SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
DIGITAL POWER CORPORATION
-------------------------
(Name of Issuer)
Common Stock, no par value
-----------------------------
(Title of Class of Securities)
253862 10 6
-------------------------------------
(CUSIP Number of Class of Securities)
Telkoor Telecom Ltd.
David Amitai, President and Chief Executive Officer
Ben-Zion Diamant, Chairman
5 Giborey Israel Street
I.Z. South Natania, Israel
(972)-9-8632333
-------------------------------------------------------------------
(Name, Address and Telephone Number of Persons Authorized to Receive
Notices and Communications)
Copy to:
Gene Kleinhendler
Nitzan Hirsch-Falk
Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co.
One Azrieli Center, Circular Tower, Tel-Aviv, 67021 Israel
Tel: (972)-3- 607-4444
Fax: (972)-3- 607-4422
September 6, 2001
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(Date of Event which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing the
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. Section 240.13d-7 for other
parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
2
CUSIP No. 253862 10 6
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1. Names of Reporting Persons [or any subsidiary thereof]: Telkoor Telecom Ltd.
I.R.S. Identification Nos. of above persons (entities only). Not Applicable
--------------------------------------------------------------------------------
2.Check the Appropriate Box if a Member of a Group (See Instructions)
(a)
(b)
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3.SEC Use Only
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4.Source of Funds (See Instructions):WC
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5.Check if Disclosure of Legal Proceedings is Required Pursuant to Item 2(d) or
2(e)
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6.Citizenship or Place of Organization: Israel
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Number of Shares 7. Sole Voting Power: 3,150,000 Shares*
Beneficially Owned by -------------------------------------------------------
Each Reporting Person 8. Shared Voting Power:
With -------------------------------------------------------
9. Sole Dispositive Power: 3,150,000 Shares*
-------------------------------------------------------
10. Shared Dispositive Power:
11. Aggregate Amount Beneficially Owned by Each Reporting Person:
3,150,000 Shares*
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12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See
Instructions):
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13. Percent of Class Represented by Amount in Row (11) 49.1%
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14. Type of Reporting Person (See Instructions): CO
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* Represents 1,250,000 shares of common stock and warrants to purchase up to
1,900,000 shares of common stock.
3
CUSIP No. 253862 10 6
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1. Names of Reporting Persons [or any subsidiary thereof]: David Amitai
I.R.S. Identification Nos. of above persons (entities only). Not Applicable
--------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group (See Instructions)
(a)
(b)
--------------------------------------------------------------------------------
3. SEC Use Only
--------------------------------------------------------------------------------
4. Source of Funds (See Instructions):AF
--------------------------------------------------------------------------------
5. Check if Disclosure of Legal Proceedings is Required Pursuant to Item 2(d)
or 2(e)
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6. Citizenship or Place of Organization: Israel
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Number of Shares 7. Sole Voting Power:
Beneficially Owned by
Each Reporting Person -------------------------------------------------------
With 8. Shared Voting Power: 3,150,000 Shares*
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9. Sole Dispositive Power:
-------------------------------------------------------
10. Shared Dispositive Power: 3,150,000 Shares*
--------------------------------------------------------------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting
Person: 3,150,000 Shares*
--------------------------------------------------------------------------------
12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See
Instructions):
--------------------------------------------------------------------------------
13. Percent of Class Represented by Amount in Row (11) 49.1%
--------------------------------------------------------------------------------
14.......Type of Reporting Person (See Instructions): IN
--------------------------------------------------------------------------------
* Represents 1,250,000 shares of common stock and warrants to purchase
up to 1,900,000 shares of common stock.
4
CUSIP No. 253862 10 6
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1. Names of Reporting Persons [or any subsidiary thereof]: Ben-Zion Diamant
I.R.S. Identification Nos. of above persons (entities only). Not Applicable
--------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group (See Instructions)
(a)
(b)
--------------------------------------------------------------------------------
3. SEC Use Only
--------------------------------------------------------------------------------
4. Source of Funds (See Instructions):AF
--------------------------------------------------------------------------------
5. Check if Disclosure of Legal Proceedings is Required Pursuant to Item 2(d)
or 2(e)
--------------------------------------------------------------------------------
6. Citizenship or Place of Organization: Israel
--------------------------------------------------------------------------------
Number of Shares 7. Sole Voting Power:
Beneficially Owned by
Each Reporting Person -------------------------------------------------------
With 8. Shared Voting Power: 3,150,000 Shares*
-------------------------------------------------------
9. Sole Dispositive Power:
-------------------------------------------------------
10. Shared Dispositive Power: 3,150,000 Shares*
--------------------------------------------------------------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting
Person: 3,150,000 Shares*
--------------------------------------------------------------------------------
12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See
Instructions):
--------------------------------------------------------------------------------
13. Percent of Class Represented by Amount in Row (11) 49.1%
--------------------------------------------------------------------------------
14.......Type of Reporting Person (See Instructions): IN
--------------------------------------------------------------------------------
* Represents 1,250,000 shares of common stock and warrants to purchase
up to 1,900,000 shares of common stock.
5
Item 1. Security and Issuer
This statement relates to common stock, no par value, of Digital Power
Corporation, a California corporation ("DPC"). The principal executive offices
of DPC is 41920 Christy Street, Fremont, California 94538.
Item 2. Identity and Background
(a) This statement is being filed by Telkoor Telecom Ltd., a limited
liability corporation formed under the laws of Israel ("Telkoor") or any
subsidiary thereof and Mr. David Amitai and Mr. Diamant ("Reporting Persons").
Telkoor is primarily engaged in the development marketing and sale of power
supplies and power systems for the telecommunication equipment industry.
Telkoor's products are targeted to both the private-commercial market and to
military applications market. Telkoor shares are listed for trading in the Tel
Aviv Stock Exchange. Mr. Amitai owns 33.99% of the shares and Mr. Diamant owns
34.03% of the shares of Telkoor on a fully diluted basis.
(b) The business address for each of the Reporting Persons is 5 Giborey
Israel Street, I.Z. South Natania, Israel.
(c) Mr. Amitai is Chief Executive Officer and President and Mr. Diamant is
Chairman of the Board of Telkoor. In addition, Schedule I attached hereto sets
forth certain additional information with respect to each director and each
executive officer of Telkoor. The filing of this statement on Schedule 13D shall
not be construed as an admission that any person listed on Schedule I hereto is,
for the purposes of Section 13(d) or 13(g) of the Securities Exchange Act of
1934, the beneficial owner of any securities covered by this statement.
(d)-(e) During the past five years, none of the Reporting Persons or, to
their knowledge, any person listed on Schedule I hereto, has been convicted in a
criminal proceeding or has been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, federal or
state securities laws or finding any violation with respect to such laws;
(f) Telkoor is incorporated in Israel, and Mr. Amitai and Mr. Diamant are
Israeli citizens.
Item 3 Source and Amount of Funds or Other Consideration
Under the terms of a Securities Purchase Agreement dated September 6, 2001,
between Telkoor and DPC, Telkoor purchased from DPC the following securities:
(a) 1,250,000 shares of common stock for $1,250,000; (b) warrants to purchase
900,000 shares of common stock at $1.25 per share; and (c) warrants to purchase
1,000,000 shares of common stock at $1.50 per share (collectively, the
"Securities").
The source of funds for the purchase of the Securities is from working
capital of Telkoor.
6
Item 4. Purpose of Transaction
The transaction described in Items 3 and 5 occurred as a result of
negotiations between DPC and Telkoor. The Reporting Persons are acquiring the
Securities described in Item 5 for investment purposes and to acquire a
strategic interest and control in DPC. Depending on market conditions, the
Reporting Persons may increase or decrease their beneficial ownership of the
shares of common stock of DPC.
In addition, pursuant to the Securities Purchase Agreement, Telkoor shall
negotiate in good faith with DPC regarding the exclusive marketing rights in
North America of the CompactPCI products line of Telkoor. Telkoor may transfer
to DPC, subject to all required legal and corporate approvals, certain assets of
Telkoor against issuance of shares of common stock of DPC at their market value.
Item 5. Interest in Securities of the Issuer
Telkoor and DPC have entered into a Securities Purchase Agreement dated as
of September 6, 2001, pursuant to which Telkoor has agreed to acquire the
following securities of DPC:
(i) 1,250,000 shares of DPC common stock at an aggregate purchase price of
$1,250,000;
(ii) warrants to purchase 900,000 shares of DPC common stock, exercisable
at a price of US$1.25 per share at any time until sixty (60) calendar
days after DPC files its Form 10-KSB for the year ended December 31,
2002, with the Securities and Exchange Commission.
(iii) warrants to purchase 1,000,000 shares of DPC common stock,
exercisable at a price of US$1.50 per share at any time until December
31, 2003.
Based on the number of DPC shares of common stock outstanding as at
September 6, 2001, and upon completion of the transaction and assuming the
exercise of all warrants held by Telkoor, Telkoor would beneficially own
3,150,000 shares of DPC common stock representing an approximate 49.1% interest
in DPC.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to
Securities of the Issuer
Pursuant to the Securities Purchase Agreement, DPC will file a registration
statement with the Securities and Exchange Commission with respect to all of the
shares of Common Stock held by or issuable to Telkoor Telecom in connection with
the transactions contemplated by the Securities Purchase Agreement.
DPC also agreed, pursuant to the Securities Purchase Agreement, that upon
the closing of the transaction, Telkoor shall have the right to select at least
a majority of the directors of DPC.
Amounts payable by DPC to Telkoor under the indemnification provisions of
the Securities Purchase Agreement, if any, shall be paid either in cash or by
issuance of DPC common stock, at Telkoor's option.
7
Item 7. Material to Be Filed as Exhibits
The following exhibits are filed herewith:
1. Securities Purchase Agreement
2. Warrant To Purchase 900,000 Shares of Common Stock
3. Warrant To Purchase 1,000,000 Shares of Common Stock
Signature
After reasonable inquiry and to the best of the knowledge and belief of
each of the undersigned, each of the undersigned certifies that the information
set forth in this statement is true, complete and correct.
Dated: September 16, 2001 Telkoor Telecom Ltd.
BY: /s/ DAVID AMITAI
---------------------------------
David Amitai, President
/s/ BEN- ZION DIAMANT
---------------------------------
Ben- Zion Diamant
/s/ DAVID AMITAI
---------------------------------
David Amitai
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INDEX OF SCHEDULES AND EXHIBITS
No. Description
---------- --------------------------------------------------------
Schedule I Directors and Executive Officers of Telkoor Telecom Ltd.
Exhibit A Securities Purchase Agreement
Exhibit B Form of 900,000 Warrants
Exhibit C Form of 1,000,000 Warrants
9
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF TELKOOR TELECOM LTD.
Name and Business Address Citizenship Position and Occupation
------------------------------------- --------------- --------------------------------------
Ben-Zion Diamant Israel Chairman
5 Giborey Israel Street
I.Z. South Natania, Israel
------------------------------------- --------------- --------------------------------------
David Amitai Israel Chief Executive Officer, President
5 Giborey Israel Street and Director
I.Z. South Natania, Israel
------------------------------------- --------------- --------------------------------------
Uri Friedlander Israel Chief Financial Officer
5 Giborey Israel Street
I.Z. South Natania, Israel
------------------------------------- --------------- --------------------------------------
Joseph Ben Ami Israel V.P. Marketing
5 Giborey Israel Street
I.Z. South Natania, Israel
------------------------------------- --------------- --------------------------------------
Miriam Amitai Israel Director
5 Giborey Israel Street
I.Z. South Natania, Israel
------------------------------------- --------------- --------------------------------------
Izhak Amitai Israel Director
5 Giborey Israel Street
I.Z. South Natania, Israel
------------------------------------- --------------- --------------------------------------
Ilana Mena-Diamant5 Giborey Israel Israel Director
Street
I.Z. South Natania, Israel
------------------------------------- --------------- --------------------------------------
Ilana Diamant Israel Director
5 Giborey Israel Street
I.Z. South Natania, Israel
------------------------------------- --------------- --------------------------------------
Yosef Ben-Basat Israel Director
5 Giborey Israel Street
I.Z. South Natania, Israel
------------------------------------- --------------- --------------------------------------
Josef Hecht Israel Director
5 Giborey Israel Street
I.Z. South Natania, Israel
------------------------------------- --------------- --------------------------------------
Dov Dekel Israel Director
5 Giborey Israel Street
I.Z. South Natania, Israel
------------------------------------- --------------- --------------------------------------
David Cohen Israel Director
5 Giborey Israel Street
I.Z. South Natania, Israel
------------------------------------- --------------- --------------------------------------
A
EXHIBIT A
SECURITIES PURCHASE AGREEMENT
A-1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made as of
September 6, 2001 by and between Digital Power Corporation, a California
corporation (the "Company") and Telkoor Telecom Ltd., a limited liability
corporation formed under the laws of Israel, or any subsidiary thereof (the
"Purchaser").
WHEREAS, the Company desires to sell shares of its common stock, no par
value and warrants to purchase shares of common stock to the Purchaser who is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D, or
who is not a U.S. person as that term is defined under Regulation S, promulgated
by the United States Securities and Exchange Commission ("SEC") under the
Securities Act of 1933, as amended (the "Securities Act") upon the terms and
conditions contained herein; and
WHEREAS, the Purchaser desires to purchase shares of common stock and
warrants to purchase shares of common stock of the Company upon the terms and
subject to the conditions set forth herein.
NOW THEREFORE, for and in consideration of the premises and the mutual
representations, warranties, covenants, and agreements set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. PURCHASES
1.1 Purchase of Common Stock and Warrants. Upon the terms and subject to
the conditions set forth in this Agreement, the Purchaser hereby agrees to
purchase from the Company, and the Company hereby agrees to issue and sell to
the Purchaser, 1,250,000 shares of common stock of the Company (the "Common
Stock") and (i) 900,000 warrants, each warrant granting the holder thereof the
right to purchase one share of common stock for One Dollar and Twenty Five Cents
($1.25) per share; and (ii) 1,000,000 warrants, each warrant granting the holder
thereof the right to purchase one share of common stock for One Dollar and Fifty
Cents ($1.50) per share (the "Warrants"). The forms of Warrants are attached
hereto and made a part hereof as Exhibit 1.1(i) and Exhibit 1.1(ii).
Collectively, the Common Stock and Warrants are referred to as the Securities.
1.2 Consideration. In consideration of the purchase in Section 1.1, the
Purchaser hereby agrees to pay to the Company One Million Two Hundred Fifty
Thousand Dollars ($1,250,000) (the "Consideration"). Reference to dollars in
this Agreement shall mean United States dollars.
A-2
1.3 Calculation of Net Tangible Assets. The Company shall provide the
amount of its Net Tangible Assets in a Report to the Purchaser. For the purposes
of this Section 1.3, the term "Net Tangible Assets" shall be calculated by
subtracting total liabilities from total assets, net of reserves, of the
Company, excluding any and all intangible assets and write-back of reserves
which have been previously written off. "Report" shall mean, for purposes of
this Section 1.3, the Company's financial statements for the two-month period
ended August 31, 2001 prepared in accordance with United States GAAP. These
financial statements shall be reviewed by the Company's independent accountants
under the same procedure as if the Company was filing its periodic quarterly
reports with the SEC. However, in no circumstance shall the independent
accountant be required to issue a report.
If the Purchaser disputes the Company's calculation of Net Tangible Assets
and believes the Purchaser has the right to terminate the Agreement under
Section 8.1(a) by reason of Section 2.12 (q), the Purchaser shall deliver to the
Company a written notice describing such objections within five (5) business
days after receiving the Report. The parties to this Agreement will use their
reasonable best efforts to engage in good faith negotiations to resolve any such
objections promptly after receipt by the Company of such Notice.
If a final resolution is not obtained promptly after the Company first
receives the Notice, the Purchaser may submit the parties' disagreement to a
"Big Five" accounting firm, excluding Arthur Andersen & Co. (the "Independent
Third Party") for resolution. The Independent Third Party, upon review of the
Report and consideration of the objection set forth in the Notice, shall resolve
any such remaining objectives and revise the Report, determine the Tangible Net
Assets (if any) and communicate the foregoing to the Company and the Purchaser
in writing not later than fourteen (14) days following the submission of dispute
to the Independent Third Party (unless both parties to this Agreement agree to
provide the Independent Third Party with additional time to make its
determination).
The determinations of the Independent Third Party shall for all purposes be
conclusive, final and non-appealable, shall not be subject to arbitration under
Section 10.2(b) or to any judicial review under any circumstances and shall be
binding upon the Company and the Purchaser. The fees and expenses of the
Independent Third Party incurred in the resolution of such objectives shall be
incurred equally by the Company and the Purchaser.
The Company shall provide the Independent Third Party full access to the
books and records, any other information, including work papers of its
accountants, and to any employees of the Company to the extent necessary for the
preparation of all financial statements referred to therein.
1.4 Wire Transfer Instructions. The Consideration provided for in Section
1.2 above will be delivered to the Company by the Purchaser via wire transfer
upon written instruction to be delivered to the Purchaser by the Company.
A-3
1.5 Closing Date. The Closing Date shall be ten (10) business days after
the Company delivers the Report to the Purchaser.
1.6 Advance Payment. Within twenty-four (24) hours of executing this
Agreement, the Purchaser shall deliver to the Company One Hundred Fifty Thousand
Dollars ($150,000) (the "Advance Payment") to be used only for the reduction of
workforce at the Guadalajara, Mexico facility of the Company's subsidiary Poder
Digital S.A. de C.V. On the Closing Date, the Advance Payment shall be applied
to the Consideration in Section 1.2 without interest. If there is no closing and
this Agreement is terminated, the Purchaser may, at its option, (i) convert all
or part of the Advance Payment into shares of common stock of the Company at One
Dollar ($1.00) per share, or (ii) require the Company to repay the Advance
Payment without interest within five (5) business days of demand.
1.7 Delivery of Shares of Common Stock on the Closing Date. On the Closing
Date, the Company shall deliver, (i) against payment therefore, certificates
representing the shares of Common Stock and the Warrants and (ii) all other
documents required to be delivered on the Closing Date pursuant to this
Agreement. The shares of Common Stock and Warrants will be duly authorized and
issued to the Purchaser. The certificates evidencing the shares of Common Stock
and Warrants as delivered to the Purchaser will be in due and proper legal form.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Purchaser as of the date hereof
and on the Closing Date as follows:
2.1 Corporate Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
with all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as it is now being conducted, and is
qualified or licensed to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where its failure so to
qualify to be licensed would not have a material adverse effect on the Company.
2.2 Capitalization and Voting Rights. On the Closing Date, the authorized
capital stock of the Company will consist of 10,000,000 shares of Common Stock,
no par value, of which 4,510,680 shares shall be issued and outstanding,
including the Common Stock to be issued under this Agreement, and 2,000,000
shares of Preferred Stock, no par value, of which no shares are issued and
outstanding. All of such issued and outstanding shares of Common Stock are
validly issued, fully paid and the holders thereof are not entitled to any
preemptive or other similar rights. The rights, privileges, preferences and
restrictions of the Common Stock and Preferred Stock are as stated in the
Company's Articles of Incorporation attached hereto as Exhibit 2.2(i). In
connection with the Company's stock option plans, 1,129,720 shares of Common
Stock have been reserved for issuance to employees of the Company under the
plans and/or agreements (the "Employee Options"). In addition to the shares
A-4
reserved for issuance pursuant to the exercise of the Employee Options,
2,125,000 shares of Common Stock have been reserved for issuance sufficient for
the exercise of the (i) Warrants, as more fully set forth in the Warrant
Agreements, and (ii) other warrants, in addition to the Employee Options and
Warrants, all of which are set forth on the Schedule of Options and Warrants
that is attached hereto and made a part hereof as Schedule 2.2(ii). This
Schedule contains a complete list of warrants, options and other rights granted,
authorized and/or issued by the Company as of the Closing Date. All of such
issued and outstanding warrants, options, Employee Options and other rights have
been validly issued and the holders thereof will not be entitled to any
preemptive or other similar rights. Except as set forth above, there are no
outstanding rights, plans, options, warrants, conversion rights or agreements
for the purchase or acquisition from the Company of capital stock. The Company
does not own or control any stock, equity, voting ownership or other interest in
any corporation, partnership, joint venture or other business association or
entity, except for its 100% interest in Digital Power Limited, a United Kingdom
corporation and Poder Digital, S.A. de C.V., a Mexican corporation (the
"Subsidiaries").
2.3 Authorization: Validity. The Company has full corporate power and
authority to enter into the Agreement and to carry out its obligations
thereunder. When issued in accordance with the Agreement, the shares of Common
Stock and shares of common stock underlying the Warrants will be validly issued,
fully paid and nonassessable. The execution and delivery of the Agreement and
the consummation of the transactions contemplated hereby, including without
limitation, the issuance of the Common Stock and the Warrants hereunder and the
issuance of shares of common stock upon any exercise of the Warrants, have been
duly authorized by the Board of Directors of the Company, which authorization
remains in full force and effect and has not been modified or amended by any
subsequent action of such Board of Directors, and no other corporate actions or
proceedings on the part of the Company is necessary to authorize the Agreement
or the transactions contemplated hereby. This Agreement constitutes the valid
and binding obligations of the Company enforceable in accordance with their
terms.
2.4 Corporate Organization of Subsidiaries. Digital Power Limited is a
corporation duly organized, validly existing and in good standing under the laws
of the United Kingdom. Poder Digital, S.A. de C.V. is a corporation duly
organized, validly existing and in good standing under the laws of Mexico. The
Subsidiaries have all requisite corporate power and authority to own, operate
and lease their respective properties and to carry on their businesses as they
are now conducted, and are qualified or licensed to do business in each
jurisdiction in which the property owned, leased or operated by them or the
nature of the business conducted by them makes such qualification or licensing
necessary, except where its failure so to qualify to be licensed would not have
a material adverse effect on the respective Subsidiary.
2.5 No Violation. Except for any required filings under applicable Federal
and state securities laws or with the American Stock Exchange ("AMEX"), which
the Company undertakes to duly make in a timely manner, the execution, delivery
and performance by the Company of the Agreement and the consummation by it of
the transactions contemplated thereby, including, without limitation, the
issuance, sale and delivery of the Securities, do not require the consent,
waiver, approval, license or authorization of or filing of any notice or report
A-5
with any person, entity or public authority and will not violate, result in a
breach of or the acceleration of any obligation under, or constitute a default
under, any provision of the Company's Articles of Incorporation or Bylaws or any
indenture, mortgage, lien, lease, agreement, contract, instrument, order,
judgment, decree, law, ordinance or regulation to which any property of the
Company is subject or by which the Company is bound or result in the creation or
imposition of any lien, claim, charge, restriction, equity or encumbrance of any
kind whatsoever upon, or give to any other person any interest or right in or
with respect to, any of the properties, assets, business, agreements or
contracts of the Company.
2.6 Compliance With Law. To the best of its knowledge, the Company and its
Subsidiaries are in compliance with the governmental laws, environmental laws,
safety laws, codes, orders, rules, regulations and requirements applicable to
its business and conditions of employment, except where noncompliance could not
reasonably be expected to have a material adverse effect on the business,
assets, properties or financial condition of the Company and its Subsidiaries.
The Company and its Subsidiaries have obtained all permits, licenses, variances,
exemptions, orders, contracts and approvals from Federal, state, local and
foreign governmental and regulatory bodies which are material, singularly or in
the aggregate, to the operation of its business (collectively, the "Permits" and
each individually, a "Permit"). The Company and its Subsidiaries are in
compliance with the material terms of each Permit and with all requirements,
standards and procedures of the federal, state, local and foreign governmental
or regulatory bodies which issued the Permits or any of them and there does not
exist under any of the Permits any default or event of default or event which
with notice or lapse of time or both would constitute an event of default by the
Company or its Subsidiaries.
2.7 Tax Matters. The Company and its Subsidiaries have fully and timely,
properly and accurately filed all material tax returns and reports required to
be filed by them, including all federal, foreign, state and local returns and
reports for all years and periods for which any such returns or reports were
due. All income, sales, use, occupation, property, or other taxes or assessments
due from the Company and its Subsidiaries have been paid, and there are no
pending assessments, asserted deficiencies or claims for additional taxes that
have not been paid. There are no tax liens on any property or assets by any
applicable government agency except those not yet due. No state of facts exists
or has existed which would constitute grounds for the assessment of any penalty
or any further tax liability beyond that shown on the respective tax reports or
returns. There are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any federal, state or local income tax return
or report for any period. All taxes which the Company or its Subsidiaries have
been required to collect or withhold have been duly withheld or collected and,
to the extent required, have been paid to the proper taxing authority.
2.8 SEC Filings. The Company previously has delivered to the Purchaser a
copy of the Company's (i) Annual Report on Form 10-KSB for its fiscal year ended
December 31, 2000, (ii) Quarterly Reports on Form 10-QSB for the quarterly
periods ended March 31, 2001 and June 30, 2001, and (iii) proxy statement for
the Annual Meeting of Shareholders held on June 26, 2001 ("SEC Reports") filed
by the Company with the SEC. Since 1996, the Company has made all filings
required to be made by it under the Securities Act, the Securities Exchange Act
A-6
of 1934 (the "1934 Act") and the securities laws of any state, and any rules and
regulations promulgated thereunder. The audited and unaudited consolidated
financial statements of the Company included in the SEC Reports have been
prepared in accordance with generally accepted accounting principles
consistently applied (except as may be indicated in the notes thereto) and
fairly present the financial position of Company as at the dates thereof and the
results of its operations and changes in cash flows for the periods then ended.
The information contained in the SEC Reports is or was accurate and complete as
of the date given. No stop order asserting that any of the transactions
contemplated by this Agreement are subject to the registration requirements of
the Securities Act has been issued by the SEC. The SEC Reports, at the time they
were or are hereafter filed or last amended, as the case may be, with the SEC,
complied and will comply in all material respects with the requirements of the
1934 Act. Neither the Agreement nor the SEC Reports, taken as a whole, contain
any untrue statement of material fact or omit to state a material fact necessary
to make the statements made therein, in light of the circumstances under which
they were made, not misleading. To the best of the Company's knowledge, it is
not currently under investigation by the SEC, AMEX or other governmental
authority.
2.9 As of the Closing Date Real Property. As of the Closing Date, the
Company and its Subsidiaries owns all real property described in the Company's
Form 10-KSB for the year ended December 31, 2000. All real property leases of
the Company and its Subsidiaries as described in the Company's Form 10-KSB are
in full force and effect and the Company or Subsidiary is not in breach thereof.
2.10 As of the Closing Date Intellectual Property. As described in the
Company's Form 10-KSB for the year ended December 31, 2000, the Company owns or
possesses all patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks and
trade names ("Intellectual Property") currently employed or utilized by it in
connection with the business now operated and proposed to be operated. The
Company has not received any notice of infringement of or conflict with asserted
rights of others with respect to any Intellectual Property. The description of
the Intellectual Property in the Company's Form 10-KSB for the year ended
December 31, 2000 does 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 the light of the circumstances under which they
were made, not misleading.
2.11 AMEX Compliance. The Company does and will take all necessary actions
to ensure its continued inclusion in, and the continued eligibility of the
Common Stock for listing on, the AMEX under all currently effective and
currently proposed inclusion requirements.
2.12 Absence of Certain Changes or Events. Since June 30, 2001, except as
disclosed in the SEC Reports and on Schedule 2.12 hereto, the Company and its
Subsidiaries have not (for the purposes of this Agreement, each such case alone
or in the aggregate with others exceeds a value of $100,000 shall be a "Material
Adverse Change"):
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(a) incurred any obligation or liability, whether fixed or contingent
(including, without limitation, any liability as a guarantor or otherwise
with respect to the liabilities of others), except those incurred in the
ordinary course of business, none of which are over $50,000, except in
connection with the Agreement and the transactions contemplated thereby;
(b) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (fixed or contingent), other than in the ordinary
course of business;
(c) mortgaged, pledged or subjected to lien, charge, security interest
or to any other encumbrance any of its assets or properties, other than in
the ordinary course of business;
(d) transferred, leased or otherwise disposed of any of its assets or
properties except for a fair consideration in the ordinary course of
business or acquired any assets or properties, other than in the ordinary
course of business;
(e) canceled or compromised any debt or claim, other than in the
ordinary course of business;
(f) waived or released any rights of material value, other than in the
ordinary course of business;
(g) suffered any casualty loss or damage (whether or not such loss or
damage shall have been covered by insurance) over $50,000 effecting the
ability of the Company to conduct its business as it is presently
conducted;
(h) declared any dividend or made any payment or distribution in
respect of its common stock;
(i) been the subject of any regulatory action, citation or comparable
action or entered into any consent order with government agencies with
regard to its operations or products;
(j) implemented an adverse change in accounting principles, practices
or methods resulting in a decrease of greater than $50,000;
(k) received the resignation or terminated the employment of Robert
Smith or Chris Schofield;
(l) defaulted or breached any contract which would have or might
result in a liability of over $50,000;
(m) been involved in any civil, criminal, administrative action, suit,
claim, hearing, investigation or proceeding, whether pending or threatened,
(i) by reason of this Agreement or (ii) that could result in a claim
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against, obligation or liability of the Company or its Subsidiaries of over
$100,000;
(n) instituted any proceeding (or any proceeding shall be instituted
against the Company and remain undismissed or unstayed for a period of 30
days) seeking to declared the bankruptcy or insolvency of the Company or
seeking winding up, dissolution, reorganization or liquidation of the
Company;
(o) triggered the acceleration provision in any of its obligations to
pay more than $100,000 in the aggregate, excluding the Company's loan with
San Jose National Bank in which the Company and Purchaser will work in good
faith to renew;
(p) been subject to the termination of the relationship with a
customer who was a customer on June 30, 2001, who during the six months
ended June 30, 2001 contributed more than 10% of the total sales revenues
recognized by the Company; and
(q) experienced a decrease in Net Tangible Assets of greater than 50%
as of August 31, 2001 as derived from the Report defined by Section 1.3.
For the purpose of this Section 2.12(q), the term "Net Tangible Assets"
shall be calculated by subtracting total liabilities from total assets, net
of reserves of the Company, excluding any and all intangible assets and
write-back of reserves which have been previously written off.
2.13 Private Offering. Subject to the accuracy of the representations of
the Purchaser in Section 3 hereof, the offer, sale and issuance of the shares of
Common Stock and Warrant constitute a transaction exempt from the registration
requirements of Section 5 of the Securities Act and neither the Company nor
anyone acting on its behalf will take any action hereafter that would cause the
loss of such exemption.
2.14 Undisclosed Litigation. The Company and/or the Subsidiaries are not
currently involved in, and to the best knowledge of the Company, there is no
threat of any civil, criminal, administrative action, suit, claim, hearing,
investigation or proceeding, except the Company intends to initiate collection
proceedings against Kart Savers.
2.15 Labor Unions. The Company and its Subsidiaries are not bound to any
collective bargaining agreements, except with employees located in Mexico, which
terms are set forth in Schedule 2.15.
2.16 Related Party Transaction. There are no related party transactions
that would be required to be disclosed under Regulation S-B promulgated by the
SEC under the 1934 Act.
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SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser understands that the issuance and sale of the shares of
Common Stock and Warrants have not been registered under the Securities Act on
the grounds that the issuance and sale of such securities to the Purchaser is
exempt pursuant to Section 4(2) of the Securities Act and/or Regulation D
promulgated under the Securities Act or Regulation S promulgated under the
Securities Act, and that the reliance of the Company on such exemptions is
predicated in part on the Purchaser's representations, warranties, covenants and
acknowledgments set forth in this Section 3.
3.1 Authorization. The Purchaser represents and warrants to the Company
that it is a limited liability company duly organized, validly existing and in
good standing under the laws of Israel; that it was not organized for the
specific purpose of purchasing the Securities to be purchased by it hereunder;
that it has full corporate power and authority to enter into this Agreement and
to carry out its obligations hereunder; all corporate actions or proceedings on
the part of such Purchaser as are necessary to authorize this Agreement or the
transactions contemplated hereby; and that the transactions contemplated hereby
have been taken. The Purchaser represents and warrants to the Company that this
Agreement constitutes the valid and binding obligation of such Purchaser,
enforceable in accordance with its respective terms except to the extent that
enforceability may be limited by equity, bankruptcy, insolvency and other laws
of general application affecting the rights and remedies of creditors.
3.2 Purchase Without View to Distribute. The Purchaser represents and
warrants to the Company that the shares of Common Stock and Warrant to purchase
shares of Common Stock, being purchased by it are being acquired for its own
account, not as a nominee or agent, and not with a view to resale or
distribution within the meaning of the Securities Act and the rules and
regulations thereunder.
3.3 Restrictions on Transfer.
(a) The Purchaser (i) acknowledges that the Securities are not
registered under the Securities Act and that the Securities must be held
indefinitely by it unless they are subsequently registered under the
Securities Act or an exemption from registration is available, (ii) is
aware that any routine sales of the Common Stock under Rule 144 promulgated
by the SEC under the Securities Act may be made only in limited amounts and
in accordance with the terms and conditions of that Rule and that in such
cases where the Rule is not applicable, compliance with some other
registration exemption will be required, (iii) is aware that Rule 144 is
not presently available for use by the Purchaser for resale of any such
Common Stock and that there can be no assurance that Rule 144 will be
available at any time in the future, (iv) is aware that, except as provided
in Section 6 hereof, the Company is not obligated to register under the
Securities Act any sale, transfer or other disposition of the Securities,
(v) is aware that the Company shall not be required to register the
transfer of the Securities on the books of the Company unless the Company
shall have been provided with an opinion of counsel satisfactory to it
prior to such transfer to the effect that registration under the Securities
Act or any applicable state securities law has been effected or is not
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required in connection with the transaction resulting in such transfer, and
(vi) is aware that the Securities, and each certificate representing the
Securities and any shares of Common Stock or other securities issued in
respect of such Securities upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall (unless
otherwise permitted by paragraph (b) of this Section 3.3) be stamped or
otherwise imprinted with the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE SOLD, OFFERED TO SALE, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT RELATING TO THE SECURITIES WHICH IS EFFECTIVE
UNDER THE SECURITIES ACT, (ii) RULE 144 PROMULGATED UNDER THE
SECURITIES ACT OR (iii) AN OPINION OF COUNSEL OR OTHER EVIDENCE
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR ANY APPLICABLE
STATE SECURITIES LAWS IS AVAILABLE."
(b) The restrictions on the transferability of the Securities shall
cease and terminate when such Securities shall have been registered under
the Securities Act and are proposed to be sold or otherwise disposed of in
accordance with an intended method of disposition set forth in the
registration statement covering such Common Stock required by Section 6.1
or 6.2 or any other applicable registration statement, or when such
Securities are transferable in accordance with the provisions of Rule
144(k) promulgated under the Securities Act. Whenever the restrictions on
transfer shall terminate as hereinabove provided with respect to any of the
Securities, the holder of any such Securities bearing the legend set forth
in paragraph (a) of this Section 3.3 as to which such conditions shall have
terminated shall be entitled to receive from the Company, without expense
(except for the payment of any applicable transfer tax) and as
expeditiously as possible, new stock certificates not bearing such legend.
3.4 Access to Information. The Purchaser acknowledges that it has been
provided with a copy of the SEC Reports and has carefully reviewed the same. The
Purchaser further acknowledges that the Company has made available to it the
opportunity to ask questions of and receive answers from the Company's officers
and directors concerning the terms and conditions of the offering and the
business and financial condition of the Company, and to acquire, and the
Purchaser has received to its satisfaction, such information about the business
and financial condition of the Company and the terms and conditions of the
offering as it has requested.
3.5 Additional Representations of the Purchaser. The Purchaser represents
that (i) it is an "accredited investor" as such term is defined in Rule 501
promulgated under the Securities Act, or is a non-U.S. person as such term is
defined in Regulation S, (ii) its financial situation is such that it can afford
to bear the economic risk of holding the securities for an indefinite period of
time and suffer complete loss of its investment in the securities, (iii) it has
the funds necessary to purchase the Common Stock and Warrants immediately
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available to it and (iv) its knowledge and experience in financial and business
matters are such that it is capable of evaluating the merits and risks of its
purchase of the Common Stock and Warrants as contemplated by this Agreement.
SECTION 4. COVENANTS OF THE COMPANY.
4.1 Consummation of Agreement. The Company shall perform and fulfill all
conditions and obligations on its part to be performed and fulfilled under the
Agreement, to the end that the transactions contemplated by the Agreement shall
be carried out. To this end, the Company will obtain all necessary
authorizations or approvals of its Board of Directors for the execution and
performance of the Agreement, which shall include as integral parts thereof the
issuance to the Purchaser of the Securities upon the terms and conditions set
forth in the Agreement.
4.2 Securities Compliance. The Company agrees to file a Form D with the SEC
within fifteen days of the date of the Closing and to file, on a timely basis,
any amendments or supplements to such Form D as may be required under Regulation
D promulgated under the Securities Act and to file with the SEC a Form 14f-1 as
may be required under Rule 14f-1 promulgated under the 1934 Act. The Company
also agrees to comply with the filing requirements of AMEX applicable to the
sale of the Securities hereunder. All expenses, costs and fees incurred in
connection with this Section 4.2 shall be borne by the Company.
4.3 Good Faith Effort to Effect Transfers. Upon registration of the
Securities, or the termination under the provisions of Rule 144 of the
restriction on transfer, the Company agrees to issue or cause its corporate and
securities counsel to issue all required consents or opinions that may be
required to effect the transfer of the Securities and removal of any legend on
such Securities upon transfer. The Company agrees that it shall use all
reasonable best efforts to cause such consents or opinions of counsel to be
transmitted to the Company's transfer agent within 72 hours of receipt of a
request by the Purchaser, provided that all required certifications or
representations required to effect such transfer have been provided with such
request. The Company will pay all legal expenses required to effect such
transfer contemplated by this Section 4.3.
4.4 Board Members. Upon the Closing Date, the Board of the Directors of the
Company and each one of its subsidiaries shall appoint the number of individuals
recommended by the Purchaser to the Boards of Directors necessary to constitute
at least a majority of the Boards of Directors by delivery of letters in the
form attached hereto as Exhibit 4.4(i), Exhibit 4.4(ii) and Exhibit 4.4(iii),
respectively. Purchaser's representatives to the Board of Directors of each of
the Company and its Subsidiaries shall constitute at least a majority of all
committees thereof, except as required by AMEX. The persons specified in Exhibit
4.4(iv) will resign from these Boards of Directors by delivery of letters in the
forms attached hereto as Exhibit 4.4(v).
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4.5 Operation of Business. Prior to the Closing Date or termination of this
Agreement, without the prior written consent of the Purchaser, the Company will
not (and will not cause or permit any of its Subsidiaries to) engage in any
practice, take any action, or enter into any transaction outside the ordinary
course of business consistent with past custom and practice. Without limiting
the generality of the foregoing:
(i) none of the Company and its Subsidiaries will authorize or effect
any change in its Articles of Incorporation, Bylaws or other corporate
documents;
(ii) none of the Company and its Subsidiaries will grant any options,
warrants, or other securities or rights to purchase or obtain any of its
capital stock or issue, sell, or otherwise dispose of any of its capital
stock (except upon the conversion or exercise of options, warrants, and
other rights currently outstanding);
(iii) none of the Company and its Subsidiaries will split, combine,
subdivide or reclassify any of the Company's shares of common or preferred
stock;
(iv) none of the Company and its Subsidiaries will make or be subject
to any acquisition by merger, consolidation or otherwise, or material
disposition of inventory, supplies and products, of assets or securities,
or permit any assets or securities to become subject to any material lien,
encumbrance or security interest outside the ordinary course of business;
(v) none of the Company and its Subsidiaries will pay or agree to pay
or accelerate the payment of any pension, retirement allowance or other
employee benefit not required or contemplated by any of the existing
employee benefit plans;
(vi) none of the Company and its Subsidiaries will declare, set aside,
or pay any dividend or distribution with respect to its shares of common or
preferred stock (whether in cash or in kind), or redeem, repurchase, or
otherwise acquire any of its shares of common and preferred stock;
(vii) none of the Company and its Subsidiaries will issue any note,
bond, or other debt security or create, incur, assume, or guarantee any
indebtedness for borrowed money or capitalized lease obligation outside the
ordinary course of business;
(viii) none of the Company and its Subsidiaries will impose any
mortgage, pledge, lien, encumbrance, charge, or other security interest,
other than (a) mechanic's, materialman's, and similar liens, (b) liens for
taxes not yet due and payable or for taxes that the taxpayer is contesting
in good faith through appropriate proceedings, (c) purchase money liens and
liens securing rental payments under capital lease arrangements, and (d)
other liens arising in the ordinary course of business and not incurred in
connection with the borrowing of money.
A-13
(ix) none of the Company and its Subsidiaries will make any capital
investment in, make any loan to, or acquire the securities or assets of any
other person or entity outside the ordinary course of business;
(x) none of the Company and its Subsidiaries will make any change in
employment terms, including any increases in compensation, for any of its
directors, officers and employees outside the ordinary course of business;
and
(xi) none of the Company and its Subsidiaries shall issue any press
release or make any public announcements regarding the business, prospects
or financial condition of the Company and its Subsidiaries; provided,
however, that the Company and its Subsidiaries may make any public
disclosure it believes in good faith, after consultation with its counsel,
is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities, in which case the Company will
obtain the consent of the Purchaser, which shall not be unreasonably
withheld prior to making the disclosure.
4.6 Stock Option Plan. After the Closing Date, the Board of Directors will
adopt a new stock option plan for its employees, directors and consultants.
4.7 Signatory Rights. On or before the Closing Date, the Company's and the
Subsidiaries Boards of Directors shall duly adopt resolutions changing the
signatory rights in form and substance acceptable to Purchaser.
SECTION 5. COVENANTS OF PURCHASER.
5.1 Manufacturing and Marketing Rights. The Purchaser shall negotiate in
good faith with the Company to enter into agreement to license to the Company
exclusive marketing rights in North America of the CompactPCI products line. The
Purchaser may transfer to the Company, subject to all required legal and
corporate approvals, assets of the Purchaser against issuance of shares of
common stock of the Company at their market value.
SECTION 6. REGISTRATION.
6.1 Demand Registration. The Purchaser may, at any time after the Closing
Date, make a written request (the "Registration Request") to the Company for
registration of all or part of the shares of Common Stock and shares of Common
Stock purchased pursuant to the exercise of Warrants purchased in this Agreement
("Registerable Securities"), under and in accordance with all federal and state
securities laws (the "Demand Registration"). Upon receipt of a Registration
Request, Borrower shall as promptly as practicable, and in no event later than
one hundred twenty (120) calendar days after the Registration Request is made,
file with the SEC a registration statement covering such Registerable
Securities. The Company shall be obligated to effect not more than two (2)
Demand Registrations. If, after the Registration Request, the Purchaser
withdraws the shares it requested for registration from registration such Demand
Registration will be deemed to have occurred.
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6.2 Piggyback Registration. If, at any time, the Company shall determine to
register any of its securities for its own account or for the account of others,
other than a registration relating solely to "employee benefit plans" (Form
S-8), or a registration relating solely to an SEC Rule 145 transaction (Form
S-4), or a registration on any registration form which does not permit secondary
sales, the Company will give written notice to the Purchaser of its intention to
effect such a registration not later than thirty (30) calendar days prior to the
anticipated date of filing with the SEC of a registration statement with respect
to such registration. Such notice shall offer the Purchaser the opportunity to
include in such registration statement all or part of the Registerable
Securities (a "Piggyback Registration"). Subject to the provisions hereof, the
Company shall include in such Piggyback Registration all Registerable Securities
with respect to which the Company has received a written request from the
Purchaser for inclusion therein within fifteen (15) calendar days after the
receipt by the Company of Purchaser's notice. The Company shall be obligated to
effect not more than one (1) Piggyback Registration.
If a Piggyback Registration is being made with respect to an underwritten
registration on behalf of the Company and the managing underwriter or
underwriters advise the Company in writing that in their opinion the total
number or dollar amount of securities of any class requested to be included in
such registration is sufficiently large to adversely affect the success of such
offering, the Company shall include in such registration: (i) first, all
securities the Company proposes to sell to the public, the proceeds of which
shall go to the Company (ii) second, up to the full number of the Registerable
Securities requested to be included in such registration in excess of the number
or dollar amount of securities the Company proposes to sell which, in the
opinion of such managing underwriter or underwriters, can be sold without
adversely affecting the offering.
6.3 Expenses. All expenses incurred in connection with any registration
pursuant to this Section 6, including without limitation, all registration,
filing and qualification fees (including those attributable to the Registrable
Securities), printing expenses, fees and disbursements of counsel for the
Company and fees and expenses of counsel for the Company incurred pursuant to
Section 6 of this Agreement and expenses of any comfort letters or special
audits of the Company's financial statements incidental to or required by such
registration shall be borne by the Company (excluding underwriting discounts and
selling commissions payable with respect to the sale of Registrable Securities).
6.4 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 6,
the Company will, at its expense:
(a) keep such registration statement effective and file any necessary
post-effective amendments and use its best efforts to maintain the
effectiveness thereof until the earlier of (i) such time as the Company
reasonably determines, based upon an opinion of counsel, that the Purchaser
will be eligible to sell all of the Registrable Securities then owned by
the Purchaser without registration in the open market in compliance with
the Securities Act and without regard to volume restrictions or (ii) for a
A-15
period of 18 months from the date of effectiveness of the Registration
Statement;
(b) prepare and file with the SEC such amendments and supplements to
such Registration Statement as may be necessary to keep such registration,
qualification or compliance effective and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered
thereby during the applicable period;
(c) update, correct, amend and supplement such registration,
qualification or compliance as necessary;
(d) furnish such number of preliminary and final prospectuses and
other documents incident thereto as the Company from time to time may
reasonably request;
(e) register or qualify such Registrable Securities for offer and sale
under the Blue Sky or securities laws of such jurisdictions as the Company
may reasonably designate to enable it to consummate the disposition of the
Registrable Securities in such jurisdiction, except that the Company shall
not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service
of process in any State;
(f) timely file all reports required to be filed by it under the
Securities Act or the 1934 Act and the rules and regulations adopted by the
SEC thereunder, all to the extent required to enable the Purchaser to sell
the Registrable Securities without registration under the Securities Act
pursuant to (i) Rule 144 adopted by the SEC under the Securities Act, as
such rule may be amended from time to time, or (ii) any similar rule or
regulation hereafter adopted by the SEC;
(g) take all action necessary to render the Registrable Securities
eligible for inclusion on AMEX for trading thereon; and
(h) upon the sale of any Registrable Securities pursuant to such
Registration Statement remove all restrictive legends from all certificates
or other instruments evidencing the Registrable Securities.
6.5 Further Information. If Registrable Securities owned by the Purchaser
are included in the Registration Statement, such Purchaser shall furnish to the
Company such information regarding itself as the Company may reasonable request
and as shall be required in connection with any registration, qualification or
compliance referred to in this Section 6.
SECTION 7. INDEMNIFICATION.
7.1 Indemnification of the Purchaser. The Company agrees to indemnify and
hold harmless, to the extent permitted by law, the Purchaser, its directors and
officers and each person who control the Purchaser (within the meaning of the
Securities Act) against any and all losses, claims, damages, liabilities and
A-16
expenses caused, by arising out of or directly or indirectly relating to (i) any
inaccuracy in or any breach of the representations, warranties, covenants and
agreements of the Company contained in the Agreement and all Schedules and
Exhibits thereto; or (ii) any untrue or alleged untrue statement of material
fact contained in any registration statement, prospectus or preliminary
prospectus filed pursuant to Section 6 hereof or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished in writing to the
Company by the Purchaser expressly for use in such registration statement or
prospectus. Notwithstanding anything to the contrary herein, the Purchaser shall
be entitled to receive the indemnification amount (i) in cash; (ii) by issuance
of additional shares of common stock of the Company in the amount (based on the
price per share of $1.00) equivalent to the indemnification amount (as
determined in good faith by the Company's Board of Directors), which shares
shall be issued to the Purchaser by the Company for no consideration; or (iii)
any combination of cash and shares, provided all such issuances of shares are in
compliance with federal securities laws.
7.2 Indemnification of the Company. The Purchaser agrees to furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any registration statement or prospectus and
agrees to indemnify and hold harmless, to the extent permitted by law, the
Company, its directors and officers and each person who controls the Company
(within the meaning of the Securities Act) against any and all losses, claims,
damages, liabilities and expenses caused by (i) any breach of the
representations, warranties, covenants, and agreements of the Purchaser
contained in this Agreement; or (ii) any untrue or alleged untrue statement of
material fact or any omission of a material fact required to be stated in any
registration statement, prospectus or preliminary prospectus filed pursuant to
Section 6 hereof or necessary to make the statements therein not misleading, but
only to the extent that such untrue or alleged untrue statement or omission is
contained or omitted in any information or affidavit so furnished in writing by
the Purchaser, and in no event will the Purchaser be obligated to indemnify the
Company, its directors, officers or any person who controls the Company in an
amount in excess of the proceeds to be derived from the sale of Registerable
Securities in the offering giving rise to a claim for indemnification.
7.3 Contribution. If the indemnification provided for in this Section 7 is
judicially determined to be unavailable to an indemnified person in respect of
any losses, claims, damages or liabilities referred to herein, then, in lieu of
indemnifying such indemnified person hereunder, each party shall contribute to
the amount paid or payable by such indemnified person as a result of such
losses, claims, damages or liabilities (and expense relating thereto) (i) in
such proportion as is appropriate to reflect the relative benefits to the
Company, on the one hand, and the Purchaser, on the other hand, or (ii) if the
allocation provided by clause (i) above is not available, in such proportion as
is appropriate to reflect not only the relative benefits referred to in such
clause (i) but also the relative fault of each, as well as any other relevant
equitable considerations.
7.4 Defense of Action. Any person entitled to indemnification hereunder
will (i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification; and (ii) unless in such indemnified
A-17
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit the
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is not assumed, the
indemnifying party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
7.5 Remedies Non Exclusive. The remedies provided for in this Section 7 are
not exclusive and shall not limit any rights or remedies that may otherwise be
available to any indemnified party at law or in equity.
SECTION 8. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS.
8.1 Conditions. The obligations of the Purchaser to consummate the
Agreement and the transactions contemplated hereby are subject to the
satisfaction of the following conditions on or prior to the Closing Date except
to the extent that any such condition can be and is waived by the Purchaser:
(a) Representations; Warranties; Covenants. Each of the
representations and warranties of the Company contained in Section 2 and
8.1(d) hereof shall be true and correct in all material respects as though
made at the time of and as of the Closing Date; the Company shall, at or
before the Closing Date, have performed all of its obligations hereunder
which by the terms hereof are to be performed on or before the Closing
Date, including the covenants set forth in Section 4, and the Company shall
have delivered to the Purchaser a Certificate of its Chief Executive
Officer and Chief Financial Officer dated as of the Closing Date to the
foregoing effect in the form attached hereto as Exhibit 8.1(a).
(b) Opinion of Counsel. At Closing, the Company's counsel shall issue
to the Purchaser an opinion of counsel stating that as of the Closing Date,
the Company is duly organized and in good standing, the shares of Common
Stock and Warrants of the Company are authorized, fully paid and
non-assessable as issued in the form attached hereto as Exhibit 8.1(b)(i).
Further, opinions of counsel will be issued to Purchaser stating that, as
of the Closing Date, the Subsidiaries are duly organized, in good standing
and the Company owns 100% of the equity of the Subsidiaries in the forms
attached hereto as Exhibit 8.1(b)(ii) and Exhibit 8.1(b)(iii).
(c) Certificate of Good Standing. The Company will deliver a
Certificate of Good Standing of the Company issued by the California
Secretary of State as of the Closing Date.
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(d) Report of August 31, 2001. The Company shall have delivered to the
Purchaser the Report as defined by Section 1.3.
(e) Schedule 14f-1. A Schedule 14f-1 has been on file with the SEC for
10 days.
(f) Consulting Agreement. The Company's Chief Executive Officer shall
have entered into consulting agreement with the Company, which agreement
will cancel and supercede his employment agreement with the Company in the
form attached hereto has Exhibit 8.1(f).
(g) Board of Directors. Effective on the Closing Date, the members of
the Company's Board of Directors shall be the persons listed in Exhibit
8.1(g)(i); the members of the Board of Directors of Digital Power Limited
shall be the persons listed in Exhibit 8.1(g)(ii); and the members of the
Board of Directors of Poder Digital S.A. de C.V. shall be the persons
listed in Exhibit 8.1(g)(iii).
(h) Qualifications. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of
any foreign country that are required in connection with the lawful
issuance and sale of the Securities pursuant to this Agreement and the
Warrants shall be duly obtained and effective as of the Closing Date.
(i) Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Purchaser's special counsel, and they shall have received all
such counterpart original and certified or other copies of such documents
as they may reasonably request.
(j) Material Adverse Change. The Purchaser shall have determined, in
its sole reasonable judgment, that neither the financial nor business
condition or prospects of the Company has deteriorated in the aggregate
amount of $100,000 from June 30, 2001 to the Closing Date and which has not
been disclosed in Section 2.12.
SECTION 9. CONDITIONS PRECEDENT TO COMPANY'S OBLIGATIONS.
9.1 Conditions. The obligations of the Company to consummate the Agreement
and the transactions contemplated hereby are subject to the satisfaction of the
following conditions on or prior to the Closing Date except to the extent that
any such condition can be and is waived by the Company:
(a) Representations; Warranties; Covenants. Each of the
representations and warranties of the Purchaser contained in Section 3
hereof shall be true and correct in all material respects as though made at
the time of and as of the Closing; the Purchaser shall, at or before the
Closing, have performed all of its obligations hereunder which by the terms
hereof are to be performed on or before the Closing. Unless the Company
receives written notification to the contrary at the Closing, the Company
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shall be entitled to assume the preceding is accurate at the Closing.
SECTION 10. MISCELLANEOUS.
10.1 Law Governing. This Agreement shall be construed under and governed by
the laws of the State of California applicable to contracts made and to be fully
performed therein.
10.2 Arbitration. Disputes arising under this Agreement other than under
Section 1.3 shall be settled by three arbitrators pursuant to the rules of the
American Arbitration Association (the "AAA") for Commercial Arbitration (the
"Rules"). Such arbitration shall be held in Alameda County, California or New
York, New York, at the Purchaser's option, or at such other location as mutually
agreed to by the parties to the dispute. Subject to any applicable limitations
contained in this Agreement, arbitration may be commenced at any time by any
party giving notice to the other party that a dispute has been referred to
arbitration under this Section 10.2. The arbitrators shall be selected by the
joint agreement of the parties hereto, but if they do not so agree within twenty
(20) days after the date of the notice referred to above, the selection shall be
made pursuant to the Rules from the panel of arbitrators maintained by the AAA.
Any award of the arbitrators shall be accompanied by a written opinion giving
the reasons for the award. The expense of the arbitration shall be borne by the
parties in the manner determined in writing by the arbitrators. This arbitration
provision shall be specifically enforceable by the parties. The determination of
the arbitrators pursuant to this Section 10.2 shall be final and binding on the
parties and may be entered for enforcement before any court of competent
jurisdiction.
10.3 Broker or Finder. The Purchaser represents and warrants that no broker
or finder has acted for such party in connection with this Agreement or the
transactions contemplated by this Agreement and that no broker or finder is
entitled to any broker's or finder's fee or other commission in respect thereof
based in any way on agreements, arrangements or understandings made by the
Purchaser.
10.4 Notices. All notices or other communications required or permitted
hereunder shall be in writing (except as otherwise provided herein) and shall be
deemed duly given when received by delivery in person, by facsimile, telex or
telegram or by an overnight courier service or three (3) days after deposit in
the U.S. Mail, certified with postage prepaid, addressed as follows:
If to the Company: Digital Power Corporation
41920 Christy Street
Fremont, California 94538
Attn: Robert O. Smith
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with copies to: Bartel Eng & Schroder
300 Capitol Mall, Suite 1100
Sacramento, California 95814
Attn: Daniel B. Eng, Esq.
If to Purchaser: Telkoor Telecom
5 Giborei
Netanya 42504
Israel
Attn: David Amitai
with copies to: Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co.
One Azrieli Center
Circular Tower
Tel Aviv 67021
Israel
Attn: Gene Kleinhendler, Esq.
or to such other addresses as a party may designate by five (5) days' prior
written notice to the other party.
10.5 Survival of Representations, Warranties and Covenants. Notwithstanding
any investigation made by any party to this Agreement, all representations,
warranties, covenants and obligations made by the Company and the Purchaser
herein shall survive indefinitely the execution of this Agreement and the sale
and delivery of the shares of Common Stock and Warrants.
10.6 Entire Agreement. This Agreement, including the exhibits and schedules
referred to herein, is complete and all promises, representations,
understandings, warranties and agreements with reference to the subject matter
hereof, and all inducements to the making of this Agreement relied upon by
either party hereto, have been expressed herein or in such exhibits and
schedules.
10.7 Assignment. This Agreement may not be assigned by either the Purchaser
or the Company without the prior written consent of the other party. This
Agreement shall be enforceable by and shall inure to the benefit of and be
binding upon the parties hereto and their successors and no others.
10.8 Fees and Expenses. Except as otherwise specifically provided herein,
the Company and the Purchaser will bear their own expenses in connection with
the negotiation and consummation of the transactions contemplated by this
Agreement.
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10.9 Publicity and Disclosure. Except as may be required by federal
securities laws, no press release or public disclosure, either written or oral,
of the transactions contemplated by this Agreement, shall be made by the
Purchaser without the prior approval of the Company.
10.10 Counterparts. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same document.
10.11 Amendments and Waivers. Except as otherwise provided herein, any
provision in any of the Agreement may be amended or waived only if the Company
and the Purchaser consent in writing.
10.12 Termination. Upon the earlier of (i) occurrence of a Material Adverse
Change; (ii) the Company's Net Tangible Assets decrease more than 50% from June
30, 2001 to August 31, 2001, or (iii) forty-five (45) days after the execution
of this Agreement, if by such date Closing has not taken place yet, the
Purchaser shall be entitled to terminate this Agreement by delivery of a written
notice to the Company.
[THIS SPACE WAS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date set forth above.
COMPANY
DIGITAL POWER CORPORATION
By: /s/ ROBERT O. SMITH
---------------------------
Robert O. Smith,
Chief Executive Officer
PURCHASER
TELKOOR TELECOM LTD
On behalf of itself or any subsidiary thereof
By: /s/ DAVID AMITAI
---------------------------
David Amitai, President and
Chief Executive Officer
B
EXHIBIT B
FORM OF 900,000 WARRANTS
B-1
DIGITAL POWER CORPORATION,
a California corporation
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
Warrant Number [01-01]
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE SOLD, OFFERED TO SALE, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT RELATING TO THE SECURITIES WHICH IS EFFECTIVE
UNDER THE SECURITIES ACT, (ii) RULE 144 PROMULGATED UNDER THE
SECURITIES ACT OR (iii) AN OPINION OF COUNSEL OR OTHER EVIDENCE
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR ANY APPLICABLE
STATE SECURITIES LAWS IS AVAILABLE."
THIS CERTIFIES THAT, for value received, Telkoor Telecom Ltd. and its
affiliates, or its registered assigns (the "Holder"), is entitled to purchase at
any time or from time to time during the Exercise Period (as defined in
Subsection 1.2 below): (i) up to a maximum of Nine Hundred Thousand (900,000)
shares of fully paid and non-assessable shares of common stock of Digital Power
Corporation, a California corporation (the "Company"), no par value (the
"Shares" and/or the "Common Stock", as applicable). The Shares shall be
purchased at the per Share Purchase Price set forth in Subsection 1.1 below,
subject to the further provisions of this Warrant. The term "Warrant" as used
herein shall mean this warrant instrument and the various rights into which the
rights granted under this warrant instrument may be subsequently divided.
1. EXERCISE OF WARRANT.
The terms and conditions under which this Warrant may be exercised and the
Common Stock subject hereto may be purchased are as follows:
1.1 Share and Warrant Purchase Prices. The Share Purchase Price shall be
equal to One Dollar and Twenty Five Cents ($1.25) per Share, subject to
adjustment as provided in Section 4, below, and this Section 1 (the "Share
Purchase Price"). References to dollars in this Warrant means United States
dollars.
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1.2 Method of Exercise. The Holder of this Warrant, from time to time until
5:00 p.m. (PST), sixty (60) calendar days after the Company files its Form
10-KSB for the year ended December 31, 2002 with the Securities and Exchange
Commission (the "Exercise Period"), may exercise in whole or in part the
purchase rights evidenced by this Warrant. Such exercise shall be effected by:
(a) the surrender of the Warrant, together with a duly executed copy
of the form of Subscription attached hereto, to the Secretary of the
Company at its principal offices;
(b) the payment to the Company in U.S. funds, by check or bank draft
payable to the Company, of an amount equal to the aggregate Share Purchase
Price for the number of Shares which the purchase rights hereunder are
being exercised; and
(c) the delivery to the Company, if necessary, to assure compliance
with federal and state securities laws, of an instrument executed by the
Holder certifying that the Shares are being acquired for the sole account
of the Holder and not with a view to any resale or distribution prior to
the filing of a registration statement.
1.3 Satisfaction with Requirements of Securities Act of 1933.
Notwithstanding the provisions of Subsection 1.2(c) and Section 7, each and
every exercise of this Warrant is contingent upon the Company's satisfaction
that the issuance of Common Stock upon the exercise is exempt from the
requirements of the Securities Act and all applicable state securities laws at
the relevant time(s). The Holder of this Warrant agrees to execute any and all
documents each deemed necessary by the Company to effect the exercise of this
Warrant.
1.4 Issuance of Shares and New Warrant. In the event the purchase rights
evidenced by this Warrant are exercised in whole or in part, one or more
certificates for the purchased Shares shall be issued as soon as practicable
thereafter to the person exercising such rights. Such Holder shall also be
issued at such time a new Warrant representing the number of Shares (if any) for
which the purchase rights under this Warrant remain unexercised and continue in
force and effect.
2. TRANSFERS.
2.1 Transfers. Subject to Section 7 hereof, this Warrant and all rights
hereunder are transferable in whole or in part by the Holder with the same
effect as with a negotiable instrument. To transfer rights, the transfer form
below must be completed. The transfer shall be recorded on the books of the
Company upon the surrender of this Warrant, properly endorsed, to the Secretary
of the Company at its principal offices and the payment to the Company of all
transfer taxes and other governmental charges imposed on such transfer. In the
event of a partial transfer, the Company shall issue to the several holders one
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or more appropriate new forms of Warrant.
2.2 Registered Holder. The Holder agrees that until such time as any
transfer pursuant to Subsection 2.1 is recorded on the books of the Company, the
Company may treat the registered Holder of this Warrant as the absolute owner;
provided that nothing herein affects any requirement that the transfer of any
share of Common Stock issued or issuable upon the exercise hereof be subject to
securities law compliance.
2.3 Form of New Warrant. All new forms of Warrant issued in connection with
transfers of this Warrant shall bear the same date as this Warrant and shall be
substantially identical in form and provision to this Warrant except for the
number of Shares purchasable thereunder.
3. FRACTIONAL SHARES.
3.1 Anything contained herein to the contrary notwithstanding, the Company
shall not be required to issue any fraction of a share of Common Stock in
connection with the exercise of Warrants. Warrants may not be exercised in such
number as would result (except for the provisions of this paragraph) in the
issuance of a fraction of a share of Common Stock unless the Holder is
exercising all Warrants then owned by the Holder. In such event, the Company
shall, upon the exercise of all of such Warrants, issue to the Holder the
largest aggregate whole number of shares of Common Stock called for thereby upon
receipt of the Share Purchase Price for all of such Warrants and pay a sum in
cash equal to the remaining fraction of a share of Common Stock, multiplied by
its Market Price Per Share (as determined pursuant to Section 3.2 below) as of
the last business day preceding the date on which the Warrants are presented for
exercise.
3.2 As used herein, the "Market Price Per Share" with respect to any date
shall mean the closing price per share of the Company's Common Stock for the
trading day immediately preceding such date. The closing price for each such day
shall be the last sale price, or in case no sale takes place on such day, the
average of the closing bid and asked prices of the Common Stock, on the American
Stock Exchange ("AMEX") or any comparable system, or if the Common Stock is not
listed on AMEX, or a comparable system, the average of the closing bid and asked
prices as furnished by two members of the National Association of Securities
Dealers, Inc. selected from time to time by the Company for that purpose. If
such bid and asked prices are not available, then "Market Price Per Share" shall
be equal to the fair market value of the Company's Common Stock as determined in
good faith by the Board of Directors of the Company.
4. ANTI-DILUTION PROVISIONS.
4.1 Stock Splits and Combinations. If the Company shall at any time
subdivide or combine its outstanding shares of Common Stock, this Warrant shall,
after that subdivision or combination, evidence the right to purchase the number
of shares of Common Stock that would have been issuable as a result of that
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change with respect to the shares of Common Stock that were purchasable under
this Warrant immediately before that subdivision or combination. If the Company
shall at any time subdivide the outstanding shares of Common Stock, the Share
Purchase Price then in effect immediately before that subdivision shall be
proportionately decreased, and, if the Company shall at any time combine the
outstanding shares of Common Stock, the Share Purchase Price then in effect
immediately before that combination shall be proportionately increased. Any
adjustment under this Section 4.1 shall become effective at the close of
business on the date the subdivision or combination becomes effective.
4.2 Reclassification, Exchange, and Substitution. If the Common Stock
issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other class or classes of stock, whether by
capital reorganization, reclassification, or otherwise (other than a subdivision
or combination of shares provided for above), the Holder of this Warrant shall,
on its exercise, be entitled to purchase for the same aggregate consideration,
in lieu of the Common Stock that the Holder would have become entitled to
purchase but for such change, a number of shares of such other class or classes
of stock equivalent to the number of shares of Common Stock that would have been
subject to purchase by the Holder on exercise of this Warrant immediately before
that change.
4.3 Reorganizations, Mergers, Consolidations, Or Sale Of Assets. If at any
time there shall be a capital reorganization of the Company's Common Stock
(other than a subdivision, stock split, combination, reclassification, exchange,
or substitution of shares provided for elsewhere above), merger or consolidation
of the Company with or into another corporation, or the sale of substantially
all of the Company's properties and assets as, or substantially as, an entirety
to any other person, then, as a part of such reorganization, merger,
consolidation, or sale, lawful provision shall be made so that the Holder of
this Warrant shall thereafter be entitled to receive upon exercise of this
Warrant, during the period specified in this Warrant and upon payment of the
Share Purchase Price then in effect, the number of shares of Common Stock or
other securities or property of the Company, or of the successor corporation
resulting from such merger or consolidation, to which a holder of the Common
Stock deliverable upon exercise of this Warrant would have been entitled in such
capital reorganization, merger, consolidation, or sale if this Warrant had been
exercised immediately before that capital reorganization, merger, consolidation,
or sale. In any such case, appropriate adjustment (as determined in good faith
by the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Holder of this Warrant after the reorganization, merger, consolidation, or sale
to the end that the provisions of this Warrant (including adjustment of the
Share Purchase Price then in effect and number of Shares purchasable upon
exercise of this Warrant) shall be applicable after that event, as near as
reasonably may be, in relation to any Shares or Share Purchase Warrants or other
property deliverable after that event upon exercise of this Warrant. The Company
shall, within thirty (30) days after making such adjustment, give written notice
(by first class mail, postage prepaid) to the registered Holder of this Warrant
at the address of that Holder shown on the Company's books. That notice shall
B-5
set forth, in reasonable detail, the event requiring the adjustment and the
method by which the adjustment was calculated and specify the Share Purchase
Price then in effect after the adjustment and the increased or decreased number
of Shares purchasable upon exercise of this Warrant. When appropriate, that
notice may be given in advance and include as part of the notice required under
other provisions of this Warrant.
4.4 Common Stock Dividends; Distributions. In the event the Company should
at any time prior to the expiration of this Warrant fix a record date for the
determination of the holders of Common Stock entitled to receive a dividend or
other distribution (excluding a cash dividend or distribution) payable in
additional shares of Common Stock or other securities or rights convertible into
or entitling the Holder thereof to receive, directly or indirectly, additional
shares of Common Stock (hereinafter referred to as the "Common Stock
Equivalents") without payment of any consideration by such Holder for the
additional shares of Common Stock or Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such distribution, split, or
subdivision if no record date is fixed), the Share Purchase Price shall be
appropriately decreased and the number of shares of Common Stock issuable upon
exercise of the Warrant shall be appropriately increased in proportion to such
increase of outstanding shares.
4.5 Adjustments Of Other Distributions. In the event the Company shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Company or other persons, assets (excluding cash
dividends), or options or rights not referred to in Subsection 4.4, then, in
each such case for the purpose of this Subsection 4.5, upon exercise of this
Warrant, the Holder hereof shall be entitled to a proportionate share of any
such distribution as though such Holder was the holder of the number of Shares
of Common Stock of the Company into which this Warrant may be exercised as of
the record date fixed for the determination of the holders of Common Stock of
the Company entitled to receive such distribution.
4.6 Certificate as to Adjustments. In the case of each adjustment or
readjustment of the Share Purchase Price pursuant to this Section 4, the Company
will promptly compute such adjustment or readjustment in accordance with the
terms hereof and record such change on the books of the Company. The Warrant
Certificate need not be changed because of any change in the Share Purchase
Price or the number of Shares issuable upon the exercise of Warrants pursuant to
this Section 4, and the Warrant Certificate issued before such change will
represent the Share Purchase Price or the number of Shares issuable upon the
exercise of Warrants as adjusted. The Company may, at any time, make any change
in the form of Warrant Certificate that it deems appropriate and does not affect
the substance thereof. Upon written request by the Holder, the Company shall
cause a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based, to be
delivered to the Holder of this Warrant. The Company will, upon the written
request at any time of the Holder of this Warrant, furnish or cause to be
furnished to such Holder a certificate setting forth:
(a) Such adjustments and readjustments;
(b) The Share Purchase Price at the time in effect; and
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(c) The number of shares of Common Stock issuable upon exercise of the
Warrant and the amount, if any, of other property at the time receivable
upon the exercise of the Warrant.
4.7 Reservation of Stock Issuable Upon Exercise. The Company 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 exercise of this Warrant
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant, and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, in addition to such other remedies as shall
be available to the Holder of this Warrant, the Company will use its best
efforts to take 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.
5. RIGHTS PRIOR TO EXERCISE OF WARRANT.
This Warrant does not entitle the Holder to any of the rights of a
shareholder of the Company, including, without limitation, the right to receive
dividends or other distributions, to exercise any preemptive rights, to vote, or
to consent or to receive notice as a shareholder of the Company. If, however, at
any time prior to the expiration of this Warrant and prior to its exercise, any
of the following events shall occur:
(a) the Company shall declare any dividend payable in any securities
upon its shares of Common Stock or make any distribution (other than a
regular cash dividend) to the holders of its shares of Common Stock; or
(b) the Company shall offer to the holders of its shares of Common
Stock any additional shares of Common Stock or securities convertible into
or exchangeable for shares of Common Stock or any right to subscribe for or
purchase any thereof; or
(c) a dissolution, liquidation, or winding up of the Company (other
than in connection with a consolidation, merger, sale, transfer, or lease
of all or substantially all of its property, assets, and business as an
entirety) shall be proposed and action by the Company with respect thereto
has been approved by the Company's Board of Directors,
then in any one or more of said events the Company shall give notice in writing
of such event to the Holder at its last address as it shall appear on the
Company's records at least twenty (20) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividends, distribution, or subscription rights,
or for the determination of shareholders entitled to vote on such proposed
dissolution, liquidation, or winding up. Such notice shall specify such record
date or the date of closing the transfer books, as the case may be. Failure to
publish, mail, or receive such notice or any defect therein or in the
publication or mailing thereof shall not affect the validity of any action taken
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in connection with such dividend, distribution, or subscription rights, or such
proposed dissolution, liquidation, or winding up. Each person or entity in whose
name any certificate for shares of Common Stock is to be issued shall for all
purposes be deemed to have become the holder of record of such shares on the
date on which this instrument was surrendered and payment of the Share Purchase
Price was made, irrespective of the date of delivery of such stock certificate,
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 of Common Stock at the close of business on the
next succeeding date on which the stock transfer books are open.
6. RESTRICTED SECURITIES.
In order to enable the Company to comply with the Securities Act and
applicable state laws, the Company may require the Holder as a condition of the
transfer or exercise of this Warrant to give written assurances satisfactory to
the Company that the Warrant is being acquired, or in the case of an exercise
hereof, that the Shares subject to this Warrant are being acquired, for its own
account, for investment only, with no view to the distribution of the same, and
that any disposition of all or any portion of this Warrant or the Shares
issuable upon the due exercise of this Warrant shall not be made, unless and
until:
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(b) The Holder has notified the Company of the proposed disposition
and shall have furnished the Company with a detailed statement of the
circumstances surrounding the proposed disposition, and (ii) the Holder has
furnished the Company with an opinion of counsel or other evidence,
reasonably satisfactory to the Company, that such disposition will not
require registration of such securities under the Securities Act and
applicable state law.
The Holder acknowledges that this Warrant is, and each of the shares of
Common Stock issuable upon the due exercise hereof will be, restricted
securities and that it understands the provisions of Rule 144 of the Securities
and Exchange Commission, and that the certificate or certificates evidencing
such shares of Common Stock will bear a legend substantially similar to the
following:
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"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE SOLD, OFFERED TO SALE, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT RELATING TO THE SECURITIES WHICH IS EFFECTIVE
UNDER THE SECURITIES ACT, (ii) RULE 144 PROMULGATED UNDER THE
SECURITIES ACT OR (iii) AN OPINION OF COUNSEL OR OTHER EVIDENCE
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR ANY APPLICABLE
STATE SECURITIES LAWS IS AVAILABLE."
7. SUCCESSORS AND ASSIGNS.
The terms and provisions of this Warrant shall inure to the benefit of, and
be binding upon, the Company and the Holder thereof and their respective
successors and permitted assigns.
8. LOSS OR MUTILATION.
Upon receipt by the Company of satisfactory evidence of the ownership of
and the loss, theft, destruction, or mutilation of any Warrant, and (i) in the
case of loss, theft, or destruction, upon receipt by the Company of indemnity
satisfactory to it, or (ii) in the case of mutilation, upon receipt of such
Warrant and upon surrender and cancellation of such Warrant, the Company shall
execute and deliver in lieu thereof a new Warrant representing the right to
purchase an equal number of shares of Common Stock.
9. NOTICES.
All notices or other communications required or permitted hereunder shall
be in writing (except as otherwise provided herein) and shall be deemed duly
given when received by delivery in person, by facsimile, telex or telegram or by
an overnight courier service or three (3) days after deposit in the U.S. Mail,
certified with postage prepaid, addressed as follows:
If to the Company: Digital Power Corporation
41920 Christy Street
Fremont, California 94538
Attn: Robert O. Smith
with copies to: Bartel Eng & Schroder
300 Capitol Mall, Suite 1100
Sacramento, California 95814
Attn: Daniel B. Eng, Esq.
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If to Purchaser: Telkoor Telecom
5 Giborei
Netanya 42504
Israel
Attn: David Amitai
with copies to: Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co.
One Azrieli Center
Circular Tower
Tel Aviv 67021
Israel
Attn: Gene Kleinhendler, Esq.
10. GOVERNING LAW.
This Warrant and any dispute, disagreement, or issue of construction or
interpretation arising hereunder whether relating to its execution, its
validity, the obligations provided herein, or performance, shall be governed or
interpreted according to the internal laws of the State of California without
regard to conflicts of law.
11. ARBITRATION.
Disputes arising under this Warrant shall be settled by one arbitrator
pursuant to the rules of the American Arbitration Association (the "AAA") for
Commercial Arbitration (the "Rules"). Such arbitration shall be held in Alameda
County, California, or at such other location as mutually agreed to by the
parties to the dispute. Subject to any applicable limitations contained in this
Warrant, arbitration may be commenced at any time by any party giving notice to
the other party that a dispute has been referred to arbitration under this
Section 11. The arbitrator shall be selected by the joint agreement of the
parties hereto, but if they do not so agree within twenty (20) days after the
date of the notice referred to above, the selection shall be made pursuant to
the Rules from the panel of arbitrators maintained by the AAA. Any award of the
arbitrator shall be accompanied by a written opinion giving the reasons for the
award. The expense of the arbitration shall be borne by the parties in the
manner determined in writing by the arbitrator. This arbitration provision shall
be specifically enforceable by the parties. The determination of the arbitrator
pursuant to this Section 11 shall be final and binding on the parties and may be
entered for enforcement before any court of competent jurisdiction.
B-10
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed by its officers thereunto duly authorized and its corporate seal
to be affixed hereon, as of this _____ day of _______________, 2001.
DIGITAL POWER CORPORATION
By: ______________________________
Robert O. Smith,
Chief Executive Officer
[SEAL]
Attest:
-------------------------
Philip G. Swany, Secretary
B-11
SUBSCRIPTION
Chief Executive Officer
Digital Power Corporation
41920 Christy Street
Fremont, CA 94538
Dear Sir:
______ hereby elects to purchase, pursuant to the provisions of the
foregoing Warrant held by the undersigned, ____________________ (_______) shares
of the Common Stock of Digital Power Corporation.
Payment of the total Share Purchase Price required under such Warrant
accompanies this Subscription.
DATED: _____________________, 2001
------------------------------------
Name of Holder
------------------------------------
Signature
Address:
-------------------------------------
-------------------------------------
-------------------------------------
B-12
TRANSFER OF WARRANT
Chief Executive Officer
Digital Power Corporation
41920 Christy Street
Fremont, CA 94538
Dear Sir:
For value received, hereby assigns this Warrant to
------- -------------,
whose address is
----------------------------------------.
DATED: , 2001.
------
------------------------------------
Name of Holder
-------------------------------------
Signature
Address:
-------------------------------------
-------------------------------------
-------------------------------------
C
EXHIBIT C
FORM OF 1,000,000 WARRANTS
C-1
DIGITAL POWER CORPORATION,
a California corporation
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
Warrant Number [01-02]
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE SOLD, OFFERED TO SALE, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT RELATING TO THE SECURITIES WHICH IS EFFECTIVE
UNDER THE SECURITIES ACT, (ii) RULE 144 PROMULGATED UNDER THE
SECURITIES ACT OR (iii) AN OPINION OF COUNSEL OR OTHER EVIDENCE
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAWS IS AVAILABLE."
THIS CERTIFIES THAT, for value received, Telkoor Telecom Ltd. and its
affiliates, or its registered assigns (the "Holder"), is entitled to purchase at
any time or from time to time during the Exercise Period (as defined in
Subsection 1.2 below): (i) up to a maximum of One Million (1,000,000) shares of
fully paid and non-assessable shares of common stock of Digital Power
Corporation, a California corporation (the "Company"), no par value (the
"Shares" and/or the "Common Stock", as applicable). The Shares shall be
purchased at the per Share Purchase Price set forth in Subsection 1.1 below,
subject to the further provisions of this Warrant. The term "Warrant" as used
herein shall mean this warrant instrument and the various rights into which the
rights granted under this warrant instrument may be subsequently divided.
1. EXERCISE OF WARRANT.
The terms and conditions under which this Warrant may be exercised and the
Common Stock subject hereto may be purchased are as follows:
1.1 Share and Warrant Purchase Prices. The Share Purchase Price shall be
equal to One Dollar and Fifty Cents ($1.50) per Share, subject to adjustment as
provided in Section 4, below, and this Section 1 (the "Share Purchase Price").
References to dollars in this Warrant means United States dollars.
C-2
1.2 Method of Exercise. The Holder of this Warrant, from time to time until
5:00 p.m. (PST) on December 31, 2003 (the "Exercise Period"), may exercise in
whole or in part the purchase rights evidenced by this Warrant. Such exercise
shall be effected by:
(a) the surrender of the Warrant, together with a duly executed copy
of the form of Subscription attached hereto, to the Secretary of the
Company at its principal offices;
(b) the payment to the Company in U.S. funds, by check or bank draft
payable to the Company, of an amount equal to the aggregate Share Purchase
Price for the number of Shares which the purchase rights hereunder are
being exercised; and
(c) the delivery to the Company, if necessary, to assure compliance
with federal and state securities laws, of an instrument executed by the
Holder certifying that the Shares are being acquired for the sole account
of the Holder and not with a view to any resale or distribution prior to
the filing of a registration statement.
1.3 Satisfaction with Requirements of Securities Act of 1933.
Notwithstanding the provisions of Subsection 1.2(c) and Section 7, each and
every exercise of this Warrant is contingent upon the Company's satisfaction
that the issuance of Common Stock upon the exercise is exempt from the
requirements of the Securities Act and all applicable state securities laws at
the relevant time(s). The Holder of this Warrant agrees to execute any and all
documents each deemed necessary by the Company to effect the exercise of this
Warrant.
1.4 Issuance of Shares and New Warrant. In the event the purchase rights
evidenced by this Warrant are exercised in whole or in part, one or more
certificates for the purchased Shares shall be issued as soon as practicable
thereafter to the person exercising such rights. Such Holder shall also be
issued at such time a new Warrant representing the number of Shares (if any) for
which the purchase rights under this Warrant remain unexercised and continue in
force and effect.
2. TRANSFERS.
2.1 Transfers. Subject to Section 7 hereof, this Warrant and all rights
hereunder are transferable in whole or in part by the Holder with the same
effect as with a negotiable instrument. To transfer rights, the transfer form
below must be completed. The transfer shall be recorded on the books of the
Company upon the surrender of this Warrant, properly endorsed, to the Secretary
of the Company at its principal offices and the payment to the Company of all
transfer taxes and other governmental charges imposed on such transfer. In the
event of a partial transfer, the Company shall issue to the several holders one
or more appropriate new forms of Warrant.
C-3
2.2 Registered Holder. The Holder agrees that until such time as any
transfer pursuant to Subsection 2.1 is recorded on the books of the Company, the
Company may treat the registered Holder of this Warrant as the absolute owner;
provided that nothing herein affects any requirement that the transfer of any
share of Common Stock issued or issuable upon the exercise hereof be subject to
securities law compliance.
2.3 Form of New Warrant. All new forms of Warrant issued in connection with
transfers of this Warrant shall bear the same date as this Warrant and shall be
substantially identical in form and provision to this Warrant except for the
number of Shares purchasable thereunder.
3. FRACTIONAL SHARES.
3.1 Anything contained herein to the contrary notwithstanding, the Company
shall not be required to issue any fraction of a share of Common Stock in
connection with the exercise of Warrants. Warrants may not be exercised in such
number as would result (except for the provisions of this paragraph) in the
issuance of a fraction of a share of Common Stock unless the Holder is
exercising all Warrants then owned by the Holder. In such event, the Company
shall, upon the exercise of all of such Warrants, issue to the Holder the
largest aggregate whole number of shares of Common Stock called for thereby upon
receipt of the Share Purchase Price for all of such Warrants and pay a sum in
cash equal to the remaining fraction of a share of Common Stock, multiplied by
its Market Price Per Share (as determined pursuant to Section 3.2 below) as of
the last business day preceding the date on which the Warrants are presented for
exercise.
3.2 As used herein, the "Market Price Per Share" with respect to any date
shall mean the closing price per share of the Company's Common Stock for the
trading day immediately preceding such date. The closing price for each such day
shall be the last sale price, or in case no sale takes place on such day, the
average of the closing bid and asked prices of the Common Stock, on the American
Stock Exchange ("AMEX") or any comparable system, or if the Common Stock is not
listed on AMEX, or a comparable system, the average of the closing bid and asked
prices as furnished by two members of the National Association of Securities
Dealers, Inc. selected from time to time by the Company for that purpose. If
such bid and asked prices are not available, then "Market Price Per Share" shall
be equal to the fair market value of the Company's Common Stock as determined in
good faith by the Board of Directors of the Company.
4. ANTI-DILUTION PROVISIONS.
4.1 Stock Splits and Combinations. If the Company shall at any time
subdivide or combine its outstanding shares of Common Stock, this Warrant shall,
after that subdivision or combination, evidence the right to purchase the number
of shares of Common Stock that would have been issuable as a result of that
change with respect to the shares of Common Stock that were purchasable under
this Warrant immediately before that subdivision or combination. If the Company
shall at any time subdivide the outstanding shares of Common Stock, the Share
Purchase Price then in effect immediately before that subdivision shall be
C-4
proportionately decreased, and, if the Company shall at any time combine the
outstanding shares of Common Stock, the Share Purchase Price then in effect
immediately before that combination shall be proportionately increased. Any
adjustment under this Section 4.1 shall become effective at the close of
business on the date the subdivision or combination becomes effective.
4.2 Reclassification, Exchange, and Substitution. If the Common Stock
issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other class or classes of stock, whether by
capital reorganization, reclassification, or otherwise (other than a subdivision
or combination of shares provided for above), the Holder of this Warrant shall,
on its exercise, be entitled to purchase for the same aggregate consideration,
in lieu of the Common Stock that the Holder would have become entitled to
purchase but for such change, a number of shares of such other class or classes
of stock equivalent to the number of shares of Common Stock that would have been
subject to purchase by the Holder on exercise of this Warrant immediately before
that change.
4.3 Reorganizations, Mergers, Consolidations, Or Sale Of Assets. If at any
time there shall be a capital reorganization of the Company's Common Stock
(other than a subdivision, stock split, combination, reclassification, exchange,
or substitution of shares provided for elsewhere above), merger or consolidation
of the Company with or into another corporation, or the sale of substantially
all of the Company's properties and assets as, or substantially as, an entirety
to any other person, then, as a part of such reorganization, merger,
consolidation, or sale, lawful provision shall be made so that the Holder of
this Warrant shall thereafter be entitled to receive upon exercise of this
Warrant, during the period specified in this Warrant and upon payment of the
Share Purchase Price then in effect, the number of shares of Common Stock or
other securities or property of the Company, or of the successor corporation
resulting from such merger or consolidation, to which a holder of the Common
Stock deliverable upon exercise of this Warrant would have been entitled in such
capital reorganization, merger, consolidation, or sale if this Warrant had been
exercised immediately before that capital reorganization, merger, consolidation,
or sale. In any such case, appropriate adjustment (as determined in good faith
by the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Holder of this Warrant after the reorganization, merger, consolidation, or sale
to the end that the provisions of this Warrant (including adjustment of the
Share Purchase Price then in effect and number of Shares purchasable upon
exercise of this Warrant) shall be applicable after that event, as near as
reasonably may be, in relation to any Shares or Share Purchase Warrants or other
property deliverable after that event upon exercise of this Warrant. The Company
shall, within thirty (30) days after making such adjustment, give written notice
(by first class mail, postage prepaid) to the registered Holder of this Warrant
at the address of that Holder shown on the Company's books. That notice shall
set forth, in reasonable detail, the event requiring the adjustment and the
method by which the adjustment was calculated and specify the Share Purchase
Price then in effect after the adjustment and the increased or decreased number
of Shares purchasable upon exercise of this Warrant. When appropriate, that
notice may be given in advance and include as part of the notice required under
other provisions of this Warrant.
C-5
4.4 Common Stock Dividends; Distributions. In the event the Company should
at any time prior to the expiration of this Warrant fix a record date for the
determination of the holders of Common Stock entitled to receive a dividend or
other distribution (excluding a cash dividend or distribution) payable in
additional shares of Common Stock or other securities or rights convertible into
or entitling the Holder thereof to receive, directly or indirectly, additional
shares of Common Stock (hereinafter referred to as the "Common Stock
Equivalents") without payment of any consideration by such Holder for the
additional shares of Common Stock or Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such distribution, split, or
subdivision if no record date is fixed), the Share Purchase Price shall be
appropriately decreased and the number of shares of Common Stock issuable upon
exercise of the Warrant shall be appropriately increased in proportion to such
increase of outstanding shares.
4.5 Adjustments Of Other Distributions. In the event the Company shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Company or other persons, assets (excluding cash
dividends), or options or rights not referred to in Subsection 4.4, then, in
each such case for the purpose of this Subsection 4.5, upon exercise of this
Warrant, the Holder hereof shall be entitled to a proportionate share of any
such distribution as though such Holder was the holder of the number of Shares
of Common Stock of the Company into which this Warrant may be exercised as of
the record date fixed for the determination of the holders of Common Stock of
the Company entitled to receive such distribution.
4.6 Certificate as to Adjustments. In the case of each adjustment or
readjustment of the Share Purchase Price pursuant to this Section 4, the Company
will promptly compute such adjustment or readjustment in accordance with the
terms hereof and record such change on the books of the Company. The Warrant
Certificate need not be changed because of any change in the Share Purchase
Price or the number of Shares issuable upon the exercise of Warrants pursuant to
this Section 4, and the Warrant Certificate issued before such change will
represent the Share Purchase Price or the number of Shares issuable upon the
exercise of Warrants as adjusted. The Company may, at any time, make any change
in the form of Warrant Certificate that it deems appropriate and does not affect
the substance thereof. Upon written request by the Holder, the Company shall
cause a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based, to be
delivered to the Holder of this Warrant. The Company will, upon the written
request at any time of the Holder of this Warrant, furnish or cause to be
furnished to such Holder a certificate setting forth:
(a) Such adjustments and readjustments;
(b) The Share Purchase Price at the time in effect; and
(c) The number of shares of Common Stock issuable upon exercise of the
Warrant and the amount, if any, of other property at the time receivable
upon the exercise of the Warrant.
C-6
4.7 Reservation of Stock Issuable Upon Exercise. The Company 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 exercise of this Warrant
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant, and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, in addition to such other remedies as shall
be available to the Holder of this Warrant, the Company will use its best
efforts to take 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.
5. RIGHTS PRIOR TO EXERCISE OF WARRANT.
This Warrant does not entitle the Holder to any of the rights of a
shareholder of the Company, including, without limitation, the right to receive
dividends or other distributions, to exercise any preemptive rights, to vote, or
to consent or to receive notice as a shareholder of the Company. If, however, at
any time prior to the expiration of this Warrant and prior to its exercise, any
of the following events shall occur:
(a) the Company shall declare any dividend payable in any securities
upon its shares of Common Stock or make any distribution (other than a
regular cash dividend) to the holders of its shares of Common Stock; or
(b) the Company shall offer to the holders of its shares of Common
Stock any additional shares of Common Stock or securities convertible into
or exchangeable for shares of Common Stock or any right to subscribe for or
purchase any thereof; or
(c) a dissolution, liquidation, or winding up of the Company (other
than in connection with a consolidation, merger, sale, transfer, or lease
of all or substantially all of its property, assets, and business as an
entirety) shall be proposed and action by the Company with respect thereto
has been approved by the Company's Board of Directors,
then in any one or more of said events the Company shall give notice in writing
of such event to the Holder at its last address as it shall appear on the
Company's records at least twenty (20) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividends, distribution, or subscription rights,
or for the determination of shareholders entitled to vote on such proposed
dissolution, liquidation, or winding up. Such notice shall specify such record
date or the date of closing the transfer books, as the case may be. Failure to
publish, mail, or receive such notice or any defect therein or in the
publication or mailing thereof shall not affect the validity of any action taken
in connection with such dividend, distribution, or subscription rights, or such
proposed dissolution, liquidation, or winding up. Each person or entity in whose
name any certificate for shares of Common Stock is to be issued shall for all
purposes be deemed to have become the holder of record of such shares on the
date on which this instrument was surrendered and payment of the Share Purchase
Price was made, irrespective of the date of delivery of such stock certificate,
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
C-7
become the holder of such shares of Common Stock at the close of business on the
next succeeding date on which the stock transfer books are open.
6. RESTRICTED SECURITIES.
In order to enable the Company to comply with the Securities Act and
applicable state laws, the Company may require the Holder as a condition of the
transfer or exercise of this Warrant to give written assurances satisfactory to
the Company that the Warrant is being acquired, or in the case of an exercise
hereof, that the Shares subject to this Warrant are being acquired, for its own
account, for investment only, with no view to the distribution of the same, and
that any disposition of all or any portion of this Warrant or the Shares
issuable upon the due exercise of this Warrant shall not be made, unless and
until:
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(b) The Holder has notified the Company of the proposed disposition
and shall have furnished the Company with a detailed statement of the
circumstances surrounding the proposed disposition, and (ii) the Holder has
furnished the Company with an opinion of counsel or other evidence,
reasonably satisfactory to the Company, that such disposition will not
require registration of such securities under the Securities Act and
applicable state law.
The Holder acknowledges that this Warrant is, and each of the shares of
Common Stock issuable upon the due exercise hereof will be, restricted
securities and that it understands the provisions of Rule 144 of the Securities
and Exchange Commission, and that the certificate or certificates evidencing
such shares of Common Stock will bear a legend substantially similar to the
following:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE SOLD, OFFERED TO SALE, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT RELATING TO THE SECURITIES WHICH IS EFFECTIVE
UNDER THE SECURITIES ACT, (ii) RULE 144 PROMULGATED UNDER THE
SECURITIES ACT OR (iii) AN OPINION OF COUNSEL OR OTHER EVIDENCE
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR ANY APPLICABLE
STATE SECURITIES LAWS IS AVAILABLE."
C-8
7. SUCCESSORS AND ASSIGNS.
The terms and provisions of this Warrant shall inure to the benefit of, and
be binding upon, the Company and the Holder thereof and their respective
successors and permitted assigns.
8. LOSS OR MUTILATION.
Upon receipt by the Company of satisfactory evidence of the ownership of
and the loss, theft, destruction, or mutilation of any Warrant, and (i) in the
case of loss, theft, or destruction, upon receipt by the Company of indemnity
satisfactory to it, or (ii) in the case of mutilation, upon receipt of such
Warrant and upon surrender and cancellation of such Warrant, the Company shall
execute and deliver in lieu thereof a new Warrant representing the right to
purchase an equal number of shares of Common Stock.
9. NOTICES.
All notices or other communications required or permitted hereunder shall
be in writing (except as otherwise provided herein) and shall be deemed duly
given when received by delivery in person, by facsimile, telex or telegram or by
an overnight courier service or three (3) days after deposit in the U.S. Mail,
certified with postage prepaid, addressed as follows:
If to the Company: Digital Power Corporation
41920 Christy Street
Fremont, California 94538
Attn: Robert O. Smith
with copies to: Bartel Eng & Schroder
300 Capitol Mall, Suite 1100
Sacramento, California 95814
Attn: Daniel B. Eng, Esq.
If to Purchaser: Telkoor Telecom
5 Giborei
Netanya 42504
Israel
Attn: David Amitai
with copies to: Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co.
One Azrieli Center
Circular Tower
Tel Aviv 67021
Israel
Attn: Gene Kleinhendler, Esq.
C-9
10. GOVERNING LAW.
This Warrant and any dispute, disagreement, or issue of construction or
interpretation arising hereunder whether relating to its execution, its
validity, the obligations provided herein, or performance, shall be governed or
interpreted according to the internal laws of the State of California without
regard to conflicts of law.
11. ARBITRATION.
Disputes arising under this Warrant shall be settled by one arbitrator
pursuant to the rules of the American Arbitration Association (the "AAA") for
Commercial Arbitration (the "Rules"). Such arbitration shall be held in Alameda
County, California, or at such other location as mutually agreed to by the
parties to the dispute. Subject to any applicable limitations contained in this
Warrant, arbitration may be commenced at any time by any party giving notice to
the other party that a dispute has been referred to arbitration under this
Section 11. The arbitrator shall be selected by the joint agreement of the
parties hereto, but if they do not so agree within twenty (20) days after the
date of the notice referred to above, the selection shall be made pursuant to
the Rules from the panel of arbitrators maintained by the AAA. Any award of the
arbitrator shall be accompanied by a written opinion giving the reasons for the
award. The expense of the arbitration shall be borne by the parties in the
manner determined in writing by the arbitrator. This arbitration provision shall
be specifically enforceable by the parties. The determination of the arbitrator
pursuant to this Section 11 shall be final and binding on the parties and may be
entered for enforcement before any court of competent jurisdiction.
C-10
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed by its officers thereunto duly authorized and its corporate
seal to be affixed hereon, as of this _____ day of _______________, 2001.
DIGITAL POWER CORPORATION
By: ___________________________
Robert O. Smith,
Chief Executive Officer
[SEAL]
Attest:
-------------------------
Philip G. Swany, Secretary
C-11
SUBSCRIPTION
Chief Executive Officer
Digital Power Corporation
41920 Christy Street
Fremont, CA 94538
Dear Sir:
______ hereby elects to purchase, pursuant to the provisions of the
foregoing Warrant held by the undersigned, ____________________ (_______) shares
of the Common Stock of Digital Power Corporation.
Payment of the total Share Purchase Price required under such Warrant
accompanies this Subscription.
DATED: _____________________, 2001
------------------------------------
Name of Holder
------------------------------------
Signature
Address:
-------------------------------------
-------------------------------------
-------------------------------------
C-12
TRANSFER OF WARRANT
Chief Executive Officer
Digital Power Corporation
41920 Christy Street
Fremont, CA 94538
Dear Sir:
For value received, hereby assigns this Warrant to
------- -------------,
whose address is
----------------------------------------.
DATED: , 2001.
------
-------------------------------------
Name of Holder
-------------------------------------
Signature
Address:
-------------------------------------
-------------------------------------
-------------------------------------