Exhibit 10.1


 





SECURITIES PURCHASE AGREEMENT


 


This Securities Purchase
Agreement (this “Agreement”) is dated as of November 8, 2016, by and between Appliance Recycling Centers of
America, Inc., a Minnesota corporation (the “Company”), and the purchaser identified on the signature page hereto
(including its successors and assigns, the “Purchaser”).


 


WHEREAS, subject to
the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended
(the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to the Purchaser,
and the Purchaser desires to purchase from the Company, securities of the Company as more fully described in this Agreement.


 


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 the Purchaser, intending to be legally bound hereby, 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 Note (as defined herein), and (b) the following terms have
the meanings set forth in this Section 1.1:


 


“Acquiring
Person” shall have the meaning ascribed to such term in Section 4.7.


 


“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.


 


“BakerHostetler”
means Baker & Hostetler LLP, with offices located at 600 Anton Blvd., Suite 900, Costa Mesa, California 92626.


 


“Bankruptcy
Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule
1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or
any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case
or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is
adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the
Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part
of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant
Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof
calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company
or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence
in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.


 


 






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


 


“Business
Day” means any day except any Saturday, any Sunday, any day that 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.


 


“Call Right”
shall have the meaning ascribed to such term in Section 2.6.


 


“Call Exercise
Period” shall have the meaning ascribed to such term in Section 2.6.


 


“Call Exercise
Notice” means the written and irrevocable notice from the Company to the Purchaser that instructs the Purchaser to purchase
a Note from the Company, in the form of Exhibit A attached hereto.


 


“Closing Dates”
means the Trading Day(s) on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto
in connection with a Closing, and all conditions precedent to (i) the Purchaser’s obligations to pay the Subscription Amount
as to such Closing and (ii) the Company’s obligations to deliver the Securities as to such Closing, in each case, have been
satisfied or waived.


 


“Closing(s)”
means the one or more closings of the purchase and sale of the Securities pursuant to Section 2.2.


 


“Closing Statement”
means the Closing Statement in the form on Annex A attached hereto.


 


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


 


“Commitment
Shares” means that number of shares of Common Stock to be issued and delivered by the Company to the Purchaser as noted
hereinbelow and calculated as follows: 5% multiplied by $7,731,958.76 (the maximum aggregate principal amount of the Notes issuable
pursuant to this Agreement), which product is divided by sixty-five percent (65%) of the VWAP as of the date that is two Trading
Days prior to the date of this Agreement.


 


“Common Stock”
means the common stock of the Company, no par value 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 that would entitle the holder thereof to acquire
at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant, 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.


 


 






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“Company Counsel”
means Fredrikson & Byron, P.A., with offices located at 200 South Sixth Street,
Suite 4000, Minneapolis, Minnesota 55402-1425.


 


“Conversion
Price” shall have the meaning ascribed to such term in the Note.


 


“Conversion
Shares” shall have the meaning ascribed to such term in the Note.


 


“Disclosure
Schedules” shall have the meaning ascribed to such term in Section 3.1.


 


“Evaluation
Date” shall have the meaning ascribed to such term in Section 3.1(r).


 


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


 


“Exempt Issuance”
means the issuance of (a) shares of Common Stock or options that the Company issues to employees, officers, or directors of
the Company pursuant to any stock or option plan duly adopted for such purpose by a majority of the Board of Directors, (b) Securities
issued hereunder or securities issued upon the exercise of or exchange of or conversion of any Securities issued hereunder, (c) securities
issued upon the exercise of or exchange of or conversion of other securities exercisable or exchangeable for or convertible into
shares of Common Stock, issued and outstanding on the date of this Agreement as set forth in Schedule 3.1(g), provided that
such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease
the exercise price, exchange price or conversion price of such securities, (d) shares issued pursuant to any equipment loan
or leasing arrangement, real property leasing arrangement or debt financing from a bank or similar institution approved by a majority
of the disinterested directors of the Company, (e) securities issued pursuant to acquisitions or strategic transactions approved
by a majority of the disinterested directors of the Company, and (f) shares issuable to a Person (or to the equity holders
of a Person) that is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic
with the business of the Company and shall be intended to provide to the Company additional benefits in addition to the investment
of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital
or to an entity whose primary business is investing in securities.


 


“FCPA”
means the Foreign Corrupt Practices Act of 1977, as amended.


 


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


 


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


 


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


 


“Legend Removal
Date” shall have the meaning ascribed to such term in Section 4.1(c).


 


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


 


 






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


 


“Material
Permits” shall have the meaning ascribed to such term in Section 3.1(m).


 


“Maximum Rate”
shall have the meaning ascribed to such term in Section 5.17.


 


“Maximum Share
Amount” shall have the meaning ascribed to such term in Section 2.7.


 


“Maximum Voting
Amount” shall have the meaning ascribed to such term in Section 2.7.


 


“Note”
means the 3% Original Issue Discount Senior Convertible Promissory Notes issued by the Company to the Purchaser hereunder in the
form of Exhibit B attached hereto.


 


“OID”
means the Original Issue Discount in respect of the Note.


 


“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.


 


“Pre-Notice”
shall have the meaning ascribed to such term in Section 4.12(b).


 


“Principal
Amount” means the amount set forth below the Purchaser’s signature block on the signature pages hereto next to
the heading “Principal Amount,” or the “Principal Amount” specified in the applicable Put Exercise Notice
or Call Exercise Notice, in United States Dollars, which shall equal the Purchaser’s Subscription Amount as to the Closing
divided by 0.97.


 


“Public Information
Failure” shall have the meaning ascribed to such term in Section 4.3(b).


 


“Public Information
Failure Payments” shall have the meaning ascribed to such term in Section 4.3(b).


 


“Purchaser
Party” shall have the meaning ascribed to such term in Section 4.10.


 


“Put Right”
shall have the meaning ascribed to such term in Section 2.5.


 


“Put Exercise
Period” shall have the meaning ascribed to such term in Section 2.5.


 


“Put Exercise
Notice” means the written, unconditional, and irrevocable notice from the Purchaser to the Company that instructs the
Company to issue a Note to the Purchaser, in the form of Exhibit C attached hereto.


 


“Registrable
Securities” shall have the meaning ascribed to such term in Section 14.4.


 


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


 


 






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“Required
Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then potentially issuable in the
future pursuant to the Transaction Documents, including any Underlying Shares issuable upon conversion in full of all Notes (including
Underlying Shares issuable as payment of interest on the Notes), ignoring any conversion limits set forth therein, and assuming
that the Conversion Price is at all times on and after the date of determination 75% of the then-Conversion Price on the Trading
Day immediately prior to the date of determination.


 


“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 Commitment Shares, the Note and the Underlying Shares.


 


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


 


“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).


 


“Stockholder
Approval” shall have the meaning ascribed to such term in Section 2.7.


 


“Subscription
Amount” means, as to the Purchaser, the aggregate amount to be paid for each Note purchased at each Closing hereunder,
including the Subscription Amount payable at the initial Closing and the amount specified in each Put Exercise Notice or Call Exercise
Notice, as applicable, with respect to a subsequent Closing, in United States dollars and in immediately available funds.


 


“Subsequent
Financing” shall have the meaning ascribed to such term in Section 4.12(a).


 


“Subsequent
Financing Notice” shall have the meaning ascribed to such term in Section 4.12(b).


 


“Subsidiary”
means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, also include any direct
or indirect subsidiary of the Company formed or acquired after the date hereof.


 


“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 MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange,
the OTC Bulletin Board, or the OTC Markets Group Inc.’s OTCQX, OTCQB, or OTC Pink marketplaces (or any successors to any
of the foregoing).


 


 






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“Transaction
Documents” means this Agreement, the Note, the Warrant, all exhibits and schedules thereto and hereto and any other documents
or agreements executed in connection with the transactions contemplated hereunder.


 


“Transfer
Agent” means Wells Fargo Shareowner Services, the current transfer agent of the Company, with a mailing address of 1110
Centre Pointe Curve, Suite 101, St. Paul, Minnesota 55120, and a facsimile number of 651-450-4033,
and any successor transfer agent of the Company.


 


“Transfer
Agent Instruction Letter” means the letter from the Company to the Transfer Agent that instructs the Transfer Agent to
issue Underlying Shares pursuant to the Transaction Documents, in the form of Exhibit D attached hereto.


 


“Underlying
Shares” means the shares of Common Stock issued and issuable upon (i) conversion or redemption of the Note and issued
and issuable in lieu of the cash payment of interest on the Note in accordance with the terms of the Note and (ii) exercise of
the Warrant in accordance with the terms of the Warrant.


 


“Variable
Rate Transaction” shall have the meaning ascribed to such term in Section 4.13(b).


 


“VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed
or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding
date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading
Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the OTC Bulletin Board is not a Trading Market,
the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board,
(c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are
then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding
to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other
cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the
Purchaser and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.


 


“Warrant”
means the five-year common stock purchase warrants to be granted by the Company to the Purchaser in an amount equivalent to the
number of Underlying Shares of each Note issued in each Closing with a per-share exercise price equivalent to one hundred ten percent
(110%) of the conversion price of the Note issued contemporaneously therewith, in the form of Exhibit E attached hereto.


 


ARTICLE II.

PURCHASE AND SALE


 


2.1       Purchase. The Purchaser will purchase a series of Notes with an aggregate principal amount of $7,731,958.76 (attributable
to an aggregate Subscription Amount of up to $7,500,000.00, net of the OID). Subject to the terms and conditions contained herein
and as set forth in Section 2.2 below, (a) the Subscription Amount for the first installment hereunder, in the gross amount of
$100,000.00 (net of the OID), shall be tendered at the first installment Closing, which shall be on or about the date hereof, and
(b) the Subscription Amount for subsequent Closings, in the gross amount specified in the applicable Put Exercise Notice or Call
Exercise Notice, shall be tendered in accordance with the Put Right and Call Right (each, a “Closing”). At the
first installment Closing, $23,000.00 shall be tendered to BakerHostetler in connection with the Purchaser’s legal fees and
the Commitment Shares shall be delivered to the Purchaser.


 


 






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2.2      Closings. On the initial Closing Date, upon the terms and subject to the conditions set forth herein, substantially
concurrently with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchaser
agrees to purchase, a Note in the Principal Amount attributable to the Subscription Amount of $100,000.00 (net of the OID). On
subsequent Closing Dates, the Company agrees to sell, and the Purchaser agrees to purchase, a Note in the Principal Amount attributable
to the Subscription Amount specified in the applicable Put Exercise Notice or Call Exercise Notice, to be tendered in accordance
with the Put Right and the Call Right, separate from and in addition to the first installment hereunder (up to an aggregate Subscription
Amount of $7,500,000.00 (net of the OID) for all Closings). At each Closing, the Purchaser shall deliver to the Company, via wire
transfer or a certified check, immediately available funds equal to the Purchaser’s Subscription Amount for such Closing,
less any deductions therefrom as noted herein and as otherwise set forth on the signature page hereto executed by the Purchaser
or in the applicable Put Exercise Notice or Call Exercise Notice, and the Company shall deliver to the Purchaser its Note for the
Principal Amount attributable to the specific Subscription Amount for each Closing. At each Closing, the Company and the Purchaser
shall deliver the other items set forth in Section 2.3. Upon satisfaction of the covenants and conditions set forth in Sections
2.3 and 2.4 for the Closing, the Closing shall occur at the offices of BakerHostetler or such other location as the parties shall
mutually agree. The final Closing Date shall be not later than November 8, 2021.


 


2.3       Deliveries.


 


(a)       On or prior to the Closing Date (except as noted), the Company shall deliver or cause to be delivered to the Purchaser the
following:


 


(i)  
this Agreement duly executed by the Company (at the first installment Closing);


 


(ii)  the Transfer Agent Instruction Letter duly executed by the Company and the Transfer Agent (when required); and


 


(iii)  a Note with a principal amount equal to the Principal Amount attributable to the Purchaser’s Subscription Amount as
to each Closing, registered in the name of the Purchaser.


 


(b)       On or prior to the Closing Date, the Purchaser shall deliver or cause to be delivered to the Company, as applicable, the
following:


 


(i)  this Agreement duly executed by the Purchaser (at the first installment Closing); and


 


 






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(ii)  the Purchaser’s Subscription Amount as to the relevant Closing by wire transfer to the account specified in writing
by the Company (except that, as to the first installment Closing, such delivery shall occur within 48 hours after such Closing).


 


2.4       Closing Conditions.


 


(a)        The obligations of the Company hereunder in connection with each Closing are subject to the following conditions being met:


 


(i)  the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Purchaser
contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);


 


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


 


(iii)  the
delivery by the Purchaser of the items set forth in Section 2.3(b) of this Agreement; and


 


(iv)  the Company must have complied with SEC Reports and filings as described in Section 3.1(h).


 


(b)       The obligations of the Purchaser hereunder in connection with each Closing are subject to the following conditions being
met:


 


(i) the
accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained
herein (unless as of a specific date therein);


 


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


 


(iii)  the delivery by the Company of the items set forth in Section 2.3(a) of this Agreement;


 


(iv)   there is no existing Event of Default (as defined in the Note) and no existing event that, with the passage of time or the
giving of notice, would constitute an Event of Default;


 


(v)   the Company shall be fully current on all SEC filings and reports and there shall be no adverse proceeding initiated, ongoing,
or threatened by any governmental or regulatory body;


 


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


 


(vii)   the Common Stock is DWAC Eligible (as defined in the Note); and


 


 






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(viii)  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 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 that, in
each case, in the reasonable judgment of the Purchaser, makes it impracticable or inadvisable to purchase the Securities at the
Closing.


 


2.5       
Put Option. Subject to the terms and conditions of this Agreement, at any time and from time to time during the period
that commences on the date of this Agreement and terminates at the close of business on November 8, 2021 (the “Put Exercise
Period”), the Purchaser shall have the right (the “Put Right”), but not the obligation, to cause the
Company to issue a Note to the Purchaser in the amount referenced in the Put Exercise Notice. A Closing pursuant to a Put Exercise
Notice shall take place not later than five calendar days following the date of delivery to the Company of such Put Exercise Notice.


 


2.6       
Call Option. Subject to the terms and conditions of this Agreement, at any time and from time to time during the
period that commences on the date of this Agreement and terminates at the close of business on November 8, 2021 (the “Call
Exercise Period”), the Company shall have the right (the “Call Right”), but not the obligation, to
cause the Purchaser to purchase a Note in the amount referenced in the Call Exercise Notice. A Closing pursuant to a Call Exercise
Notice shall take place not later than five calendar days following the earlier of (i) date of delivery to the Purchaser of such
Call Exercise Notice or (ii) the date on which all of the conditions precedent (as set forth hereinbelow) have been met. As of
the date of delivery of the Call Exercise Notice and the relevant Closing thereunder:


 


(a)       the Company shall have reported “operating income” (in the manner historically calculated except as provided
below) on its Quarterly Report on Form 10-Q for the fiscal quarter immediately preceding the fiscal quarter in which the Call Exercise
Notice was delivered; provided, however, that, if such “immediately preceding” fiscal quarter is the
Company’s fourth fiscal quarter of its fiscal year, then such “operating income” shall be determined by subtracting
from the Company’s operating income for such fiscal year (as reported on the Company’s Annual Report on Form 10-K and
calculated as provided below) the Company’s operating income for the first three fiscal quarters of its fiscal year (as reported
on the Company’s most recent Quarterly Report on Form 10-Q and calculated as provided below); and provided, further,
that in calculating “operating income” for purposes of this Agreement, there shall be excluded (i) charges, expenses
or deductions for amortization and depreciation, and (ii) charges, expenses or deductions relating to the issuance, existence,
conversion or exercise of Commitment Shares, Notes or Warrants pursuant to this Agreement;


 


(b)        the Company and each of its Subsidiaries shall not be in default of any of its obligations to any third party, other than
defaults existing at the date of this Agreement or that would not reasonably be expected to have a Material Adverse Effect;


 


 






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(c)       the Company shall not be in default under its reporting obligations under the Exchange Act;


 


(d)       the Company shall not be subject to a Bankruptcy Event;


 


(e)      the Company shall have commenced the process of preparation of (and thereafter be actively prosecuting) its Proxy Statement
on Schedule 14A, one of the items of which shall be the Company’s proposal to redomicile the Company from Minnesota to Nevada,
which proposal shall be actively supported and unanimously recommended by the Board of Directors; and


 


(f)       no less than two weeks shall have elapsed since the immediately previous Closing.


 


Further, the number
of Underlying Shares in respect of such exercised Call Right shall be not greater than 200% of the aggregate trading volume of
the Common Stock during the three weeks prior to the date of the relevant Closing.


 


2.7       
Limitations on the Number of Shares Issuable. Notwithstanding anything herein to the contrary, the Company shall
not issue to the Purchaser any shares of Common Stock upon conversion of Notes or exercise of Warrants issued hereunder to the
extent such shares, after giving effect to such issuance and when added to the number of shares of Common Stock issued and issuable
as Commitment Shares or upon conversion of any other Notes or exercise of any other Warrants issued hereunder would exceed (i) 19.9%
of the number of shares of Common Stock outstanding immediately before the date of this Agreement (the “Maximum Share
Amount”) or (ii) 19.9% of the total voting power of the Company’s securities outstanding immediately before
the date of this Agreement that are entitled to vote on a matter being voted on by holders of the Common Stock (the “Maximum
Voting Amount”), unless and until the Company obtains Stockholder Approval (as defined below). For purposes of this Section
2.7, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder. For purposes of this Section 2.7, in determining the number of outstanding
shares of Common Stock, the Purchaser may rely on the number of outstanding shares of Common Stock as reflected in (A) the
Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public
announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number
of shares of Common Stock outstanding. Upon the written or oral request of the Purchaser, the Company shall within two Trading
Days confirm orally and in writing to the Purchaser the number of shares of Common Stock then outstanding. If on any attempted
conversion of a Note or exercise of a Warrant, the issuance of shares of Common Stock would exceed the Maximum Share Amount or
the Maximum Voting Amount, and the Company shall not have previously obtained Stockholder Approval at the time of exercise, then
the Company shall issue to the Purchaser such number of shares of Common Stock as may be issued below the Maximum Share Amount
or Maximum Voting Amount, as the case may be, and, with respect to the remainder of the aggregate number of shares, the Notes and
Warrants shall not be convertible or exercisable until and unless Stockholder Approval has been obtained. “Stockholder
Approval” means approval by the stockholders of the Company (i) amending the Company’s certificate or articles
of incorporation to increase the number of authorized shares of Common Stock so that the number of authorized but unissued shares
of Common Stock is at least the Required Minimum, or to include such number of authorized shares of Common Stock in the certificate
or articles of incorporation in connection with the Company’s proposal to redomicile the Company from Minnesota to Nevada,
and (ii) permitting the issuance of shares of Common Stock in excess of the Maximum Share Amount and Maximum Voting Amount,
such issuances in accordance with applicable rules and regulations of The NASDAQ Capital Market.


 


 






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ARTICLE III.

REPRESENTATIONS AND WARRANTIES


 


3.1       
Representations and Warranties of the Company. Except as set forth in the SEC Reports or the “Disclosure
Schedules,” which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation otherwise made
herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes
the following representations and warranties to the Purchaser:


 


(a)       Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a).
The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary 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. If the Company has no
subsidiaries, all other references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.


 


(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 incorporation or organization, 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, would not have or 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 has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.


 


(c)       Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate
the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company
and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action
on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s shareholders
in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction
Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against
the Company 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 indemnification and contribution provisions may be limited by applicable law.


 


 






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(d)        No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction
Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated
hereby and thereby do not and will not: (i) 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, except as disclosed on Schedule
3.1(d), (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become 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 the Required Approvals, 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 would not reasonably be expected to result
in a Material Adverse Effect.


 


(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)
the filings required pursuant to Section 4.6 of this Agreement, (ii) the notice and/or application(s) to each applicable Trading
Market for the issuance and sale of the Securities and the listing of the Underlying Shares for trading thereon in the time and
manner required thereby, (iii) the filing of Form D with the Commission and such filings as are required to be made under applicable
state securities laws, and (iv) the Stockholder Approval with respect to Underlying Shares issuable upon conversion of the Notes
or exercise of the Warrants, as required pursuant to the terms of the Notes and Warrants, but only to the extent such components
of the Stockholder Approval are required by The NASDAQ Capital Market (collectively, the “Required Approvals”).


 


(f)       Issuance
of the Securities. The Securities, to the extent issuable without Stockholder Approval, are, and upon receipt of components of
the Stockholder Approval relating to an increase in the number of authorized shares of Common Stock, the remaining Securities
will be, 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 for in the Transaction Documents. The Underlying Shares, when issued in accordance with the terms of the Transaction
Documents, 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 a number of shares of Common Stock for issuance of the Underlying Shares at least equal to the Required Minimum on the date
hereof.


 


 






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(g)       Capitalization. The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g)
shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the
date hereof. The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act,
other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares
of Common Stock to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or
exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act.
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. Except as set forth on Schedule 3.1(g) or as a result of the purchase
and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or
giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common
Stock Equivalents. 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 Purchaser) 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 duly authorized, validly issued, fully paid and nonassessable, have been issued in material 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 set forth on Schedule 3.1(g), no further approval or authorization
of any shareholder, the Board of Directors, or others is required for the issuance and sale of the Securities. There are no shareholders
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 shareholders.


 


(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,
the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable,
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. The financial
statements of the Company included in the SEC Reports comply 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 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 then ended, subject, in the case of unaudited statements, to normal, immaterial,
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 specifically disclosed in a subsequent SEC Report filed prior to the date
hereof: (i) there has been no event, occurrence or development that has had or that would reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any material 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 shareholders 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 existing Company stock option plans. 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 or as set forth on Schedule 3.1(i),
no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or
exist with respect to the Company or its Subsidiaries or their respective businesses, properties, operations, assets 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. Except as set forth on Schedule 3.1(j), 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”) that (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) would, if there were an
unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Except as set forth on Schedule
3.1(j), neither the Company nor any Subsidiary, 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. Except
as set forth on Schedule 3.1(j), 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 director or officer 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.


 


 






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(k)       Labor Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of
the employees of the Company that would reasonably be expected to result in a Material Adverse Effect. 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. To the knowledge of the Company, no
executive officer of the Company or any Subsidiary, is, or is now 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 with all U.S. federal, state, local, and foreign laws and regulations relating to employment
and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance
would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.


 


(l)       Compliance. Except as set forth on Schedule 3.1(l), 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 other governmental authority or (iii) 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 relating to taxes, environmental protection, occupational health and safety, product quality
and safety and employment and labor matters, except in each case as would not have or reasonably be expected to result in a Material
Adverse Effect.


 


(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 would 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.


 


 






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(n)       Title to Assets. Except as set forth on Schedule 3.1(n), 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 (i) Liens
as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made
of such property by the Company and the Subsidiaries and (ii) Liens for the payment of federal, state or other taxes, for which
appropriate reserves have been made therefor in accordance with GAAP and, 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)       Intellectual Property. 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 as described in the SEC Reports as necessary or required for use in connection with their respective
businesses and for which the failure so to have would have a Material Adverse Effect (collectively, the “Intellectual
Property Rights”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that
any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be
abandoned, within two (2) years from the date of this Agreement. Neither the Company nor any Subsidiary has received, since the
date of the latest audited financial statements included within the SEC Reports, a written notice of a claim or otherwise has any
knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as would not have or
reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights
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 all of their
intellectual properties, except where failure to do so would not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect.


 


(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 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.


 


(q)       Transactions
With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company or any
Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary 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 providing for the borrowing of money from or lending of money to, 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, shareholder, member or partner, in each case in
excess of $120,000 other than for: (i) payment of salary, bonuses or consulting fees for services rendered, (ii) reimbursement
for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any
stock option plan of the Company.


 


 






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(r)       Sarbanes-Oxley; Internal Accounting Controls. The Company and the Subsidiaries are in material compliance with any
and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable
rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of 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 and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries 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 disclosure controls and procedures of the Company and the Subsidiaries
as of the end of the period covered by the 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 internal control over financial reporting (as such term is defined
in the Exchange Act) that have materially affected, or is reasonably likely to materially affect, the internal control over financial
reporting of the Company and its Subsidiaries.


 


(s)        Certain Fees. Other than as set forth on Schedule 3.1(s), no brokerage or finder’s fees or commissions
are or will be payable by the Company or any Subsidiaries 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 Purchaser
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)       Private
Placement. Assuming the accuracy of the Purchaser’s 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 Purchaser as contemplated
hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market
other than the need for Stockholder Approval.


 


 






    	 	17	 



     


    

 


(u)        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.


 


(v)        Reserved.


 


(w)       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. Except as set forth on Schedule 3.1(w), (i) 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, and (ii) 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.


 


(x)        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 would become applicable to the Purchaser as a result of
the Purchaser 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 Purchaser’s ownership of the Securities.


 


(y)       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 the Purchaser or any of
its agents or counsel with any information that it believes constitutes or might constitute material, non-public information. The
Company understands and confirms that the Purchaser will rely on the foregoing representation in effecting transactions in securities
of the Company. All of the disclosure furnished by or on behalf of the Company to the Purchaser regarding the Company and its Subsidiaries,
their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is
true and correct 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 press releases
disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue
statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made and when 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.


 


 






    	 	18	 



     


    

 


(z)       No
Integrated Offering. Assuming the accuracy of the Purchaser’s 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 that 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.


 


(aa)        Reserved.


 


(bb)       Tax
Status. Except as disclosed in the SEC Reports or for matters that would not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States
federal, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction
to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown
or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate
for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply.
Except as disclosed in the SEC Reports, there are no unpaid taxes in any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim.


 


(cc)  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. The Company has offered the Securities for sale only
to the Purchaser.


 


(dd)        Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary,
any agent or other person acting on behalf of the Company or any Subsidiary, 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 any Subsidiary (or made
by any person acting on its behalf of which the Company is aware) that is in violation of law or (iv) violated in any material
respect any provision of FCPA.


 


(ee)       Accountants. The Company’s accounting firm is set forth on Schedule 3.1(ee) of the Disclosure Schedules.
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 December 31, 2016.


 


 






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(ff)       Seniority.
As of the Closing Date, with the sole exception of other obligations of the Company currently in favor of the Purchaser or as
set forth on Schedule 3.1(ff), no Indebtedness or other claim against the Company is senior to the Note in right of payment,
whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase
money security interests (which indebtedness is senior only as to underlying assets covered thereby) and capital lease obligations
(which obligations are senior only as to the property covered thereby).


 


(gg)        No
Disagreements with Accountants and Lawyers. 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 that
would affect the Company’s ability to perform any of its obligations under any of the Transaction Documents, and the Company
is current with respect to any fees owed to its accountants and lawyers.


 


(hh)       Acknowledgment
Regarding Purchaser’s Purchase of Securities. The Company acknowledges and agrees that the Purchaser 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 the 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 Purchaser’s purchase of the Securities. The Company further represents to the 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 by the Company and its representatives.


 


(ii)        Acknowledgment
Regarding Purchaser’s Trading Activity. Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except
for Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged by the Company that: (i) the Purchaser has not been asked
by the Company to agree, nor has the 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 the 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, and (iii) the Purchaser, and counter-parties
in “derivative” transactions to which the Purchaser is a party, directly or indirectly, may presently have a “short”
position in the Common Stock. The Company further understands and acknowledges that (y) the Purchaser 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 shareholders’ 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, provided such activities are conducted in accordance with applicable law.


 


 






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(jj)       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, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement
agent (if any) in connection with the placement of the Securities.


 


(kk)       Stock
Option Plans. Each stock option granted by the Company under the Company’s stock option plan was granted (i) in accordance
with the terms of the Company’s stock option plan and (ii) with an exercise price at least equal to the fair market value
of the Common Stock on the date such stock option would be considered granted under GAAP and applicable law. No stock option granted
under the Company’s stock option plan has been backdated. The Company has not knowingly granted, and there is no and has
been no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of
stock options with, the release or other public announcement of material information regarding the Company or its Subsidiaries
or their financial results or prospects.


 


(ll)       Office of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company’s knowledge, any
director, officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered
by the Office of Foreign Assets Control of the U.S. Treasury Department.


 


(mm)       U.S.
Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within the meaning
of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Purchaser’s request.


 


(nn)       Bank Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding
Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve
System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls,
directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent
or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither
the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank
or any entity that is subject to the BHCA and to regulation by the Federal Reserve.


 


(oo)       Money
Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable
financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended,
applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering
Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator
involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company
or any Subsidiary, threatened.


 


 






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(pp)       Representations
and Warranties and Information Provided by the Company Is Not Materially Misleading. The representations and warranties contained
herein and the information otherwise provided by the Company to the Purchaser at any time prior to any Closing did not and will
not, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.


 


3.2       
Representations and Warranties of the Purchaser. The Purchaser, for itself and for no other Purchaser, hereby represents
and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein):


 


(a)       Organization; Authority. The Purchaser is either an individual or an entity duly incorporated or formed, validly
existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate,
partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated
by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of
the Transaction Documents and performance by the Purchaser of the transactions contemplated by the Transaction Documents have been
duly authorized by all necessary corporate, partnership, limited liability company, or similar action, as applicable, on the part
of the Purchaser. Each Transaction Document to which it is a party has been duly executed by the Purchaser, and when delivered
by the Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of the Purchaser,
enforceable against it 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 indemnification and contribution provisions may be limited by applicable law.


 


(b)       Own Account. The Purchaser understands that the Securities are “restricted securities” and have not been
registered under the Securities Act or any applicable state securities law and 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 the Purchaser’s right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal and state securities laws). The Purchaser is acquiring
the Securities hereunder in the ordinary course of its business.


 


(c)       Purchaser Status. At the time the Purchaser was offered the Securities, it was, and as of the date hereof it is,
and on each date on which it converts the Note it will be an “accredited investor” as defined in Rule 501(a)(1), (a)(2),
(a)(3), (a)(7) or (a)(8) under the Securities Act. The Purchaser is not required to be registered as a broker-dealer under Section
15 of the Exchange Act. The Purchaser has the authority and is duly and legally qualified to purchase and own the Securities. The
Purchaser is able to bear the risk of such investment for an indefinite period and to afford a complete loss thereof. The Purchaser
has had no position, office or other material relationship within the past two years with the Company or persons known to the Purchaser
to be affiliates of the Company, and is not a member of the Financial Industry Regulatory Authority or an “associated person”
(as such term is defined under the FINRA Membership and Registration Rules Section 1011).


 


 






    	 	22	 



     


    

 


(d)       Experience
of the Purchaser. The 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. The 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)       Compliance
with Securities Act; Reliance on Exemptions. The Purchaser understands and agrees that the Securities have not been registered
under the 1933 Act or any applicable state securities laws, by reason of their issuance in a transaction that does not require
registration under the 1933 Act, and that the Securities must be held indefinitely unless a subsequent disposition is registered
under the 1933 Act or any applicable state securities laws or is exempt from such registration. The Purchaser understands and
agrees that the Securities are being offered and sold to the Purchaser in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and regulations and that the Company is relying in part upon the
truth and accuracy of, and the Purchaser’s compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility
of the Purchaser to acquire the Securities.


 


(f)       General Solicitation. The Purchaser is not purchasing the Securities as a result of any 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.


 


(g)       Opportunity
to Obtain Information. The Purchaser has been furnished with or has had access to the EDGAR Website of the Commission to the Company’s
SEC Reports filed with the Commission. The Purchaser acknowledges that the Purchaser has been afforded (i) the opportunity to
ask such questions as the Purchaser deemed necessary of, and to receive answers from, representatives of the Company concerning
the merits and risks of acquiring the Securities; (ii) the right of access to information about the Company and its financial
condition, results of operations, business, properties, management and prospects sufficient to enable the Purchaser to evaluate
the Securities; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment decision with respect to acquiring the Securities.


 


(h)       No
Governmental Review. The Purchaser understands that no United States federal or state agency or any other governmental or state
agency has passed on or made recommendations or endorsement of the Securities or the suitability of the investment in the Securities
nor have such authorities passed upon or endorsed the merits of the investment.


 


 






    	 	23	 



     


    

 


(i)       Certain Transactions and Confidentiality. Other than consummating the transactions contemplated hereunder, the Purchaser
has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with the Purchaser, executed
any purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that
the Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting
forth the material terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof. Notwithstanding
the foregoing, in the case that the Purchaser is or becomes a multi-managed investment vehicle whereby separate portfolio managers
manage separate portions of the Purchaser’s assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of the Purchaser’s assets, the representation set forth
above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision
to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement, the Purchaser has maintained
the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this
transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation
or warranty, or preclude any actions, with respect to the identification of the availability of, or securing of, available shares
to borrow in order to effect Short Sales or similar transactions in the future.


 


The Company acknowledges
and agrees that the representations contained in Section 3.2 shall not modify, amend or affect the Purchaser’s right to rely
on the Company’s representations and warranties contained in this Agreement or any representations and warranties 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.


 


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 the
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 shall have the rights and obligations of the Purchaser under this Agreement.


 


(b)       The Purchaser agrees 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 AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO 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.


 


 






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The Company acknowledges
and agrees that the Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor”
as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and,
if required under the terms of such arrangement, the Purchaser may transfer pledged or secured Securities to the pledgees or secured
parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the
pledgee, secured party, or pledger, 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 Securities.


 


(c)       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 (including the 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 promptly after
any of the events described in (i)-(iv) in the preceding sentence if required by the Transfer Agent to effect the removal of the
legend hereunder (with a copy to the applicable Purchaser and its broker). If all or any portion of a Note is converted 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 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 following the
Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than three (3)
Trading Days following the delivery by the Purchaser to the Company or the Transfer Agent of a certificate representing Underlying
Shares, as applicable, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”),
deliver or cause to be delivered to the 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 the Purchaser.


 


 






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(d)       In
addition to the Purchaser’s other available remedies, the Company shall pay to the Purchaser, in cash, as partial liquidated
damages and not as a penalty, for each $1,000.00 of Underlying Shares (based on the VWAP of the Common Stock on the date such
Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c),
$10.00 per Trading Day (increasing to $20.00 per Trading Day seven (7) Trading Days after such Legend Removal Date) for each Trading
Day commencing two (2) Trading Days after the Legend Removal Date until such certificate is delivered without a legend. Nothing
herein shall limit the Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates
representing any Securities as required by the Transaction Documents, and the Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.


 


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 the Purchaser and regardless
of the dilutive effect that such issuance may have on the ownership of the other shareholders of the Company. In the event of an
issuance of stock involving tranches or other multiple closings, the anti-dilution adjustment shall be calculated as if all stock
was issued at the Closing.


 


4.3       
Furnishing of Information; Public Information.


 


(a)       Until the earliest of the time that (i) the Purchaser owns no 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.


 


 






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(b)       At any time during the period commencing from the six (6) month anniversary of the date hereof and ending at such time that
all of the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise
without restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to satisfy the current public
information requirement under Rule 144(c) (a “Public Information Failure”) then, in addition to the Purchaser’s
other available remedies, the Company shall pay to the Purchaser, in cash, as partial liquidated damages and not as a penalty,
by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to one percent (1.0%)
of the aggregate amount of the Note eligible to be converted at the time of the Public Information Failure of the Purchaser’s
Securities on the day of a Public Information Failure and on every thirtieth (30th) day (pro-rated for periods totaling
less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time
that such public information is no longer required for the Purchaser to transfer the Underlying Shares pursuant to Rule 144. The
payments to which the Purchaser shall be entitled pursuant to this Section 4.3(b) are referred to herein as “Public Information
Failure Payments.” Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar
month during which such Public Information Failure Payments are incurred and (ii) the third (3rd) Business Day after
the event or failure giving rise to the Public Information Failure Payments is cured. In the event the Company fails to make Public
Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of one
and one-half percent (1.5%) per month (prorated for partial months) until paid in full. Nothing herein shall limit the Purchaser’s
right to pursue actual damages for the Public Information Failure, and the Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.


 


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       
Conversion and Exercise Procedures. The form of Notice of Conversion included in the Note sets forth the totality
of the procedures required of the Purchaser in order to convert the Note. Without limiting the preceding sentences, no ink-original
Notice of Exercise or Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or
notarization) of any Notice of Conversion form be required in order to convert the Note or of any Notice of Exercise form be required
in order to exercise the Warrant. No additional legal opinion, other information, or instructions shall be required of the Purchaser
to convert its Note or to exercise its Warrant. The Company shall honor conversions of the Note and exercises of the Warrant and
shall deliver Underlying Shares in accordance with the terms, conditions, and time periods set forth in the Transaction Documents.


 


4.6       
Securities Laws Disclosure; Publicity. The Company shall file a Current Report on Form 8-K, including the Transaction
Documents as exhibits thereto (the “Form 8-K”), with the Commission within the time required by the Exchange
Act. The Company and the Purchaser shall consult with each other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor the Purchaser shall issue any such press release nor otherwise make any such public
statement without the prior consent of the Company, with respect to any press release of the Purchaser, or without the prior consent
of the Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld, delayed,
denied, or conditioned except if such disclosure is required by law, in which case the disclosing party shall promptly provide
the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of the Purchaser, or include the name of the Purchaser in any filing with the Commission or any regulatory
agency or Trading Market, without the prior written consent of the Purchaser, except to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide the Purchaser with prior notice of such disclosure
permitted hereunder.


 


 






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4.7       
Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any
other Person, that the 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 the Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue
of receiving Securities under the Transaction Documents.


 


4.8       
Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated
by the Transaction Documents, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will
provide the Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information,
unless prior thereto the Purchaser shall have entered into a written agreement with the Company regarding the confidentiality and
use of such information. The Company understands and confirms that the Purchaser shall be relying on the foregoing covenant in
effecting transactions in securities of the Company.


 


4.9       
Use of Proceeds. The Company shall use the net proceeds hereunder as set forth on Schedule 4.9 attached hereto.


 


4.10        
Indemnification of the Purchaser. Subject to the provisions of this Section 4.10, the Company will indemnify and
hold the Purchaser and its directors, officers, shareholders, members, managers, 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 the 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, managers, 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 material
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 the Purchaser Parties in any capacity, or any of them or their respective
Affiliates, by any shareholder 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 shareholder or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser
Party that 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 the Purchaser Party effected
without the Company’s prior written consent, which shall not be unreasonably withheld, delayed, denied, or conditioned; 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. The indemnification required by this Section 4.10 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements
contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others
and any liabilities the Company may be subject to pursuant to law.


 


 






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4.11        
Reservation and Listing of Securities.


 


(a)        As of the first installment Closing, the Company shall have commenced the process of preparation of (and thereafter be actively
prosecuting) its Proxy Statement on Schedule 14A, one of the items of which shall be the Company’s proposal to amend the
Company’s certificate or articles of incorporation to increase the number of authorized shares of Common Stock so that the
number of authorized but unissued shares of Common Stock is at least the Required Minimum, or to include such number of authorized
shares of Common Stock in the certificate or articles of incorporation in connection with the Company’s proposal to redomicile
the Company from Minnesota to Nevada, which proposal(s) shall be actively supported and unanimously recommended by the Board of
Directors; and upon the effectiveness of such amendment the Company shall reserve the Required Minimum from its duly authorized
shares of Common Stock and, thereafter, the Company shall maintain a reserve from its duly authorized shares of Common Stock for
issuance pursuant to the Transaction Documents in such amount as may then be required to fulfill its obligations in full under
the Transaction Documents, such that, on a monthly basis, the Company will adjust the reserve as necessary to make sure that of
the Required Minimum is available.


 


(b)       If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the
Required Minimum on such date, then the Board of Directors shall use commercially reasonable efforts to amend the Company’s
certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the
Required Minimum at such time, as soon as possible and in any event not later than the 90th day after such date.


 


 






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(c)       The Company shall, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file
with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to
the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing or quotation on such Trading Market as soon as possible thereafter, (iii) provide to the Purchaser evidence
of such listing or quotation and (iv) maintain the listing or quotation of such Common Stock on any date at least equal to the
Required Minimum on such date on such Trading Market or another Trading Market.


 


4.12        
Participation in Future Financing. The provisions of this Section 4.12 shall not be applicable unless and until Stockholder
Approval thereof has been obtained.


 


(a)       For so long as any portion of any of the Notes is outstanding, upon any issuance by the Company or any of its Subsidiaries
of Common Stock, Common Stock Equivalents, or debt for cash consideration, Indebtedness, assignment, or any combination of units
hereof (a “Subsequent Financing”), the Purchaser shall have the right to participate in up to an amount of the
Subsequent Financing equal to 100% of the Subsequent Financing on the same terms, conditions and price provided for in the Subsequent
Financing, unless the Subsequent Financing is an underwritten public offering, in which case the Company shall notify the Purchaser
of such public offering when it is lawful for the Company to do so, but the Purchaser shall not be entitled to purchase any particular
amount of such public offering without the approval of the lead underwriter of such underwritten public offering. If the Company
fails to permit the Purchaser to participate in any Subsequent Financing as provided in this Section 4.12, then, in addition to
the Purchaser’s other available remedies, the Company shall pay to the Purchaser, as partial liquidated damages and not as
a penalty, the sum of $50,000.00 (either in cash or in the form of a convertible note on terms and conditions substantially similar
to the terms and conditions of the Notes, in each case at the sole option of the Purchaser).


 


(b)        At least five (5) Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to the Purchaser
a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask
the Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”).
Upon the request of the Purchaser, and only upon a request by the Purchaser, for a Subsequent Financing Notice, the Company shall
promptly, but no later than one (1) Trading Day after such request, deliver a Subsequent Financing Notice to the Purchaser. The
Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of
proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed
to be effected and shall include a term sheet or similar document relating thereto as an attachment.


 


(c)       If the Purchaser desires to participate in such Subsequent Financing, the Purchaser must provide written notice to the Company
by not later than 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after the Purchaser has received the
Pre-Notice that the Purchaser is willing to participate in the Subsequent Financing, the amount of the Purchaser’s participation,
and representing and warranting that the Purchaser has such funds ready, willing, and available for investment on the terms set
forth in the Subsequent Financing Notice. If the Company receives no such notice from the Purchaser as of such fifth (5th)
Trading Day, the Purchaser shall be deemed to have notified the Company that it does not elect to participate.


 


 






    	 	30	 



     


    

 


(d)        If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after the Purchaser has received the Pre-Notice,
notifications by the Purchaser of its willingness to participate in the Subsequent Financing (or to cause their designees to participate)
is, in the aggregate, less than the total amount of the Subsequent Financing, then the Company may effect the remaining portion
of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.


 


(e)        [Reserved]


 


(f)        [Reserved]


 


(g)       The
Company and the Purchaser agree that if the Purchaser elects to participate in the Subsequent Financing, the transaction documents
related to the Subsequent Financing shall not include any term or provision whereby the Purchaser shall be required to agree to
any restrictions on trading as to any of the Securities purchased hereunder or be required to consent to any amendment to or termination
of, or grant any waiver, release or the like under or in connection with, this Agreement, without the prior written consent of
the Purchaser.


 


(h)        Notwithstanding anything to the contrary in this Section 4.12 and unless otherwise agreed
to by the Purchaser, the Company shall either confirm in writing to the Purchaser that the transaction with respect to the Subsequent
Financing has been abandoned or shall publicly disclose its intention to issue the securities in the Subsequent Financing, in either
case in such a manner such that the Purchaser will not be in possession of any material, non-public information, by the tenth (10th)
Business Day following delivery of the Subsequent Financing Notice. If by such tenth (10th) Business Day, no public
disclosure regarding a transaction with respect to the Subsequent Financing has been made, and no notice regarding the abandonment
of such transaction has been received by the Purchaser, such transaction shall be deemed to have been abandoned and the Purchaser
shall not be deemed to be in possession of any material, non-public information with respect to the Company or any of its Subsidiaries.


 


(i)        Notwithstanding the foregoing, this Section 4.12 shall not apply in respect of an Exempt Issuance.


 


4.13        
Subsequent Equity Sales.


 


(a)        
From the date hereof until such time that the Purchaser no longer holds the Note, in the event the Company or any of its
Subsidiaries has received and wishes to accept a bona fide offer from a Person(s) other than the Purchaser (the “Third-Party
Offer”), to effect or enter into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common
Stock or Common Stock Equivalents (or a combination of units thereof) involving a Variable Rate Transaction (the “Offered
Securities”), the Company shall give notice thereof to the Purchaser, which notice shall include a description of the
material economic terms and conditions of such Third-Party Offer in connection with the Offered Securities (the “Sale
Notice”). “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells
any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional
shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or
varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such
debt or equity securities at a price that is less than the Conversion Price in effect as of the date of such transaction or the
date of any such conversion, exchange, or exercise or (B) with a conversion, exercise, or exchange price that is subject to being
reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent
events directly or indirectly related to the business of the Company or the market for the Common Stock at a price that is less
than the Conversion Price in effect as of the date of such transaction or the date of any such reset or (ii) enters into any agreement,
including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price
that is less than the Conversion Price in effect as of the date of entry into such agreement or the date of any such issuance thereunder.
In the event the Company or any of its Subsidiaries does not follow the provisions of this Section 4.13, then the Purchaser shall
be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to
any right to collect damages.


 


 






    	 	31	 



     


    

 


(b)       The Purchaser shall have the option for a period of two (2) days from the giving of the Sale Notice (the “Two-Day
Period”) to elect to purchase the Offered Securities at the same price and subject to the same material terms and conditions
as described in the Sales Notice. The Purchaser may exercise such right by notifying the Company in writing, before expiration
of the Two-Day Period.


 


(c)       Notwithstanding the foregoing, if the Purchaser has not elected to purchase the Offered Securities within the Two-Day Period,
the Purchaser shall be deemed to have forfeited any right to purchase the Offered Securities, and the Company or the Subsidiary
shall be free to sell all, but not less than all, of the Offered Securities on terms and conditions substantially similar to (and
in no event more favorable to the Person(s) identified in the Sale Notice) the terms and conditions set forth in the Sale Notice,
provided that such sale is consummated within ninety (90) days after receipt of the Sale Notice (if such sale is not consummated
within such ninety (90) day period, such sale again becoming subject to the provisions of this Section 4.13).


 


(d)       Section 4.13 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt
Issuance.


 


4.14        
Piggy-Back Registrations. If, at any time while a Note or a Warrant is outstanding, there is not an effective Registration
Statement covering all of the underlying shares of Common Stock thereof (the “Registrable Securities”) and the
Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as
promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in connection with the Company’s stock option
or other employee benefit plans, then the Company shall send to the Purchaser a written notice of such determination and, if, within
fifteen (15) calendar days after the date of such notice, the Purchaser shall so request in writing, the Company shall include
in such registration statement all or any part of such Registrable Securities the Purchaser requests to be registered; provided,
however, that the Company shall not be required to register any Registrable Securities pursuant to this Section 4.14 that
are eligible for resale pursuant to Rule 144 promulgated under the Securities Act or that are the subject of a then-effective Registration
Statement.


 


 






    	 	32	 



     


    

 


4.15        
Certain Transactions and Confidentiality. The Purchaser covenants that neither it, nor any Affiliate acting on its
behalf or pursuant to any understanding with it will (i) execute any 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 the Form 8-K as described in Section 4.6 and (ii) execute any Short Sales of the Common
Stock from the date hereof until the earlier of (x) 5 month anniversary of the date hereof and (y) the date that the Note is no
longer outstanding (provided that this provision shall not prohibit any sales made where a corresponding Notice of Conversion or
Notice of Exercise is tendered to the Company and the shares received upon such conversion or exercise are used to close out such
sale) (a “Prohibited Short Sale”). The Purchaser covenants that until such time as the transactions contemplated
by this Agreement are publicly disclosed by the Company pursuant to the Form 8-K as described in Section 4.6, the Purchaser will
maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents
and the Disclosure Schedules. Notwithstanding the foregoing, and notwithstanding anything contained in this Agreement to the contrary,
the Company expressly acknowledges and agrees that (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 the Form 8-K as described in Section 4.6, (ii) except for a Prohibited
Short Sale, 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 the Form 8-K as described in Section 4.6 and (iii) no Purchaser shall have any duty of confidentiality
to the Company or its Subsidiaries after the issuance of the Form 8-K as described in Section 4.6. Notwithstanding the foregoing,
in the case of the Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions
of the Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of the Purchaser’s assets, the covenant set forth above shall only apply with respect to
the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by
this Agreement.


 


4.16        
Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under
Regulation D and to provide a copy thereof, promptly upon request of the 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 Purchaser
at the 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 the Purchaser.


 


4.17        
Other Limitations on Additional Financings. During the thirty (30)-day period that commences upon the final Closing,
the Company shall not engage in any other equity or debt financing transactions of any nature, including transactions similar to
those referenced in Sections 4.12 and 4.13.


 


 






    	 	33	 



     


    

 


ARTICLE V.

MISCELLANEOUS


 


5.1       
Termination. This Agreement may be terminated by the Purchaser, as to the Purchaser’s obligations hereunder,
by written notice to the other parties, if the Closing has not been consummated on or before November 8, 2016; provided,
however, that such termination will not affect the right of any party to sue for any breach by any other party (or parties).


 


5.2       
Fees and Expenses. At the first installment Closing, the Company shall reimburse the Purchaser the sum of $23,000.00
for its legal fees, which shall be paid or offset at the first installment Closing, and shall deliver the Commitment Shares. The
Company shall deliver to the Purchaser, prior to each Closing, as relevant, a completed and executed copy of the Closing Statement,
the Statement for the first Closing is attached hereto as Annex A. Except as expressly set forth in the Transaction Documents
to the contrary, each party shall pay the fees and expenses of its 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 (including, without limitation, any fees required for same-day processing
of any instruction letter delivered by the Company and any conversion or exercise notice delivered by the Purchaser), stamp taxes
and other taxes and duties levied in connection with the delivery of any Securities to the Purchaser. The Company shall pay any
and all other reasonable costs and expenses associated with conversion of the Notes and exercise of the Warrants, including, but
not limited to, opinion or related letters for the removal of any related trading restrictions.


 


5.3       
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 thereof 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.


 


5.4       
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 pages attached hereto at or 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 address 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 Purchaser 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.


 


 






    	 	34	 



     


    

 


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 the Purchaser (other than by merger). Solely with the prior written consent of the Company, which consent shall not
be unreasonably withheld, delayed, denied, or conditioned the Purchaser may assign any or all of its rights under this Agreement
to any Person to whom the 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 4.10.


 


5.9       
Governing Law. 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 Nevada, 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, partners, members, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the City of Las Vegas, Nevada. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in the City of Las Vegas, County of Clark, State
of Nevada 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 either party shall commence an action, suit or proceeding to enforce any provisions of the Transaction Documents,
then, in addition to the obligations of the Company under Section 4.10, the prevailing party in such action, suit 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.


 


5.10        
Survival. The representations and warranties contained herein shall survive the Closings and the delivery of the
Securities and shall continue to survive for a period of two years from the last Closing.


 


 






    	 	35	 



     


    

 


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 each other party, it being understood that the 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 the 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 the Purchaser may, at any time prior to the Company’s performance of such obligations, 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
a Note, the applicable Purchaser shall be required to return any shares of Common Stock subject to any such rescinded conversion
concurrently with the return to the Purchaser of the aggregate exercise price paid to the Company for such shares and the restoration
of the Purchaser’s right to acquire such shares.


 


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.


 


5.15        
Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery
of damages, the Purchaser 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 the Purchaser pursuant to any Transaction
Document or the 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.


 


 






    	 	36	 



     


    

 


5.17        
Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner
whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever
enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by the Purchaser
in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained
in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction
Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the
“Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest,
or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable
to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof,
the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from
the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever,
interest in excess of the Maximum Rate is paid by the Company to the Purchaser with respect to indebtedness evidenced by the Transaction
Documents, such excess shall be applied by the Purchaser to the unpaid principal balance of any such indebtedness or be refunded
to the Company, the manner of handling such excess to be at the Purchaser’s election.


 


5.18        
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.


 


5.19        
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.


 


5.20        
Construction. The parties agree that each of them and/or their respective counsel have 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
thereto. 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.


 


 






    	 	37	 



     


    

 


5.21        
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)


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 




    	 	38	 



     


    


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.


 


	
        APPLIANCE RECYCLING CENTERS OF AMERICA,
        INC.

         

         

         
	
        Address for Notice:

        175 Jackson Avenue North Suite
102

        Minneapolis, MN 55343-4565

        Facsimile No. 952-930-1803

         

	
        By:     
/s/ Tony Isaac

        Name:       Tony
Isaac

        Title:       Chief
        Executive Officer

         

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

         
	 
	



     




	
        Fredrikson
& Byron, P.A.

        200 South Sixth Street, Suite
4000

        Minneapolis, Minnesota 55402-1425

        E-mail: EMadson@fredlaw.com

        Attn: Eric Madson

         

         

         
	 


[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK


 


SIGNATURE PAGE FOR PURCHASER FOLLOWS]


 




    	 	39	 



     


    


[PURCHASER
SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]


 


 


 


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


 


Name of Purchaser:Energy Efficiency
Investments, LLC


 


Signature of Authorized Signatory of
Purchaser:     /s/ Janez Kocmur


 


Name of Authorized Signatory:     Janez
Kocmur


 


Title of Authorized Signatory:     Managing
Member


 


E-mail Address of Authorized Signatory:                                     


 


Facsimile Number of Authorized Signatory:                                    


 


Address for Notice to Purchaser:


 


     c/o Baker
Hostetler


600 Anton Boulevard, Suite 900, Costa
Mesa, CA 92626


 


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


 


 



 





 






 


 


 


Closing Subscription Amount:$100,000.00


 


Closing Principal Amount:$103,092.78


 


 


 


EIN Number:     ________________________


 


 


 


 


 


 


 


 




    	 	40	 



     


    


Annex A


 


CLOSING STATEMENT


 


Pursuant to the attached Securities Purchase
Agreement, dated as of the date hereto, the purchaser shall purchase Note from Appliance Recycling Centers of America, Inc. (the
“Company”). All funds will be wired into an account maintained by the Company. All funds will be disbursed in
accordance with this Closing Statement.


 


First Closing Disbursement Date:November
8, 2016


 


	
        I.       PURCHASE
        PRICE

         

         

         
	 
	 	Gross Proceeds to be Received 	$100,000.00
	 	 
	
        II.       DISBURSEMENTS

         

         

         
	 
	 	Baker & Hostetler LLP – legal fees	$23,000.00
	 	Company	$77,000.00
	 	 	 
	Total Amount Disbursed:	$100,000.00
	 	 
	
        WIRE INSTRUCTIONS:

         

        Bank
Name:      __________

         

        Bank Address:     __________

                                       __________

                                       __________

                                       __________

                                       __________

         

         

        Routing
Number:     __________

         

         
	
         

         

        Account Number:

         

        ____________________

         

        Beneficiary:

        Appliance
Recycling Centers of America, Inc.

         

        Beneficiary
Address:

        175 Jackson
Avenue North

        Suite
102

        Minneapolis, MN
        55343-4565

         

	
        Duly executed this 8th day of November,
        2016:

         

        APPLIANCE RECYCLING CENTERS OF AMERICA,
        INC.

         

        By:   /s/
Tony Isaac

                 Name:       Tony
Isaac

                 Title:       Chief
        Executive Officer

         
	 
	 	 	 


 


 


 


 


 


 






    	 	41