ”) of Registrable Securities hereby elects to include the Registrable Securities owned by it in the Registration Statement. The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1.

  

Name.

  

 
     
 

  

(a)

  

Full Legal Name of Selling Stockholder

     
 

  

 

  

 

     
 

  

(b)

  

Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:

     
 

  

 

  

 

     
 

  

(c)

  

Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):

     
 

  

 

  

 

 

2. Address for Notices to Selling Stockholder:

 

 

 

 

 

 

         

Address:

  

 

 

 

 

 

         

Telephone:

  

 

 

 
16

 

   

Email:

  

 

         
   

Fax:

  

 

         
   

Contact Person:

  

 

 

3. Broker-Dealer Status:

 

 

(a)

Are you a broker-dealer?

 

Yes                   No    

 

 

(b)

If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes                   No    

 

 

Note:    

If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

 

(c)

Are you an affiliate of a broker-dealer?

 

Yes                  No    

 

 

(d)

If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes                   No    

 

 

Note:    

If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4.

  

Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Please state the number of securities of the Company beneficially owned by the Selling Stockholder, regardless of the time acquired or the source from which derived.

 

 

  

(a)

  

Number of shares of Common Stock beneficially owned:

 

  

 

  

 

     
 

  

(b)

  

Number of shares of Common Stock beneficially owned to be registered pursuant to the Registration Statement (if not the same as 4(a) above):

 

  

 

  

 

 

“Beneficial ownership” of a security means a person’s ability, directly or indirectly through any contract, arrangement, understanding, relationship or otherwise, to exercise alone or together with others:

 

 

 

voting power, which includes the power to vote, or to direct the voting of, a security; or

 

 

 

investment power, which includes the power to dispose, or to direct the disposition, of a security.

 

This term also includes having the right to acquire beneficial ownership of a security within 60 days, including any right to acquire the security through the exercise of any option, warrant or right, through the conversion of a security, pursuant to the power to revoke a trust, discretionary account or similar arrangement or pursuant to the automatic termination of a trust, discretionary account or similar arrangement.

 

 
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The above definition of beneficial ownership is very broad and may include, for example, securities held in the name of another person, such as any relative living in your home, custodians, brokers, or pledgees for your account, or any partnership, trust estate or closely-held corporation in which you have an interest or are an officer or director. You are also the beneficial owner of securities if you, directly or indirectly, create or use a trust, proxy, power of attorney, pooling arrangement or any other contract, arrangement or device with the purpose or effect of divesting yourself of beneficial ownership of such securities or preventing the vesting of such beneficial ownership.

 

5. Voting and Investment Power (to be completed only if the Selling Stockholder is not a natural person):

 

 

(a)

Please name each person or persons who have voting or investment power over the Common Stock beneficially owned by the Selling Stockholder. As described in Question 4 above, please note that for purposes of answering this Question 5:

 

 

(1)

Voting power includes the power to vote, or to direct the voting of, such security; and

 

 

(2)

Investment power includes the power to dispose, or to direct the disposition, of such security.

 


 


 


 

 

 

                (b)

  

For each person named above in this Question 5, please state the number of shares of Common Stock beneficially owned by the Selling Stockholder in which that person has sole voting power, shared voting power, sole investment power and/or shared investment power.

 

Beneficial Ownership

  

Number of
Shares

Total number of shares as to which the person has sole voting power

  

 

Total number of shares as to which the person has shared voting power

  

 

Total number of shares as to which the person has sole investment power

  

 

Total number of shares as to which the person has shared investment power

  

 

 

 

 

 

  

If necessary, use the blank page attached hereto as Exhibit B .

     
 

 

                (c)

  

Do you have any reason to believe that the ownership of the Common Stock of the registered holder identified in response to Question 1 above should be aggregated with the ownership of any other registered holder of the Common Stock, for purposes of describing the beneficial ownership of those shares of Common Stock in the Registration Statement? Ownership could be aggregated where there is a relationship that, as a factual matter, confers on a person a significant ability to affect how voting power or investment power over the shares will be exercised.

     
 

 

 

  

Yes ☐ No

     
 

 

 

  

If “yes,” please explain below:

     
 

 

 

  

 

     
 

 

 

  

 

     
 

 

 

  

 

 

 
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                5.

  

Relationships with the Company:

  

 
     
 

 

 

  

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

     
 

 

 

  

State any exceptions here:

     
         
         
         

 

 

“Affiliate” means a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, a specified person.

 

“Control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract or otherwise.

 

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

 
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IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

                         
 

 

 

 

 

 

 

 

 

 

 
             

Date:                                                              

 

 

 

 

 

 

 

 

 

Beneficial Owner:

 

 

             
       
 

 

 

 

By:

 

 

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

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Exhibit 99.1