Exhibit 10.2
 
EXECUTION COPY
 
SERIES D PREFERRED STOCK EXCHANGE AGREEMENT
 
This SERIES D PREFERRED STOCK EXCHANGE AGREEMENT (the “Agreement”), dated as of
March 18, 2011, is by and among Advanced Environmental Recycling Technologies,
Inc., a Delaware corporation with offices located at 914 N Jefferson Street,
Springdale, Arkansas 72764 (the “Company”), and the persons listed on Schedule I
attached hereto (each a “Stockholder” and collectively, the “Stockholders”).
 
RECITALS

A.           Each Stockholder is the record or beneficial owner of the number of
shares of the Company’s Series D Convertible Preferred Stock (the “Series D
Preferred Stock”) set forth opposite such Stockholder’s name in column (3) on
Schedule I, which Series D Preferred Stock is convertible into shares of the
Company’s Class A Common Stock (the “Common Stock”), in accordance with the
terms of the Certificate of Designation of the Relative Rights and Preferences
of the Series D Convertible Preferred Stock filed October 29, 2007 with the
Secretary of State of the State of Delaware (the “Series D Certificate of
Designation”).
 
B.           Each Stockholder is the owner of Warrants (the “Warrants”)
exercisable for the number of shares of Common Stock set forth opposite such
Stockholder’s name in column (4) on Schedule I.
 
C.           Each Stockholder wishes to acquire, and the Company wishes to issue
to such Stockholder, upon the terms and conditions stated in this Agreement, the
number of shares of Common Stock set forth opposite Stockholder’s name in column
(5) on Schedule I (collectively, the “Acquired Securities”), in exchange for (i)
the transfer to and cancellation by the Company of the number of shares of
Series D Preferred Stock set forth opposite such Stockholder’s name in column
(3) on Schedule I (the “Exchanged Preferred Stock”) and (ii) the surrender to
and cancellation by the Company of the Warrants exercisable for the number of
shares of Class A Common Stock set forth opposite such Stockholder’s name in
column (4) on Schedule I (the “Exchanged Warrants”, and together with the
Exchanged Preferred Stock, the “Exchanged Securities”).
 
D.           For federal income tax purposes, the parties hereto intend that the
Exchange (as defined below) will qualify as a reorganization described in
Section 368(a) of the Internal Revenue Code of 1986, as amended (the
“Code”).  Furthermore, the Board of Directors of the Company have approved this
Agreement and intend that it constitute a plan of reorganization within the
meaning of Section 1.368-2(g) of the income tax regulations promulgated under
the Code.
 
AGREEMENT
 
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Stockholders
hereby agree as follows:
 
 
 

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1. EXCHANGE AND CLOSING.
 
(a) Exchange of Exchanged Securities for Acquired Securities. At the Closing,
(i) the Company shall deliver to each Stockholder, and each Stockholder shall
receive from the Company on the Closing Date (as defined below), one or more
certificates representing the number of shares of Acquired Securities set forth
opposite such Stockholder’s name in column (5) on Schedule I, in each case duly
executed on behalf of the Company and registered in the name of such Stockholder
and (ii) each Stockholder shall deliver to the Company, and the Company shall
receive from the Stockholders and cancel on the Closing Date, (A) certificates
representing the number of shares of Exchanged Preferred Stock set forth
opposite such Stockholder’s name in column (3) on Schedule I (the
“Certificates”), in each case duly endorsed for transfer and/or accompanied by a
duly executed stock transfer power to the Company in the form attached as
Exhibit A hereto and (B) the Exchanged Warrants exercisable for the number of
shares of Class A Common Stock set forth opposite such Stockholder’s name in
column (4) on Schedule I (such deliveries by the Company and Stockholders,
collectively, the “Exchange”).  Effective as of and contingent upon the Closing,
the Certificates shall be cancelled and the Exchanged Warrants shall be
cancelled and terminated, and each Stockholder forever forfeits and waives all
rights to and claims under the Exchanged Securities, and to the extent not
delivered to the Company, the Certificates and original Exchanged Warrants shall
represent only the right to receive new shares representing the applicable
shares of Class A Common Stock set forth opposite such Stockholder’s name in
column (4) on Schedule I.  Each Stockholder hereby authorizes and directs the
Company to marked “cancelled” on the Certificates and the Exchanged Warrants
effective as of the Closing.
 
(b) Closing. The closing (the “Closing”) of the Exchange shall occur at the
offices of Paul, Hastings, Janofsky & Walker LLP, 191 N. Wacker Drive, 30th
Floor, Chicago, Illinois 60606.  The date and time of the Closing (the “Closing
Date”) shall be 9:30 a.m., New York time, on March 18, 2011.  As used herein
“Business Day” means any day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York are authorized or required by law to
remain closed.
 
2. STOCKHOLDERS’ REPRESENTATIONS AND WARRANTIES.
 
Each Stockholder, severally and not jointly, represents and warrants to the
Company that:
 
(a) Authority; Capacity. Such Stockholder has all requisite power and authority,
or, if such Stockholder is an individual, full legal capacity, to enter into and
to consummate the transactions contemplated by this Agreement and otherwise to
carry out its obligations hereunder.
 
(b) Exchanged Securities.  The Stockholder owns, and on the Closing Date the
Stockholder will own, of record and beneficially all of the Exchanged Securities
set forth opposite such Stockholder’s name on Schedule I, free and clear of any
preemptive rights and any charge, pledge, option, mortgage, deed of trust,
hypothecation, security interest, royalty or similar right, warrant, purchase
right, lease, license or other encumbrance (other than restrictions pursuant to
applicable law and restrictions upon subsequent transfers of the Exchanged
Securities as provided in the Series D Certificate of Designation, the Series D
Registration Rights
 
 
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Agreement (as defined herein), or the Series D Purchase Agreement (as defined
herein)) (collectively, “Liens”).  Upon consummation of the transactions
contemplated by this Agreement, the Company will obtain good and valid title to
the Exchanged Securities and the Exchanged Securities shall be free and clear of
any Liens (other than any Liens imposed upon the Exchanged Securities by the
Company).  The Exchanged Securities set forth opposite such Stockholder’s name
on Schedule I constitute all of the outstanding shares of Series D Preferred
Stock and all of the Warrants issued by the Company owned of record or
beneficially by such Stockholder.
 
(c) No Public Sale or Distribution. Such Stockholder is acquiring the Acquired
Securities for its own account and not with a view towards, or for resale in
connection with, the public sale or distribution thereof in violation of
applicable securities laws, except pursuant to sales registered or exempted
under the Securities Act of 1933, as amended (the “1933 Act”). Such Stockholder
does not presently have any agreement or understanding, directly or indirectly,
with any individual, limited liability company, partnership, joint venture,
corporation, trust, unincorporated organization, or other entity or a government
or any department or agency thereof (each of the foregoing, a “Person”) to
distribute any of the Acquired Securities in violation of applicable securities
laws.
 
(d) Accredited Investor Status.  Such Stockholder is an “accredited investor” as
that term is defined in Rule 501(a) of Regulation D as promulgated by the United
States Securities and Exchange Commission (the “SEC”) under the 1933 Act.
 
(e) Reliance on Exemptions. Such Stockholder understands that the Acquired
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Stockholder’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Stockholder set forth herein in order
to determine the availability of such exemptions and the eligibility of such
Stockholder to acquire the Acquired Securities.
 
(f) Information. Such Stockholder and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Acquired Securities
which have been requested by such Stockholder. Such Stockholder and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Such Stockholder understands that its investment in the Acquired
Securities involves a high degree of risk. Such Stockholder has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Acquired
Securities, exchange of the Exchanged Securities, and other matters addressed by
this Agreement.
 
(g) No Governmental Review.  Such Stockholder understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Acquired Securities
or the fairness or suitability of the investment in the Acquired Securities nor
have such authorities passed upon or endorsed the merits of the offering of the
Acquired Securities.
 
 
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(h) Transfer or Resale. Such Stockholder understands that: (i) the Acquired
Securities have not been and are not being registered under the 1933 Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such Stockholder
shall have delivered to the Company (if requested by the Company) an opinion of
counsel to such Stockholder, in a form reasonably acceptable to the Company, to
the effect that such Acquired Securities to be sold, assigned or transferred may
be sold, assigned or transferred pursuant to an exemption from such
registration, or (C) such Stockholder provides the Company with reasonable
assurance that such Acquired Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act (or a successor
rule thereto) (collectively, “Rule 144”); (ii) any sale of the Acquired
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144, and further, if Rule 144 is not applicable, any resale of the
Acquired Securities under circumstances in which the seller (or the Person (as
defined below) through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC promulgated
thereunder; and (iii) neither the Company nor any other Person is under any
obligation to register the Acquired Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder.
 
(i) Validity; Enforcement. This Agreement has been duly and validly authorized,
executed and delivered on behalf of such Stockholder and constitutes the legal,
valid and binding obligations of such Stockholder enforceable against such
Stockholder in accordance with its terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.
 
(j) No Conflicts. The execution, delivery and performance by such Stockholder of
this Agreement and the consummation by such Stockholder of the transactions
contemplated hereby will not result in a violation of any law, rule, regulation,
order, judgment  or decree (including federal and state securities laws)
applicable to such Stockholder, except for such violations which would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of such Stockholder to perform its obligations
hereunder.
 
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
 
The Company represents and warrants to the Stockholders that:
 
(a) Organization and Qualification. The Company is duly incorporated and validly
existing and in good standing under the laws of the State of Delaware, and has
the requisite power and authorization to own its properties and to carry on its
business as now being conducted and as presently proposed to be conducted.
 
(b) Authorization; Enforcement; Validity. The Company has the requisite power
and authority to enter into and perform its obligations under this Agreement and
to issue the Acquired Securities in accordance with the terms hereof. The
execution and delivery of this Agreement by the Company, and the consummation by
the Company of the transactions contemplated hereby (including, without
limitation, the issuance of the Acquired Securities) have
 
 
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been duly authorized by the Company’s board of directors, and (other than such
filings as may be required by the SEC or any state securities agencies) no
further filing, consent or authorization is required by the Company, its board
of directors or its stockholders or other governing body. This Agreement has
been duly executed and delivered by the Company and constitutes the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies and except as rights to indemnification and to contribution may be
limited by federal or state securities law.
 
(c) Issuance of Acquired Securities. The issuance of the Acquired Securities is
duly authorized and upon issuance in accordance with the terms of this Agreement
such Acquired Securities shall be validly issued, fully paid and non-assessable.
 
(d) No Conflicts. The execution, delivery and performance of this Agreement by
the Company and the consummation by the Company of the transactions contemplated
hereby (including, without limitation, the issuance of the Acquired Securities)
will not (i) result in a violation of the Certificate of Incorporation (as
defined herein) or Bylaws (as defined herein), (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including foreign, federal and state
securities laws and regulations and the rules and regulations of the OTC
Bulletin Board (the “Principal Market”) and including all applicable  federal
laws, rules and regulations) applicable to the Company or by which any property
or asset of the Company is bound or affected except, in the case of clause (ii)
or (iii) above, to the extent that such violations could not reasonably be
expected to have a Material Adverse Effect.  As used herein, “Material Adverse
Effect” means any material adverse effect on (i) the business, properties,
assets, liabilities, operations (including results thereof), condition
(financial or otherwise) or prospects of the Company, individually or taken as a
whole, (ii) the transactions contemplated by this Agreement or (iii) the
authority or ability of the Company to perform any of its obligations under this
Agreement.
 
(e) Transfer Taxes.  On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the issuance, sale and transfer of the Acquired Securities to be issued and
delivered to the Stockholders hereunder will be, or will have been, fully paid
or provided for by the Company, and all laws imposing such taxes will be or will
have been complied with.
 
(f) SEC Documents; Financial Statements.  Except as disclosed on Schedule 3(f),
during the two (2) years prior to the date hereof, the Company has timely filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements, notes and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the “SEC Documents”). The
Company has delivered to
 
 
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each Stockholder or its representatives true, correct and complete copies of
each of the SEC Documents not available on the EDGAR system. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, 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. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto as in effect as of the time of filing. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which will not be material, either individually or in the
aggregate).
 
(g) No Undisclosed Events, Liabilities, Developments or Circumstances.  No
event, liability, development or circumstance has occurred or exists, or is
reasonably expected to exist or occur with respect to the Company or any of its
businesses, properties, liabilities, prospects, operations (including results
thereof) or condition (financial or otherwise), that (i) except as described on
Schedule 3(g) would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced, (ii) could have a material adverse effect on
any Stockholder’s investment hereunder or (iii) could have a Material Adverse
Effect.
 
(h) Equity Capitalization.  Immediately following the consummation of the
Closing and the transactions contemplated by the HIG Exchange Agreement, the
authorized capital stock of the Company shall be as follows: (x) 125,000,000
shares of Class A Common Stock, of which 87,363,907 shall be issued and
outstanding and 37,636,093 shares shall be reserved for issuance pursuant to
Convertible Securities (as defined below) (in addition, the Company has
committed to seek from its stockholders at the next annual meeting approval of
an increase in authorized capital stock to provide for an additional 400,000,000
shares of Class A Common Stock, since the currently authorized Class A Common
Stock would be insufficient to accommodate the 273,655,322 shares of Class A
Common Stock into which the Series E Preferred Stock will be convertible at the
initial conversion price of $0.075 per share), (y) 7,500,000 shares of Class B
Common Stock, of which, 1,465,530 shall be issued and outstanding and no shares
shall be reserved for issuance pursuant to Convertible Securities and (z)
5,000,000 shares of preferred stock, of which 20,524.149 shares, all of which
are classified as Series E Preferred Stock (as defined in Section 4(b) below),
shall be issued and outstanding. No shares of Common Stock, Class B Common Stock
or preferred stock are held in treasury.  All of such outstanding shares are
duly authorized and have been, or upon issuance will be, validly issued and are
fully paid and non-assessable. (i) except as described on Schedule 3(h)(i), none
of the Company’s capital stock is subject to preemptive rights or any other
similar rights or any liens or encumbrances granted or
 
 
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contracted for by the Company; (ii) except as disclosed on Schedule 3(h)(ii),
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever to which the Company is a party
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company, or contracts, commitments,
understandings or arrangements by which the Company is or may become bound to
issue additional capital stock of the Company or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company to which the Company is a
party; (iii) except as disclosed on Schedule 3(h)(iii), there are no outstanding
debt securities, notes, credit agreements, credit facilities or other
agreements, documents or instruments evidencing indebtedness of the Company or
by which the Company is or may become bound; (iv) except as disclosed on
Schedule 3(h)(iv), there are no financing statements securing obligations in any
amounts filed in connection with the Company;  (v) except pursuant to the
Registration Rights Agreement (as such term is defined in the HIG Exchange
Agreement) and as disclosed on Schedule 3(h)(v), there are no agreements or
arrangements under which the Company is obligated to register the sale of any of
its securities under the 1933 Act; (vi) except as disclosed on Schedule
3(h)(vi), there are no outstanding securities or instruments of the Company
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company is or may
become bound to redeem a security of the Company; (vii) except as disclosed on
Schedule 3(h)(vii), there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Acquired Securities; (viii) the Company does not have any stock appreciation
rights or “phantom stock” plans or agreements or any similar plan or agreement;
and (ix) the Company does not have any liabilities or obligations required to be
disclosed in the SEC Documents which are not so disclosed in the SEC Documents,
other than those incurred in the ordinary course of the Company’s business and
which, individually or in the aggregate, do not or could not have a Material
Adverse Effect. The Company has furnished to each Stockholder true, correct and
complete copies of the Company’s Certificate of Incorporation, as amended and as
in effect on the date hereof (the “Certificate of Incorporation”), and the
Company’s bylaws, as amended and as in effect on the date hereof (the “Bylaws”),
and the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Common Stock and the material rights of the holders thereof in
respect thereto.
 
4. COVENANTS.
 
(a) [intentionally omitted]
 
(b) Termination of Certain Agreements.  Effective immediately prior to the
Closing, that certain Registration Rights Agreement between the Company and
holders of the Series D Preferred Stock, dated effective October 29, 2007 (the
“Series D Registration Rights Agreement”), and that certain Series D Convertible
Preferred Stock Purchase Agreement between the Company and holders of the Series
D Preferred Stock, dated effective October 29, 2007 (the “Series D Purchase
Agreement”), are hereby each terminated and declared null, void and of no
further force or effect, notwithstanding any provision in either the Series D
Registration Rights Agreement or the Series D Purchase Agreement to the
contrary; provided, however, that notwithstanding the foregoing, the respective
rights and obligations of the Company and the Stockholders with respect to
indemnification under Section 5 of the Series D Registration Rights Agreement
with respect to any sales that may have occurred pursuant to the Registration
Statement and Prospectus referenced therein shall survive and continue in
effect.  Except as provided in the preceding sentence, effective immediately
prior to the Closing, all rights and obligations of the parties under the Series
D
 
 
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Registration Rights Agreement and the Series D Purchase Agreement are hereby
irrevocably waived, released, canceled and terminated and shall be null and void
and of no further force or effect.
 
(c) Consent to Issuance of Series E Preferred Stock.  Each Stockholder hereby
consents to (I) the authorization and issuance by the Company of shares of
Series E Convertible Preferred Stock (the “Series E Preferred Stock”) to H.I.G.
AERT, LLC (“HIG”), as a series of preferred stock of the Company ranking senior
to the Series D Preferred Stock, as contemplated by that certain Securities
Exchange Agreement to be entered into by and between the Company and HIG on or
around the date hereof (the “HIG Exchange Agreement”), and (II) the other
transactions contemplated by the HIG Exchange Agreement and the documents and
instruments contemplated thereby (collectively, the “HIG Transaction”). Each
Stockholder hereby waives notice of the HIG Transaction and the issuance of the
Series E Preferred Stock in connection therewith and further waives any and all
rights, including, without limitation, any redemption or preemptive rights or
any adjustments to the Conversion Price (as such term is defined in the Series D
Certificate of Designation), such Stockholder had or has with respect to the HIG
Transaction and the issuance of the Series E Preferred Stock in connection
therewith, including any rights under the Certificate of Incorporation or the
Series D Certificate of Designation.  Notwithstanding anything to the contrary
contained herein, the foregoing waiver shall become effective and binding on
each Stockholder upon such Stockholder’s execution of this Agreement, whether or
not any other Stockholder has executed this Agreement and whether or not the
Closing has occurred.
 
(d) Waiver of Accrued Dividends.  Each Stockholder hereby waives its right to
receive any and all accrued and unpaid dividends, if any, with regard to the
Exchanged Securities, whether declared or undeclared, under the Series D
Certificate of Designation, the Certificate of Incorporation or
otherwise.  Notwithstanding anything to the contrary contained herein, the
foregoing waiver shall become effective and binding on each Stockholder upon
such Stockholder’s execution of this Agreement, whether or not any other
Stockholder has executed this Agreement.
 
(e) Voting Agreement.  Each Stockholder shall execute the Voting Agreement in
the form attached as Exhibit B hereto pursuant to which such Stockholder shall
agree to vote the Acquired Securities in the manner contemplated thereunder,
including in favor of the amendment to the Certificate of Incorporation
contemplated thereby and in favor of the election of directors designated as
provided therein.
 
5. LEGEND.
 
(a) Legends. Each Stockholder understands that the Acquired Securities have been
issued pursuant to an exemption from registration or qualification under the
1933 Act and applicable state securities laws, and except as set forth below,
the Acquired Securities shall bear any legend as required by the “blue sky” laws
of any state and a restrictive legend in
 
 
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substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
 
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO
THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR
ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
 
(b) Removal of Legends. Certificates evidencing Acquired Securities shall not be
required to contain the legend set forth in Section 5(a) above (i) while a
registration statement covering the resale of such Acquired Securities is
effective under the 1933 Act, (ii) following any sale of such Acquired
Securities pursuant to Rule 144 (assuming the transferor is not an affiliate of
the Company), (iii) if such Acquired Securities are eligible to be sold,
assigned or transferred under Rule 144 (provided that the Stockholder provides
the Company with reasonable assurances that such Acquired Securities are
eligible for sale, assignment or transfer under Rule 144 which shall not include
an opinion of counsel), (iv) in connection with a sale, assignment or other
transfer (other than under Rule 144), provided that the Stockholder provides the
Company with an opinion of counsel to the Stockholder, in a generally acceptable
form, to the effect that such sale, assignment or transfer of the Acquired
Securities may be made without registration under the applicable requirements of
the 1933 Act or (v) if such legend is not required under applicable requirements
of the 1933 Act (including, without limitation, controlling judicial
interpretations and pronouncements issued by the SEC). If a legend is not
required pursuant to the foregoing, the Company shall no later than three (3)
Business Days following the delivery by the Stockholder to the Company or the
transfer agent (with notice to the Company) of a legended certificate
representing such Acquired Securities (endorsed or with stock powers attached,
signatures guaranteed, and otherwise in form necessary to effect the reissuance
and/or transfer, if applicable), together with any other deliveries from the
Stockholder as may be required above in this Section 5(b), issue and deliver
(via reputable overnight courier) to such Stockholder, a certificate
representing such Acquired Securities that is free from all restrictive and
other legends (except as otherwise expressly provided above), registered in the
name of the Stockholder or its designee.
 
 
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6. [intentionally omitted]
 
7. [intentionally omitted]
 
8. TERMINATION.
 
In the event that the Closing shall not have occurred on or prior to the three
(3) month anniversary of the date hereof, then each of the Stockholders and the
Company shall have the right to terminate its respective obligations (other than
the consents granted hereunder which are effective and irrevocable upon
execution) under this Agreement on or after the close of business on such date
without liability to the other party. Notwithstanding the foregoing, the right
to terminate this Agreement shall not be available to any Stockholder or the
Company, as the case may be, if the failure of the transactions contemplated by
this Agreement to have been consummated by such date is the result of such
Person’s breach of this Agreement.  Nothing contained in this Section 8 shall be
deemed to release any party from any liability for any breach by such party of
the terms and provisions of this Agreement or to impair the right of the Company
to compel specific performance by any Stockholder of its obligations under this
Agreement.
 
9. MISCELLANEOUS.
 
(a) Governing Law; Jurisdiction; Jury Trial. The parties hereby agree that they
have chosen that all questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of Delaware, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of Delaware or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of Delaware. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
Wilmington, Delaware, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, 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 brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. 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 to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
 
(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which 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. In the event that any signature is delivered by
facsimile transmission or by an e-mail which contains a portable document format
(.pdf) file of an executed signature page, such signature page shall
 
 
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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 signature
page were an original thereof.
 
(c) Headings; Gender. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement. Unless the context clearly indicates otherwise, each pronoun herein
shall be deemed to include the masculine, feminine, neuter, singular and plural
forms thereof. The terms “including,” “includes,” “include” and words of like
import shall be construed broadly as if followed by the words “without
limitation.”  The terms “herein,” “hereunder,” “hereof” and words of like import
refer to this entire Agreement instead of just the provision in which they are
found.
 
(d) Severability. If any provision of this Agreement is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Agreement so long as this Agreement as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).
 
(e) Entire Agreement; Amendments. This Agreement and the schedules and exhibits
attached hereto and the instruments referenced herein and therein supersede all
other prior oral or written agreements between the Stockholders, the Company,
their affiliates and Persons acting on their behalf solely with respect to the
matters contained herein and therein, and this Agreement, the schedules and
exhibits attached hereto and the instruments referenced herein and therein
contain the entire understanding of the parties solely with respect to the
matters covered herein and therein; provided, however, that except as
specifically set forth herein, nothing contained in this Agreement shall (or
shall be deemed to) have any effect on any agreements any Stockholder has
entered into with the Company prior to the date hereof with respect to any prior
investment made by such Stockholder in the Company, waive, alter, modify or
amend in any respect any obligations of the Company, or any rights of or
benefits to any Stockholder or any other Person, in any agreement entered into
prior to the date hereof between or among the Company and such Stockholder or
such other Person (as the case may be) and all such agreements shall continue in
full force and effect. Except as specifically set forth herein, neither the
Company nor any Stockholder makes any representation, warranty, covenant or
undertaking with respect to such matters. For clarification purposes, the
Recitals are part of this Agreement. No provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and each
Stockholder. No waiver shall be effective unless it is in writing and signed by
an authorized representative of the waiving party.
 
(f) Notices. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed
 
 
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to have been delivered: (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile or electronic mail (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one (1) Business Day after deposit with an overnight
courier service with next day delivery specified, in each case, properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
 
If to the Company:
 
Advanced Environmental Recycling Technologies, Inc.
914 N. Jefferson
Springdale, Arkansas 72764
Telephone:  (479) 756-7400
Facsimile:  (479) 756-7410
Attention:  Chief Executive Officer

With a copy (for informational purposes only) to:
 
Cox Smith Matthews Incorporated
112 East Pecan Street
Suite 1800
San Antonio, TX 78205
Telephone:  (210) 554 -5500
Facsimile:  (210) 226-8395
Attention:  J. Patrick Ryan, Esq.

If to any Stockholder, to such Stockholder’s address and facsimile number set
forth on Schedule I, or to such other address and/or facsimile number and/or to
the attention of such other Person as the recipient party has specified by
written notice given to each other party five (5) days’ prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender’s facsimile machine or
electronic mail, as applicable, containing the time, date, recipient facsimile
number or email address, as applicable, and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above,
respectively.
 
(g) Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns,
including any purchasers of any of the Acquired Securities. No Stockholder shall
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Company; provided, however, that a Stockholder may assign
all of its rights and obligations hereunder with regard to any Acquired
Securities in connection with any transfer of any of such Acquired Securities
without the consent of the Company, in which event such assignee shall be deemed
to be a Stockholder hereunder with respect to such assigned rights and
obligations.
 
 
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(h) No Third Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.
 
(i) Survival. The representations, warranties, agreements and covenants shall
survive the Closing.
 
(j) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as any other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
 
(k) Construction. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party. No specific
representation or warranty shall limit the generality or applicability of a more
general representation or warranty.
 
(l) Remedies.  The Company and each holder of any Acquired Securities shall have
all rights and remedies set forth in this Agreement and all rights and remedies
which the Company or such holders, as applicable, have been granted at any time
under any other agreement or contract and all of the rights which such holders
have under any law. Any Person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
Furthermore, each Stockholder recognizes that in the event that it fails to
perform, observe, or discharge any or all of its obligations under this
Agreement, any remedy at law may prove to be inadequate relief to the Company.
Each Stockholder therefore agrees that the Company shall be entitled to seek
specific performance and/or temporary, preliminary and permanent injunctive or
other equitable relief from any court of competent jurisdiction in any such case
without the necessity of proving actual damages and without posting a bond or
other security.
 
[signature pages follow]
 
 
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IN WITNESS WHEREOF, the Stockholders and the Company have caused their
respective signature pages to this Agreement to be duly executed as of the date
first written above.
 

 
COMPANY:
 
 
ADVANCED ENVIRONMENTAL RECYCLING
TECHNOLOGIES, INC.
 
 
 
By:                                                                
 
Name: __________________
Title:  __________________ 

 

 
 
 

--------------------------------------------------------------------------------

 
IN WITNESS WHEREOF, the Stockholders and the Company have caused their
respective signature pages to this Agreement to be duly executed as of the date
first written above.
 

 
STOCKHOLDERS:
 
 
H.I.G. AERT, LLC
 
 
By:                                                                
 
Name: __________________
Title:  __________________
             
DAVID O. WHITWORTH TRUST
 
 
By:                                                                
 
Name: __________________
Title:  __________________
          __________________________________   Callie A. Whitworth          
__________________________________  
Carl A. Whitworth
             
ENABLE GROWTH PARTNERS LP
 
By:                                                                
 
Name: Mitch Levine
Title:  CEO

 

 
 
 

--------------------------------------------------------------------------------

 
 
SCHEDULE I
 
SCHEDULE OF STOCKHOLDERS
 
(1)
 
(2)
 
(3)
 
(4)
 
(5)
                 
Stockholder Name
 
Address and
Facsimile Number
 
Number of Shares
of Series D
Preferred Stock
 
Number of Shares of
Class A Common
Stock
subject to
Detachable Series W
Warrants
 
Number of
shares of
Common Stock
                                   
David O. Whitworth
Trust
 
 
135 North 17th Street
Junction, TX  76849
Attention:                      
Facsimile: (___) ___-____
 
236,454.4
 
 
1,515,150
 
 
 
11,467,386
 
 
                 
Callie A. Whitworth
 
135 North 17th Street
Junction, TX  76849
Attention:  ________
Facsimile: (___) ___-____
 
39,409.0
 
--
 
1,911,228
                 
Carl Whitworth
 
135 North 17th Street
Junction, TX  76849
Attention:  ________
Facsimile: (___) ___-____
 
39,409.0
 
--
 
1,911,228
H.I.G. AERT, LLC        296,072.8   1,422,880   14,358,714                  
H.I.G. AERT, LLC
 
 
c/o HIG Capital, LLC
855 Boylston Street, 11th Floor
Boston, MA  02116
Attention:  Michael Phillips
Facsimile: (617) 262-1505
 
19,200.6
 
92,275
 
931,176
                 
Enable Growth
Partners LP  (as
successor to Pierce
Diversified Strategy
Master Fund LLC,
ENA)1
 
c/o HIG Capital, LLC
855 Boylston Street, 11th Floor
Boston, MA  02116
Attention:  Michael Phillips
Facsimile: (617) 262-1505
 
5,911.0
 
 
 
 
100,492.1
 
37,875
 
 
 
 
643,940
 
286,667
 
 
 
 
4,873,590
   
 
           
Enable Growth
Partners LP
 
One Ferry Building, Suite 255
San Francisco, CA  94111
Attention: ______________
Facsimile: (___) ___-____
 
11,823.1
 
75,760
 
573,388

 
 
 

--------------------------------------------------------------------------------

 
 

                 
Enable Growth
Partners LP (as successor to Enable Opportunity
Partners, LP) 2
 
One Ferry Building, Suite 255
San Francisco, CA  94111
Attention: ______________
Facsimile: (___) ___-____
                                 
One Ferry Building, Suite 255
San Francisco, CA  94111
Attention: ______________
Facsimile: (___) ___-____
                             

1 Pierce Diversified Strategy Master Fund LLC, ENA has been merged into Enable
Growth Partners LP.

2 Enable Opportunity Partners, LP  has been merged into Enable Growth Partners
LP.

 
 

--------------------------------------------------------------------------------

 

EXHIBIT A
STOCK POWER

           For Value Received, ________________________ (“Transferor”) hereby
sells, assigns and transfers unto Advanced Environmental Recycling Technologies,
Inc., a Delaware corporation (the “Company”), ________________________
(_____________) shares of Series D Convertible Preferred Stock, par value $0.01
per share, of the Company, standing in the name of Transferor on the books of
the Company and represented by Certificate No. ___________herewith, and does
hereby irrevocably constitute and appoint ________________ or any officer of the
Company attorney-in-fact to transfer said stock on the books of the Company with
full power of substitution in the premises.
 
Dated:  _______ __, 201_

  _________________________________________      
MEDALLION
 
SIGNATURE GUARANTEED:

 
 

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EXHIBIT B

VOTING AGREEMENT