Exhibit 10.1

 

Convertible note PURCHASE AGREEMENT

 

This Convertible Note Purchase Agreement (this “Agreement”) is dated as of
January 27, 2017, between American Power Group Corporation, a Delaware
corporation (the “Company”), and each purchaser identified on the signature
pages hereto (each, a “Purchaser” and collectively the “Purchasers”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Rule 506
of Regulation D promulgated thereunder, the Company desires to issue and sell to
each Purchaser, and each Purchaser desires to purchase from the Company, the
Company’s Subordinated Contingent Convertible Promissory Note, in the form of
Exhibit A attached hereto (each, a “Note” and, together, the “Notes”), as more
fully described in this Agreement; and

 

WHEREAS, each Purchaser is an “Accredited Investor”, as such term is defined in
Rule 501(a) of Regulation D;

 

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

 

ARTICLE I.
DEFINITIONS

 

1.1       Definitions. In addition to the terms defined elsewhere in this
Agreement, (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Certificate of Designation (as defined
herein) (without regard to any changes or amendments thereto after the date
hereof) and (b) the following terms have the meanings set forth in this Section
1.1:

 

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person as such terms are used in and construed under Rule 405 under the
Securities Act.

 

“Board of Directors” means the board of directors of the Company.

 

“Business Day” means any day except any Saturday, any Sunday, any day which is a
federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.

 

“Certificate of Amendment” shall have the meaning ascribed to such term in
Section 4.14.

 

 

 

“Certificate of Designation” means the Certificate of Designation of
Preferences, Rights and Limitations of Series E Preferred Stock, to be filed by
the Company with the Secretary of State of Delaware, in the form of Exhibit B
attached hereto.

 

“Certificate of Incorporation” means the Company’s Restated Certificate of
Incorporation, as in effect on the date hereof and as amended from time to time.

 

“Closing” means the closing of the purchase and sale of the Notes in connection
with the Initial Closing, pursuant to Section 2.1, and in the case of each
closing that occurs subsequent to the Initial Closing, pursuant to the
provisions set forth in Section 2.2.

 

“Closing Date” means the Trading Day on which all of the Transaction Documents
(other than the Certificate of Designation and the Warrants) have been executed
and delivered by the applicable parties thereto, and all conditions precedent to
(i) the Purchasers’ obligations to pay the Subscription Amount at such Closing
and (ii) the Company’s obligations to deliver the Notes at such Closing, in each
case, have been satisfied or waived.

 

“Commission” means the United States Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, par value $0.01 per share,
and any other class of securities into which such securities may hereafter be
reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.

 

“Conversion Price” shall have the meaning ascribed to such term in the
Certificate of Designation.

 

“Conversion Shares” means the shares of Series E Preferred Stock issuable upon
conversion of the Notes.

 

“Equity Securities” means the Conversion Shares, the Warrants and the Underlying
Shares.

 

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

 

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Initial Closing” means the first Closing pursuant to this Agreement.

 

“Initial Closing Date” means the date of the Initial Closing.

 

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“Intellectual Property Rights” shall have the meaning ascribed to such term in
Section 3.1(o).

 

“Lien” means a lien, charge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.

 

“Material Adverse Effect” shall have the meaning assigned to such term in
Section 3.1(b).

 

“Option Plan” shall have the meaning assigned to such term in Section 2.4(c).

 

“Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

 

“Registration Rights Agreement” means the Registration Rights Agreement dated as
of June 1, 2015, as amended, among the Company and certain of the Purchasers, as
the same may be amended from time to time.

 

“Registration Rights Amendment” means the amendment to the Registration Rights
Agreement, in the form of Exhibit C attached hereto.

 

“Required Approvals” shall have the meaning ascribed to such term in Section
3.1(e).

 

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

 

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Securities” means the Notes and the Equity Securities.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

 

“Security Agreement” means the security assignment agreement to be executed and
delivered at the Initial Closing by the Company, granting to Arrow, LLC, as
agent for the Purchasers, a security interest in (i) the Amended and Restated
Senior Secured Demand Promissory Note dated December 1, 2015, issued by Trident
Resources LLC, in the original principal amount of $497,190 and (ii) all related
guarantees and collateral security interests, in the form of Exhibit D attached
hereto.

 

“Series A Preferred Stock” means the Company’s 10% Convertible Preferred Stock,
par value $1.00 per share.

 

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“Series B Preferred Stock” means the Company’s Series B 10% Convertible
Preferred Stock, par value $1.00 per share.

 

“Series C Preferred Stock” means the Company’s Series C Convertible Preferred
Stock, par value $1.00 per share.

 

“Series E Preferred Stock” means the Company’s Series E Convertible Preferred
Stock, par value $1.00 per share.

 

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or
reservation of borrowable shares of Common Stock).

 

“Subordination Agreement” means the subordination agreement to be executed and
delivered at the Initial Closing by the Purchasers and Iowa State Bank, in the
form of Exhibit E attached hereto.

 

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be
paid for the Note purchased hereunder as specified below such Purchaser’s name
on the signature pages of this Agreement, in United States dollars and in
immediately available funds.

 

“Subsidiary” means any subsidiary of the Company as set forth on Exhibit 21.1 to
the Company’s Annual Report on Form 10-K for the fiscal year ended September 30,
2016 and shall, where applicable, also include any direct or indirect subsidiary
of the Company formed or acquired after the date thereof.

 

“Trading Day” means a day on which the principal Trading Market is open for
trading.

 

“Trading Market” means any of the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the NYSE
Alternext, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq
Global Select Market, the New York Stock Exchange or the OTC Bulletin Board (or
any successors to any of the foregoing).

 

“Transaction Documents” means this Agreement, the Notes, the Security Agreement,
the Certificate of Designation, the Voting Agreement, the Warrants, all exhibits
and schedules thereto and hereto and any other documents or agreements executed
in connection with the transactions contemplated hereunder.

 

“Transfer Agent” means American Stock Transfer & Trust Company, LLC, the current
transfer agent of the Company, with a mailing address of 6201 15th Avenue
Brooklyn, New York 11219, and a facsimile number of (718) 765-8712, and any
successor transfer agent of the Company.

 

“Underlying Shares” means the shares of Common Stock issued and issuable upon
conversion of the Conversion Shares and upon exercise of the Warrants.

 

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“Voting Agreement” means the Amended and Restated Voting Agreement in the form
of Exhibit F attached hereto.

 

“Warrants” means the Common Stock purchase warrants to be delivered to the
Purchasers upon the conversion of the Notes, in the form of Exhibit G attached
hereto.

 

“WPU Agreement” means the Forbearance and Waiver Agreement to be executed and
delivered at the Initial Closing by the Company, WPU Leasing, LLC and American
Power Group, Inc., in the form of Exhibit H attached hereto.

 

ARTICLE II.
PURCHASE AND SALE

 

2.1       Initial Closing. On the Initial Closing Date, upon the terms and
subject to the conditions set forth herein, substantially concurrent with the
execution and delivery of this Agreement by the parties hereto, the Company
agrees to sell, and the Purchasers, severally and not jointly, agree to
purchase, Notes in the aggregate principal amount of not less than $2,500,000.
At the Initial Closing, each Purchaser shall deliver to the Company, via wire
transfer or a certified check of immediately available funds, by cancellation or
conversion of indebtedness of the Company to Purchaser, including interest, or
by any combination of such methods, an amount equal to such Purchaser’s
Subscription Amount and the Company shall deliver to each Purchaser a Note in
the principal amount of such Purchaser’s Subscription Amount; and the Company
and the Purchasers shall deliver the other items as set forth herein that are
deliverable at the Initial Closing. The Initial Closing shall occur on the
Closing Date at the offices of the Company’s counsel or such other location as
the Parties shall mutually agree. Notwithstanding that the Closing occurs in a
sequence in respect of the other transactions contemplated by the Transaction
Documents, the Parties acknowledge and agree that each Closing, including the
Initial Closing, is part of and not severable from the other transactions
contemplated by this Agreement or the other Transaction Documents.

 

2.2       Subsequent Closings. After the Initial Closing, the Company shall have
the right to sell additional Notes to one or more additional Purchasers at one
or more additional Closings, provided, however, that (i) the Company shall not
sell Notes with an aggregate principal amount of more than $3,000,000 pursuant
to this Agreement and (ii) the final Closing hereunder shall be held within six
months after the Initial Closing. Each additional Purchaser shall become a party
to this Agreement, the Registration Rights Amendment, the Security Agreement,
the Voting Agreement and the Subordination Agreement by executing and delivering
a counterpart signature page to each of the agreements.

 

2.3       Deliverables.

 

(a)       On or prior to each Closing Date, the Company shall deliver or cause
to be delivered to each Purchaser purchasing a Note at such Closing the
following:

 

(i)       a copy of this Agreement duly executed by the Company;

 

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(ii)       a Note, in the principal amount of the respective Purchaser’s
Subscription Amount, registered in the name of such Purchaser;

 

(iii)       a copy of the Registration Rights Amendment, duly executed by the
Company;

 

(iv)       a copy of the Voting Agreement, duly executed by the Company and such
parties thereto as may be required to amend the Voting Agreement as contemplated
thereby;

 

(v)       a copy of the Security Agreement, duly executed by the Bank and
acknowledged by the Company; and

 

(vi)       a copy of the Subordination Agreement, duly executed by the Bank and
acknowledged by the Company.

 

(b)       On or prior to each Closing Date, each Purchaser purchasing a Note at
such Closing shall deliver or cause to be delivered to the Company the
following:

 

(i)       a copy of this Agreement duly executed by such Purchaser;

 

(ii)       such Purchaser’s Subscription Amount by wire transfer or a certified
check of immediately available funds;

 

(iii)       a copy of the Registration Rights Amendment, duly executed by such
Purchaser;

 

(iv)       a copy of the Voting Amendment, duly executed by such Purchaser;

 

(v)       a copy of the Security Agreement, duly executed by such Purchaser; and

 

(vi)       a copy of the Subordination Agreement, duly executed by such
Purchaser.

 

2.4       Closing Conditions.

 

(a)       The obligations of the Company to each of the Purchasers, severally
and not jointly, hereunder in connection with each Closing are subject to the
following conditions being met:

 

(i)       each of the representations and warranties made by such Purchaser in
this Agreement is true and correct in all material respects on and as of such
Closing, as though each such representation or warranty had been made on and as
of such Closing, except that those representations and warranties that address
matters only as of a particular date shall remain true and correct as of such
date;

 

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(ii)       all obligations, covenants and agreements of such Purchaser required
to be performed at or prior to the Closing shall have been performed in all
material respects; and

 

(iii)       the delivery by such Purchaser of the items as set forth herein.

 

(b)       The respective obligations of each Purchaser, severally and not
jointly, hereunder in connection with each Closing are subject to the following
conditions being met:

 

(i)       each of the representations and warranties of the Company in this
Agreement that is qualified by a reference to materiality or Material Adverse
Effect shall be true in all respects as so qualified on and as of such Closing,
including the Initial Closing, and each of the representations and warranties of
the Company in this Agreement that is not so qualified shall be true and correct
in all material respects on and as of such Closing and as of all previous
Closings, including the Initial Closing, as though each such representation or
warranty had been made on and as of each respective Closing, except that those
representations and warranties that address matters only as a particular date
shall remain true and correct as of such date;

 

(ii)       all obligations, covenants and agreements of the Company required to
be performed at or prior to such Closing shall have been performed in all
material respects;

 

(iii)       the delivery by the Company of the items as set forth herein;

 

(iv)       there shall have been no Material Adverse Effect with respect to the
Company since the date hereof;

 

(v)       the holders of the Company’s Series C Preferred Stock shall have
waived all antidilution adjustments otherwise applicable to the issuance of the
Notes and the issuance or deemed issuance of the Equity Securities;

 

(vi)       the Company shall have obtained such additional waivers and consents
from its security holders as the Purchasers may reasonably request to effectuate
the transactions contemplated by this Agreement; and

 

(vii)       from the date hereof to the Closing Date, trading in the Common
Stock shall not have been suspended by the Commission or the Company’s principal
Trading Market (except for any suspension of trading of limited duration agreed
to by the Company, which suspension shall be terminated prior to the Closing),
and, at any time prior to the Closing Date, trading in securities generally as
reported by Bloomberg L.P. shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades are reported
by such service, or on any Trading Market, nor shall a banking moratorium have
been declared either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation of hostilities or
other national or international calamity of such magnitude in its effect on, or
any material adverse change in, any financial market which, in each case, in the
reasonable judgment of each Purchaser, makes it impracticable or inadvisable to
purchase the Securities at the Closing.

 

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(c)       Prior to the Initial Closing, the Board of Directors shall have
amended the Company’s 2016 Stock Option Plan (the “Option Plan”), to provide for
the issuance of options to purchase up to 90,000,000 shares of Common Stock,
such amendment to be conditioned on the approval of the Certificate of Amendment
by the Company’s stockholders.

 

(d)       Prior to the Initial Closing, the Company shall have amended its
employment agreements with each of Maurice Needham, Lyle Jensen, Charles Coppa
and Michael Schiltz to provide that the Company’s severance or salary
continuation obligations under such agreements shall not exceed three months.

 

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

 

3.1       Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to each Purchaser:

 

(a)       Subsidiaries. Exhibit 21.1 to the Company’s Annual Report on Form 10-K
for the fiscal year ended September 30, 2016 sets forth a list of all of direct
and indirect Subsidiaries of the Company existing during such fiscal year. The
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary, including any direct or indirect subsidiary of the
Company formed or acquired subsequent to the filing of the above-referenced
annual report, free and clear of any Liens, and all of the issued and
outstanding shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.

 

(b)        Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
formation, with the requisite power and authority to own and use its properties
and assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation or default of any of the provisions
of its respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and the Subsidiaries is
duly qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the case may
be, could not reasonably be expected to result in: (i) a material adverse effect
on the legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business or
condition (financial or otherwise) of the Company and the Subsidiaries, taken as
a whole, or (iii) a material adverse effect on the Company’s ability to perform
in any material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no action,
claim, suit, investigation or proceeding (including, without limitation, an
informal investigation or partial proceeding, such as a deposition) has been
instituted in any such jurisdiction revoking, limiting or curtailing or seeking
to revoke, limit or curtail such power and authority or qualification.

 

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(c)       Authorization; Enforcement. The Company or any Subsidiary of the
Company that is a party to this Agreement or the other Transaction Documents has
the requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents to which it is a
party and otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents and the consummation
by the Company and each Subsidiary of the transactions contemplated hereby and
thereby have been duly authorized by all required corporate or other action on
the part of the Company and each Subsidiary other than in connection with the
Required Approvals. Each Transaction Document to which the Company and each
Subsidiary is a party has been (or upon delivery will have been) duly executed
by the Company or such Subsidiary, as the case may be, and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid and
binding obligation of, and will be enforceable against, the Company or the
Subsidiary, as the case may be, in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as the Company’s indemnification obligations under
the provisions of Section 4.7 may be limited by applicable law.

 

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

 

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(e)       Filings, Consents and Approvals. The Company is not required to obtain
any consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than: (i) such filings as are required to be made under applicable state
securities laws, and (ii) certain stockholder approvals as contemplated by
Section 4.14 of this Agreement (collectively, the “Required Approvals”).

 

(f)       Issuance of the Securities. Subject to the effectiveness of the filing
of the Certificate of Designation with the Secretary of State of Delaware, the
Equity Securities are duly authorized and, when issued and paid for in
accordance with the applicable Transaction Documents, will be duly and validly
issued, fully paid and nonassessable, free and clear of all Liens imposed by the
Company other than restrictions on transfer provided in the Transaction
Documents. The Underlying Shares, when issued in accordance with the terms of
the Conversion Shares and the Warrants, will be validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents. The Company
has reserved from its duly authorized capital stock the maximum number of shares
of Common Stock issuable upon the conversion of the Notes and the exercise of
the Warrants.

 

(g)       Capitalization. No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. The issuance and sale of
the Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than the Purchasers) and will not result
in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under any of such securities. All of the
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. Except as contemplated by Section 4.14 of this Agreement,
no further approval or authorization of any stockholder, the Board of Directors
or others is required for the issuance and sale of the Securities. Other than
the Voting Agreement, there are no stockholders agreements, voting agreements or
other similar agreements with respect to the Company’s capital stock to which
the Company is a party or, to the knowledge of the Company, between or among any
of the Company’s stockholders.

 

(h)       SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by the
Company under the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or
such shorter period as the Company was required by law or regulation to file
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, and except as
may have been corrected and/or restated by subsequently filed SEC Reports, the
SEC Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act, as applicable, except that the Company may
not have furnished to the Commission and posted on its corporate Web site every
Interactive Data File required to be submitted and posted within the timeframes
required by Rule 405 of Regulation S-T, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The Company has never been an issuer subject to Rule 144(i) under
the Securities Act. Except as may have been subsequently corrected and/or
restated by subsequently filed SEC Reports, the financial statements of the
Company included in the SEC Reports complied in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved (“GAAP”), except as may have been subsequently corrected
and/or restated by subsequently filed SEC Reports and as may be otherwise
specified in such financial statements or the notes thereto and except that
unaudited financial statements may not contain all footnotes required by GAAP,
and fairly present in all material respects the financial position of the
Company and its consolidated Subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods indicated therein,
subject, in the case of unaudited statements, to normal, year-end audit
adjustments.

 

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(i)       Material Changes; Undisclosed Events, Liabilities or Developments.
Since the date of the latest audited financial statements included within the
SEC Reports, except as otherwise disclosed in the SEC Reports (including the
amended and/or restated SEC Reports), (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company’s financial
statements pursuant to GAAP or disclosed in filings made with the Commission,
(iii) the Company has not altered its method of accounting, (iv) the Company has
not declared or made any dividend or distribution of cash or other property to
its stockholders, other than dividends paid on outstanding shares of the
Company’s preferred stock, or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock and (v) the Company has not
issued any equity securities to any officer, director or Affiliate, except
pursuant to arms’ length transactions approved by the Board of Directors. The
Company does not have pending before the Commission any request for confidential
treatment of information. Except for the issuance of the Securities contemplated
by this Agreement, no event, liability or development that could reasonably be
expected to result in a Material Adverse Effect has occurred or exists with
respect to the Company or its Subsidiaries or their respective business,
properties, operations or financial condition that would be required to be
disclosed by the Company under applicable securities laws at the time this
representation is made or deemed made that has not been publicly disclosed at
least one Trading Day prior to the date that this representation is made.

 

(j)       Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Securities or (ii) could, if there were an unfavorable decision, reasonably
be expected to result in a Material Adverse Effect. Neither the Company nor any
Subsidiary, to the knowledge of the Company, nor any director or officer
thereof, is or has been the subject of any Action involving a claim of violation
of or liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the Commission involving
the Company or any current or former officer or any current director of the
Company. The Commission has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.

 

(k)       Labor Relations. No material labor dispute exists or, to the knowledge
of the Company, is imminent with respect to any of the employees of the Company.
None of the Company’s or its Subsidiaries’ employees is a member of a union that
relates to such employee’s relationship with the Company or such Subsidiary, and
neither the Company nor any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good. No executive officer, to the
knowledge of the Company, is now or is expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement or non-competition agreement, or any other
contract or agreement or any restrictive covenant in favor of any third party,
and the continued employment of each such executive officer does not subject the
Company or any of its Subsidiaries to any liability with respect to any of the
foregoing matters. The Company and its Subsidiaries are in compliance in all
material respects with all U.S. federal, state, local laws and regulations
relating to employment and employment practices, terms and conditions of
employment and wages and hours.

 

(l)       Compliance. Neither the Company nor any Subsidiary: (i) is in default
under or in violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a default by the
Company or any Subsidiary under), nor has the Company or any Subsidiary received
notice of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of any
judgment, decree or order of any court, arbitrator or governmental body or (iii)
except as disclosed in the Company’s Current Report on Form 8-K filed with the
Commission on May 21, 2015, is or has been in violation of any statute, rule,
ordinance or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business
and all such laws that affect the environment, except in each case as could not
reasonably be expected to result in a Material Adverse Effect.

 

11

 

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

 

(n)       Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens in favor of Iowa State Bank and WPU Leasing, LLC, Liens
reflected in the Company’s financial statements and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases with which the Company and the Subsidiaries are in
compliance.

 

(o)       Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights necessary or
material for use in connection with their respective businesses as described in
the SEC Reports and which the failure to so have could reasonably be expected to
result in a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). Neither the Company nor any Subsidiary has received a notice (written
or otherwise) that any of the Intellectual Property Rights used by the Company
or any Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all Intellectual Property Rights that the Company owns
or has rights to are enforceable and there is no existing infringement by
another Person of any of the Intellectual Property Rights. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of their intellectual property that consist of trade
secrets.

 

(p)       Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are, to the knowledge of the Company, prudent and customary in the
businesses in which the Company and the Subsidiaries are engaged, including, but
not limited to, directors and officers insurance coverage at least equal to the
aggregate Subscription Amount. Neither the Company nor any Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.

 

12

 

(q)       Transactions With Affiliates and Employees. Except as described in the
SEC Reports, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $120,000 other than for (i) loans made by one
or more Purchasers to the Company, (ii) payment of salary or consulting fees for
services rendered, (iii) reimbursement for expenses incurred on behalf of the
Company and (iv) other employee benefits, including stock option agreements
under any stock option plan of the Company.

 

(r)       Sarbanes-Oxley; Internal Accounting Controls. The Company is in all
material respects in compliance with all provisions of the Sarbanes-Oxley Act of
2002 which are applicable to it as of both the Initial Closing Date and the
Closing Date. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that: (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that information required to be
disclosed by the Company in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms. The Company’s certifying officers
have evaluated the effectiveness of the Company’s disclosure controls and
procedures as of the end of the period covered by the Company’s most recently
filed periodic report under the Exchange Act (such date, the “Evaluation Date”).
The Company presented in its most recently filed periodic report under the
Exchange Act the conclusions of the certifying officers about the effectiveness
of the disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no changes in the
Company’s internal control over financial reporting (as such term is defined in
the Exchange Act) that has materially adversely affected, or is reasonably
likely to materially adversely affect, the Company’s internal control over
financial reporting.

 

13

 

(s)       Certain Fees. No brokerage or finder’s fees or commissions are or will
be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by the Transaction Documents. The Purchasers shall
have no obligation with respect to any fees or with respect to any claims made
by or on behalf of other Persons for fees of a type contemplated in this Section
that may be due in connection with the transactions contemplated by the
Transaction Documents.

 

(t)       Investment Company. The Company is not, and is not an Affiliate of,
and immediately after receipt of payment for the Securities, will not be or be
an Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become an “investment company” subject to
registration under the Investment Company Act of 1940, as amended.

 

(u)       Listing and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to its knowledge is likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act nor has the Company received any notification that the Commission is
contemplating terminating such registration. The Company has not, in the 12
months preceding the date hereof, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such Trading Market. The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements.

 

(v)       Application of Takeover Protections. The Company and the Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s Certificate of Incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company’s
issuance of the Securities and the Purchasers’ ownership of the Equity
Securities.

 

(w)       Disclosure. Except with respect to the material terms and conditions
of the transactions contemplated by the Transaction Documents, the Company
confirms that neither it nor any other Person acting on its behalf has provided
any of the Purchasers or their agents or counsel with any information that it
believes constitutes or might constitute material, non-public information. The
Company understands and confirms that the Purchasers will rely on the foregoing
representation in effecting transactions in securities of the Company. All of
the disclosure furnished, taken as a whole, by or on behalf of the Company to
the Purchasers regarding the Company, its business and the transactions
contemplated hereby, is true and correct in all material respects and does not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any representations
or warranties with respect to the transactions contemplated hereby other than
those specifically set forth in Section 3.2 hereof.

 

14

 

(x)       No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of (i) the Securities Act which would require the registration of
any such securities under the Securities Act, or (ii) any applicable shareholder
approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated.

 

(y)       Tax Status. The Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid or
accrued all taxes shown as due thereon, and the Company has no knowledge of a
tax deficiency which has been asserted or threatened against the Company or any
Subsidiary.

 

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

 

(aa) Accountants. The Company’s accounting firm is set forth in the SEC Reports.
To the knowledge and belief of the Company, such accounting firm (i) is a
registered public accounting firm as required by the Exchange Act and (ii) shall
express its opinion with respect to the financial statements to be included in
the Company’s Annual Report for the fiscal year ending September 30, 2016.

 

(bb) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company
acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated thereby. The Company further acknowledges that
no Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any Purchaser or any
of their respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely incidental to the
Purchasers’ purchase of the Securities. The Company further represents to each
Purchaser that the Company’s decision to enter into this Agreement and the other
Transaction Documents has been based solely on the independent evaluation of the
transactions contemplated hereby and thereby by the Company and its
representatives.

 

15

 

(cc) Acknowledgement Regarding Purchasers’ Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for
Sections 3.2(e) and 4.11 hereof), it is understood and acknowledged by the
Company that: (i) none of the Purchasers have been asked by the Company to
agree, nor has any Purchaser agreed, to desist from purchasing or selling, long
and/or short, securities of the Company, or “derivative” securities based on
securities issued by the Company or to hold the Securities for any specified
term; (ii) past or future open market or other transactions by any Purchaser,
specifically including, without limitation, Short Sales or “derivative”
transactions, before or after the closing of this or future private placement
transactions, may negatively impact the market price of the Company’s
publicly-traded securities; (iii) any Purchaser, and counter-parties in
“derivative” transactions to which any such Purchaser is a party, directly or
indirectly, presently may have a “short” position in the Common Stock, and (iv)
no Purchaser shall be deemed to have any affiliation with or control over any
arm’s length counter-party in any “derivative” transaction. The Company further
understands and acknowledges that (y) one or more Purchasers may engage in
hedging activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value of
the Underlying Shares deliverable with respect to Securities are being
determined, and (z) such hedging activities (if any) could reduce the value of
the existing stockholders’ equity interests in the Company at and after the time
that the hedging activities are being conducted. The Company acknowledges that
such aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents.

 

(dd) Regulation M Compliance. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or, paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any Person any compensation for soliciting another to purchase any other
securities of the Company.

 

(ee) Private Placement. Assuming the accuracy of the Purchasers’ representations
and warranties set forth in Section 3.2, no registration under the Securities
Act is required for the offer and sale of the Securities by the Company to the
Purchasers as contemplated hereby. To the knowledge of the Company, the issuance
and sale of the Securities hereunder does not contravene the rules and
regulations of any Trading Market.

 

(ff) No General Solicitation. Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Securities by any form of
general solicitation or general advertising.

 

16

 

(gg) No Disagreements with Accountants and Lawyers. To the knowledge of the
Company, there are no disagreements of any kind presently existing, or
reasonably anticipated by the Company to arise, between the Company and the
accountants and lawyers formerly or presently employed by the Company and the
Company is current with respect to any fees owed to its accountants and lawyers
which could affect the Company’s ability to perform any of its obligations under
any of the Transaction Documents.

 

3.2       Representations and Warranties of the Purchasers. Each Purchaser, for
itself and for no other Purchaser, hereby represents and warrants as of the
Closing Date of such Purchaser’s purchase of a Note to the Company as follows
(unless as of a specific date therein):

 

(a)       Organization; Authority. Such Purchaser is either an individual or an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement and
performance by such Purchaser of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate, partnership, limited
liability company or similar action, as applicable, on the part of such
Purchaser. Each Transaction Document to which such Purchaser is a party has been
duly executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against such Purchaser in accordance
with its terms, except: (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors’ rights generally, and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.

 

(b)       Understandings or Arrangements. Such Purchaser understands that the
Securities are “restricted securities” and have not been registered under the
Securities Act or any applicable state securities law. Such Purchaser is
acquiring the Securities as principal for its own account and not with a view to
or for distributing or reselling such Securities or any part thereof in
violation of the Securities Act or any applicable state securities law, has no
present intention of distributing any of such Securities in violation of the
Securities Act or any applicable state securities law and has no direct or
indirect arrangement or understandings with any other persons to distribute or
regarding the distribution of such Securities in violation of the Securities Act
or any applicable state securities law (this representation and warranty not
limiting such Purchaser’s right to sell the Securities in compliance with
applicable federal and state securities laws). Such Purchaser is acquiring the
Securities hereunder in the ordinary course of its business.

 

(c)       Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and as of the date hereof it is, and on each date on which
it exercises the Warrant or converts any of the Notes, it will be either: (i) an
“accredited investor” as defined in Rule 501(a) under the Securities Act or (ii)
a “qualified institutional buyer” as defined in Rule 144A(a) under the
Securities Act. Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.

 

17

 

(d)       Experience of Purchaser. Such Purchaser, either alone or together with
its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. Such Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.

 

(e)       No General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any press release, Form D or other filing made by the
Company under federal or state securities laws, advertisement, article, notice
or other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.

 

(f)       Speculative Investment. Such Purchaser understands and recognizes that
the purchase of the Securities is highly speculative and involves a high degree
of risk and that only investors who can afford the loss of their entire
investment should consider investing in the Company. Such Purchaser has reviewed
the risk factors in the SEC Reports.

 

(g)       Principal Place of Business. The address of such Purchaser furnished
by such Purchaser on the signature page hereto is such Purchaser’s principal
business address.

 

(h)       U.S. Person. Such Purchaser is a United States Person.

 

(i)       No Reliance on Other Statements. No statements, promises, warranties
or representations have been made to such Purchaser concerning the Securities or
the Company, its business or prospects, or other matters, by the Company, by the
Company’s representatives, or by any other persons or entities, except as set
forth in the Transaction Documents and the SEC Reports. Such Purchaser has not
relied on any representation, written or oral, not contained in the Transaction
Documents or the SEC Reports in deciding to purchase the Securities.

 

The Company acknowledges and agrees that the representations contained in
Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on
the Company’s representations and warranties contained in this Agreement or any
representations and warranties made by the Company and any Subsidiaries
contained in any other Transaction Document or any other document or instrument
executed and/or delivered in connection with this Agreement or the consummation
of the transaction contemplated hereby.

 

18

 

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

 

4.1       Transfer Restrictions.

 

(a)       The Securities may only be disposed of in compliance with state and
federal securities laws. In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, to the Company
or to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in Section 4.1(b), the Company may require the transferor thereof to provide to
the Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing to
be bound by the terms of this Agreement and any other Transaction Documents to
which the transferor is a party, and shall have the rights and obligations of a
Purchaser under this Agreement and the other Transaction Documents.

 

(b)       The Purchasers agree to the imprinting, so long as is required by this
Section 4.1, of a legend on any of the Securities in the following form:

 

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS
[EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS. SUCH SECURITIES MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED
HOLDER OF SUCH SECURITIES, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION]
OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT
IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT
OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

(c)       The Company acknowledges and agrees that Purchasers may from time to
time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Equity
Securities to a financial institution that is an “accredited investor” as
defined in Rule 501(a) under the Securities Act and who agrees to be bound by
the provisions of this Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Equity Securities to
the pledgees or secured parties. Such a pledge or transfer would not be subject
to approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the appropriate Purchaser’s expense,
the Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Securities may reasonably request in connection with a
pledge or transfer of the Equity Securities, including, if the Equity Securities
are subject to an effective registration statement under the Securities Act, the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) promulgated by the Commission under the Securities Act, as such Rule
may be amended or interpreted from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule, or any other applicable provision of the
Securities Act to appropriately amend the list of selling stockholders
thereunder.

 

19

 

(d)       Certificates evidencing the Underlying Shares shall not contain any
legend (including the legend set forth in Section 4.1(b) hereof): (i) while a
registration statement covering the resale of such security is effective under
the Securities Act, (ii) following any sale of such Underlying Shares pursuant
to Rule 144, (iii) if such Underlying Shares are eligible for sale under Rule
144, without the requirement for the Company to be in compliance with the
current public information required under Rule 144 as to such Underlying Shares
and without volume or manner-of-sale restrictions or (iv) if such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company shall cause its counsel to issue a legal opinion to the Transfer Agent
if required by the Transfer Agent to effect the removal of the legend hereunder.
If all or any of the Notes are converted or any portion of a Warrant is
exercised at a time when there is an effective registration statement to cover
the resale of the Underlying Shares, or if such Underlying Shares may be sold
under Rule 144 and the Company is then in compliance with the current public
information required under Rule 144, or if the Underlying Shares may be sold
under Rule 144 without the requirement for the Company to be in compliance with
the current public information required under Rule 144 as to such Underlying
Shares and without volume or manner-of-sale restrictions or if such legend is
not otherwise required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission) then such Underlying Shares shall be issued free of all legends.
The Company agrees that at such time as such legends are no longer required
under this Section 4.1(c), it will, no later than three Trading Days following
the delivery by a Purchaser to the Company or the Transfer Agent of a
certificate representing Underlying Shares, as applicable, issued with a
restrictive legend, deliver or cause to be delivered to such Purchaser a
certificate representing such shares that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on transfer set
forth in this Section 4. Certificates for Underlying Shares subject to legend
removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by
crediting the account of the Purchaser’s prime broker with the Depository Trust
Company System as directed by such Purchaser.

 

(e)       Each Purchaser, severally and not jointly with the other Purchasers,
agrees with the Company that such Purchaser will sell any Securities pursuant to
either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom, and that
if Equity Securities are sold pursuant to an effective registration statement,
they will be sold in compliance with the plan of distribution set forth therein,
and acknowledges that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 4.1 is predicated upon the
Company’s reliance upon this understanding.

 

20

 

4.2       Acknowledgment of Dilution. The Company acknowledges that the issuance
of the Securities may result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligations under the Transaction
Documents, including, without limitation, its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.

 

4.3       Furnishing of Information; Public Information. Until the earliest of
the time that (i) no Purchaser owns Securities or (ii) the Warrants have
expired, the Company covenants to maintain the registration of the Common Stock
under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
the Exchange Act even if the Company is not then subject to the reporting
requirements of the Exchange Act.

 

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

 

4.5       Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that any
Purchaser is an “Acquiring Person” under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that any Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and any
Purchaser.

 

4.6       Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes, as approved by the
Board of Directors, including the repayment of short-term loans other than the
Notes. The Company shall not use such proceeds for the redemption of any Common
Stock or Common Stock Equivalents.

 

21

 

4.7       Indemnification of Purchasers. Subject to the provisions of this
Section 4.7, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“Purchaser Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a Purchaser
Party in any capacity, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser Party, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser Party’s
representations, warranties or covenants under the Transaction Documents or any
agreements or understandings such Purchaser Party may have with any such
stockholder or any violations by such Purchaser Party of state or federal
securities laws or any conduct by such Purchaser Party which constitutes fraud,
gross negligence, willful misconduct or malfeasance). If any action shall be
brought against any Purchaser Party in respect of which indemnity may be sought
pursuant to this Agreement, such Purchaser Party shall promptly notify the
Company in writing, and the Company shall have the right to assume the defense
thereof with counsel of its own choosing reasonably acceptable to the Purchaser
Party. Any Purchaser Party shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Purchaser Party except
to the extent that (i) the employment thereof has been specifically authorized
by the Company in writing, (ii) the Company has failed after a reasonable period
of time to assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of counsel, a material conflict on any
material issue between the position of the Company and the position of such
Purchaser Party, in which case the Company shall be responsible for the
reasonable fees and expenses of no more than one such separate counsel. The
Company will not be liable to any Purchaser Party under this Agreement (y) for
any settlement by a Purchaser Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (z) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by such Purchaser Party in this
Agreement or in the other Transaction Documents.

 

4.8       Reservation of Common Stock. As of the date hereof, and subject to the
effectiveness of the filing of the Certificate of Amendment and the Certificate
of Designation with the Secretary of State of Delaware, the Company has reserved
and the Company shall continue to reserve and keep available at all times, free
of preemptive rights, a sufficient number of shares of Common Stock for the
purpose of enabling the Company to issue all of the Underlying Shares.

 

4.9       Listing of Common Stock. The Company hereby agrees to use all
commercially reasonable efforts to maintain the listing or quotation of the
Common Stock on the Trading Market on which it is currently listed, and
concurrently with the Initial Closing, the Company shall apply to list or quote
all of the Underlying Shares on such Trading Market and promptly secure the
listing of all of the Underlying Shares on such Trading Market. The Company
further agrees, if the Company applies to have the Common Stock traded on any
other Trading Market, it will then include in such application all of the
Underlying Shares, and will take such other action as is necessary to cause all
of the Underlying Shares to be listed or quoted on such other Trading Market as
promptly as possible. The Company will then take all action reasonably necessary
to continue the listing and trading of its Common Stock on a Trading Market and
will comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Trading Market.

 

22

 

4.10       Certain Transactions and Confidentiality. Each Purchaser, severally
and not jointly with any other Purchaser, covenants that neither it nor any
Affiliate acting on behalf of or pursuant to any understanding with the Company
will execute any purchases or sales, including Short Sales of any of the
Company’s securities during the period commencing with the execution of this
Agreement and ending at such time that the transactions contemplated by this
Agreement are first publicly announced pursuant to a Current Report on Form 8-K
to be filed with the Commission. Each Purchaser, severally and not jointly with
any other Purchaser, covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company pursuant to
such Form 8-K, such Purchaser will maintain the confidentiality of the existence
and terms of this transaction and the information included in the Transaction
Documents. Notwithstanding the foregoing and notwithstanding anything contained
in this Agreement to the contrary, the Company expressly acknowledges and agrees
that, except as may be required by applicable securities laws, (i) no Purchaser
makes any representation, warranty or covenant hereby that it will not engage in
effecting transactions in any securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced
pursuant to such Form 8-K, (ii) no Purchaser shall be restricted or prohibited
from effecting any transactions in any securities of the Company in accordance
with applicable securities laws from and after the time that the transactions
contemplated by this Agreement are first publicly announced pursuant to such
Form 8-K and (iii) no Purchaser shall have any duty of confidentiality to the
Company or its Subsidiaries after the issuance of such Form 8-K.

 

4.11       Conversion and Exercise Procedures. Each of the form of Notice of
Exercise included in the Warrants and the form of Notice of Conversion included
in the Certificate of Designation set forth the totality of the procedures
required of the Purchasers in order to exercise the Warrants or convert the
Conversion Shares. No additional legal opinion, other information or
instructions shall be required of the Purchasers to exercise the Warrants or
convert the Notes or the Conversion Shares. The Company shall honor exercises of
the Warrants and conversions of the Conversion Shares and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.

 

4.12       Form D; Blue Sky Filings. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide to
Purchaser a copy thereof, promptly upon request of any Purchaser. The Company
shall take such action as the Company shall reasonably determine is necessary in
order to obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at each Closing under applicable securities or “Blue Sky” laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified, subject the Company to any material tax in any such
jurisdiction where it is not then so subject or file a general consent to
service of process in any such jurisdiction.

 

23

 

4.13       Issuance of Warrants. Upon the conversion of the Notes pursuant to
their terms, the Company shall issue to each Purchaser a Warrant entitling such
Purchaser to purchase, at an initial exercise price per share equal to the
Conversion Price, ten times the number of shares of Common Stock into which such
Purchaser’s Conversion Shares are convertible from time to time. Further, if,
and only if, the initial exercise price of the Warrants is less than $.10 per
share, then the exercise prices of all of the warrants issued to the parties to
the Securities Purchase Agreement dated as of January 8, 2016 who are also
Purchasers under this Agreement shall be automatically, and without further
action of the Company or the holders, deemed to be amended to reduce the
exercise prices of such warrants to equal the exercise price of the Warrants.
Notwithstanding any such automatic reduction, the Company shall, at the request
of any such Purchaser, amend and restate the warrants held by such Purchaser to
reflect the adjusted exercise price.

 

4.14       Stockholders Meeting. The Company shall take all action reasonably
necessary in accordance with applicable law to convene a meeting of its
stockholders to be held at the earliest practicable time after the date of this
Agreement for the purpose of approving a certificate of amendment to the
Certificate of Incorporation increasing the number of authorized shares of
Common Stock from 350,000,000 to 600,000,000 shares (the “Certificate of
Amendment”) and ratifying the amendment of the Option Plan contemplated by
Section 2.4(c). Further, if, and only if, the initial Conversion Price is less
than $.10, then the Certificate of Amendment shall also amend the Certificate of
Incorporation to reduce the conversion prices of the Company’s Series D
Convertible Preferred Stock, par value $1.00 per share, Series D-2 Convertible
Preferred Stock, par value $1.00 per share, and Series D-3 Convertible Preferred
Stock, par value $1.00 per share, to equal the Conversion Price. Without
limiting the generality of the foregoing, (i) within 30 days after the Initial
Closing Date, the Company shall file with the Commission a preliminary proxy
statement with respect to such meeting and (ii) the Company shall use its
reasonable commercial efforts to file a definitive proxy statement (the “Proxy
Statement”) with respect to such meeting, and to distribute the Proxy Statement
to its stockholders, as soon as practicable thereafter. The Proxy Statement
shall satisfy all requirements of applicable state and federal securities laws
and the Delaware General Corporation Law. The Company’s Board of Directors shall
recommend to the stockholders the adoption of the Certificate of Amendment and
the ratification of such amendment to the Option Plan. The Company shall file
the Certificate of Designation and the Certificate of Amendment with the
Secretary of State of Delaware within two Business Days after receiving
stockholder approval thereof as contemplated by the Proxy Statement.

 

4.15       Dividend Deferral. The Company shall defer the payment of all cash
dividends currently payable and subsequently to become payable in respect of its
preferred stock until such time as the Board of Directors, in its sole
discretion, determines that such dividends may be paid. During the deferral
period, dividends on such preferred stock may be paid in shares of Common Stock
in the discretion of the Board of Directors.

 

4.16       Salary Reductions. The Company shall use commercially reasonable
efforts to obtain voluntary salary reductions from employees of not less than
$200,000 per annum in the aggregate. Subject to compliance with applicable
securities laws, employees agreeing to such salary reductions will be permitted
to convert the amount of such reductions into shares of Series E Preferred Stock
on the same terms (including the issuance of Warrants) on which the Notes are
convertible. The Company shall defer payment of any such salary reductions not
so converted until such time as the Board of Directors, in its sole discretion,
determines that the Company’s cash flow is sufficient to permit such payments.

 

24

 

ARTICLE V.
MISCELLANEOUS

 

5.1       Fees and Expenses. The Company shall pay all of the reasonable
expenses incurred by Matthew Van Steenwyk, Neil Braverman and their respective
Affiliates in connection with the transactions contemplated by this Agreement,
including the fees and expenses of their advisers, counsel, accountants and
other experts, if any. Each other party to this Agreement shall be responsible
for the payment of all of the fees and expenses of its respective advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all Transfer Agent fees,
stamp taxes and other taxes and duties levied in connection with the delivery of
any Securities to the Purchasers.

 

5.2       Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

 

5.3       Governing Agreement. Should any provision of this Agreement conflict
with the provisions of any other Transaction Document, the terms of this
Agreement shall govern.

 

5.4       Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of: (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature page attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by
U.S. nationally recognized overnight courier service or (d) upon actual receipt
by the party to whom such notice is required to be given. The addresses for such
notices and communications shall be as set forth on the signature pages attached
hereto.

 

5.5       Amendments; Waivers. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and the Purchasers holding 67% of the Notes
then outstanding (or, if no Notes are outstanding, 67% of the Underlying Shares
then outstanding or issuable) or, in the case of a waiver, by the party against
whom enforcement of any such waived provision is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right.

 

25

 

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

 

5.7       Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by merger). Any
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities, provided that such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the
“Purchaser.”

 

5.8       No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.7.

 

5.9       Governing Law. With exception of the Subordination Agreement, which
shall be governed by the laws of the State of Iowa, and the Certificate of
Designation, which shall be governed by the laws of the State of Delaware, all
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the City of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or is an inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other
manner permitted by law. If any party shall commence an action or proceeding to
enforce any provisions of the Transaction Documents, then, in addition to the
obligations of the Company under Section 4.7, the prevailing party in such
action or proceeding shall be reimbursed by the other party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such action or proceeding.

 

26

 

5.10       Survival. The representations and warranties contained herein shall
survive the Closings and the delivery of the Securities.

 

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

 

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

 

5.13       Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other Transaction Documents, whenever any Purchaser exercises a right,
election, demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided, then
such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; provided,
however, that in the case of a rescission of a conversion of the Notes or an
exercise of a Warrant, the applicable Purchaser shall be required to return any
shares of Common Stock subject to any such rescinded conversion or exercise
notice concurrently with the return to such Purchaser of the aggregate exercise
price paid to the Company for such shares and the restoration of such
Purchaser’s right to acquire such shares pursuant to such Purchaser’s Warrant
(including issuance of a replacement warrant certificate evidencing such
restored right).

 

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

 

27

 

5.15       Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agree to waive and
not to assert in any action for specific performance of any such obligation the
defense that a remedy at law would be adequate.

 

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

 

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

 

5.18 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall not be a Business Day, then such action may be taken or such right may be
exercised on the next succeeding Business Day.

 

5.19       Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto. In
addition, each and every reference to share prices and shares of Common Stock in
any Transaction Document shall be subject to adjustment for reverse and forward
stock splits, stock dividends, stock combinations and other similar transactions
of the Common Stock that occur after the date of this Agreement.

 

5.20       WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY
JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH
KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW,
HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER
TRIAL BY JURY.

 

(Signature Pages Follow)

 

28

 

 

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

 

 

  American Power Group Corporation   Address for Notice:         By: /s/ Charles
E. Coppa   American Power Group Corporation Name: Charles E. Coppa   7 Kimball
Lane, Building A Title: Chief Financial Officer   Lynnfield, Massachusetts 01940
      Attention: Charles E. Coppa With a copy to (which shall not constitute
notice):   Fax: (781) 224-0114

 

Morse, Barnes-Brown & Pendleton, P.C.

CityPoint

230 Third Avenue

Waltham, Massachusetts 02451

Attention: Carl F. Barnes

Fax (781) 622-5933

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.

 SIGNATURE PAGES FOR PURCHASERS FOLLOW.]

 

29

 

[PURCHASER SIGNATURE PAGES TO

 AMERICAN POWER GROUP CORPORATION

 CONVERTIBLE NOTE PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: ________________________________________________________

 

Signature of Authorized Signatory of Purchaser:
_________________________________

 

Name of Authorized Signatory: _______________________________________________

 

Title of Authorized Signatory: ________________________________________________

 

Email Address of Authorized Signatory:_________________________________________

 

Facsimile Number of Authorized Signatory:
__________________________________________

 

Address for Notice of Purchaser:

 

_________________________

_________________________

_________________________

_________________________

Fax: _____________________

 

Address for Delivery of Securities for Purchaser (if not same as address for
notice):

 

_________________________

_________________________

_________________________

_________________________

Subscription Amount: $_________________

 

[Purchaser signature pages to this agreement are on file with

 American Power Group Corporation and are intentionally omitted]

 

30