Document:

exv4w3

 

Exhibit 4.3

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY STATE SECURITIES LAWS
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES
ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION OF SUCH SECURITIES UNDER THE
SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

WARRANT TO PURCHASE

SHARES OF COMMON STOCK

OF

ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.

	 	 	 
	No.: W-07-                    

	 	Number of Shares:                                         
	Date of Issuance: October 29, 2007
	 	 

     FOR VALUE RECEIVED, the undersigned, Advanced Environmental Recycling Technologies, Inc., a
Delaware corporation (together with its successors and assigns, the “Issuer”), hereby
certifies that                      or its registered assigns is entitled to subscribe
for and purchase, during the Term (as hereinafter defined), up to
                                         (                    ) shares (subject to adjustment as hereinafter
provided) of the duly authorized, validly issued, fully paid and non-assessable Common Stock of the
Issuer, at an exercise price per share equal to the Warrant Price then in effect, subject, however,
to the provisions and upon the terms and conditions hereinafter set forth. Capitalized terms used
in this Warrant and not otherwise defined herein shall have the respective meanings specified in
Section 9 hereof.

     1. Term. The term of this Warrant shall commence on October 29, 2007 and shall expire
at 6:00 p.m., Eastern Time, on October 29, 2012; provided, however, in the event a
registration statement providing for the resale of all of the Warrant Stock issuable upon exercise
of this Warrant is not effective by the date that is six (6) months following the Original Issue
Date (the “Effectiveness Deadline”), the term of this Warrant shall be extended one day for
each day following the Effectiveness Deadline until such registration statement providing for the
resale of all of the Warrant Stock is declared effective (such period being the “Term”).

	     2.	 	Method of Exercise; Payment; Issuance of New Warrant; Transfer and
Exchange.

     (a) Time of Exercise. The purchase rights represented by this Warrant may be
exercised in whole or in part during the Term.

-1-

 

     (b) Method of Exercise. The Holder hereof may exercise this Warrant, in whole or in
part, by the surrender of this Warrant (with the exercise form attached hereto duly executed) at
the principal office of the Issuer, and by the payment to the Issuer of an amount of consideration
therefor equal to the Warrant Price in effect on the date of such exercise multiplied by the number
of shares of Warrant Stock with respect to which this Warrant is then being exercised, payable at
such Holder’s election (i) by certified or official bank check or by wire transfer to an account
designated by the Issuer, (ii) by “cashless exercise” in accordance with the provisions of
subsection (c) of this Section 2, but only when a registration statement under the Securities Act
providing for the resale of the Warrant Stock is not then in effect, or (iii) by a combination of
the foregoing methods of payment selected by the Holder of this Warrant.

     (c) Cashless Exercise. Notwithstanding any provisions herein to the contrary and
commencing upon the earlier of one (1) year following the Original Issue Date and the date the
Warrant Stock becomes eligible for resale pursuant to Rule 144 under the Securities Act, if (i) the
Per Share Market Value of one share of Common Stock is greater than the Warrant Price (at the date
of calculation as set forth below) and (ii) a registration statement under the Securities Act
providing for the resale of the Warrant Stock is not then in effect, or not effective at any time
during the Effectiveness Period (as defined in the Registration Rights Agreement) in accordance
with the terms of the Registration Rights Agreement, unless the registration statement is not
effective as a result of the Issuer exercising its rights under Section 3(n) of the Registration
Rights Agreement, in lieu of exercising this Warrant by payment of cash, the Holder may exercise
this Warrant by a cashless exercise and shall receive the number of shares of Common Stock equal to
an amount (as determined below) by surrender of this Warrant at the principal office of the Issuer
together with the properly endorsed Notice of Exercise in which event the Issuer shall issue to the
Holder a number of shares of Common Stock computed using the following formula:

	 	 	 	 	 
	 

	 	X =
	 	Y - (A)(Y) 
	 

	 	 	 	          B
	 
	 	 	 	 
	Where

	 	X =
	 	the number of shares of Common Stock to be issued to the Holder.
	 
	 	 	 	 
	 

	 	Y =
	 	the number of shares of Common Stock purchasable upon
exercise of all of the Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being exercised.
	 
	 	 	 	 
	 

	 	A =
	 	the Warrant Price.
	 
	 	 	 	 
	 

	 	B =
	 	the Per Share Market Value of one share of Common Stock.

     (d) Issuance of Stock Certificates. In the event of any exercise of this Warrant in
accordance with and subject to the terms and conditions hereof, certificates for the shares of
Warrant Stock so purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding three (3) Trading Days after such exercise (the
“Delivery Date”) or, at the request of the Holder (provided that a registration statement
under the Securities Act providing for the resale of the Warrant Stock is then in effect), issued
and

-2-

 

delivered to the Depository Trust Company (“DTC”) account on the Holder’s behalf via
the Deposit Withdrawal Agent Commission System (“DWAC”) within a reasonable time, not
exceeding three (3) Trading Days after such exercise, and the Holder hereof shall be deemed for all
purposes to be the holder of the shares of Warrant Stock so purchased as of the date of such
exercise. Notwithstanding the foregoing to the contrary, the Issuer or its transfer agent shall
only be obligated to issue and deliver the shares to the DTC on a holder’s behalf via DWAC if (i)
such exercise is in connection with a sale, (ii) such shares may be issued without restrictive
legends and (iii) the Issuer and the transfer agent are participating in DTC through the DWAC
system. If all of the conditions set forth in clauses (i), (ii) and (iii) above are not satisfied,
the transfer agent shall deliver physical certificates representing the shares of Warrant Stock to
such Holder. The Holder shall deliver this original Warrant, or an indemnification undertaking
with respect to such Warrant in the case of its loss, theft or destruction, at such time that this
Warrant is fully exercised. With respect to partial exercises of this Warrant, the Issuer shall
keep written records for the Holder of the number of shares of Warrant Stock exercised as of each
date of exercise.

     (e) Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise.
In addition to any other rights available to the Holder, if the Issuer fails to cause its transfer
agent to transmit to the Holder a certificate or certificates representing the Warrant Stock
pursuant to an exercise on or before the Delivery Date, and if after such date the Holder is
required by its broker to purchase (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Holder of the Warrant Stock which the Holder
anticipated receiving upon such exercise (a “Buy-In”), then the Issuer shall (1) pay in
cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of shares of Warrant Stock that the Issuer was required to deliver to
the Holder in connection with the exercise at issue times (B) the price at which the sell order
giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either
reinstate the portion of the Warrant and equivalent number of shares of Warrant Stock for which
such exercise was not honored or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Issuer timely complied with its exercise and delivery obligations
hereunder. For example, if the Holder purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an
aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Issuer shall be required to pay the Holder $1,000. The Holder
shall provide the Issuer written notice indicating the amounts payable to the Holder in respect of
the Buy-In, together with applicable confirmations and other evidence reasonably requested by the
Issuer. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Issuer’s failure to timely deliver certificates
representing shares of Common Stock upon exercise of this Warrant as required pursuant to the terms
hereof.

     (f) Transferability of Warrant. Subject to Section 2(h) hereof, this Warrant may be
transferred by a Holder, in whole or in part, but in denominations of at least 50,000 shares,
without the consent of the Issuer; provided, however, this Warrant may not be transferred in whole
or in part to a Person known to be a competitor of the Issuer with respect to the

-3-

 

manufacture of composite wood-plastic decking or other composite wood-plastic construction
materials. If transferred pursuant to this paragraph, this Warrant may be transferred on the books
of the Issuer by the Holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant at the principal office of the Issuer, properly endorsed (by the Holder executing an
assignment in the form attached hereto) and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. This Warrant is exchangeable at the principal
office of the Issuer for Warrants to purchase the same aggregate number of shares of Warrant Stock,
each new Warrant to represent the right to purchase such number of shares of Warrant Stock as the
Holder hereof shall designate at the time of such exchange. All Warrants issued on transfers or
exchanges shall be dated the Original Issue Date and shall be identical with this Warrant except as
to the number of shares of Warrant Stock issuable pursuant thereto.

     (g) Continuing Rights of Holder. The Issuer will, at the time of or at any time after
each exercise of this Warrant, upon the request of the Holder hereof, acknowledge in writing the
extent, if any, of its continuing obligation to afford to such Holder all rights to which such
Holder shall continue to be entitled after such exercise in accordance with the terms of this
Warrant, provided that if any such Holder shall fail to make any such request, the failure
shall not affect the continuing obligation of the Issuer to afford such rights to such Holder.

     (h) Compliance with Securities Laws.

     (i) The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant
and the shares of Warrant Stock to be issued upon exercise hereof are being acquired solely
for the Holder’s own account and not as a nominee for any other party, and for investment,
and that the Holder will not offer, sell or otherwise dispose of this Warrant or any shares
of Warrant Stock to be issued upon exercise hereof except pursuant to an effective
registration statement, or an exemption from registration, under the Securities Act and any
applicable state securities laws.

     (ii) Except as provided in paragraph (iii) below, this Warrant and all certificates
representing shares of Warrant Stock issued upon exercise hereof shall be stamped or
imprinted with a legend in substantially the following form:

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”) OR ANY STATE SECURITIES LAWS AND MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED
UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS
OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION OF SUCH SECURITIES
UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED.

-4-

 

     (iii) The Issuer agrees to reissue this Warrant or certificates representing any of the
Warrant Stock, without the legend set forth above if at such time, prior to making any
transfer of any such securities, the Holder shall give written notice to the Issuer
describing the manner and terms of such transfer. Such proposed transfer will not be
effected until: (a) either (i) the Issuer has received an opinion of counsel reasonably
satisfactory to the Issuer, to the effect that the registration of such securities under the
Securities Act is not required in connection with such proposed transfer, (ii) a
registration statement under the Securities Act covering such proposed disposition has been
filed by the Issuer with the Securities and Exchange Commission and has become effective
under the Securities Act, (iii) the Issuer has received other evidence reasonably
satisfactory to the Issuer that such registration and qualification under the Securities Act
and state securities laws are not required, or (iv) the Holder provides the Issuer with
reasonable assurances that such security can be sold pursuant to Rule 144 under the
Securities Act; and (b) either (i) the Issuer has received an opinion of counsel reasonably
satisfactory to the Issuer, to the effect that registration or qualification under the
securities or “blue sky” laws of any state is not required in connection with such proposed
disposition, or (ii) compliance with applicable state securities or “blue sky” laws has been
effected or a valid exemption exists with respect thereto. The Issuer will respond to any
such notice from a holder within three (3) Trading Days. In the case of any proposed
transfer under this Section 2(h), the Issuer will use reasonable efforts to comply with any
such applicable state securities or “blue sky” laws, but shall in no event be required, (x)
to qualify to do business in any state where it is not then qualified, (y) to take any
action that would subject it to tax or to the general service of process in any state where
it is not then subject, or (z) to comply with state securities or “blue sky” laws of any
state for which registration by coordination is unavailable to the Issuer. The restrictions
on transfer contained in this Section 2(h) shall be in addition to, and not by way of
limitation of, any other restrictions on transfer contained in any other section of this
Warrant. Whenever a certificate representing the Warrant Stock is required to be issued to
a the Holder without a legend, in lieu of delivering physical certificates representing the
Warrant Stock, the Issuer shall cause its transfer agent to electronically transmit the
Warrant Stock to the Holder by crediting the account of the Holder’s Prime Broker with DTC
through its DWAC system.

     (i) Accredited Investor Status. In no event may the Holder exercise this Warrant in
whole or in part unless the Holder is an “accredited investor” as defined in Regulation D under the
Securities Act.

-5-

 

     3. Stock Fully Paid; Reservation and Listing of Shares; Covenants.

     (a) Stock Fully Paid. The Issuer represents, warrants, covenants and agrees that all
shares of Warrant Stock which may be issued upon the exercise of this Warrant or otherwise
hereunder will, when issued in accordance with the terms of this Warrant, be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by
or through the Issuer. The Issuer further covenants and agrees that during the period within which
this Warrant may be exercised, the Issuer will at all times have authorized and reserved for the
purpose of issuance upon exercise of this Warrant a number of shares of Common Stock equal to at
least one hundred twenty percent (120%) of the aggregate number of shares of Common Stock to
provide for the exercise of this Warrant.

     (b) Reservation. If any shares of Common Stock required to be reserved for issuance
upon exercise of this Warrant or as otherwise provided hereunder require registration or
qualification with any Governmental Authority under any federal or state law before such shares may
be so issued, the Issuer will in good faith use its best efforts as expeditiously as possible at
its expense to cause such shares to be duly registered or qualified. If the Issuer shall list any
shares of Common Stock on any securities exchange or market it will, at its expense, list thereon,
maintain and increase when necessary such listing, of, all shares of Warrant Stock from time to
time issued upon exercise of this Warrant or as otherwise provided hereunder (provided that such
Warrant Stock has been registered pursuant to a registration statement under the Securities Act
then in effect), and, to the extent permissible under the applicable securities exchange rules, all
unissued shares of Warrant Stock which are at any time issuable hereunder, so long as any shares of
Common Stock shall be so listed. The Issuer will also so list on each securities exchange or
market, and will maintain such listing of, any other securities which the Holder of this Warrant
shall be entitled to receive upon the exercise of this Warrant if at the time any securities of the
same class shall be listed on such securities exchange or market by the Issuer.

     (c) Covenants. The Issuer shall not by any action including, without limitation,
amending the Certificate of Incorporation or the by-laws of the Issuer, or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities
or any other action, avoid or seek to avoid the observance or performance of any of the terms of
this Warrant, but will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such actions as may be necessary or appropriate to protect the rights of the
Holder hereof against dilution (to the extent specifically provided herein) or impairment. Without
limiting the generality of the foregoing, the Issuer will (i) not permit the par value, if any, of
its Common Stock to exceed the then effective Warrant Price, (ii) not amend or modify any provision
of the Certificate of Incorporation or by-laws of the Issuer in any manner that would adversely
affect the rights of the Holders of the Warrants, (iii) take all such action as may be reasonably
necessary in order that the Issuer may validly and legally issue fully paid and nonassessable
shares of Common Stock, free and clear of any liens, claims, encumbrances and restrictions (other
than as provided herein) upon the exercise of this Warrant, and (iv) use its best efforts to obtain
all such authorizations, exemptions or consents from any public regulatory body having jurisdiction
thereof as may be reasonably necessary to enable the Issuer to perform its obligations under this
Warrant.

-6-

 

     (d) Loss, Theft, Destruction of Warrants. Upon receipt of evidence satisfactory to
the Issuer of the ownership of and the loss, theft, destruction or mutilation of any Warrant and,
in the case of any such loss, theft or destruction, upon receipt of indemnity or security
satisfactory to the Issuer or, in the case of any such mutilation, upon surrender and cancellation
of such Warrant, the Issuer will make and deliver, in lieu of such lost, stolen, destroyed or
mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same
number of shares of Common Stock.

     4. Adjustment of Warrant Price and Number of Shares Issuable Upon Exercise. The
Warrant Price and the Warrant Share Number shall be subject to adjustment from time to time as set
forth in this Section 4. The Issuer shall give the Holder notice of any event described below which
requires an adjustment pursuant to this Section 4 in accordance with the notice provisions set
forth in Section 5.

     (a) Recapitalization, Reorganization, Reclassification, Consolidation, Merger or Sale.

     (i) In case the Issuer after the Original Issue Date shall do any of the following
(each, a “Triggering Event”): (A) consolidate or merge with or into any other Person
and the Issuer shall not be the continuing or surviving corporation of such consolidation or
merger, or (B) permit any other Person to consolidate with or merge into the Issuer and the
Issuer shall be the continuing or surviving Person but, in connection with such
consolidation or merger, any Capital Stock of the Issuer shall be changed into or exchanged
for Securities of any other Person or cash or any other property, or (C) transfer all or
substantially all of its properties or assets to any other Person, or (D) effect a capital
reorganization or reclassification of its Capital Stock, then, and in the case of each such
Triggering Event, proper provision shall be made to the Warrant Price and the number of
shares of Warrant Stock that may be purchased upon exercise of this Warrant so that, upon
the basis and the terms and in the manner provided in this Warrant, the Holder of this
Warrant shall be entitled upon the exercise hereof at any time after the consummation of
such Triggering Event, to the extent this Warrant is not exercised prior to such Triggering
Event, to receive at the Warrant Price as adjusted to take into account the consummation of
such Triggering Event, in lieu of the Common Stock issuable upon such exercise of this
Warrant prior to such Triggering Event, the Securities, cash and property to which such
Holder would have been entitled upon the consummation of such Triggering Event if such
Holder had exercised the rights represented by this Warrant immediately prior thereto
(including the right of a shareholder to elect the type of consideration it will receive
upon a Triggering Event), subject to adjustments (subsequent to such corporate action) as
nearly equivalent as possible to the adjustments provided for elsewhere in this Section 4;
provided, however, the Holder at its option may elect to receive, or the
Issuer at its option may require the Holder to receive, an amount of cash equal to the value
of this Warrant as determined in accordance with the Black Scholes Option Pricing Model
obtained from the “OV” function on Bloomberg L.P. using (1) a price per share of Common
Stock equal to the VWAP of the Common Stock for the Trading Day immediately preceding the
date of consummation of the applicable Triggering Event, (2) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the remaining term of this
Warrant as of the date of consummation of the applicable Triggering Event and (3) an
expected volatility equal to the 100 day volatility

-7-

 

obtained from the “HVT” function on Bloomberg L.P. determined as of the Trading Day
immediately following the public announcement of the applicable Triggering Event.
Immediately upon the occurrence of a Triggering Event, the Issuer shall notify the Holder in
writing of such Triggering Event and provide the calculations in determining the number of shares of Warrant Stock issuable upon exercise of the new warrant and the adjusted Warrant
Price. Upon the Holder’s request, the continuing or surviving corporation as a result of
such Triggering Event shall issue to the Holder a new warrant of like tenor evidencing the
right to purchase the adjusted number of shares of Warrant Stock and the adjusted Warrant
Price pursuant to the terms and provisions of this Section 4(a)(i). Notwithstanding the
foregoing to the contrary, this Section 4(a)(i) shall only apply if the surviving entity
pursuant to any such Triggering Event is a company that has a class of equity securities
registered pursuant to the Securities Exchange Act of 1934, as amended, and its common stock
is listed or quoted on a national securities exchange, national automated quotation system
or the OTC Bulletin Board. In the event that the surviving entity pursuant to any such
Triggering Event is not a public company that is registered pursuant to the Securities
Exchange Act of 1934, as amended, or its common stock is not listed or quoted on a national
securities exchange, national automated quotation system or the OTC Bulletin Board, then the
Holder shall have the right to demand that the Issuer pay to the Holder an amount in cash
equal to the value of this Warrant calculated in accordance with the Black-Scholes formula
as stated above.

     (ii) In the event that the Holder has elected not to exercise this Warrant prior to the
consummation of a Triggering Event and has also elected not to receive an amount in cash
equal to the value of this Warrant calculated in accordance with the Black-Scholes formula
pursuant to the provisions of Section 4(a)(i) above, so long as the surviving entity
pursuant to any Triggering Event is a company that has a class of equity securities
registered pursuant to the Securities Exchange Act of 1934, as amended, and its common stock
is listed or quoted on a national securities exchange, national automated quotation system
or the OTC Bulletin Board, the surviving entity and/or each Person (other than the Issuer)
which may be required to deliver any Securities, cash or property upon the exercise of this
Warrant as provided herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer under this
Warrant (and if the Issuer shall survive the consummation of such Triggering Event, such
assumption shall be in addition to, and shall not release the Issuer from, any continuing
obligations of the Issuer under this Warrant) and (B) the obligation to deliver to such
Holder such Securities, cash or property as, in accordance with the foregoing provisions of
this subsection (a), such Holder shall be entitled to receive, and the surviving entity
and/or each such Person shall have similarly delivered to such Holder an opinion of counsel
for the surviving entity and/or each such Person, which counsel shall be reasonably
satisfactory to such Holder, or in the alternative, a written acknowledgement executed by
the President or Chief Financial Officer of the Issuer, stating that this Warrant shall
thereafter continue in full force and effect and the terms hereof (including, without
limitation, all of the provisions of this subsection (a)) shall be applicable to the
Securities, cash or property which the surviving entity and/or each such Person may be
required to deliver upon any exercise of this Warrant or the exercise of any rights pursuant
hereto.

-8-

 

     (b) Stock Dividends, Subdivisions and Combinations. If at any time the Issuer shall:

     (i) make or issue or set a record date for the holders of the Common Stock for the
purpose of entitling them to receive a dividend payable in, or other distribution of, shares
of Common Stock,

     (ii) subdivide its outstanding shares of Common Stock into a larger number of shares of
Common Stock, or

     (iii) combine its outstanding shares of Common Stock into a smaller number of shares of
Common Stock,

then (1) the number of shares of Common Stock for which this Warrant is exercisable immediately
after the occurrence of any such event shall be adjusted to equal the number of shares of Common
Stock which a record holder of the same number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the occurrence of such event would own or be entitled to receive
after the happening of such event, and (2) the Warrant Price then in effect shall be adjusted to
equal (A) the Warrant Price then in effect multiplied by the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of
shares of Common Stock for which this Warrant is exercisable immediately after such adjustment.

     (c) Certain Other Distributions. If at any time the Issuer shall make or issue or set
a record date for the holders of the Common Stock for the purpose of entitling them to receive any
dividend or other distribution of:

     (i) cash,

     (ii) any evidences of its indebtedness, any shares of stock of any class or any other
securities or property of any nature whatsoever (other than cash, Common Stock Equivalents
or Additional Shares of Common Stock), or

     (iii) any warrants or other rights to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or property of any
nature whatsoever (other than cash, Common Stock Equivalents or Additional Shares of Common
Stock),

then (1) the number of shares of Common Stock for which this Warrant is exercisable shall be
adjusted to equal the product of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such adjustment multiplied by a fraction (A) the numerator of
which shall be the Per Share Market Value of Common Stock at the date of taking such record and (B)
the denominator of which shall be such Per Share Market Value minus the amount allocable to one
share of Common Stock of any such cash so distributable and of the fair value (as determined in
good faith by the Board and supported by an opinion from an investment banking firm mutually agreed
upon by the Issuer and the Holder) of any and all such evidences of indebtedness, shares of stock,
other securities or property or warrants or other subscription or purchase rights so distributable,
and (2) the Warrant Price then in effect shall be adjusted to

-9-

 

equal (A) the Warrant Price then in effect multiplied by the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of
shares of Common Stock for which this Warrant is exercisable immediately after such adjustment. A
reclassification of the Common Stock (other than a change in par value, or from par value to no par
value or from no par value to par value) into shares of Common Stock and shares of any other class
of stock shall be deemed a distribution by the Issuer to the holders of its Common Stock of such
shares of such other class of stock within the meaning of this Section 4(c) and, if the outstanding
shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock
as a part of such reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of Section 4(b).

     (d) Issuance of Additional Shares of Common Stock.

          (i) Commencing on the Original Issue Date and for a period of two (2) years thereafter, in the
event the Issuer shall issue any Additional Shares of Common Stock (otherwise than as provided in
the foregoing subsections (a) through (c) of this Section 4), at a price per share less than the
Warrant Price then in effect or without consideration, then the Warrant Price upon each such
issuance shall be adjusted to the price equal to the consideration per share paid for such
Additional Shares of Common Stock.

          (ii) Commencing on the date that is two (2) years and one (1) day following the Original Issue
Date, in the event the Issuer shall issue any Additional Shares of Common Stock (otherwise than as
provided in the foregoing subsections (a) through (c) of this Section 4), at a price per share less
than the Warrant Price then in effect or without consideration, then the Warrant Price upon each
such issuance shall be adjusted to that price determined by multiplying the Warrant Price then in
effect by a fraction:

     (A) the numerator of which shall be equal to the sum of (x) the number of
shares of Outstanding Common Stock immediately prior to the issuance of such
Additional Shares of Common Stock plus (y) the number of shares of Common
Stock (rounded to the nearest whole share) which the aggregate consideration for the
total number of such Additional Shares of Common Stock so issued would purchase at a
price per share equal to the Warrant Price then in effect, and

     (B) the denominator of which shall be equal to the number of shares of
Outstanding Common Stock immediately after the issuance of such Additional Shares of
Common Stock.

          (iii) No adjustment of the number of shares of Common Stock for which this Warrant shall be
exercisable shall be made under paragraphs (i) and (ii) of Section 4(d) upon the issuance of any
Additional Shares of Common Stock which are issued pursuant to the exercise of any Common Stock
Equivalents, if any such adjustment shall previously have been made upon the issuance of such
Common Stock Equivalents (or upon the issuance of any warrant or other rights therefor) pursuant to
Section 4(e).

-10-

 

     (e) Issuance of Common Stock Equivalents. In the event the Issuer shall at any time
following the Original Issue Date take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether directly or by
assumption in a merger in which the Issuer is the surviving corporation) issue or sell, any Common
Stock Equivalents, whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the Warrant Price in effect immediately prior to the time of such issue
or sale, or if, after any such issuance of Common Stock Equivalents, the price per share for which
Additional Shares of Common Stock may be issuable thereafter is amended or adjusted, and such price
as so amended shall be less than the Warrant Price in effect at the time of such amendment or
adjustment, then the Warrant Price then in effect shall be adjusted as provided in Section 4(d).
No further adjustments of the number of shares of Common Stock for which this Warrant is
exercisable and the Warrant Price then in effect shall be made upon the actual issue of such Common
Stock upon conversion or exchange of such Common Stock Equivalents.

     (f) Shareholder Approval. Unless Shareholder Approval (as defined in the Purchase
Agreement) has been obtained and deemed effective, neither the Issuer nor any subsidiary shall make
any issuance whatsoever of Additional Shares of Common Stock or Common Stock Equivalents which
would cause any adjustment of the Warrant Price. The Holder shall be entitled to obtain injunctive
relief against the Issuer to preclude any such issuance, which remedy shall be in addition to any
right to collect damages.

     (g) Other Provisions applicable to Adjustments under this Section. The following
provisions shall be applicable to the making of adjustments of the number of shares of Common Stock
for which this Warrant is exercisable and the Warrant Price then in effect provided for in this
Section 4:

     (i) Computation of Consideration. To the extent that any Additional Shares of
Common Stock or any Common Stock Equivalents (or any warrants or other rights therefor)
shall be issued for cash consideration, the consideration received by the Issuer therefor
shall be the amount of the cash received by the Issuer therefor, or, if such Additional
Shares of Common Stock or Common Stock Equivalents are offered by the Issuer for
subscription, the subscription price, or, if such Additional Shares of Common Stock or
Common Stock Equivalents are sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price (in any such case subtracting any
amounts paid or receivable for accrued interest or accrued dividends and without taking into
account any compensation, discounts or expenses paid or incurred by the Issuer for and in
the underwriting of, or otherwise in connection with, the issuance thereof). In connection
with any merger or consolidation in which the Issuer is the surviving corporation (other
than any consolidation or merger in which the previously outstanding shares of Common Stock
of the Issuer shall be changed to or exchanged for the stock or other securities of another
corporation), the amount of consideration therefor shall be deemed to be the fair value, as
determined reasonably and in good faith by the Board, of such portion of the assets and
business of the nonsurviving corporation as the Board may determine to be attributable to
such shares of Common Stock or Common Stock Equivalents, as the case may be. The
consideration for any Additional Shares of

-11-

 

Common Stock issuable pursuant to any warrants or other rights to subscribe for or purchase
the same shall be the consideration received by the Issuer for issuing such warrants or
other rights plus the additional consideration payable to the Issuer upon exercise of such
warrants or other rights. The consideration for any Additional Shares of Common Stock
issuable pursuant to the terms of any Common Stock Equivalents shall be the consideration
received by the Issuer for issuing warrants or other rights to subscribe for or purchase
such Common Stock Equivalents, plus the consideration paid or payable to the Issuer in
respect of the subscription for or purchase of such Common Stock Equivalents, plus the
additional consideration, if any, payable to the Issuer upon the exercise of the right of
conversion or exchange in such Common Stock Equivalents. In the event of any consolidation
or merger of the Issuer in which the Issuer is not the surviving corporation or in which the
previously outstanding shares of Common Stock of the Issuer shall be changed into or
exchanged for the stock or other securities of another corporation, or in the event of any
sale of all or substantially all of the assets of the Issuer for stock or other securities
of any corporation, the Issuer shall be deemed to have issued a number of shares of its
Common Stock for stock or securities or other property of the other corporation computed on
the basis of the actual exchange ratio on which the transaction was predicated, and for a
consideration equal to the fair market value on the date of such transaction of all such
stock or securities or other property of the other corporation. In the event any
consideration received by the Issuer for any securities consists of property other than
cash, the fair market value thereof at the time of issuance or as otherwise applicable shall
be as determined in good faith by the Board. In the event Common Stock is issued with other
shares or securities or other assets of the Issuer for consideration which covers both, the
consideration computed as provided in this Section 4(g)(i) shall be allocated among such
securities and assets as determined in good faith by the Board.

     (ii) When Adjustments to Be Made. The adjustments required by this Section 4
shall be made whenever and as often as any specified event requiring an adjustment shall
occur, except that any adjustment of the number of shares of Common Stock for which this
Warrant is exercisable that would otherwise be required may be postponed (except in the case
of a subdivision or combination of shares of the Common Stock, as provided for in Section
4(b)) up to, but not beyond the date of exercise if such adjustment either by itself or with
other adjustments not previously made adds or subtracts less than one percent (1%) of the
shares of Common Stock for which this Warrant is exercisable immediately prior to the making
of such adjustment. Any adjustment representing a change of less than such minimum amount
(except as aforesaid) which is postponed shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this Section 4 and not previously
made, would result in a minimum adjustment or on the date of exercise. For the purpose of
any adjustment, any specified event shall be deemed to have occurred at the close of
business on the date of its occurrence.

     (iii) Fractional Interests. In computing adjustments under this Section 4,
fractional interests in Common Stock shall be taken into account to the nearest one
one-hundredth (1/100th) of a share.

-12-

 

     (iv) When Adjustment Not Required. If the Issuer shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a dividend or
distribution or subscription or purchase rights and shall, thereafter and before the
distribution to stockholders thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall
be required by reason of the taking of such record and any such adjustment previously made
in respect thereof shall be rescinded and annulled.

     (h) Form of Warrant after Adjustments. The form of this Warrant need not be changed
because of any adjustments in the Warrant Price or the number and kind of Securities purchasable
upon the exercise of this Warrant.

     (i) Escrow of Warrant Stock. If after any property becomes distributable pursuant to
this Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to
the occurrence of the event for which such record is taken, and the Holder exercises this Warrant,
any shares of Common Stock issuable upon exercise by reason of such adjustment shall be deemed the
last shares of Common Stock for which this Warrant is exercised (notwithstanding any other
provision to the contrary herein) and such shares or other property shall be held in escrow for the
Holder by the Issuer to be issued to the Holder upon and to the extent that the event actually
takes place, upon payment of the current Warrant Price. Notwithstanding any other provision to the
contrary herein, if the event for which such record was taken fails to occur or is rescinded, then
such escrowed shares shall be cancelled by the Issuer and escrowed property returned.

     5. Notice of Adjustments; Dispute Resolution. Whenever the Warrant Price or Warrant
Share Number shall be adjusted pursuant to Section 4 hereof (for purposes of this Section 5, each
an “adjustment”), the Issuer shall cause its Chief Financial Officer to prepare and execute
a certificate setting forth, in reasonable detail, the event requiring the adjustment, the amount
of the adjustment, the method by which such adjustment was calculated (including a description of
the basis on which the Board made any determination hereunder), and the Warrant Price and Warrant
Share Number after giving effect to such adjustment, and shall cause copies of such certificate to
be delivered to the Holder of this Warrant promptly after each adjustment. Any dispute between the
Issuer and the Holder of this Warrant with respect to the matters set forth in such certificate may
at the option of the Holder of this Warrant be submitted to a national or regional accounting firm
reasonably acceptable to the Issuer and the Holder, provided that the Issuer shall have
three (3) business days after receipt of notice from such Holder of its selection of such firm to
object thereto, in which case such Holder shall select another such firm and the Issuer shall have
no such right of objection. The firm selected by the Holder of this Warrant as provided in the
preceding sentence shall be instructed to deliver a written opinion as to such matters to the
Issuer and such Holder within ten (10) days after submission to it of such dispute. Such opinion
shall be final and binding on the parties hereto. The costs and expenses of the initial accounting
firm shall be paid equally by the Issuer and the Holder and, in the case of an objection by the
Issuer, the costs and expenses of the subsequent accounting firm shall be paid in full by the
Issuer. Notwithstanding the foregoing to the contrary, the Issuer shall cause its transfer agent
to promptly issue to the Holder the number of shares of Warrant Stock that is not disputed in
accordance with the terms of this Section 5.

-13-

 

     6. Fractional Shares. No fractional shares of Warrant Stock will be issued in
connection with any exercise hereof, but in lieu of such fractional shares, the Issuer shall round
the number of shares to be issued upon exercise up to the nearest whole number of shares.

     7. Ownership Cap and Exercise Restriction. Notwithstanding anything to the contrary
set forth in this Warrant, at no time may a Holder of this Warrant exercise this Warrant if the
number of shares of Common Stock to be issued pursuant to such exercise would exceed, when
aggregated with all other shares of Common Stock owned by such Holder and its affiliates at such
time, the number of shares of Common Stock which would result in such Holder and its affiliates
beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the
rules thereunder) in excess of 4.99% of the then issued and outstanding shares of Common Stock;
provided, however, that upon a holder of this Warrant providing the Issuer with
sixty-one (61) days notice (pursuant to Section 13 hereof) (the “Waiver Notice”) that such
Holder would like to waive this Section 7 with regard to any or all shares of Common Stock issuable
upon exercise of this Warrant, this Section 7 will be of no force or effect with regard to all or a
portion of the Warrant referenced in the Waiver Notice; provided, further, that
this provision shall be of no further force or effect during the sixty-one (61) days immediately
preceding the expiration of the term of this Warrant.

     8. Registration Rights. The Holder of this Warrant is entitled to the benefit of
certain registration rights with respect to the shares of Warrant Stock issuable upon the exercise
of this Warrant pursuant to that certain Registration Rights Agreement, of even date herewith, by
and among the Issuer and Persons listed on Schedule I thereto (the “Registration Rights
Agreement”) and the registration rights with respect to the shares of Warrant Stock issuable
upon the exercise of this Warrant by any subsequent Holder may only be assigned in accordance with
the terms and provisions of the Registrations Rights Agreement.

     9. Definitions. For the purposes of this Warrant, the following terms have the
following meanings:

     “Additional Shares of Common Stock” means all shares of Common Stock issued by
the Issuer after the Original Issue Date, and all shares of Other Common, if any, issued by
the Issuer after the Original Issue Date, except: (i) securities issued (other than for
cash) in connection with a merger, acquisition, or consolidation, (ii) securities issued
pursuant to the conversion or exercise of convertible or exercisable securities issued or
outstanding on or prior to the Original Issue Date (so long as the conversion or exercise
price in such securities are not amended to lower such price and/or adversely affect the
Holders), (iii) the Warrant Stock, (iv) securities issued in connection with bona fide
strategic license agreements or other partnering arrangements so long as such issuances are
not for the purpose of raising capital, (v) Common Stock issued or the issuance or grants of
options to purchase Common Stock pursuant to the Issuer’s stock option plans and employee
stock purchase plans outstanding as they exist on the date of the Purchase Agreement, (vi)
securities issued as payment of dividends on the Series D Convertible Preferred Stock issued
pursuant to the Purchase Agreement, and (vii) any warrants issued to the placement agent and
its designees for the transactions contemplated by the Purchase Agreement.

-14-

 

     “Board” shall mean the Board of Directors of the Issuer.

     “Capital Stock” means and includes (i) any and all shares, interests,
participations or other equivalents of or interests in (however designated) corporate stock,
including, without limitation, shares of preferred or preference stock, (ii) all partnership
interests (whether general or limited) in any Person which is a partnership, (iii) all
membership interests or limited liability company interests in any limited liability
company, and (iv) all equity or ownership interests in any Person of any other type.

     “Certificate of Incorporation” means the Certificate of Incorporation of the
Issuer as in effect on the Original Issue Date, and as hereafter from time to time amended,
modified, supplemented or restated in accordance with the terms hereof and thereof and
pursuant to applicable law.

     “Common Stock” means the Class A Common Stock, $0.01 par value per share, of
the Issuer and any other Capital Stock into which such stock may hereafter be changed.

     “Common Stock Equivalent” means any Convertible Security (including the Class B
Common Stock) or warrant, option or other right to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Security.

     “Convertible Securities” means evidences of Indebtedness, shares of Capital
Stock or other Securities which are or may be at any time convertible into or exchangeable
for Additional Shares of Common Stock. The term “Convertible Security” means one of the
Convertible Securities.

     “Governmental Authority” means any governmental, regulatory or self-regulatory
entity, department, body, official, authority, commission, board, agency or instrumentality,
whether federal, state or local, and whether domestic or foreign.

     “Holders” mean the Persons who shall from time to time own any Warrant. The
term “Holder” means one of the Holders.

     “Independent Appraiser” means a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants of recognized
standing (which may be the firm that regularly examines the financial statements of the
Issuer) that is regularly engaged in the business of appraising the Capital Stock or assets
of corporations or other entities as going concerns, and which is not affiliated with either
the Issuer or the Holder of any Warrant.

     “Issuer” means Advanced Environmental Recycling Technologies, Inc., a Delaware
corporation, and its successors.

     “Majority Holders” means at any time the Holders of Warrants exercisable for a
majority of the shares of Warrant Stock issuable under the Warrants at the time outstanding.

-15-

 

     “Nasdaq” means the Nasdaq Capital Market.

     “Original Issue Date” means October 29, 2007.

     “OTC Bulletin Board” means the over-the-counter electronic bulletin board.

     “Other Common” means any other Capital Stock of the Issuer of any class which
shall be authorized at any time after the date of this Warrant (other than Common Stock) and
which shall have the right to participate in the distribution of earnings and assets of the
Issuer without limitation as to amount.

     “Outstanding Common Stock” means, at any given time, the aggregate amount of
outstanding shares of Common Stock, assuming full exercise, conversion or exchange (as
applicable) of all options, warrants and other Securities which are convertible into or
exercisable or exchangeable for, and any right to subscribe for, shares of Common Stock that
are outstanding at such time.

     “Person” means an individual, corporation, limited liability company,
partnership, joint stock company, trust, unincorporated organization, joint venture,
Governmental Authority or other entity of whatever nature.

     “Per Share Market Value” means on any particular date (a) the closing bid price
per share of the Common Stock on such date on Nasdaq or another registered national stock
exchange on which the Common Stock is then listed, or if there is no such price on such
date, then the closing bid price on such exchange or quotation system on the date nearest
preceding such date, or (b) if the Common Stock is not listed then on Nasdaq or any
registered national stock exchange, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by the OTC Bulletin Board or in the National Quotation
Bureau Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the Common Stock is not
then reported by the OTC Bulletin Board or the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices), then the
average of the “Pink Sheet” quotes for the five days preceding such date of determination,
or (d) if the Common Stock is not then publicly traded the fair market value of a share of
Common Stock as determined by an Independent Appraiser selected in good faith by the
Majority Holders; provided, however, that the Issuer, after receipt of the
determination by such Independent Appraiser, shall have the right to select an additional
Independent Appraiser, in which case, the fair market value shall be equal to the average of
the determinations by each such Independent Appraiser; and provided, further
that all determinations of the Per Share Market Value shall be appropriately adjusted for
any stock dividends, stock splits or other similar transactions during such period. The
determination of fair market value by an Independent Appraiser shall be based upon the fair
market value of the Issuer determined on a going concern basis as between a willing buyer
and a willing seller and taking into account all relevant factors determinative of value,
and shall be final and binding on all parties. In determining the fair market value of any
shares of Common Stock, no consideration shall

-16-

 

be given to any restrictions on transfer of the Common Stock imposed by agreement or by
federal or state securities laws, or to the existence or absence of, or any limitations on,
voting rights.

     “Purchase Agreement” means the Series D Convertible Preferred Stock Purchase
Agreement dated as of October 29, 2007, among the Issuer and the Purchasers.

     “Purchasers” means the purchasers of the Series D Convertible Preferred Stock
and the Warrants issued by the Issuer pursuant to the Purchase Agreement.

     “Securities” means any debt or equity securities of the Issuer, whether now or
hereafter authorized, any instrument convertible into or exchangeable for Securities or a
Security, and any option, warrant or other right to purchase or acquire any Security.
“Security” means one of the Securities.

     “Securities Act” means the Securities Act of 1933, as amended, or any similar
federal statute then in effect.

     “Subsidiary” means any corporation at least 50% of whose outstanding Voting
Stock shall at the time be owned directly or indirectly by the Issuer or by one or more of
its Subsidiaries, or by the Issuer and one or more of its Subsidiaries.

     “Term” has the meaning specified in Section 1 hereof.

     “Trading Day” means (a) a day on which the Common Stock is traded on Nasdaq, or
(b) if the Common Stock is not listed on Nasdaq, a day on which the Common Stock is traded
on any other registered national stock exchange, or (c) if the Common Stock is not traded on
any other registered national stock exchange, a day on which the Common Stock is traded on
the OTC Bulletin Board, or (d) if the Common Stock is not traded on the OTC Bulletin Board,
a day on which the Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices); provided, however, that in the event that
the Common Stock is not listed or quoted as set forth in (a), (b), (c) or (d) hereof, then
Trading Day shall mean any day except Saturday, Sunday and any day which shall be a legal
holiday or a day on which banking institutions in the State of New York are authorized or
required by law or other government action to close.

     “Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the American Stock Exchange,
the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange or the OTC Bulletin Board.

     “Voting Stock” means, as applied to the Capital Stock of any corporation,
Capital Stock of any class or classes (however designated) having ordinary voting power for
the election of a majority of the members of the Board (or other governing body) of such
corporation, other than Capital Stock having such power only by reason of the happening
of a contingency.

-17-

 

     “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 quoted for trading on
the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink
Sheets” published by Pink Sheets, LLC (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 Majority Holders and
reasonably acceptable to the Company.

     “Warrants” means the Warrants issued and sold pursuant to the Purchase
Agreement, including, without limitation, this Warrant, and any other warrants of like tenor
issued in substitution or exchange for any thereof pursuant to the provisions of Section
2(c), 2(d) or 2(e) hereof or of any of such other Warrants.

     “Warrant Price” initially means $1.38, as such price may be adjusted from time
to time as shall result from the adjustments specified in this Warrant, including Section 4
hereto.

     “Warrant Share Number” means at any time the aggregate number of shares of
Warrant Stock which may at such time be purchased upon exercise of this Warrant, after
giving effect to all prior adjustments and increases to such number made or required to be
made under the terms hereof.

     “Warrant Stock” means Common Stock issuable upon exercise of any Warrant or
Warrants or otherwise issuable pursuant to any Warrant or Warrants.

     10. Other Notices. In case at any time:

	 	(A)	 	the Issuer shall make any
distributions to the holders of Common Stock; or
	 
	 	(B)	 	the Issuer shall authorize the
granting to all holders of its Common Stock of rights to
subscribe for or purchase any shares of Capital Stock of any
class or other rights; or
	 
	 	(C)	 	there shall be any
reclassification of the Capital Stock of the Issuer; or

-18-

 

	 	(D)	 	there shall be any capital
reorganization by the Issuer; or
	 
	 	(E)	 	there shall be any (i)
consolidation or merger involving the Issuer or (ii) sale,
transfer or other disposition of all or substantially all of the
Issuer’s property, assets or business (except a merger or other
reorganization in which the Issuer shall be the surviving
corporation and its shares of Capital Stock shall continue to be
outstanding and unchanged and except a consolidation, merger,
sale, transfer or other disposition involving a wholly-owned
Subsidiary); or
	 
	 	(F)	 	there shall be a voluntary or
involuntary dissolution, liquidation or winding-up of the Issuer
or any partial liquidation of the Issuer or distribution to
holders of Common Stock;

then, in each of such cases, the Issuer shall give written notice to the Holder of the date on
which (i) the books of the Issuer shall close or a record shall be taken for such dividend,
distribution or subscription rights or (ii) such reorganization, reclassification, consolidation,
merger, disposition, dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also shall specify the date as of which the holders of Common Stock of record shall
participate in such dividend, distribution or subscription rights, or shall be entitled to exchange
their certificates for Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or
winding-up, as the case may be. Such notice shall be given at least twenty (20) days prior to the
action in question and not less than ten (10) days prior to the record date or the date on which
the Issuer’s transfer books are closed in respect thereto. This Warrant entitles the Holder to
receive copies of all financial and other information distributed or required to be distributed to
the holders of the Common Stock.

     11. Amendment and Waiver. Any term, covenant, agreement or condition in this Warrant
may be amended, or compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively), by a written instrument or written instruments executed
by the Issuer and at least sixty-six and two-thirds percent (662/3%) of the Warrants then
outstanding; provided, however, that no such amendment or waiver shall reduce the
Warrant Share Number, increase the Warrant Price, shorten the period during which this Warrant may
be exercised or modify any provision of this Section 11 without the consent of the Holder of this
Warrant. No consideration shall be offered or paid to any person to amend or consent to a waiver
or modification of any provision of this Warrant unless the same consideration is also offered to
all holders of the Warrants.

     12. Governing Law; Jurisdiction. This Warrant shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving effect to any of the
conflicts of law principles which would result in the application of the substantive law of another
jurisdiction. This Warrant shall not be interpreted or construed with any presumption against the
party causing this Warrant to be drafted. The Issuer and the Holder agree that venue for any

-19-

 

dispute arising under this Warrant will lie exclusively in the state or federal courts located
in New York County, New York, and the parties irrevocably waive any right to raise forum non
conveniens or any other argument that New York is not the proper venue. The Issuer and the Holder
irrevocably consent to personal jurisdiction in the state and federal courts of the state of New
York. The Issuer and the Holder consent to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for notices to it under
this Warrant and agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing in this Section 12 shall affect or limit any right to serve process in
any other manner permitted by law. The Issuer and the Holder hereby agree that the prevailing
party in any suit, action or proceeding arising out of or relating to this Warrant or the Purchase
Agreement, shall be entitled to reimbursement for reasonable legal fees from the non-prevailing
party. The parties hereby waive all rights to a trial by jury.

     13. Notices. Any notice, demand, request, waiver or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery
by telecopy, e-mail or facsimile at the address or number designated below (if delivered on a
business day during normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second business day following the
date of mailing by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for such communications
shall be:

	 	 	 
	If to the Issuer:

	 	Advanced Environmental Recycling Technologies, Inc.
	 

	 	914 N Jefferson Street
	 

	 	Post Office Box 1237
	 

	 	Springdale, Arkansas 72765
	 

	 	Attention: Chief Executive Officer
	 

	 	Tel. No.: (479) 756-7400
	 

	 	Fax No.: (479) 756-7410
	 
	 	 
	with copies (which copies 

shall not constitute notice) 

to:

	 	Akin
Gump Strauss Hauer & Feld LLP
	 

	 	300 Convent Street
	 

	 	Suite 1500
	 

	 	San Antonio, Texas 78205-3732
	 

	 	Attention: J. Patrick Ryan
	 

	 	Tel. No.: (210) 281-7232
	 

	 	Fax No.: (210) 224-2035
	 
	 	 
	If to any Holder:

	 	At the address of such Holder set forth on Exhibit A to the Purchase Agreement or as specified in
writing by such Holder with copies to:

-20-

 

	 	 	 
	with copies (which copies 

shall not constitute notice) 

to:

	 	Kramer Levin Naftalis & Frankel LLP
	 

	 	1177 Avenue of the Americas
	 

	 	New York, New York 10036
	 

	 	Attention: Christopher S. Auguste
	 

	 	Tel. No.: (212) 715-9100
	 

	 	Fax No.: (212) 715-8000

     Any party hereto may from time to time change its address for notices by giving written notice
of such changed address to the other party hereto.

     14. Warrant Agent. The Issuer may, by written notice to each Holder of this Warrant,
appoint an agent having an office in New York, New York for the purpose of issuing shares of
Warrant Stock on the exercise of this Warrant pursuant to subsection (b) of Section 2 hereof,
exchanging this Warrant pursuant to subsection (d) of Section 2 hereof or replacing this Warrant
pursuant to subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.

     15. Remedies. The Issuer stipulates that the remedies at law of the Holder of this
Warrant in the event of any default or threatened default by the Issuer in the performance of or
compliance with any of the terms of this Warrant are not and will not be adequate and that, to the
fullest extent permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction against a violation of
any of the terms hereof or otherwise.

     16. Successors and Assigns. This Warrant and the rights evidenced hereby shall inure
to the benefit of and be binding upon the successors and assigns of the Issuer, the Holder hereof
and (to the extent provided herein) the Holders of Warrant Stock issued pursuant hereto, and shall
be enforceable by any such Holder or Holder of Warrant Stock.

     17. Modification and Severability. If, in any action before any court or agency
legally empowered to enforce any provision contained herein, any provision hereof is found to be
unenforceable, then such provision shall be deemed modified to the extent necessary to make it
enforceable by such court or agency. If any such provision is not enforceable as set forth in the
preceding sentence, the unenforceability of such provision shall not affect the other provisions of
this Warrant, but this Warrant shall be construed as if such unenforceable provision had never been
contained herein.

     18. Headings. The headings of the Sections of this Warrant are for convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

-21-

 

     IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day and year first above
written.

	 	 	 	 	 
	 	ADVANCED ENVIRONMENTAL RECYCLING

TECHNOLOGIES, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

-22-

 

EXERCISE FORM

WARRANT

ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.

     The undersigned                     , pursuant to the provisions of the within Warrant, hereby elects to
purchase                     shares of Common Stock of Advanced Environmental Recycling Technologies, Inc.
covered by the within Warrant.

	 	 	 	 	 	 	 	 	 	 	 
	Dated:

	 	 
 

	 	 
	 	Signature
	 	 
 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Address	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 

Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on
the date of Exercise:                                         

The undersigned is an “accredited investor” as defined in Regulation D under the Securities Act of
1933, as amended.

The undersigned intends that payment of the Warrant Price shall be made as (check one):

     Cash Exercise                    

     Cashless Exercise                    

If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $                     by certified
or official bank check (or via wire transfer) to the Issuer in accordance with the terms of the
Warrant.

If the Holder has elected a Cashless Exercise, a certificate shall be issued to the Holder for the
number of shares equal to the whole number portion of the product of the calculation set forth
below, which is                     . The Issuer shall pay a cash adjustment in respect of the fractional
portion of the product of the calculation set forth below in an amount equal to the product of the
fractional portion of such product and the Per Share Market Value on the date of exercise, which
product is                     .

	 	 	 	 	 
	 

	 	X =
	 	Y - (A)(Y) 
	 

	 	 	 	          B

Where:

The number of shares of Common Stock to be issued to the Holder                                         (“X”).

The number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a
portion of the Warrant is being exercised, the portion of the Warrant being exercised

-23-

 

                                                             (“Y”).

The Warrant Price                                          (“A”).

The Per Share Market Value of one share of Common Stock                                          (“B”).

ASSIGNMENT

FOR VALUE RECEIVED,                                          hereby sells, assigns and transfers unto             
                            
the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint
                                        , attorney, to transfer the said Warrant on the books of the within named corporation.

	 	 	 	 	 	 	 	 	 	 	 
	Dated:
	 	 
 

	 	 
	 	Signature

Address
	 	 
 

	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 

PARTIAL ASSIGNMENT

FOR VALUE RECEIVED,       
                                   hereby sells, assigns and transfers unto                  
                       
the right to purchase                     
shares of Warrant Stock evidenced by the within Warrant together
with all rights therein, and does irrevocably constitute and appoint                                         , attorney,
to transfer that part of the said Warrant on the books of the within named corporation.

	 	 	 	 	 	 	 	 	 	 	 
	Dated:
	 	 
 

	 	 
	 	Signature

Address
	 	 
 

	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 

FOR USE BY THE ISSUER ONLY:

This Warrant No. W-___canceled (or transferred or exchanged) this                      day of                     ,              
       ,
shares of Common Stock issued therefor in the name of                     , Warrant No. W-___issued
for ___shares of Common Stock in the name of                     .

-24-exv4w4

 

Exhibit 4.4

REGISTRATION RIGHTS AGREEMENT

          This Registration Rights Agreement (this “Agreement”) is made and entered into as of
October 29, 2007, by and among Advanced Environmental Recycling Technologies, Inc., a Delaware
corporation (the “Company”), and the purchasers listed on Schedule I hereto (the
“Purchasers”).

          This Agreement is being entered into pursuant to the Series D Convertible Preferred Stock
Purchase Agreement dated as of the date hereof among the Company and the Purchasers (the
“Purchase Agreement”).

          The Company and the Purchasers hereby agree as follows:

     1. Definitions.

          Capitalized terms used and not otherwise defined herein shall have the meanings given such
terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the
following meanings:

          “Advice” shall have meaning set forth in Section 3(m).

          “Affiliate” means, with respect to any Person, any other Person which directly or
indirectly through one or more intermediaries Controls, is controlled by, or is under common
control with, such Person. For the avoidance of doubt, with respect to a Purchaser which is a
general or limited partnership, an Affiliate shall be deemed to include affiliated partnerships
managed by the same management company or managing general partner or by an entity which controls,
is controlled by, or is under common control with, such management company or managing general
partner.

          “Board” shall have meaning set forth in Section 3(n).

          “Business Day” means any day except Saturday, Sunday and any day which shall be a
legal holiday or a day on which banking institutions in the state of New York generally are
authorized or required by law or other government actions to close.

          “Closing Date” means the date of the closing of the purchase and sale of the Preferred
Stock and the Warrants pursuant to the Purchase Agreement.

          “Commission” means the Securities and Exchange Commission.

          “Common Stock” means the Company’s Class A Common Stock, par value $0.01 per share.

          “Control” (including the terms “controlling”, “controlled by” or “under common control
with”) means the possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.

 

 

          “Effectiveness Date” means, subject to Section 2(b) hereof, with respect to the
Registration Statement the earlier of (A) the one hundred twentieth (120th) day
following the Closing Date or (B) the date which is within three (3) Business Days after the date
on which the Commission informs the Company (i) that the Commission will not review the
Registration Statement or (ii) that the Company may request the acceleration of the effectiveness
of the Registration Statement and the Company makes such request; provided that, if
the Effectiveness Date falls on a Saturday, Sunday or any other day which shall be a legal holiday
or a day on which the Commission is authorized or required by law or other government actions to
close, the Effectiveness Date shall be the following Business Day.

          “Effectiveness Period” shall have the meaning set forth in Section 2.

          “Event” shall have the meaning set forth in Section 7(e).

          “Event Date” shall have the meaning set forth in Section 7(e).

          “Exchange Act” means the Securities Exchange Act of 1934, as amended.

          “Filing Date” means, subject to Section 2(b) hereof, the thirtieth (30th)
day following the Closing Date; provided that, if the Filing Date falls on a
Saturday, Sunday or any other day which shall be a legal holiday or a day on which the Commission
is authorized or required by law or other government actions to close, the Filing Date shall be the
following Business Day.

          “Holder” or “Holders” means the holder or holders, as the case may be, from
time to time of Registrable Securities.

          “Indemnified Party” shall have the meaning set forth in Section 5(c).

          “Indemnifying Party” shall have the meaning set forth in Section 5(c).

          “Losses” shall have the meaning set forth in Section 5(a).

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

          “Preferred Stock” means shares of the Company’s Series D Convertible Preferred Stock
issued to the Purchasers pursuant to the Purchase Agreement.

          “Proceeding” means an action, claim, suit, investigation or proceeding (including,
without limitation, an investigation or partial proceeding, such as a deposition), whether
commenced or threatened.

          “Prospectus” means the prospectus included in the Registration Statement (including,
without limitation, a prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A promulgated under
the Securities Act), as amended or supplemented by any prospectus

2

 

supplement, with respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated by reference in such
Prospectus.

          “Registrable Securities” means (A) the shares of Common Stock issuable upon conversion
of the Preferred Stock, (B) the shares of Common Stock payable as dividends on the Preferred Stock
in an amount equal to twenty percent (20%) of the aggregate number of shares of Common Stock
issuable upon conversion of the Preferred Stock, and (C) the shares of Common Stock issuable upon
exercise of the Warrants.

          “Registration Statement” means the registration statements and any additional
registration statements contemplated by Section 2, including (in each case) the Prospectus,
amendments and supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated by reference in such
registration statement.

          “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.

          “Rule 158” means Rule 158 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.

          “Rule 415” means Rule 415 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.

          “Rule 424” means Rule 424 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.

          “Securities Act” means the Securities Act of 1933, as amended.

          “Selling Stockholder Questionnaire” means a questionnaire in the form attached as
Exhibit B hereto, or such other form of questionnaire as may reasonably be adopted by the
Company from time to time.

          “Special Counsel” means Kramer Levin Naftalis & Frankel LLP, for which the Holders
will be reimbursed by the Company pursuant to Section 4.

          “Warrants” means the warrants to purchase shares of Common Stock issued to the
Purchasers pursuant to the Purchase Agreement.

     2. Resale Registration.

3

 

          (a) On or prior to the Filing Date, the Company shall prepare and file with the Commission a
“resale” Registration Statement providing for the resale of all Registrable Securities for an
offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall
be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable
Securities on Form S-3, in which case such registration shall be on another appropriate form in
accordance herewith and with the Securities Act and the rules promulgated thereunder). Such
Registration Statement shall cover to the extent allowable under the Securities Act and the rules
promulgated thereunder (including Rule 416), such indeterminate number of additional shares of
Common Stock resulting from stock splits, stock dividends or similar transactions with respect to
the Registrable Securities. The Company shall (i) not permit any securities other than the
Registrable Securities and the securities listed on Schedule II hereto to be included in
the Registration Statement and (ii) use its best efforts to cause the Registration Statement to be
declared effective under the Securities Act as promptly as possible after the filing thereof, but
in any event prior to the Effectiveness Date, and to keep such Registration Statement continuously
effective under the Securities Act until such date as is the earlier of (x) the date when all
Registrable Securities covered by such Registration Statement have been sold or (y) the date on
which the Registrable Securities may be sold without any restriction pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion letter, addressed to the
Company’s transfer agent to such effect (the “Effectiveness Period”). The Company shall
request that the effective time of the Registration Statement be 4:00 p.m. Eastern Time on the
effective date. If at any time and for any reason, an additional Registration Statement is
required to be filed because at such time the actual number of shares of Common Stock into which
the Preferred Stock is convertible and the Warrants are exercisable plus the number of shares of
Common Stock exceeds the number of shares of Registrable Securities remaining under the
Registration Statement, the Company shall have twenty (20) Business Days to file such additional
Registration Statement, and the Company shall use its best efforts to cause such additional
Registration Statement to be declared effective by the Commission as soon as possible, but in no
event later than sixty (60) days after filing.

          (b) Notwithstanding anything to the contrary set forth in this Section 2, in the event the
Commission does not permit the Company to register all of the Registrable Securities in the
Registration Statement because of the Commission’s application of Rule 415 or the Commission
requires the Company to either exclude shares held by certain Holders or deem such Holders to be
underwriters with respect to their Registrable Securities, the Company shall register in the
Registration Statement such number of Registrable Securities as is permitted by the Commission
without naming such Holder as an underwriter (unless such Holder agrees to be named as an
underwriter), provided, however, that the number of Registrable Securities to be
included in such Registration Statement or any subsequent registration statement shall be
determined in the following order: (i) first, the shares of Common Stock issuable upon conversion
of the Preferred Stock shall be registered on a pro rata basis among the holders of the Preferred
Stock, (ii) second, the shares of Common Stock issuable as dividend payments on the Preferred Stock
shall be registered on a pro rata basis among the holders of the Preferred Stock, (iii) third, the
shares of Common Stock issuable upon exercise of the Warrants shall be registered on a pro rata
basis among the holders of the Warrants, and (iv) fourth, any shares listed on Schedule II
hereto shall be registered on a pro rata basis among the holders of such shares. In the event the
Commission does not permit the Company to register all of the Registrable Securities in the initial
Registration Statement, then except as the Holders of such excluded Registrable Securities may
otherwise agree, the Company shall use its best efforts to file subsequent

4

 

Registration Statements to register the Registrable Securities that were not registered in the
initial Registration Statement, as promptly as possible and in a manner permitted by the
Commission. For purposes of this Section 2(b), “Effectiveness Date” means with respect to each
subsequent Registration Statement filed pursuant hereto, the earlier of (A) the nintieth
(90th) day following the filing date of such Registration Statement (or in the event
such Registration Statement receives a “full review” by the Commission, the one hundred twentieth
(120th) day following such filing date) or (B) the date which is within three (3)
Business Days after the date on which the Commission informs the Company (i) that the Commission
will not review such Registration Statement or (ii) that the Company may request the acceleration
of the effectiveness of such Registration Statement and the Company makes such request;
provided that, if the Effectiveness Date falls on a Saturday, Sunday or any other
day which shall be a legal holiday or a day on which the Commission is authorized or required by
law or other government actions to close, the Effectiveness Date shall be the following Business
Day.

          (c) Each Holder agrees to furnish to the Company a completed Selling Stockholder Questionnaire
not more than fifteen (15) Trading Days following the date of this Agreement. Each Holder further
agrees that it shall not be entitled to be named as a selling security holder in the Registration
Statement or use the Prospectus for offers and resales of Registrable Securities at any time,
unless such Holder has returned to the Company a completed and signed Selling Stockholder
Questionnaire. If a Holder of Registrable Securities returns a Selling Stockholder Questionnaire
after the deadline specified in the previous sentence, the Company shall use its commercially
reasonable efforts to take such actions as are required to name such Holder as a selling security
holder in the Registration Statement or any pre-effective or post-effective amendment thereto and
to include (to the extent not theretofore included) in the Registration Statement the Registrable
Securities identified in such late Selling Stockholder Questionnaire; provided that the Company
shall not be required to file an additional Registration Statement solely for such shares. Each
Holder acknowledges and agrees that the information in the Selling Stockholder Questionnaire will
be used by the Company in the preparation of the Registration Statement and hereby consents to the
inclusion of such information in the Registration Statement.

     3. Registration Procedures.

          In connection with the Company’s registration obligations hereunder, the Company shall:

          (a) Prepare and file with the Commission, on or prior to the Filing Date, a Registration
Statement on Form S-3 (or if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3 such registration shall be on another appropriate form in
accordance herewith and with the Securities Act and the rules promulgated thereunder) in accordance
with the plan of distribution as set forth on Exhibit A hereto and in accordance with
applicable law, regulations and Commission policies, and cause the Registration Statement to become
effective and remain effective as provided herein; provided, however, that not less
than three (3) Business Days prior to the filing of the Registration Statement or any related
Prospectus or any amendment or supplement thereto, the Company shall (i) furnish to the Holders and
any Special Counsel, copies of all such documents proposed to be filed, which documents will be
subject to the review of such Holders and such Special Counsel, and (ii) cause its officers and
directors, counsel and independent certified public accountants to respond to such inquiries as

5

 

shall be necessary, in the reasonable opinion of Special Counsel, to conduct a reasonable review of
such documents. The Company shall not file the Registration Statement or any such Prospectus or
any amendments or supplements thereto to which the Holders of a majority of the Registrable
Securities or any Special Counsel shall reasonably object in writing within three (3) Business Days
of their receipt thereof.

          (b) (i) Prepare and file with the Commission such amendments, including post-effective
amendments, to the Registration Statement as may be necessary to keep the Registration Statement
continuously effective as to the applicable Registrable Securities for the Effectiveness Period and
prepare and file with the Commission such additional Registration Statements in order to register
for resale under the Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424 (or any similar provisions then in force)
promulgated under the Securities Act; (iii) respond as promptly as possible, but in no event later
than ten (10) Business Days, to any comments received from the Commission with respect to the
Registration Statement or any amendment thereto and as promptly as possible provide the Holders
true and complete copies of all correspondence from and to the Commission relating to the
Registration Statement; (iv) file the final prospectus pursuant to Rule 424 of the Securities Act
no later than 9:00 a.m. Eastern Time on the Business Day following the date the Registration
Statement is declared effective by the Commission; and (v) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the Effectiveness Period in
accordance with the intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.

          (c) Notify the Holders of Registrable Securities and any Special Counsel as promptly as
possible (and, in the case of (i)(A) below, not less than three (3) days prior to such filing, and
in the case of (iii) below, on the same day of receipt by the Company of such notice from the
Commission) and (if requested by any such Person) confirm such notice in writing no later than two
(2) Business Days following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is filed; (B) when the Commission notifies
the Company whether there will be a “review” of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement and (C) with respect to the
Registration Statement or any post-effective amendment, when the same has become effective; (ii) of
any request by the Commission or any other Federal or state governmental authority for amendments
or supplements to the Registration Statement or Prospectus or for additional information; (iii) of
the issuance by the Commission of any stop order suspending the effectiveness of the Registration
Statement covering any or all of the Registrable Securities or the initiation or threatening of any
Proceedings for that purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement contemplated hereby ceases to be true and correct in all
material respects; (v) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for
such purpose; and (vi) of the occurrence of any event that makes any statement made in the
Registration Statement or Prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other

6

 

documents so that, in the case of the Registration Statement or the Prospectus, as the case
may be, it will not contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

          (d) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of, as
promptly as possible, (i) any order suspending the effectiveness of the Registration Statement or
(ii) any suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction.

          (e) If requested by the Holders of a majority in interest of the Registrable Securities, (i)
promptly incorporate in a Prospectus supplement or post-effective amendment to the Registration
Statement such information as the Company reasonably agrees should be included therein and (ii)
make all required filings of such Prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received notification of the matters to be incorporated in such
Prospectus supplement or post-effective amendment.

          (f) If requested by any Holder, furnish to such Holder and any Special Counsel, without
charge, at least one conformed copy of each Registration Statement and each amendment thereto,
including financial statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by such Person
(including those previously furnished or incorporated by reference) promptly after the filing of
such documents with the Commission.

          (g) Promptly deliver to each Holder and any Special Counsel, without charge, as many copies of
the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement
thereto as such Persons may reasonably request; and subject to the provisions of Sections 3(m) and
3(n), the Company hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders in connection with the offering and sale of the Registrable
Securities covered by such Prospectus and any amendment or supplement thereto.

          (h) Prior to any public offering of Registrable Securities, use its best efforts to register
or qualify or cooperate with the selling Holders and any Special Counsel in connection with the
registration or qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder requests in writing, to keep each such
registration or qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a Registration Statement; provided,
however, that the Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action that would subject it to
general service of process in any such jurisdiction where it is not then so subject or subject the
Company to any material tax in any such jurisdiction where it is not then so subject.

          (i) Cooperate with the Holders to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold pursuant to a Registration Statement,
which certificates, to the extent permitted by the Purchase Agreement and applicable

7

 

federal and state securities laws, shall be free of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names as any Holder may
request in connection with any sale of Registrable Securities.

          (j) Upon the occurrence of any event contemplated by Section 3(c)(vi), as promptly as
possible, prepare a supplement or amendment, including a post-effective amendment, to the
Registration Statement or a supplement to the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus will contain an untrue
statement of a material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances under which they were
made, not misleading.

          (k) Use its best efforts to cause all Registrable Securities relating to the Registration
Statement to be listed on the Nasdaq Capital Market or any other securities exchange, quotation
system or market, if any, on which similar securities issued by the Company are then listed or
traded as and when required pursuant to the Purchase Agreement.

          (l) Comply in all material respects with all applicable rules and regulations of the
Commission and make generally available to its security holders all documents filed or required to
be filed with the Commission, including, but not limited, to, earning statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 not later than 90 days after the end
of any 12-month period if such period is a fiscal year commencing on the first day of the first
fiscal quarter of the Company after the effective date of the Registration Statement, which
statement shall conform to the requirements of Rule 158.

          (m) The Company may require each selling Holder to furnish to the Company information
regarding such Holder and the distribution of such Registrable Securities as is required by law to
be disclosed in the Registration Statement, Prospectus, or any amendment or supplement thereto, and
the Company may exclude from such registration the Registrable Securities of any such Holder who
unreasonably fails to furnish such information within a reasonable time after receiving such
request.

          If the Registration Statement refers to any Holder by name or otherwise as the holder of any
securities of the Company, then such Holder shall have the right to require (if such reference to
such Holder by name or otherwise is not required by the Securities Act or any similar federal or
applicable state law then in force) the deletion of the reference to such Holder in any amendment
or supplement to the Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.

          Each Holder covenants and agrees that it will not sell any Registrable Securities under the
Registration Statement until the Company has electronically filed the Prospectus as then amended or
supplemented as contemplated in Section 3(g) and notice from the Company that such Registration
Statement and any post-effective amendments thereto have become effective as contemplated by
Section 3(c).

          Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a
notice from the Company of the occurrence of any event of the kind described in

8

 

Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v), 3(c)(vi) or 3(n), such Holder will forthwith
discontinue disposition of such Registrable Securities under the Registration Statement until such
Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(j), or until it is advised in writing (the “Advice”) by the
Company that the use of the applicable Prospectus may be resumed, and, in either case, has received
copies of any additional or supplemental filings that are incorporated or deemed to be incorporated
by reference in such Prospectus or Registration Statement.

          (n) If (i) there is material non-public information regarding the Company which the Company’s
Board of Directors (the “Board”) determines not to be in the Company’s best interest to
disclose and which the Company is not otherwise required to disclose, (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or disposition of assets
(other than in the ordinary course of business) or any merger, consolidation, tender offer or other
similar transaction) available to the Company which the Board determines not to be in the Company’s
best interest to disclose, or (iii) the Company is required to file a post-effective amendment to
the Registration Statement to incorporate the Company’s quarterly and annual reports and audited
financial statements on Forms 10-Q and 10-K, then the Company may (x) postpone or suspend filing of
a registration statement for a period not to exceed thirty (30) consecutive days or (y) postpone or
suspend effectiveness of a registration statement for a period not to exceed thirty (30)
consecutive days; provided that the Company may not postpone or suspend effectiveness of a
registration statement under this Section 3(n) for more than forty-five (45) days in the aggregate
during any three hundred sixty (360) day period; provided, however, that no such
postponement or suspension shall be permitted for consecutive thirty (30) day periods arising out
of the same set of facts, circumstances or transactions.

     4. Registration Expenses.

          All fees and expenses incident to the performance of or compliance with this Agreement by the
Company, except as and to the extent specified in this Section 4, shall be borne by the Company
whether or not the Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses
referred to in the foregoing sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with respect to filings required
to be made with the Nasdaq Capital Market and each other securities exchange or market on which
Registrable Securities are required hereunder to be listed, if any (B) with respect to filing fees
required to be paid to the National Association of Securities Dealers, Inc. and the NASD
Regulation, Inc. and (C) in compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the Holders in connection with Blue Sky
qualifications of the Registrable Securities and determination of the eligibility of the
Registrable Securities for investment under the laws of such jurisdictions as the Holders of a
majority of Registrable Securities may designate)), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and of printing
prospectuses if the printing of prospectuses is requested by the holders of a majority of the
Registrable Securities included in the Registration Statement), (iii) messenger, telephone and
delivery expenses, (iv) fees and disbursements of counsel for the Company and Special Counsel for
the Holders, in the case of the Special Counsel, up to a maximum amount of $5,000, (v) Securities
Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of
all other Persons retained by the Company in connection with the consummation of

9

 

the transactions contemplated by this Agreement, including, without limitation, the Company’s
independent public accountants (including the expenses of any comfort letters or costs associated
with the delivery by independent public accountants of a comfort letter or comfort letters). In
addition, the Company shall be responsible for all of its internal expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement (including, without
limitation, all salaries and expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit, the fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange as required hereunder. The
Company shall not be responsible for any discounts, commissions, transfer taxes or other similar
fees incurred by the Holders in connection with the sale of the Registrable Securities.

     5. Indemnification.

          (a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors,
managers, partners, members, shareholders, agents, brokers, investment advisors and employees of
each of them, each Person who controls any such Holder (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees
of each such controlling Person, to the fullest extent permitted by applicable law, from and
against any and all losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to any violation of securities laws by the Company or
untrue or alleged untrue statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements therein (in the
case of any Prospectus or form of prospectus or supplement thereto, in the light of the
circumstances under which they were made) not misleading, except to the extent, but only to the
extent, that such untrue statements or omissions are based solely upon information regarding such
Holder or such other Indemnified Party furnished in writing to the Company by such Holder expressly
for use therein. The Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection with the transactions
contemplated by this Agreement.

          (b) Indemnification by Holders. Each Holder shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person
who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of
the Exchange Act), and the directors, officers, agents and employees of such controlling Persons,
to the fullest extent permitted by applicable law, from and against all Losses (as determined by a
court of competent jurisdiction in a final judgment not subject to appeal or review), as incurred,
(i) arising solely out of or based solely upon any untrue statement of a material fact contained in
the Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or
supplement thereto, or arising solely out of or based solely upon any omission of a material fact
required to be stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under
which they were made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by such Holder or
other Indemnifying Party to the Company specifically for inclusion in

10

 

the Registration Statement or such Prospectus, or (ii) arising out of any failure by such
Holder to comply with such Holder’s obligations under Section 3(m) to discontinue dispositions of
Registrable Securities after receipt of notice from the Company to do so under the circumstances
therein provided.. Notwithstanding anything to the contrary contained herein, each Holder shall be
liable under this Section 5(b) for only that amount as does not exceed the net proceeds to such
Holder as a result of the sale of Registrable Securities pursuant to such Registration Statement.

          (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or
asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such
Indemnified Party promptly shall notify the Person from whom indemnity is sought (the
“Indemnifying Party) in writing, and the Indemnifying Party shall be entitled to assume the
defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified
Party and the payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only)
to the extent that it shall be finally determined by a court of competent jurisdiction (which
determination is not subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.

          An Indemnified Party shall have the right to employ separate counsel in any such Proceeding
and to participate in the defense thereof, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding
(including any impleaded parties) include both such Indemnified Party and the Indemnifying Party,
and such parties shall have been advised by counsel that a conflict of interest is likely to exist
if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have
the right to assume the defense thereof and such counsel shall be at the expense of the
Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such
Proceeding effected without its written consent, which consent shall not be unreasonably withheld
or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending or threatened Proceeding in respect of which any
Indemnified Party is a party and indemnity has been sought hereunder, unless such settlement
includes an unconditional release of such Indemnified Party from all liability on claims that are
the subject matter of such Proceeding.

          All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the
extent incurred in connection with investigating or preparing to defend such Proceeding in a manner
not inconsistent with this Section and reasonable fees and expenses of one law firm in situations
addressed herein where the Indemnified Party is entitled to such separate counsel) shall be paid to
the Indemnified Party, as incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is
not entitled to indemnification hereunder; provided, that the Indemnified Party shall reimburse all
such fees and expenses to the extent it is finally judicially determined that such Indemnified
Party is not entitled to indemnification hereunder).

11

 

          (d) Contribution. If a claim for indemnification under Section 5(a) or 5(b) is due
but unavailable to an Indemnified Party because of a failure or refusal of a governmental authority
to enforce such indemnification in accordance with its terms (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in
such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that resulted in such
Losses as well as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement of a material fact
or omission or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying, Party or Indemnified Party, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent such action,
statement or omission. The amount paid or payable by a party as a result of any Losses shall be
deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys’
or other reasonable fees or expenses incurred by such party in connection with any Proceeding to
the extent such party would have been indemnified for such fees or expenses if the indemnification
provided for in this Section was available to such party in accordance with its terms. In no event
shall any selling Holder be required to contribute an amount under this Section 5(d) in excess of
the net proceeds received by such Holder upon sale of such Holder’s Registrable Securities pursuant
to the Registration Statement giving rise to such contribution obligation.

          The parties hereto agree that it would not be just and equitable if contribution pursuant to
this Section 5(d) were determined by pro rata allocation or by any other method of allocation that
does not take into account the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.

          The indemnity and contribution agreements contained in this Section are in addition to any
liability that the Indemnifying Parties may have to the Indemnified Parties pursuant to the law.

     6. Rule 144.

          As long as any Holder owns Preferred Stock, Warrants or Registrable Securities, the Company
covenants 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
Section 13(a) or 15(d) of the Exchange Act. As long as any Holder owns Preferred Stock, Warrants
or Registrable Securities, if the Company is not required to file reports pursuant to Section 13(a)
or 15(d) of the Exchange Act, it will prepare and furnish to the Holders and make publicly
available in accordance with Rule 144(c) promulgated under the Securities Act annual and quarterly
financial statements, together with a discussion and analysis of such financial statements in form
and substance substantially similar to those that would otherwise be required to be included in
reports required by Section 13(a) or 15(d) of the Exchange Act, as well as any other information
required thereby, in the time period that such filings would have been

12

 

required to have been made under the Exchange Act. The Company further covenants that it will
take such further action as any Holder may reasonably request, all to the extent required from time
to time to enable such Person to sell Conversion Shares and Warrant Shares without registration
under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated
under the Securities Act, including providing any legal opinions relating to such sale pursuant to
Rule 144. Upon the request of any Holder, the Company shall deliver to such Holder a written
certification of a duly authorized officer as to whether it has complied with such requirements.

     7. Miscellaneous.

          (a) Remedies. In the event of a breach by the Company or by a Holder, of any of their
obligations under this Agreement, such Holder or the Company, as the case may be, in addition to
being entitled to exercise all rights granted by law and under this Agreement, including recovery
of damages, will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate compensation for any
losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby
further agrees that, in the event of any action for specific performance in respect of such breach,
it shall waive the defense that a remedy at law would be adequate.

          (b) No Inconsistent Agreements. Neither the Company nor any of its subsidiaries has,
as of the date hereof entered into and currently in effect, nor shall the Company or any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as disclosed on Schedule II hereto,
neither the Company nor any of its subsidiaries has previously entered into any agreement currently
in effect granting any registration rights with respect to any of its securities to any Person.
Without limiting the generality of the foregoing, without the written consent of the Holders of a
majority of the then outstanding Registrable Securities, the Company shall not grant to any Person
the right to request the Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in full of the Holders
set forth herein, and are not otherwise in conflict with the provisions of this Agreement.

          (c) No Piggyback on Registrations. Neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto or as disclosed on Schedule
II hereto) may include securities of the Company in the Registration Statement, and the Company
shall not after the date hereof enter into any agreement providing such right to any of its
securityholders, unless the right so granted is subject in all respects to the prior rights in full
of the Holders set forth herein, and is not otherwise in conflict with the provisions of this
Agreement.

          (d) Piggy-Back Registrations. If at any time when there is not an effective
Registration Statement covering (i) Conversion Shares or (ii) Warrant Shares, 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

13

 

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 stock
option or other employee benefit plans, the Company shall send to each Holder of Registrable
Securities written notice of such determination and, if within thirty (30) days after receipt of
such notice, or within such shorter period of time as may be specified by the Company in such
written notice as may be necessary for the Company to comply with its obligations with respect to
the timing of the filing of such registration statement, any such Holder shall so request in
writing, (which request shall specify the Registrable Securities intended to be disposed of by the
Purchasers), the Company will cause the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by the Holder, to the extent
requisite to permit the disposition of the Registrable Securities so to be registered, provided
that if at any time after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to delay registration
of such securities, the Company may, at its election, give written notice of such determination to
such Holder and, thereupon, (i) in the case of a determination not to register, shall be relieved
of its obligation to register any Registrable Securities in connection with such registration (but
not from its obligation to pay expenses in accordance with Section 4 hereof), and (ii) in the case
of a determination to delay registering, shall be permitted to delay registering any Registrable
Securities being registered pursuant to this Section 7(d) for the same period as the delay in
registering such other securities. The Company shall include in such registration statement all or
any part of such Registrable Securities such Holder requests to be registered; provided,
however, that the Company shall not be required to register any Registrable Securities
pursuant to this Section 7(d) that are eligible for sale pursuant to Rule 144(k) of the Securities
Act. In the case of an underwritten public offering, if the managing underwriter(s) or
underwriter(s) should reasonably object to the inclusion of the Registrable Securities in such
registration statement, then if the Company after consultation with the managing underwriter should
reasonably determine that the inclusion of such Registrable Securities would materially adversely
affect the offering contemplated in such registration statement, and based on such determination
recommends inclusion in such registration statement of fewer or none of the Registrable Securities
of the Holders, then (x) the number of Registrable Securities of the Holders included in such
registration statement shall be reduced pro-rata among such Holders (based upon the number of
Registrable Securities requested to be included in the registration), if the Company after
consultation with the underwriter(s) recommends the inclusion of fewer Registrable Securities, or
(y) none of the Registrable Securities of the Holders shall be included in such registration
statement, if the Company after consultation with the underwriter(s) recommends the inclusion of
none of such Registrable Securities; provided, however, that if securities are
being offered for the account of other persons or entities as well as the Company, such reduction
shall not represent a greater fraction of the number of Registrable securities intended to be
offered by the Holders than the fraction of similar reductions imposed on such other persons or
entities (other than the Company).

          (e) Failure to File Registration Statement and Other Events. The Company and the
Purchasers agree that the Holders will suffer damages if the Registration Statement is not filed on
or prior to the Filing Date and not declared effective by the Commission on or prior to the
Effectiveness Date and maintained in the manner contemplated herein during the Effectiveness Period
or if certain other events occur. The Company and the Holders further agree that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, if (A) the
Registration Statement is not filed on or prior to the Filing Date, or (B)

14

 

the Registration Statement is not declared effective by the Commission on or prior to the
Effectiveness Date, or (C) the Company fails to file with the Commission a request for acceleration
in accordance with Rule 461 promulgated under the Securities Act within three (3) Business Days of
the date that the Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be “reviewed,” or not subject to further review,
or (D) the Registration Statement is filed with and declared effective by the Commission but
thereafter ceases to be effective as to all Registrable Securities at any time prior to the
expiration of the Effectiveness Period, without being succeeded immediately by a subsequent
Registration Statement filed with and declared effective by the Commission, or (E) the Company has
breached Section 3(n) hereof, or (F) trading in the Common Stock shall be suspended or if the
Common Stock is delisted from the Nasdaq Capital Market (or other principal exchange on which the
Common Stock is traded) for any reason for more than five (5) consecutive Business Days (any such
failure or breach being referred to as an “Event,” and for purposes of clauses (A) and (B)
the date on which such Event occurs, or for purposes of clause (C) the date on which such five (5)
Business Day period is exceeded, or for purposes of clause (D) after more than fifteen (15)
Business Days, or for purposes of clause (F) the date on which such three (3) Business Day period
is exceeded, being referred to as “Event Date”), the Company shall pay an amount in cash as
liquidated damages to each Holder equal to one and one-half percent (1.5%) for the first calendar
month (pro rated for shorter periods) and one percent (1.0%) per calendar month thereafter (pro
rated for shorter periods) of the amount of the Holder’s initial investment in the Preferred Stock
from the Event Date until the applicable Event is cured. The Company shall not be liable for
liquidated damages under this Agreement as to any Registrable Securities which are not permitted by
the Commission to be included in a Registration Statement because of its application of Rule 415
until such time as the provisions of this Agreement as to the Registration Statements required to
be filed pursuant to Section 2(b) are triggered, in which case the provisions of this Section 7(e)
shall once again apply, if applicable. In such case, the liquidated damages shall be calculated to
only apply to the percentage of Registrable Securities which are permitted by the Commission to be
included in the Registration Statement. Notwithstanding anything contained herein to the contrary,
in the event all of the Registrable Securities are not registered on an effective Registration
Statement by July 31, 2008, liquidated damages pursuant to this Section 7(e) shall accrue with
respect to all of such Registrable Securities that are not then registered pursuant to an effective
Registration Statement, notwithstanding the Commission’s application of Rule 415. Notwithstanding
anything to the contrary in this paragraph (e), if (a) any of the Events described in clauses (A),
(B), (C), (D) or (F) shall have occurred, (b) on or prior to the applicable Event Date, the Company
shall have exercised in good faith its rights under Section 3(n) hereof and (c) the postponement or
suspension permitted pursuant to such Section 3(n) shall remain effective as of such applicable
Event Date, then the applicable Event Date shall be deemed instead to occur on the second Business
Day following the termination of such postponement or suspension. Liquidated damages payable by
the Company pursuant to this Section 7(d) shall be payable on the first (1st) Business
Day of each thirty (30) day period following the Event Date. Notwithstanding anything to the
contrary contained herein, in no event shall any liquidated damages be payable with respect to the
Warrants or the Warrant Shares.

          (f) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given, unless the same shall be in

15

 

writing and signed by the Company and the Holders of sixty-six and two-thirds percent (662/3%)
of the Registrable Securities outstanding.

          (g) Notices. Any notice, demand, request, waiver or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery,
telecopy, e-mail or facsimile at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following the date of
mailing by express courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such communications shall
be:

	 	 	 	 	 
	 

	 	If to the Company:
	 	Advanced Environmental Recycling
	 

	 	 	 	Technologies, Inc.
	 

	 	 	 	914 N Jefferson Street
	 

	 	 	 	Post Office Box 1237
	 

	 	 	 	Springdale, Arkansas 72765
	 

	 	 	 	Attention: Chief Executive Officer
	 

	 	 	 	Tel. No.: (479) 756-7400
	 

	 	 	 	Fax No.: (479) 756-7410
	 
	 	 	 	 
	 

	 	with copies to:
	 	Akin Gump Strauss Hauer & Feld LLP
	 

	 	 	 	300 Convent Street
	 

	 	 	 	Suite 1500
	 

	 	 	 	San Antonio, Texas 78205-3732
	 

	 	 	 	Attention: J. Patrick Ryan
	 

	 	 	 	Tel. No.: (210) 281-7232
	 

	 	 	 	Fax No.: (210) 224-2035
	 
	 	 	 	 
	 

	 	If to any Purchaser:
	 	At the address of such Purchaser set forth
	 

	 	 	 	on Exhibit A to this Agreement, with copies
	 

	 	 	 	to Purchaser’s counsel as set forth below
	 

	 	 	 	or as specified in writing by such
	 

	 	 	 	Purchaser:
	 
	 	 	 	 
	 

	 	with copies (which shall not
	 	Kramer Levin Naftalis & Frankel LLP
	 

	 	constitute notice) to:
	 	1177 Avenue of the Americas
	 

	 	 	 	New York, New York 10036
	 

	 	 	 	Attention: Christopher S. Auguste
	 

	 	 	 	Tel No.: (212) 715-9100
	 

	 	 	 	Fax No.: (212) 715-8000

          Any party hereto may from time to time change its address for notices by giving at least ten
(10) days written notice of such changed address to the other party hereto.

          (h) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns and shall inure to the benefit of
each Holder and its successors and assigns. The Company may not assign this

16

 

Agreement or any of its rights or obligations hereunder without the prior written consent of
each Holder. Each Purchaser may assign its rights hereunder in the manner and to the Persons as
permitted under the Purchase Agreement.

          (i) Assignment of Registration Rights. The rights of each Holder hereunder, including
the right to have the Company register for resale Registrable Securities in accordance with the
terms of this Agreement, shall be automatically assignable by each Holder to any Person acquiring
at least 7,500 shares of the Preferred Stock (or the corresponding as-converted number of
Registrable Securities) if: (i) the Holder agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the Company within a reasonable
time after such assignment, (ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights are being
transferred or assigned, (iii) following such transfer or assignment the further disposition of
such securities by the transferee or assignees is restricted under the Securities Act and
applicable state securities laws, (iv) at or before the time the Company receives the written
notice contemplated by clause (ii) of this Section, the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions of this Agreement, and (v) such transfer
shall have been made in accordance with the applicable requirements of the Purchase Agreement. The
rights to assignment shall apply to the Holders (and to subsequent) successors and assigns.

          (j) Counterparts. This Agreement may be executed in any number of counterparts, each
of which when so executed shall be deemed to be an original and, all of which taken together shall
constitute one and the same Agreement and shall become effective when counterparts have been signed
by each party and delivered to the other parties hereto, it being understood that all parties need
not sign the same counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.

17

 

          (k) Governing Law; Jurisdiction. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving effect to any of the
conflicts of law principles which would result in the application of the substantive law of another
jurisdiction. This Agreement shall not be interpreted or construed with any presumption against
the party causing this Agreement to be drafted. The Company and the Holders agree that venue for
any dispute arising under this Agreement will lie exclusively in the state or federal courts
located in New York County, New York, and the parties irrevocably waive any right to raise forum
non conveniens or any other argument that New York is not the proper venue. The Company and the
Holders irrevocably consent to personal jurisdiction in the state and federal courts of the state
of New York. The Company and the Holders consent to process being served in any such suit, action
or proceeding by delivering a copy thereof 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 in this Section 7(k) shall affect or limit any right to serve
process in any other manner permitted by law. The Company and the Holders hereby agree that the
prevailing party in any suit, action or proceeding arising out of or relating to this Agreement or
the Purchase Agreement, shall be entitled to reimbursement for reasonable legal fees from the
non-prevailing party. The parties hereby waive all rights to a trial by jury.

          (l) Cumulative Remedies. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.

          (m) Severability. If any term, provision, covenant or restriction of this Agreement
is held to be invalid, illegal, void or unenforceable in any respect, 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
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.

          (n) 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.

          (o) Shares Held by the Company and its Affiliates. Whenever the consent or approval of
Holders of a specified percentage of Registrable Securities is required hereunder, Registrable
Securities held by the Company or its Affiliates (other than any Holder or transferees or
successors or assigns thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the Holders of such required percentage.

          (p) Independent Nature of Purchasers. The Company acknowledges that the obligations
of each Purchaser under the Transaction Documents are several and not joint with the obligations of
any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the
obligations of any other Purchaser under the Transaction Documents. The Company acknowledges that
the decision of each Purchaser to purchase Securities pursuant to

18

 

the Purchase Agreement, to the best of its knowledge, has been made by such Purchaser
independently of any other Purchaser and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or of its Subsidiaries
which may have been made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any liability to any
Purchaser (or any other person) relating to or arising from any such information, materials,
statements or opinions. The Company acknowledges that nothing contained herein, or in any
Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto (including,
but not limited to, the (i) inclusion of a Purchaser in the Registration Statement and (ii) review
by, and consent to, such Registration Statement by a Purchaser) shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create
a presumption that the Purchasers are in any way acting in concert or as a group with respect to
such obligations or the transactions contemplated by the Transaction Documents. The Company
acknowledges that each Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose. The Company acknowledges that for reasons of
administrative convenience only, the Transaction Documents have been prepared by counsel for one of
the Purchasers and such counsel does not represent all of the Purchasers.  The Company acknowledges
that it has elected to provide all Purchasers with the same terms and Transaction Documents for the
convenience of the Company and not because it was required or requested to do so by the Purchasers.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

19

 

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

	 	 	 	 	 
	 	ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	PURCHASER:

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

 

 

Schedule I

Purchasers

	 	 	 	 	 
	Names and Addresses

	 	Number of Preferred Shares
	 	Dollar Amount of
	of Purchasers

	 	& Warrants Purchased
	 	Investment
	 

	 	 
	 	 

 

 

Schedule II

Other Securities to be Included on the Registration Statement

None

 

 

Exhibit A

Plan of Distribution

     The selling security holders and any of their pledgees, donees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares of common stock
being offered under this prospectus on any stock exchange, market or trading facility on which
shares of our common stock are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling security holders may use any one or more of the following methods
when disposing of shares:

	 	•	 	ordinary brokerage transactions and transactions in which the broker-dealer solicits
purchasers;
	 
	 	•	 	block trades in which the broker-dealer will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to facilitate the transaction;
	 
	 	•	 	purchases by a broker-dealer as principal and resales by the broker-dealer for its
account;
	 
	 	•	 	an exchange distribution in accordance with the rules of the applicable exchange;
	 
	 	•	 	privately negotiated transactions;
	 
	 	•	 	to cover short sales made after the date that the registration statement of which this
prospectus is a part is declared effective by the Commission;
	 
	 	•	 	broker-dealers may agree with the selling security holders to sell a specified number
of such shares at a stipulated price per share;
	 
	 	•	 	a combination of any of these methods of sale; and
	 
	 	•	 	any other method permitted pursuant to applicable law.

     The shares may also be sold under Rule 144 under the Securities Act of 1933, as amended
(“Securities Act”), if available, rather than under this prospectus. The selling security holders
have the sole and absolute discretion not to accept any purchase offer or make any sale of shares
if they deem the purchase price to be unsatisfactory at any particular time.

     The selling security holders may pledge their shares to their brokers under the margin
provisions of customer agreements. If a selling security holder defaults on a margin loan, the
broker may, from time to time, offer and sell the pledged shares.

     Broker-dealers engaged by the selling security holders may arrange for other broker-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from the selling security
holders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated, which commissions as to a particular broker or dealer may be in excess of
customary commissions to the extent permitted by applicable law.

 

 

     If sales of shares offered under this prospectus are made to broker-dealers as principals, we
would be required to file a post-effective amendment to the registration statement of which this
prospectus is a part. In the post-effective amendment, we would be required to disclose the names
of any participating broker-dealers and the compensation arrangements relating to such sales.

     The selling security holders and any broker-dealers or agents that are involved in selling the
shares offered under this prospectus may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with these sales. Commissions received by these broker-dealers or
agents and any profit on the resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. Any broker-dealers or agents that
are deemed to be underwriters may not sell shares offered under this prospectus unless and until we
set forth the names of the underwriters and the material details of their underwriting arrangements
in a supplement to this prospectus or, if required, in a replacement prospectus included in a
post-effective amendment to the registration statement of which this prospectus is a part.

     The selling security holders and any other persons participating in the sale or distribution
of the shares offered under this prospectus will be subject to applicable provisions of the
Exchange Act, and the rules and regulations under that act, including Regulation M. These
provisions may restrict activities of, and limit the timing of purchases and sales of any of the
shares by, the selling security holders or any other person. Furthermore, under Regulation M,
persons engaged in a distribution of securities are prohibited from simultaneously engaging in
market making and other activities with respect to those securities for a specified period of time
prior to the commencement of such distributions, subject to specified exceptions or exemptions.
All of these limitations may affect the marketability of the shares.

     If any of the shares of common stock offered for sale pursuant to this prospectus are
transferred other than pursuant to a sale under this prospectus, then subsequent holders could not
use this prospectus until a post-effective amendment or prospectus supplement is filed, naming such
holders. We offer no assurance as to whether any of the selling security holders will sell all or
any portion of the shares offered under this prospectus.

     We have agreed to pay all fees and expenses we incur incident to the registration of the
shares being offered under this prospectus. However, each selling security holder and purchaser is
responsible for paying any discounts, commissions and similar selling expenses they incur.

     We and the selling security holders have agreed to indemnify one another against certain
losses, damages and liabilities arising in connection with this prospectus, including liabilities
under the Securities Act.

 

 

Exhibit B

Selling Stockholder Notice and Questionnaire

     The undersigned understands that Advanced Environmental Recycling Technologies, Inc. (the
“Company”) intends to file with the Securities and Exchange Commission a registration
statement on Form S-3 (the “Resale Registration Statement”) for the registration and the
resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the
Registrable Securities in accordance with the terms of the Registration Rights Agreement entered
into by the Company and the undersigned (the “Agreement”). All capitalized terms not
otherwise defined herein shall have the meanings ascribed thereto in the Agreement.

     In order to sell or otherwise dispose of any Registrable Securities pursuant to the Resale
Registration Statement, a holder of Registrable Securities generally will be required to be named
as a selling stockholder in the related prospectus or a supplement thereto (as so supplemented, the
“Prospectus”), deliver the Prospectus to purchasers of Registrable Securities (including
pursuant to Rule 172 under the Securities Act) and be bound by the provisions of the Agreement
(including certain indemnification provisions, as described below). Holders must complete and
deliver this Notice and Questionnaire in order to be named as selling stockholders in the
Prospectus. Kindly complete, execute and return this Notice and Questionnaire within fifteen (15)
Trading Days following the date of the Agreement.

     Certain legal consequences arise from being named as a selling stockholder in the Resale
Registration Statement and the Prospectus. Holders of Registrable Securities are advised to
consult their own securities law counsel regarding the consequences of being named or not named as
a selling stockholder in the Resale Registration Statement and the Prospectus.

NOTICE

     The undersigned holder (the “Selling Stockholder”) of Registrable Securities hereby
gives notice to the Company of its intention to sell or otherwise dispose of Registrable Securities
owned by it and listed below in Item (3), unless otherwise specified in Item (3), pursuant to the
Resale Registration Statement. The undersigned, by signing and returning this Notice and
Questionnaire, understands and agrees that it will be bound by the terms and conditions of this
Notice and Questionnaire and the Agreement.

     The undersigned hereby provides the following information to the Company and represents and
warrants that such information is accurate and complete:

QUESTIONNAIRE

	1.	 	Name.

	 	(a)	 	Full Legal Name of Selling Stockholder:

	 
	 	 	 	 

	 
	 	(b)	 	Full Legal Name of Registered Holder (if not the same as (a) above) through
which Registrable Securities Listed in Item 3 below are held:

	 
	 	 	 	 

 

 

	 	(c)	 	Full Legal Name of Natural Control Person (which means a natural person who
directly or indirectly alone or with others has power to vote or dispose of the
securities covered by the questionnaire):
	 
	 	 	 	 

2. Address for Notices to Selling Stockholder:

 

 

 

	 	 	 	 	 	 	 	 	 
	Telephone:	 	 	 	 	 	 
	 	 	 	 	 
	Fax:
	 	 	 	 	 	 	 	 
	 	 	 
	Contact Person:	 	 	 	 
	 	 	 	 	 	 	 
	E-mail address of Contact Person:	 	 
	 

	 	 	 	 	 	 	 	 

3. Beneficial Ownership of Registrable Securities:

	 	(a)	 	Type and Number of Registrable Securities beneficially owned:
	 
	 	 	 	 

	 	 	 	 

	 	 	 	 

	 
	 	(b)	 	Number of shares of Common Stock to be registered pursuant to this Notice for
resale:
	 
	 	 	 	 

	 	 	 	 

	 	 	 	 

4. Broker-Dealer Status:

	 	(a)	 	Are you a broker-dealer?

Yes o       No o

	 	(b)	 	If “yes” to Section 4(a), did you receive your Registrable Securities as compensation
for investment banking services to the Company?

Yes o       No o

	Note:	 	 If no, the Commission’s staff has indicated that you should be
identified as an underwriter in the Registration Statement.

	 	(c)	 	Are you an affiliate of a broker-dealer?

Yes o       No o

	     Note: If yes, provide a narrative explanation below:

 

 

	 	 	 	 

	 	 	 	 

	 
	 	(c)	 	If you are an affiliate of a broker-dealer, do you certify that you bought the
Registrable Securities in the ordinary course of business, and at the time of the
purchase of the Registrable Securities to be resold, you had no agreements or
understandings, directly or indirectly, with any person to distribute the Registrable
Securities?

Yes o       No o

	     Note:	 	 If no, the Commission’s staff has indicated that you should be
identified as an underwriter in the Registration Statement.

5. Beneficial Ownership of Other Securities of the Company Owned by the Selling Stockholder.

	 	 	Except as set forth below in this Item 5, the undersigned is not the beneficial or
registered owner of any securities of the Company other than the Registrable Securities
listed above in Item 3.
	 
	 	 	Type and amount of other securities beneficially owned:
	 
	 	 	 

	 
	 	 	 

6. Relationships with the Company:

	 	 	Except as set forth below, neither the undersigned nor any of its affiliates, officers,
directors or principal equity holders (owners of 5% of more of the equity securities of the
undersigned) has held any position or office or has had any other material relationship with
the Company (or its predecessors or affiliates) during the past three years.
	 
	 	 	State any exceptions here:
	 
	 	 	 

	 
	 	 	 

7. Plan of Distribution:

	 	 	The undersigned has reviewed the form of Plan of Distribution attached as Exhibit A to the
Agreement, and hereby confirms that, except as set forth below, the information contained
therein regarding the undersigned and its plan of distribution is correct and complete.
	 
	 	 	State any exceptions here:
	 
	 	 	 

	 
	 	 	 

***********

 

 

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the
information provided herein that may occur subsequent to the date hereof and prior to the effective
date of any applicable Resale Registration Statement. All notices hereunder shall be made in
writing, by hand delivery, confirmed or facsimile transmission, first-class mail or air courier
guaranteeing overnight delivery at the address set forth below. In the absence of any such
notification, the Company shall be entitled to continue to rely on the accuracy of the information
in this Notice and Questionnaire.

By signing below, the undersigned consents to the disclosure of the information contained herein in
its answers to Items (1) through (7) above and the inclusion of such information in the Resale
Registration Statement and the Prospectus. The undersigned understands that such information will
be relied upon by the Company in connection with the preparation or amendment of any such
Registration Statement and the Prospectus.

By signing below, the undersigned acknowledges that it understands its obligation to comply, and
agrees that it will comply, with the provisions of the Exchange Act and the rules and regulations
thereunder, particularly Regulation M in connection with any offering of Registrable Securities
pursuant to the Resale Registration Statement. The undersigned also acknowledges that it
understands that the answers to this Questionnaire are furnished for use in connection with
Registration Statements filed pursuant to the Agreement and any amendments or supplements thereto
filed with the Commission pursuant to the Securities Act.

The undersigned hereby acknowledges and is advised of the following Interpretation A.65 of the July
1997 SEC Manual of Publicly Available Telephone Interpretations regarding short selling:

“An Issuer filed a Form S-3 registration statement for a secondary offering of common stock which
is not yet effective. One of the selling stockholders wanted to do a short sale of common stock
“against the box” and cover the short sale with registered shares after the effective date. The
issuer was advised that the short sale could not be made before the registration statement become
effective, because the shares underlying the short sale are deemed to be sold at the time such sale
is made. There would, therefore, be a violation of Section 5 if the shares were effectively sold
prior to the effective date.”

By returning this Questionnaire, the undersigned will be deemed to be aware of the foregoing
interpretation.

I confirm that, to the best of my knowledge and belief, the foregoing statements (including without
limitation the answers to this Questionnaire) are correct.

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Questionnaire to be
executed and delivered either in person or by its duly authorized agent.

	 	 	 	 	 	 	 
	Dated:

	 	 	 	Beneficial Owner:	 	 
	 

	 	 
	 	 	 	 

	 	 	 	 	 
	 	 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00131-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00131-of-00352.parquet"}]]