XZERES CORP.

 

SUBSCRIPTION AGREEMENT

 

THIS SUBSCRIPTION AGREEMENT (this “Agreement”) is made as of October 22, 2012,
between XZERES Corp., a Nevada corporation (the “Company”), and the undersigned
(the “Subscriber”).

 

WITNESSETH:

 

WHEREAS, the Company is offering for sale (the “Offering”) 1,904,762 units (the
“Units”) at a purchase price of $1.05 per Unit. Each Unit consists of one (1)
share of Series A Convertible Preferred Stock (the “Shares”), and a warrant (the
“Warrant”) to purchase 1.5 shares of Company’s common stock, par value $.01 per
share (the “Common Stock”) at an exercise price of $0.385 per share at any time
prior to the expiration of five (5) years from the First Closing Date (as
defined below). A Warrant Agreement and Form of Warrant is attached hereto as
Exhibit A and is incorporated herein by this reference. Hereinafter, the
Warrants, the Shares and the shares of Common Stock issuable upon conversion of
the Shares and upon exercise of the Warrants are collectively referred to as the
“Securities” and the documents evidencing same are herein referred to as the
“Documents”.

 

WHEREAS, the Shares will have a stated face value of $1.05 per share. Each Share
may initially be converted into three (3) shares of Common Stock by the holder
thereof.

 

WHEREAS, the Units will only be sold pursuant to the this Agreement and only to
“accredited investors” as such term is defined in Rule 501 of Regulation D
(“Regulation D”) promulgated under the Securities Act of 1933, as amended (the
“Securities Act”).

 

WHEREAS, the Company is a publicly reporting company, required to file periodic
reports with the United States Securities and Exchange Commission (the “SEC”)
pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
and the Company is current in its reporting obligations and public filings (the
“Filings”) thereunder.

 

WHEREAS, the Subscriber desires to purchase and the Company desires to sell that
amount of Units set forth on the signature page hereof on the terms and
conditions hereinafter set forth.

 

NOW, THEREFORE, in consideration of the premises and the mutual representations
and covenants hereinafter set forth, the parties hereto do hereby agree as
follows:

 

I.SUBSCRIPTION FOR UNITS AND REPRESENTATIONS BY THE SUBSCRIBER

 

1.1 Subject to the terms and conditions hereinafter set forth, the Subscriber
subscribes for and agrees to purchase from the Company, and the Company agrees
to sell to the Subscriber, the amount of Units set forth on the signature page
hereof.

 

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1.2 The Subscriber recognizes that the purchase of the Units involves a high
degree of risk including, but not limited to, the following: (a) the Company has
a limited operating history and requires substantial funds in addition to the
proceeds of the Offering; (b) an investment in the Company is highly
speculative, and only investors who can afford the loss of their entire
investment should consider investing in the Company and the Units; (c) the
Subscriber may not be able to liquidate its investment; (d) transferability of
the Securities is extremely limited; (e) in the event of a disposition, the
Subscriber could sustain the loss of its entire investment; and (f) the Company
has not paid any dividends since its inception and does not anticipate paying
any dividends. Without limiting the generality of the representations set forth
in Section 1.5 below, the Subscriber represents that the Subscriber has
carefully reviewed the Company’s Filings, including but not limited to those
sections captioned “Risk Factors.”

 

1.3 The Subscriber represents that the Subscriber is an “accredited investor” as
such term is defined in Rule 501 of Regulation D promulgated under the
Securities Act, and that the Subscriber is able to bear the economic risk of an
investment in the Units.

 

1.4 The Subscriber hereby acknowledges and represents that (a) the Subscriber
has knowledge and experience in business and financial matters, prior investment
experience, or the Subscriber has employed the services of a “purchaser
representative” (as defined in Rule 501 of Regulation D), attorney and/or
accountant to read all of the documents furnished or made available by the
Company both to the Subscriber and to all other prospective investors in the
Units to evaluate the merits and risks of such an investment on the Subscriber’s
behalf; (b) the Subscriber recognizes the highly speculative nature of this
investment; and (c) the Subscriber is able to bear the economic risk that the
Subscriber hereby assumes.

 

1.5 The Subscriber hereby acknowledges it has received, carefully reviewed and
understands this Agreement, the form of Warrant, the Company’s Filings, and any
documents which may have been made available upon request as reflected therein
(collectively referred to as the “Offering Materials”), and hereby represents
that the Subscriber has been furnished by the Company during the course of the
Offering with all information regarding the Company, the terms and conditions of
the Offering and any additional information that the Subscriber has requested or
desired to know, and has been afforded the opportunity to ask questions of and
receive answers from duly authorized officers or other representatives of the
Company concerning the Company and the terms and conditions of the Offering.

 

1.6 (a) In making the decision to invest in the Units, the Subscriber has relied
solely upon the information provided by the Company in the Offering Materials.
To the extent necessary, the Subscriber has retained, at its own expense, and
relied upon appropriate professional advice regarding the investment, tax and
legal merits and consequences of this Agreement and the purchase of the Units
hereunder. The Subscriber disclaims reliance on any statements made or
information provided by any person or entity in the course of Subscriber’s
consideration of an investment in the Units other than the Offering Materials.

 

(b) The Subscriber represents that (i) the Subscriber was contacted regarding
the sale of the Units by the Company (or an authorized agent or representative
thereof) and (ii) no Units were offered or sold to it by means of any form of
general solicitation or general advertising, and in connection therewith, the
Subscriber did not (A) receive or review any advertisement, article, notice or
other communication published in a newspaper or magazine or similar media or
broadcast over television or radio, whether closed circuit, or generally
available; or (B) attend any seminar meeting or industry investor conference
whose attendees were invited by any general solicitation or general advertising.

 

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1.7 The Subscriber hereby represents that the Subscriber, either by reason of
the Subscriber’s business or financial experience or the business or financial
experience of the Subscriber’s professional advisors (who are unaffiliated with
and not compensated by the Company or any affiliate or selling agent of the
Company, directly or indirectly), has the capacity to protect the Subscriber’s
own interests in connection with the transaction contemplated hereby.

 

1.8 The Subscriber hereby acknowledges that the Offering has not been reviewed
by the SEC nor any state regulatory authority since the Offering is intended to
be exempt from the registration requirements of Section 5 of the Securities Act
pursuant to Regulation D promulgated thereunder. The Subscriber understands that
none of the Units have been registered under the Securities Act or under any
state securities or “blue sky” laws and agrees not to sell, pledge, assign or
otherwise transfer or dispose of the Units unless they are registered under the
Securities Act and under any applicable state securities or “blue sky” laws or
unless an exemption from such registration is available.

 

1.9 The Subscriber understands that none of the Units have been registered under
the Securities Act by reason of a claimed exemption under the provisions of the
Securities Act that depends, in part, upon the Subscriber’s investment
intention. In connection therewith, the Subscriber hereby represents that the
Subscriber is purchasing the Units for the Subscriber’s own account for
investment and not with a view toward the resale or distribution to others. The
Subscriber, if an entity, further represents that it was not formed for the
purpose of purchasing the Units.

 

1.10 The Subscriber understands that even if the Units are publicly traded and
an active market develops for the Units, unless a registration statement is in
effect, Rule 144 promulgated under the Securities Act (“Rule 144”) requires for
non-affiliates, among other conditions, a six-month holding period, prior to the
resale of securities acquired in a non-public offering without having to satisfy
the registration requirements under the Securities Act. The Company has agreed
to file a registration statement with the Securities and Exchange Commission
(the “SEC”) after the offering is completed and upon request by the series A
holders.

 

1.11 The Subscriber consents to the initial placement of a legend on any
certificate or other document evidencing the Units that such Units have not been
registered under the Securities Act or any state securities or “blue sky” laws
and setting forth or referring to the restrictions on transferability and sale
thereof contained in this Agreement. The Subscriber is aware that the Company
will make a notation in its appropriate records with respect to the restrictions
on the transferability of such securities. The legend to be placed on each
certificate shall be in form substantially similar to the following:

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED UNTIL REGISTERED UNDER SUCH ACT OR UNLESS
OTHERWISE IN COMPLIANCE WITH SUCH ACT.”

 

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1.12 The Subscriber understands that the Company will review this Agreement and
is hereby given authority by the Subscriber to call Subscriber’s bank or place
of employment or otherwise review the financial standing of the Subscriber; and
it is further agreed that the Company, at its sole discretion, reserves the
unrestricted right, without further documentation or agreement on the part of
the Subscriber, to reject or limit any subscription, and to close the Offering
to the Subscriber at any time.

 

1.13 The Subscriber hereby represents that the address of the Subscriber
furnished by Subscriber on the signature page hereof is the Subscriber’s
principal business address.

 

1.14 The Subscriber represents that the Subscriber has full right, power and
authority (corporate, statutory and otherwise) to execute and deliver this
Agreement and to purchase the Units. This Agreement constitutes the legal, valid
and binding obligation of the Subscriber, enforceable against the Subscriber in
accordance with its terms.

 

1.15 If the Subscriber is a corporation, partnership, limited liability company,
trust, employee benefit plan, individual retirement account, Keogh Plan, or
other tax-exempt entity, it is authorized and qualified to invest in the Company
and the person signing this Agreement on behalf of such entity has been duly
authorized by such entity to do so.

 

1.16 The Subscriber acknowledges that at such time, if ever, as the Securities
are registered for resale under the Federal securities laws, sales of the
Securities will be subject to state securities laws.

 

1.17 (a) The Subscriber agrees not to issue any public statement with respect to
the Subscriber’s investment or proposed investment in the Company or the terms
of any agreement or covenant between them and the Company without the Company’s
prior written consent, except such disclosures as may be required under
applicable law or under any applicable order, rule or regulation.

 

(b) The Company agrees not to disclose the names, addresses or any other
information about the Subscribers, except as required by law; provided, that the
Company may use the name of the Subscriber for any offering or in any
registration statement filed in which the Subscriber’s Securities are included.

 

1.18 The Subscriber understands that the Units are being offered and sold in
reliance on specific exemptions from the registration requirements of federal
and state securities laws and that the Company and the principals and
controlling persons thereof are relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments, and understandings set
forth herein in order to determine the applicability of such exemptions and the
undersigned’s suitability to acquire the Units.

 

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IICLOSING DATES; DELIVERY

 

2.1 Closing Date. The purchase and sale of the Units hereunder shall take place
in one or more closings (the “Closings,” or, each, respectively, the “Closing”),
each of which shall be held at the offices of Telles, Walker & Kochenderfer,
LLP, 1350 Treat Blvd., Suite 400, Walnut Creek, California at 2:00 p.m., local
time, on the date of the Closing. The first Closing (the “First Closing”) shall
be conducted on October 22, 2012 provided that the Company receives
subscriptions for at least 1,428,571 Units. The Company and the Subscriber, may,
at the Subscriber’s option, conduct a second closing for up to an additional
238,091 Units (the “Second Closing”), to occur no later than 30 days after the
First Closing.

 

2.2 Delivery. At each Closing, the Company will deliver to each Subscriber a
certificate or certificates, registered in such Subscriber’s name set forth on
the Schedule of Subscribers, representing the number of Shares and Warrants
designated in column 2 of the Schedule of Subscribers to be purchased by such
Subscriber, against payment of the purchase price therefor, by certified check
payable to the Company or by wire transfer per the Company’s instructions below.

 

Wells Fargo Bank, N.A.

ABA #121000248 SWIFT# WFBIUS6S

Further credit to: XZERES Corp.

Account # 8838022815

 

III.REPRESENTATIONS BY AND COVENANTS OF THE COMPANY

 

The Company hereby represents and warrants to the Subscriber that:

 

3.1 Financial Matters.

 

(a) The Company has provided (via its SEC filings) to the Subscriber the audited
consolidated financial statements (including balance sheets, statements of
income and statements of cash flows) of the Company as at February 28, 2009 and
2010 and 2011 and 2012, and for the Fiscal Years then ended, as well as the
unaudited consolidated financial statements (including balance sheets,
statements of income and statements of cash flows) of the Company as at May 31,
2012 and August 31, 2012 and for the Fiscal Quarters then ended (collectively,
the “Financial Statements”).

 

(b) The Financial Statements (i) have been prepared in accordance with generally
accepted accounting principles (“GAAP”) and Regulation S-X promulgated under the
Securities Act on a consistent basis for all periods (subject, in the case of
unaudited statements, to the absence of full footnote disclosures, and to normal
non-material audit adjustments), (ii) are complete and correct in all material
respects, (iii) fairly present the consolidated financial condition of the
Company and its Subsidiaries as of said dates, and the results of their
operations for the periods stated, (iv) contain and reflect all necessary
adjustments and accruals, as applicable, for a fair presentation of the
Company’s and its Subsidiaries’ consolidated financial condition and results of
operations as of the dates of and for the periods covered by such Financial
Statements, and (v) make full and adequate provision, subject to and in
accordance with GAAP, for the various assets and liabilities (including, without
limitation, deferred revenues) of the Company, fixed or contingent, and the
results of their operations and transactions in their accounts, as of the dates
and for the periods referred to therein.

 

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(c) Except as set forth in the Financial Statements on file with the SEC,
neither the Company nor any of its Subsidiaries have any liabilities,
obligations or commitments of any kind or nature whatsoever, whether absolute,
accrued, contingent or otherwise (collectively “Liabilities and Contingencies”),
including, without limitation, Liabilities and Contingencies under employment
agreements and with respect to any “earn-outs”, stock appreciation rights, or
related compensation obligations, except: (i) Liabilities and Contingencies
disclosed in the Financial Statements or footnotes thereto, (ii) Liabilities and
Contingencies incurred in the ordinary course of business and consistent with
past practice since the date of the most recent Financial Statements, or (iii)
those Liabilities and Contingencies which are not required to be disclosed under
GAAP. The reserves, if any, reflected on the balance sheet included in the most
recent Financial Statements are appropriate and reasonable. Neither the Company
nor any of its Subsidiaries have any Indebtedness for money borrowed,
outstanding obligations for the purchase price of property, contingent
obligations or liabilities for taxes, or any material or unusual forward or
long-term commitments, except as specifically set forth in the Financial
Statements.

 

(d) Since the date of the most recent Financial Statements and any subsequent 8K
disclosures, there has been no material adverse change in the working capital,
condition (financial or otherwise), assets, liabilities, reserves, business,
management, operations or prospects of the Company or any of its Subsidiaries,
including, without limitation, the following:

 

(i) there has been no material change in any assumptions underlying, or in any
methods of calculating, any bad debt, contingency or other reserve relating to
the Company or any Subsidiary;

 

(ii) there have been (A) no material write-downs in the value of any inventory
of, and there have been no write-offs as uncollectible of any notes, accounts
receivable or other receivables of, the Company or any Subsidiary other than
write-offs of accounts receivable reserved in full as of the date of the most
recent financial statements delivered to the Investor, and (B) no reserves
established for the uncollectibility of any notes, Accounts or other receivables
of the Company or any Subsidiary;

 

(iii) no debts which, individually or in the aggregate, are material to the
Company and its Subsidiaries (taken as a whole) have been cancelled, no claims
or rights of substantial value have been waived and no properties or assets
(real, personal or mixed, tangible or intangible) have been sold, transferred,
or otherwise disposed of by the Company or any Subsidiary except in the ordinary
course of business and consistent with past practice;

 

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(iv) there has been no change in any method of accounting or accounting practice
utilized by the Company or any Subsidiary;

 

(v) no material casualty, loss or damage has been suffered by the Company or any
Subsidiary, regardless of whether such casualty, loss or damage is or was
covered by insurance;

 

(vi) Any announced changes in the policies or practices of any customer,
supplier or referral source of the Company or any Subsidiary which the Company
or such Subsidiary has received written notice of and which would reasonably be
expected to have a direct and/or indirect (A) material adverse effect on the
legality, validity or enforceability of any of the Securities and/or this
Subscription Agreement, (B) material adverse effect on the results of
operations, assets, business or financial condition of the Company, or (C)
material adverse effect on the Company’s ability to perform in any material
respect on a timely basis its obligations under the Offering Materials (any of
(A), (B) or (C), a “Material Adverse Effect”);

 

(vii) Any incurrence of (A) any liability or obligation outside of the ordinary
course of business which, individually or in the aggregate, is or will be
material to the consolidated financial condition of the Company and its
Subsidiaries, or (B) any Indebtedness other than Permitted Indebtedness;

 

(viii) Any declaration, setting aside or payment of any dividend or distribution
or any other payment of any kind by the Company to or in respect of any equity
securities of the Company; and

 

(ix) No action described in this Section 3.1(d) has been agreed to be taken by
the Company or any Subsidiary.

 

(e) The Company and its Subsidiaries have in place adequate systems of internal
controls and disclosure controls and procedures sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in accordance with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization, (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences, and (v) the Company and its management are able to obtain timely
and accurate information regarding the business operations and all material
transactions relating to the Company and the Subsidiaries; and no material
deficiency exists with respect to the Company’s or any Subsidiary’s systems of
internal controls.

 

(f) All of the SEC Reports (as amended), as of the respective dates thereof,
complied in all material respects, as applicable, with the Securities Act and
the Exchange Act.

 

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3.2 Organization; Corporate Existence.

 

(a) The Company (i) is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada, (ii) has all requisite
corporate power and authority to own its properties and to carry on its business
as now conducted and as proposed hereafter to be conducted, (iii) is qualified
to do business as a foreign corporation in each jurisdiction in which the
failure of the Company to be so qualified would have a Material Adverse Effect,
and (iv) has all requisite corporate power and authority to execute and deliver,
and perform all of its obligations under, the Documents. True and complete
copies of the Certificate of Incorporation, By-Laws or other organization
documents or charter documents, (“Organic Documents”) together with all
amendments thereto to the date hereof, have been furnished to the Subscriber.

 

(b) On the date of this Agreement, the outstanding capital stock of the Company,
the number and amount of all outstanding options, warrants, convertible
securities, subscriptions and other rights to acquire capital stock of the
Company, and the number of shares reserved or to be reserved under outstanding,
authorized or proposed option plans or the like, have been provided. All of such
outstanding capital stock is validly issued, fully paid and nonassessable.

 

(c) Each of the Subsidiaries (A) is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
formation, (B) has all requisite power and authority to own its properties and
to carry on its business as now conducted and as proposed hereafter to be
conducted, and to execute and deliver, and perform all of its obligations under,
the loan documents to which it is a party, and (C) is not required to be
qualified to do business as a foreign entity in any jurisdiction in which it is
not so qualified and the failure to be so qualified would reasonably be expected
to have a Material Adverse Effect.

 

3.3 Authorization.

 

(a) The execution, delivery and performance by the Company of its obligations
under the Documents have been duly authorized by all requisite corporate and
other action and will not, either prior to or as a result of the consummation of
the transactions contemplated by this Agreement: (i) violate any provision of
law, any order of any court or other agency of government, any provision of the
Organic Documents of the Company or any Subsidiary, or any contract, indenture,
agreement or other instrument to which the Company or any of the Subsidiaries is
a party, or by which the Company or any of the Subsidiaries or any of its assets
or properties are bound, or (ii) be in conflict with, result in a breach of, or
constitute (after the giving of notice or lapse of time or both) a default
under, result in the creation or imposition of any lien of any nature whatsoever
upon any of the property or assets of the Company or any of the Subsidiaries
pursuant to, any such contract, indenture, agreement or other instrument.

 

(b) This Agreement and the other Documents have been duly executed and delivered
by the Company and constitute the valid and binding obligations of the Company,
enforceable against the Company and such Subsidiaries in accordance with their
respective terms, except to the extent that enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other
similar laws now or hereafter in effect relating to creditors’ rights generally,
and by general principles of equity.

 

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(c) Except for compliance with applicable federal or state securities laws, as
applicable, neither the Company nor any of the Subsidiaries is required to
obtain any government approval, consent or authorization from, or to file any
declaration or statement with, any governmental instrumentality or agency in
connection with or as a condition to the execution, delivery or performance of
any of the Documents.

 

(d) Without limitation of Sections 3.03(a) through 3.03(c) above, the issuance
of the Shares and the Warrants has been authorized by all requisite corporate
action of the Company, and such issuance does not conflict with any
shareholders’ agreement, preemptive rights, limitation under or requirement of
Organic Documents, or other agreement or commitment of the Company. Upon
conversion of the Shares (in whole or in part) from time to time in accordance
therewith, the shares of Common Stock issuable upon such conversion will be
validly issued, fully paid and nonassessable; and upon exercise of the Warrants
in accordance with the terms thereof, the Warrant Shares (as such term is
defined in the Warrants) will be validly issued, fully paid and nonassessable.

 

3.4 Litigation. Except as disclosed in the Company’s Financial Statements, there
is no action, suit or proceeding at law or in equity or by or before any
governmental instrumentality or other agency now pending or, to the knowledge of
the Company, threatened against or affecting the Company or any of the
Subsidiaries or any of their respective assets, which, if adversely determined,
would have a Material Adverse Effect. The Company has no knowledge of any state
of facts, events, conditions or circumstances which are reasonably likely to
give rise to, or would properly constitute grounds for or the basis of, any
suit, action, arbitration, proceeding or investigation (including, without
limitation, any unfair labor practice charges, interference with union
organizing activities, or other labor or employment claims) against or with
respect to the Company or any Subsidiary.

 

3.5 Material Contracts. Except as disclosed in the Company’s Financial
Statements, neither the Company nor any of the Subsidiaries is (a) a party to
any contract, agreement or instrument or subject to any charter or other
corporate or organizational restriction which has had or could reasonably be
expected to have a Material Adverse Effect, (b) subject to any liability or
obligation under or relating to any collective bargaining agreement, or (c) in
default in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any contract, agreement or instrument to
which it is a party or by which any of its assets or properties is bound, which
default, individually or in the aggregate, would have or could reasonably be
expected to have a Material Adverse Effect.

 

3.6 Title to Properties. Except as set forth in the Company’s Financial
Statements, the Company and each of the Subsidiaries has good title to all of
its properties and assets, free and clear of all mortgages, security interests,
restrictions, encumbrances or other liens of any kind, except for restrictions
on the nature of use thereof imposed by law, and none of which materially
interfere with the use and enjoyment of such properties and assets in the normal
course of the business operations of the company as presently conducted, or
materially impair the value of such properties and assets for the purpose of
such business.

 

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3.7 Real Property. Neither the Company nor any Subsidiary owns any real
property. The Company has a valid lessee’s interest in each leased real property
currently leased or occupied by the Company and neither the Company nor, to the
Company’s knowledge, any other party thereto, is in material breach or violation
of any requirements of any such lease. All real properties currently owned or
occupied by the Company or any Subsidiary are in good condition (reasonable wear
and tear excepted) and are adequate for the current and proposed businesses of
the Company and its Subsidiaries. To the Company’s knowledge, its use of the
real properties in the normal conduct of its business operations does not
violate any applicable building, zoning or other law, ordinance or regulation
affecting such real properties, and no covenants, easements, rights-of-way or
other such conditions of record materially impair the Company’s use of the real
properties in the normal conduct of its business operations.

 

3.8 Machinery and Equipment. The machinery and equipment owned and/or used by
the Company and the Subsidiaries is, as to each individual material item of
machinery and equipment, and in the aggregate as to all such equipment, in good
and usable condition and in a state of good maintenance and repair (reasonable
wear and tear excepted), and adequate for its use in its business operations.

 

3.9 Capitalization. Except as set forth in the Company’s Financial Statements
and for new Subsidiaries which may hereafter be formed or acquired in compliance
with this Agreement, the Company does not, directly or indirectly, own any
capital stock of or any form of equity interest in any other Person. The
authorized capital stock of the Company consists of 100,000,000 shares of Common
Stock, of which 26,810,387 are issued and outstanding as of the First Closing
Date and 5,000,000 shares of Preferred Stock, of which 1,904,762 shares have
been designated “Series A Convertible Preferred Stock,” none of which are issued
and outstanding as of the First Closing Date. The outstanding shares have been
duly authorized and validly issued, and are fully paid and nonasssessable. The
Company has reserved for issuance (a) 5,714,286 shares of Common Stock upon
conversion of the Shares and (b) 2,857,143 shares of Common Stock upon exercise
of the Warrants. As of the First Closing Date, except for (i) options to acquire
2,475,000 shares of Common Stock and (ii) warrants to acquire 9,736,967 shares
of Common Stock, there are no options, rights, warrants or securities
outstanding which give the holder thereof the right to acquire Common Stock or
any security which is convertible into Common Stock. The Shares shall have the
rights, preferences, privileges and restrictions set forth in the Amendment to
Articles of Incorporation, dated as of October 16, 2012.

 

3.10 Solvency. The Company is not contemplating either the filing of a petition
under any state or federal bankruptcy or insolvency law, or the liquidation of
all or any substantial portion of its assets or property; the Company has no
knowledge of any Person contemplating the filing of any such petition against
the Company; and the Company reasonably anticipates that it will be able to pay
its debts as they mature.

 

3.11 No Investment Company. The Company is not an “investment company” or a
company “controlled” by an “investment company” as such terms are defined in the
Investment Company Act of 1940, as amended.

 

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3.12 Taxes.

 

(a) All material federal, state, local and foreign tax returns and tax reports
required to be filed by the Company and/or any Subsidiary have been timely filed
with the appropriate governmental agencies in all jurisdictions in which such
returns and reports are required to be filed, and all of such tax returns, tax
reports and other filings are correct and complete in all material respects. All
federal, state, local and foreign income, franchise, sales, use, property,
excise, ad valorem, value-added, payroll and other taxes (including interest,
penalties and additions to tax and including estimated tax installments where
required to be filed and paid) due from or with respect to the Company and the
Subsidiaries have been fully paid, and appropriate accruals have been made on
the Company’s books for taxes not yet due and payable. All taxes and other
assessments and levies which the Company and/or any Subsidiary is required by
law to withhold or to collect have been duly withheld and collected, and have
been paid over to the proper governmental authorities to the extent due and
payable. There are no outstanding or pending claims, deficiencies or assessments
for taxes, interest or penalties with respect to any taxable period of the
Company or any Subsidiary, and no outstanding tax liens.

 

(b) The Company has no knowledge and has not received notice of any pending
audit with respect to any federal, state, local or foreign tax returns of the
Company or any Subsidiary, and no waivers of statutes of limitations have been
given or requested with respect to any tax years or tax filings of the Company
or any Subsidiary.

 

3.13 ERISA. Neither the Company nor any Subsidiary of the Company maintains or
has any obligation to make any contributions to any pension, profit sharing or
other similar plan providing for deferred compensation to any employee. With
respect to any such plan(s) as may now exist or may hereafter be established by
the Company or any Subsidiary of the Company, and which constitutes an “employee
pension benefit plan” within the meaning of Section 3(2) of ERISA, (a) the
Company or the subject Subsidiary has paid and shall cause to be paid when due
all amounts necessary to fund such plan(s) in accordance with its terms, (b)
except for normal premiums payable by the Company to the Pension Benefit
Guaranty Corporation (“PBGC”), the Company or the subject Subsidiary has not
taken and shall not take any action which could result in any liability to the
PBGC, or any of its successors or assigns, (c) the present value of all accrued
benefits thereunder shall not at any time exceed the value of the assets of such
plan(s) allocable to such accrued benefits, (d) there have not been and there
shall not be any transactions such as would cause the imposition of any tax or
penalty under Section 4975 of the Code or under Section 502 of ERISA, which
would adversely affect the funded benefits attributable to the Company or the
subject Subsidiary, (e) there has not been and there shall not be any
termination or partial termination thereof (other than a partial termination
resulting solely from a reduction in the number of employees of the Company or
an Subsidiary of the Company, which reduction is not anticipated by the
Company), and there has not been and there shall not be any “reportable event”
(as such term is defined in Section 4043(b) of ERISA) on or after the effective
date of Section 4043(b) of ERISA with respect to any such plan(s) subject to
Title IV of ERISA, (f) no “accumulated funding deficiency” (as defined in
Section 412 of the Code) has been or shall be incurred on or after the effective
date of Section 412 of the Code, (g) such plan(s) have been and shall be
determined to be “qualified” within the meaning of Section 401(a) of the Code,
and have been and shall be duly administered in compliance with ERISA and the
Code, and (h) the Company is not aware of any fact, event, condition or cause
which might adversely affect the qualified status thereof. As respects any
“multi-employer plan” (as such term is defined in Section 3(37) of ERISA) to
which the Company or any Subsidiary thereof has heretofore been, is now, or may
hereafter be required to make contributions, the Company or such Subsidiary has
made and shall make all required contributions thereto, and there has not been
and shall not be any “complete withdrawal” or “partial withdrawal” (as such
terms are respectively defined in Sections 4203 and 4205 of ERISA) therefrom on
the part of the Company or such Subsidiary. Neither the Company nor any of its
Subsidiaries is or has at any time been an employer (for purposes of Sections 38
to 51 of the Pensions Act 2004 under English law) of an occupational pension
scheme which is not a money purchase scheme (both terms as defined in the
Pensions Schemes Act 1993 under English law), or “connected” with an “associate”
of such an employer (as those terms are used in Sections 39 and 43 of the
Pensions Act 2004 under English law).

 

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3.14 Intellectual Property.

 

(a) To the knowledge of the Company, the Company and the Subsidiaries own or
have the valid right to use all Intellectual Property used, marketed and/or sold
in its business operations, and the Company and the Subsidiaries are in
compliance in all material respects with all licenses, user agreements and other
such agreements regarding the use of intellectual property used in its business
operations; and the Company has no knowledge of or received written notice
claiming that any such intellectual property infringes upon or violates the
rights of any other Person.

 

(b) The Company or one of its Subsidiaries holds, good, valid and indefeasible
title to all owned trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and rights
necessary to conduct its respective businesses as now and as disclosed to be
conducted intellectual property (“Intellectual Property”), free and clear of any
liens or encumbrances of any kind, except for: (i) any lien for current taxes
not yet due and payable, and (ii) liens that have arisen in the ordinary course
of business and that do not (individually or in the aggregate) materially
detract from the value of the assets subject thereto or materially impair the
operations of the Company and its Subsidiaries.

 

(c) To the knowledge of the Company, the Company and its Subsidiaries have a
valid right to use, license, and otherwise exploit all licensed Intellectual
Property, and any rights thereunder will not be affected by the Company and its
Subsidiaries entering into this Agreement. Neither the Company nor any of its
Subsidiaries is under any obligation to pay royalties or other payments in
connection with any license, sublicense, or other agreement, nor restricted from
assigning its right under any sublicense or agreement respecting the licensed
Intellectual Property, nor will the Company or any of its Subsidiaries otherwise
be, as a result of the execution and delivery of this Agreement, , in breach of
any license, sublicense or other agreement relating to the licensed Intellectual
Property.

 

(d) To the knowledge of the Company, the Company’s and each Subsidiary’s rights
in all of the owned Intellectual Property are valid, subsisting, and
enforceable. None of the owned Intellectual Property or any registrations
therefor have been cancelled or adjudicated invalid or unenforceable, or are
subject to any outstanding order, judgment, or decree restricting its use or
adversely affecting or reflecting the Company’s or any of its Subsidiaries’
rights thereto. To the knowledge of the Company, all owned Intellectual Property
that is the subject of a registration or pending application is valid,
subsisting, unexpired, and in proper form, and all renewal fees and other
maintenance fees that have fallen due on or prior to the date hereof have been
paid. Either the Company or its applicable Subsidiary has timely made all
filings and payments with the appropriate intellectual property offices required
to maintain in subsistence all owned Intellectual Property. All documentation
necessary to confirm and effect the Company’s and its Subsidiaries’ ownership of
and rights in any owned Intellectual Property that is the subject of a
registration or pending application acquired by the Company or any of its
Subsidiaries from third parties has been filed in the United States Patent and
Trademark Office and the United States Copyright Office, and any and all other
relevant intellectual property offices and agencies in other jurisdictions.
Except for any pending application by the Company or a Subsidiary, no owned
Intellectual Property is the subject of any legal or governmental proceeding
before any governmental, registration or other authority in any jurisdiction,
including any office action or other form of preliminary or final refusal of
registration.

 

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(e) The consummation of the transactions contemplated hereby will not materially
alter or impair any owned Intellectual Property. To the knowledge of the
Company, no owned Intellectual Property has been used, divulged, disclosed or
appropriated to the detriment of the Company or any of its Subsidiaries for the
benefit of any third party; and, to the knowledge of the Company, no employee or
agent of the Company or any of its Subsidiaries has misappropriated any material
trade secrets or other material confidential information of any third party in
the course of the performance of his or her duties as an employee of the Company
or any of its Subsidiaries. To the knowledge of the Company, (i) none of the
owned Intellectual Property infringes on any Intellectual Property owned or used
by any other Person; (ii) none of the products that are or have been designed,
created, developed, assembled, manufactured or sold by the Company or any of its
Subsidiaries is infringing, misappropriating, or making any unlawful use of any
Intellectual Property owned by any other Person, and the Company and its
Subsidiaries have all rights and licenses reasonably necessary in order to make,
have made, use or sell such products, (iii) no other Person is infringing,
misappropriating or making any unlawful use of, and no Intellectual Property
owned or used by any other Person infringes on any owned Intellectual Property,
and (iv) there is no claim, suit, action or proceeding pending or threatened or
asserted against the Company or any of its Subsidiaries: (A) alleging any
conflict or infringement by the Company or any of its Subsidiaries of any other
Person’s intellectual property or proprietary rights; or (B) challenging the
Company’s or any of its Subsidiaries’ ownership or use of, or the validity or
enforceability of, any of the owned Intellectual Property or the Licensed
Intellectual Property.

 

3.15 Compliance with Laws. The Company and the Subsidiaries are in compliance
with all occupational safety, health, wage and hour, employment discrimination,
environmental, flammability, labeling and other laws, which are material to
their business operations, except where such non-compliance would not,
individually or in the aggregate, have a Material Adverse Effect. Neither the
Company nor any Subsidiary has any knowledge of any state or facts, events,
conditions or occurrences which may now or hereafter constitute or result in a
violation of any law, or which may give rise to the assertion of any such
violation, which in either case could have a Material Adverse Effect. Neither
the Company nor any Subsidiary has received written notice of default or
violation, nor is the Company or any Subsidiary in default or violation, with
respect to any law. Neither the Company nor any Subsidiary has received written
notice of or been charged with, or is, to the Company’s knowledge, under
investigation with respect to, any violation of any provision of any law, which
violation would have a Material Adverse Effect.

 

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3.16 Licenses and Permits. The Company and each Subsidiary has all federal,
state and local licenses and permits required to be maintained in connection
with and material to the business operations, and all such licenses and permits
are valid and in full force and effect. The Company and each Subsidiary has
complied with the requirements of such licenses and permits in all material
respects, and has received no notice of any pending or threatened proceedings
for the suspension, termination, revocation or limitation thereof. There is no
circumstance or condition known to the Company that would cause or permit any of
such licenses or permits to be voided, revoked or withdrawn.

 

3.17 Insurance. The Company maintains appropriate insurance for the business.
The Company has not received written notice of cancellation or intent not to
renew any of such policies, and there has not occurred, and there does not
exist, any condition (other than general industry-wide conditions) such as would
cause any of such insurers to cancel any of such insurance coverages, or would
be reasonably likely to materially increase the premiums charged to the Company
for coverages consistent with the scope and amounts of coverages as in effect on
the date hereof.

 

3.18 Environmental Laws.

 

(a) The Company and each Subsidiary has complied in all material respects with
all Environmental Laws relating to its business and properties, and to the
knowledge of the Company there exist no Hazardous Substances in amounts in
violation of applicable Environmental Laws or underground storage tanks on any
of the real properties the existence of which would have a Material Adverse
Effect, except those that are stored and used in compliance with laws.

 

(b) Neither the Company nor any Subsidiary has received written notice of any
pending or threatened litigation or administrative proceeding which in any
instance (i) asserts or alleges any violation of applicable Environmental Laws
on the part of the Company or any Subsidiary, (ii) asserts or alleges that the
Company or any Subsidiary is required to clean up, remove or otherwise take
remedial or other response action due to the disposal, depositing, discharge,
leaking or other release of any Hazardous Substances or materials, or (iii)
asserts or alleges that the Company or any Subsidiary is required to pay all or
any portion of the costs of any past, present or future cleanup, removal or
remedial or other response action which arises out of or is related to the
disposal, depositing, discharge, leaking or other release of any hazardous
substances or materials by the Company or any Subsidiary. To the Company’s
knowledge, neither the Company nor any Subsidiary is subject to any judgment,
decree, order or citation related to or arising out of any Environmental Laws.
To the Company’s knowledge, neither the Company nor any Subsidiary has been
named or listed as a potentially responsible party by any governmental body or
agency in any matter arising under any Environmental Laws. Neither the Company
nor any Subsidiary is a participant in, nor does the Company have knowledge of,
any governmental investigation involving any of the Real Properties.

 

14

 

 

 

(c) To the Company’s knowledge, neither the Company, any Subsidiary nor any
other Person has caused or permitted any Hazardous Substances or other materials
to be stored, deposited, treated, recycled or disposed of on, under or at any of
the Real Properties in violation of applicable Environmental Laws, which
materials, if known to be present, would reasonably be expected to require or
authorize cleanup, removal or other remedial action under any applicable
Environmental Laws.

 

(d) As used in this Section 3.18, the following terms have the following
meanings:

 

“Environmental Laws” include all federal, state, local and foreign laws, rules,
regulations, ordinances, permits, orders, and consent decrees agreed to by the
Company or any Subsidiary, relating to health, safety, and environmental matters
applicable to the business and property of the Company or any Subsidiary. Such
laws and regulations include but are not limited to the Resource Conservation
and Recovery Act (“RCRA”), 42 U.S.C. §6901 et seq., as amended; the
Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”),
42 U.S.C. §9601 et seq., as amended; the Toxic Substances Control Act (“TSCA”),
15 U.S.C. §2601 et seq., as amended; and the Clean Water Act, 33 U.S.C. §1331 et
seq., as amended.

 

“Hazardous Substances”, “Release”, “Respond” and “Response” shall have the
meanings assigned to them in CERCLA, 42 U.S.C. §9601, as amended.

 

“Notice” means any actual summons, citation, directive, information request,
notice of potential responsibility, notice of violation or deficiency, order,
claim, complaint, investigation, proceeding, judgment, letter, or other
communication, written or oral, from the United States Environmental Protection
Agency or other federal, state, local or foreign agency or authority, or any
other entity or individual, public or private, concerning any intentional or
unintentional act or omission which involves management of Hazardous Substances
in amounts in violation of Environmental Laws on or off any Real Properties; the
imposition of any lien on any Real Properties, including but not limited to
liens asserted by government entities in connection with any Company’s or
Subsidiary’s response to the presence or Release of Hazardous Substances in
amounts in violation of Environmental Laws; and any alleged violation of or
responsibility under any Environmental Laws.

 

3.19 Sensitive Payments. Neither the Company nor any Subsidiary has (a) made any
contributions, payments or gifts to or for the private use of any governmental
official, employee or agent where either the payment or the purpose of such
contribution, payment or gift is illegal under the laws of the United States or
the jurisdiction in which made, (b) established or maintained any unrecorded
fund or asset for any purpose or made any false or artificial entries on its
books, (c) made any payments to any person with the intention that any part of
such payment was to be used for any purpose other than that described in the
documents supporting the payment, or (d) engaged in any “trading with the enemy”
or other transactions violating any rules or regulations of the Office of
Foreign Assets Control or any similar laws, rules or regulations.

 

3.20 Full Disclosure. No statement of fact made by the Company in this Agreement
or any other Document, in any SEC Report (as amended), or in any information
memorandum, business summary, agreement, certificate, schedule or other written
statement furnished by the Company or any Subsidiary to the Subsidiary pursuant
hereto, contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact necessary to make any statements
contained herein or therein not misleading. Except for matters of a general
economic or political nature which do not affect the Company or any Subsidiary
uniquely, there is no fact presently known to the Company which has not been
disclosed to the Subsidiary, which has had or would reasonably be expected to
have a Material Adverse Effect.

 

15

 

 

 

3.21 Covenant regarding Use of Proceeds. The Company covenants to the Subscriber
to use the proceeds from the sale of the Shares in accordance with and as
outlined on Schedule 3.21 attached hereto.

 

IV.[Intentionally Omitted.]

 

V.CONDITIONS TO CLOSING OF THE SUBSCRIBER

 

5.1 The Subscriber’s obligation to purchase the Units at the Closing at which
such purchase is to be consummated is subject to the fulfillment on or prior to
such Closing of the following conditions, which conditions may be waived at the
option of the Subscriber to the extent permitted by law:

 

(a) Representations and Warranties Correct. The representations and warranties
made by the Company above shall be true and correct in all material respects as
of the Closing Date.

 

(b) Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed by the Company on or prior to the date of such Closing
shall have been performed or complied with in all material respects.

 

(c) No Legal Order Pending. There shall not then be in effect any legal or other
order enjoining or restraining the transactions contemplated by this Agreement.

 

(d) No Law Prohibiting or Restricting Such Sale. There shall not be in effect
any law, rule or regulation prohibiting or restricting such sale or requiring
any consent or approval of any person, which shall not have been obtained, to
issue the Securities (except as otherwise provided in this Agreement).

 

(e) Compliance Certificate. The Company shall have delivered to the Subscribers
a certificate of the Company, executed by the President of the Company, dated
the Closing Date, and certificate, among other things, to the fulfillment of the
conditions specified in this Agreement.

 

(g) Amendment to Articles of Incorporation. The Amendment to the Company’s
Articles of Incorporation shall have been filed with the Nevada Secretary of
State.

 

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(h) Legal Matters. All material matters of a legal nature which pertain to this
Agreement and the transactions contemplated hereby, shall have been reasonably
approved by counsel to the Subscribers.

 

VI.ADDITIONAL SUBSCRIBER RIGHTS

 

6.1 Information; Should the Company cease to be a reporting company under the
Securities Exchange Act of 1934, so long as a holder holds at least 100,000
Shares or, if lesser, all of the shares purchased by such holder, the Company
shall deliver to such investor reviewed annual and quarterly financial
statements.

 

6.2 Board Representation; The Board of Directors shall consist of up to 5
Directors. So long as Shares are outstanding, the holders of the Shares shall be
entitled to elect one (1) Director. The Company shall reimburse board members
for reasonable travel expenses incurred in connection with their services as a
Director.

 

VII.MISCELLANEOUS

 

7.1 Except as otherwise provided herein, this Agreement shall not be changed,
modified or amended except by a writing signed by the parties to be charged, and
this Agreement may not be discharged except by performance in accordance with
its terms or by a writing signed by the party to be charged.

 

7.2 This Agreement shall be binding upon and inure to the benefit of the parties
hereto and to their respective heirs, legal representatives, successors and
assigns. This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter hereof and merges and supersedes
all prior discussions, agreements and understandings of any and every nature
among them.

 

7.3 Upon the execution and delivery of this Agreement by the Subscriber, this
Agreement shall become a binding obligation of the Subscriber with respect to
the purchase of the Units as herein provided, subject, however, to the right
hereby reserved by the Company to enter into the same agreements with other
subscribers and to add and/or delete other persons as subscribers.

 

7.4 The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect. If any
provision of this Agreement shall be declared by a court of competent
jurisdiction to be invalid, illegal or incapable of being enforced in whole or
in part, such provision shall be interpreted so as to remain enforceable to the
maximum extent permissible consistent with applicable law and the remaining
conditions and provisions or portions thereof shall nevertheless remain in full
force and effect and enforceable to the extent they are valid, legal and
enforceable, and no provisions shall be deemed dependent upon any other covenant
or provision unless so expressed herein.

 

17

 

 

7.5 It is agreed that a waiver by either party of a breach of any provision of
this Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.

 

7.6 All of the representations and warranties contained in this Subscription
Agreement shall survive execution and delivery of this Subscription Agreement
and the undersigned’s investment in the Company.

 

7.7 The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.

 

7.8 This Agreement may be executed in two or more counterparts each of which
shall be deemed an original, but all of which shall together constitute one and
the same instrument.

 

7.9 Nothing in this Agreement shall create or be deemed to create any rights in
any person or entity not a party to this Agreement.

 

7.10 The Company and Subscriber shall each bear its own expenses incurred on its
behalf with respect to this Agreement and the transactions contemplated hereby.
Notwithstanding the immediately preceeding sentence, the Company shall reimburse
Subscriber for 50% of Subscriber’s legal fees and expenses incurred in
connection herewith (up to a maximum of $10,000 payable by the Company) and
Subscriber shall be entitled to withhold and deduct such amount payable by the
Subscriber for the Shares purchased hereunder.

 

7.11 This Agreement shall be governed and construed in all respects in
accordance with the laws of the State of California as applied to agreements
made and performed in California by residents of the State of California.

 

(Signature Pages to Follow)

 

18

 

 

 

 

SUBSCRIPTION AGREEMENT COUNTERPART SIGNATURE PAGE

 

[INDIVIDUAL]

 

If the prospective investor is an individual, please execute this Agreement
below.

 

RONALD ELVIDGE           Name of individual (Please type or print)              
Signature  

HOW SHARES  WILL BE HELD: Individually [X]   JTWROS [  ]   TBTE [  ]  

 

      Amount of (check one)       ___ check enclosed or __ wire transfer: Amount
of Units       Subscribed for: 1,428,571   $ 1,500,000   (50,000 minimum)  
($52,500 minimum)

  

19

 

 

  

ACCEPTANCE PAGE FOR SUBSCRIPTION AGREEMENT

 

Agreed to and accepted as of October 22, 2012.

 

  XZERES CORP.         By:     Name:     Title:  

  

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SCHEDULE 3.21 – USE OF PROCEEDS

 

Materials (Turbine inventory) - $875,000
Japan Expansion - $150,000
Larger Rotor (design, testing, tooling) - $175,000
Payables Catch-up - $250,000
General Working Capital - $450,000

 

**Each Category will be adjusted pro-rata if less than the entire Series A (for
a total of $2mil gross proceeds) is subscribed**

 

21

 

  

EXHIBIT A

 

WARRANT AGREEMENT AND FORM OF WARRANT

  

22

 

  

EXHIBIT B

 

REGISTRATION RIGHTS

  

23