Exhibit 10.26

 

SECURITIES PURCHASE AGREEMENT

 

LAURUS MASTER FUND, LTD.

 

and

 

IWT TESORO CORPORATION

 

Dated: February 10, 2006

 

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TABLE OF CONTENTS

 

 

 

Page

1.

Agreement to Sell and Purchase.

1

 

 

 

2.

Fees and Warrant. On the Closing Date:

2

 

 

 

3.

Closing, Delivery and Payment.

2

 

3.1

Closing

2

 

3.2

Delivery.

2

 

 

 

 

4.

Representations and Warranties of the Company.

3

 

4.1

Organization, Good Standing and Qualification.

3

 

4.2

Subsidiaries.

3

 

4.3

Capitalization; Voting Rights.

4

 

4.4

Authorization; Binding Obligations.

4

 

4.5

Liabilities.

5

 

4.6

Agreements; Action.

5

 

4.7

Obligations to Related Parties.

6

 

4.8

Changes.

7

 

4.9

Title to Properties and Assets; Liens, Etc.

8

 

4.10

Intellectual Property.

8

 

4.11

Compliance with Other Instruments.

9

 

4.12

Litigation.

9

 

4.13

Tax Returns and Payments.

9

 

4.14

Employees.

10

 

4.15

Registration Rights and Voting Rights.

10

 

4.16

Compliance with Laws; Permits.

11

 

4.17

Environmental and Safety Laws.

11

 

4.18

Valid Offering.

11

 

4.19

Full Disclosure.

11

 

4.20

Insurance.

12

 

4.21

SEC Reports.

12

 

4.22

Listing.

12

 

4.23

No Integrated Offering.

12

 

4.24

Stop Transfer.

13

 

4.25

Dilution.

13

 

4.26

Patriot Act.

13

 

4.27

ERISA.

13

 

 

 

 

5.

Representations and Warranties of the Purchaser.

14

 

5.1

No Shorting.

14

 

5.2

Requisite Power and Authority.

14

 

5.3

Investment Representations.

14

 

5.4

The Purchaser Bears Economic Risk.

15

 

5.5

Acquisition for Own Account.

15

 

5.6

The Purchaser Can Protect Its Interest.

15

 

5.7

Accredited Investor.

15

 

5.8

Legends.

16

 

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Page(s)

6.

Covenants of the Company.

17

 

6.1

Stop-Orders.

17

 

6.2

Listing.

17

 

6.3

Market Regulations.

17

 

6.4

Reporting Requirements.

17

 

6.5

Use of Funds.

17

 

6.6

Access to Facilities.

17

 

6.7

Taxes.

17

 

6.8

Insurance.

18

 

6.9

Intellectual Property.

19

 

6.10

Properties.

19

 

6.11

Confidentiality.

19

 

6.12

Required Approvals.

19

 

6.13

Reissuance of Securities.

21

 

6.14

Opinion.

21

 

6.15

Margin Stock.

21

 

6.16

Financing Right of First Refusal.

22

 

6.17

Authorization and Reservation of Shares.

22

 

 

 

 

7.

Covenants of the Purchaser.

22

 

7.1

Confidentiality.

22

 

7.2

Non-Public Information.

22

 

7.3

Limitation on Acquisition of Common Stock of the Company.

23

 

 

 

 

8.

Covenants of the Company and the Purchaser Regarding Indemnification.

23

 

8.1

Company Indemnification.

23

 

8.2

Purchaser’s Indemnification.

23

 

 

 

 

9.

Conversion of Convertible Note.

24

 

9.1

Mechanics of Conversion.

 

 

 

 

 

10.

Registration Rights.

24

 

10.1

Registration Rights Granted.

24

 

10.2

Offering Restrictions.

24

 

 

 

 

11.

Miscellaneous.

24

 

11.1

Governing Law, Jurisdiction and Waiver of Jury Trial.

24

 

11.2

Severability.

25

 

11.3

Survival.

25

 

11.4

Successors.

25

 

11.5

Entire Agreement; Maximum Interest.

26

 

11.6

Amendment and Waiver.

26

 

11.7

Delays or Omissions.

26

 

11.8

Notices.

26

 

11.9

Attorneys’ Fees.

27

 

11.10

Titles and Subtitles.

28

 

11.11

Facsimile Signatures; Counterparts.

28

 

11.12

Broker’s Fees.

28

 

11.13

Construction.

28

 

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LIST OF EXHIBITS

 

Form of Convertible Term Note

 

Exhibit A

 

Form of Warrant

 

Exhibit B

 

Form of Opinion

 

Exhibit C

 

Form of Escrow Agreement

 

Exhibit D

 

 

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SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into
as of February 102006, by and between IWT TESORO CORPORATION, a
                                  (the “Company”), and LAURUS MASTER FUND, LTD.,
a Cayman Islands company (the “Purchaser”).

 

RECITALS

 

WHEREAS, the Company has authorized the sale to the Purchaser of a Secured
Convertible Term Note in the aggregate principal amount of Two Million Dollars
($2,000,000.00) in the form of Exhibit A hereto (as amended, modified and/or
supplemented from time to time, the “Note”), which Note is convertible into
shares of the Company’s common stock, $0.001 par value per share (the “Common
Stock”) at an initial fixed conversion price of $2.17 per share of Common Stock
(“Fixed Conversion Price”);

 

WHEREAS, the Company wishes to issue to the Purchaser a warrant in the form of
Exhibit B hereto (as amended, modified and/or supplemented from time to time,
the “Warrant”) to purchase up to 460,829 shares of the Company’s Common Stock
(subject to adjustment as set forth therein) in connection with the Purchaser’s
purchase of the Note;

 

WHEREAS, at Closing (as defined herein),   the Company wishes to grant 221,198
shares of Common Stock (the “Interest Shares”) to the Purchaser;

 

WHEREAS, the Purchaser desires to purchase the Note and the Warrant on the terms
and conditions set forth herein; and

 

WHEREAS, the Company desires to issue and sell the Note and Warrant to the
Purchaser on the terms and conditions set forth herein.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

 

1.                                       AGREEMENT TO SELL AND PURCHASE. 
PURSUANT TO THE TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT, ON THE CLOSING
DATE (AS DEFINED IN SECTION 3), THE COMPANY SHALL SELL TO THE PURCHASER, AND THE
PURCHASER SHALL PURCHASE FROM THE COMPANY, THE NOTE AND THE WARRANT.  THE SALE
OF THE NOTE ON THE CLOSING DATE SHALL BE KNOWN AS THE “OFFERING.”  THE NOTE WILL
MATURE ON THE MATURITY DATE (AS DEFINED IN THE NOTE).  COLLECTIVELY, THE NOTE,
THE WARRANT, THE INTEREST SHARES AND THE COMMON STOCK ISSUABLE UPON CONVERSION
OF THE NOTE AND UPON EXERCISE OF THE WARRANT ARE REFERRED TO AS THE
“SECURITIES.”

 

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2.                                       FEES AND WARRANT.  ON THE CLOSING DATE:

 

(A)                                  THE COMPANY WILL ISSUE AND DELIVER TO THE
PURCHASER THE WARRANT TO PURCHASE UP TO 460,829 SHARES OF COMMON STOCK (SUBJECT
TO ADJUSTMENT AS SET FORTH THEREIN) IN CONNECTION WITH THE OFFERING, PURSUANT TO
SECTION 1 HEREOF.  ALL THE REPRESENTATIONS, COVENANTS, WARRANTIES, UNDERTAKINGS,
AND INDEMNIFICATION, AND OTHER RIGHTS MADE OR GRANTED TO OR FOR THE BENEFIT OF
THE PURCHASER BY THE COMPANY ARE HEREBY ALSO MADE AND GRANTED FOR THE BENEFIT OF
THE HOLDER OF THE WARRANT AND SHARES OF THE COMPANY’S COMMON STOCK ISSUABLE UPON
EXERCISE OF THE WARRANT (THE “WARRANT SHARES”).

 

(B)                                 SUBJECT TO THE TERMS OF SECTION 2(D) BELOW,
THE COMPANY SHALL PAY TO LAURUS CAPITAL MANAGEMENT, LLC, THE MANAGER OF THE
PURCHASER, A CLOSING PAYMENT IN AN AMOUNT EQUAL TO THREE AND ONE HALF PERCENT
(3.50%) OF THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTE.  THE FOREGOING FEE IS
REFERRED TO HEREIN AS THE “CLOSING PAYMENT.”

 

(C)                                  THE COMPANY SHALL REIMBURSE THE PURCHASER
FOR ITS REASONABLE EXPENSES (INCLUDING LEGAL FEES AND EXPENSES) INCURRED IN
CONNECTION WITH THE PREPARATION AND NEGOTIATION OF THIS AGREEMENT AND THE
RELATED AGREEMENTS (AS HEREINAFTER DEFINED), AND EXPENSES INCURRED IN CONNECTION
WITH THE PURCHASER’S DUE DILIGENCE REVIEW OF THE COMPANY AND ITS SUBSIDIARIES
(AS DEFINED IN SECTION 4.2) AND ALL RELATED MATTERS.  AMOUNTS REQUIRED TO BE
PAID UNDER THIS SECTION 2(C) WILL BE PAID ON THE CLOSING DATE AND SHALL BE
$10,000  FOR SUCH EXPENSES REFERRED TO IN THIS SECTION 2(C).

 

(D)                                 THE CLOSING PAYMENT AND THE EXPENSES
REFERRED TO IN THE PRECEDING CLAUSE (C) (NET OF DEPOSITS PREVIOUSLY PAID BY THE
COMPANY) SHALL BE PAID AT CLOSING OUT OF FUNDS HELD PURSUANT TO THE ESCROW
AGREEMENT (AS DEFINED BELOW) AND A DISBURSEMENT LETTER (THE “DISBURSEMENT
LETTER”).

 

3.                                       CLOSING, DELIVERY AND PAYMENT.

 

3.1                                 CLOSING.  SUBJECT TO THE TERMS AND
CONDITIONS HEREIN, THE CLOSING OF THE TRANSACTIONS CONTEMPLATED HEREBY (THE
“CLOSING”), SHALL TAKE PLACE ON THE DATE HEREOF, AT SUCH TIME OR PLACE AS THE
COMPANY AND THE PURCHASER MAY MUTUALLY AGREE (SUCH DATE IS HEREINAFTER REFERRED
TO AS THE “CLOSING DATE”).

 

3.2                                 DELIVERY.  PURSUANT TO THE ESCROW AGREEMENT,
AT THE CLOSING ON THE CLOSING DATE, THE COMPANY WILL DELIVER TO THE PURCHASER,
AMONG OTHER THINGS, THE NOTE, THE WARRANT AND THE INTEREST SHARES AND THE
PURCHASER WILL DELIVER TO THE COMPANY, AMONG OTHER THINGS, THE AMOUNTS SET FORTH
IN THE DISBURSEMENT LETTER BY CERTIFIED FUNDS OR WIRE TRANSFER. THE COMPANY
HEREBY ACKNOWLEDGES AND AGREES THAT PURCHASER’S OBLIGATION TO PURCHASE THE NOTE
FROM THE COMPANY ON THE CLOSING DATE SHALL BE CONTINGENT UPON THE SATISFACTION
(OR WAIVER BY THE PURCHASER IN ITS SOLE DISCRETION) OF THE ITEMS AND MATTERS SET
FORTH IN THE CLOSING CHECKLIST PROVIDED BY THE PURCHASER TO THE COMPANY ON OR
PRIOR TO THE CLOSING DATE.

 

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4.                                       REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.  THE COMPANY HEREBY REPRESENTS AND WARRANTS TO THE PURCHASER AS FOLLOWS

 

4.1                                 ORGANIZATION, GOOD STANDING AND
QUALIFICATION.  EACH OF THE COMPANY AND EACH OF ITS SUBSIDIARIES IS A
CORPORATION, PARTNERSHIP OR LIMITED LIABILITY COMPANY, AS THE CASE MAY BE, DULY
ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF ITS
JURISDICTION OF ORGANIZATION.  EACH OF THE COMPANY AND EACH OF ITS SUBSIDIARIES
HAS THE CORPORATE, LIMITED LIABILITY COMPANY OR PARTNERSHIP, AS THE CASE MAY BE,
POWER AND AUTHORITY TO OWN AND OPERATE ITS PROPERTIES AND ASSETS AND, INSOFAR AS
IT IS OR SHALL BE A PARTY THERETO, TO (1) EXECUTE AND DELIVER (I) THIS
AGREEMENT, (II) THE NOTE AND THE WARRANT TO BE ISSUED IN CONNECTION WITH THIS
AGREEMENT, (III) THE MASTER SECURITY AGREEMENT DATED AS OF THE DATE HEREOF
BETWEEN THE COMPANY, CERTAIN SUBSIDIARIES OF THE COMPANY AND THE PURCHASER (AS
AMENDED, MODIFIED AND/OR SUPPLEMENTED FROM TIME TO TIME, THE “MASTER SECURITY
AGREEMENT”), (IV) THE REAFFIRMATION AND RATIFICATION AGREEMENT DATED AS OF THE
DATE HEREOF BY AND AMONG THE COMPANY, CERTAIN SUBSIDIARIES AND THE PURCHASER (AS
AMENDED, MODIFIED OR SUPPLEMENTED, THE “REAFFIRMATION AGREEMENT”), WHICH
REAFFIRMS AND RATIFIES THE OBLIGATIONS OF THE COMPANY AND THE SUBSIDIARIES UNDER
(A) THAT CERTAIN SECURITY AGREEMENT BY AND AMONG THE COMPANY, CERTAIN
SUBSIDIARIES OF THE COMPANY AND THE PURCHASER DATED AS OF AUGUST 25, 2005;
(B) THAT CERTAIN SECURITY AGREEMENT DATED AS OF AUGUST 25, 2005 BY AND AMONG
CERTAIN SUBSIDIARIES OF THE COMPANY AND THE PURCHASER (AS AMENDED, MODIFIED
AND/OR SUPPLEMENTED FROM TIME TO TIME, THE “SUBSIDIARY SECURITY AGREEMENT”) AND
(C) THAT CERTAIN CONTINUING GUARANTY AGREEMENT DATED AS OF AUGUST 25, 2005 AMONG
CERTAIN SUBSIDIARIES OF THE COMPANY AND THE PURCHASER (AS AMENDED, MODIFIED
AND/OR OR SUPPLEMENTED FROM TIME TO TIME, THE “CONTINUING GUARANTY”); (V) THE
REGISTRATION RIGHTS AGREEMENT RELATING TO THE SECURITIES DATED AS OF THE DATE
HEREOF BETWEEN THE COMPANY AND THE PURCHASER (AS AMENDED, MODIFIED AND/OR
SUPPLEMENTED FROM TIME TO TIME, THE “REGISTRATION RIGHTS AGREEMENT”), (VI) THE
FUNDS ESCROW AGREEMENT DATED AS OF THE DATE HEREOF AMONG THE COMPANY, THE
PURCHASER AND THE ESCROW AGENT REFERRED TO THEREIN, SUBSTANTIALLY IN THE FORM OF
EXHIBIT D HERETO (AS AMENDED, MODIFIED AND/OR SUPPLEMENTED FROM TIME TO TIME,
THE “ESCROW AGREEMENT”) AND (VII) ALL OTHER DOCUMENTS, INSTRUMENTS AND
AGREEMENTS ENTERED INTO IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY
AND THEREBY (THE PRECEDING CLAUSES (III) THROUGH (VII), COLLECTIVELY, THE
“RELATED AGREEMENTS”); (2) ISSUE AND SELL THE NOTE AND THE SHARES OF COMMON
STOCK ISSUABLE UPON CONVERSION OF THE NOTE (THE “NOTE SHARES”); (3) ISSUE AND
SELL THE WARRANT AND THE WARRANT SHARES; (4) ISSUE AND SELL THE INTEREST SHARES;
AND (5) CARRY OUT THE PROVISIONS OF THIS AGREEMENT AND THE RELATED AGREEMENTS
AND TO CARRY ON ITS BUSINESS AS PRESENTLY CONDUCTED.  EACH OF THE COMPANY AND
EACH OF ITS SUBSIDIARIES IS DULY QUALIFIED AND IS AUTHORIZED TO DO BUSINESS AND
IS IN GOOD STANDING AS A FOREIGN CORPORATION, PARTNERSHIP OR LIMITED LIABILITY
COMPANY, AS THE CASE MAY BE, IN ALL JURISDICTIONS IN WHICH THE NATURE OR
LOCATION OF ITS ACTIVITIES AND OF ITS PROPERTIES (BOTH OWNED AND LEASED) MAKES
SUCH QUALIFICATION NECESSARY, EXCEPT FOR THOSE JURISDICTIONS IN WHICH FAILURE TO
DO SO HAS NOT, OR COULD NOT REASONABLY BE EXPECTED TO HAVE, INDIVIDUALLY OR IN
THE AGGREGATE, A MATERIAL ADVERSE EFFECT ON THE BUSINESS, ASSETS, LIABILITIES,
CONDITION (FINANCIAL OR OTHERWISE), PROPERTIES, OPERATIONS OR PROSPECTS OF THE
COMPANY AND ITS SUBSIDIARIES, TAKEN INDIVIDUALLY AND AS A WHOLE (A “MATERIAL
ADVERSE EFFECT”).

 

4.2                                 SUBSIDIARIES.  EACH OF ITS DIRECT AND
INDIRECT SUBSIDIARIES, THE DIRECT OWNER OF EACH SUCH SUBSIDIARY AND ITS
PERCENTAGE OWNERSHIP THEREOF, IS SET FORTH ON SCHEDULE 4.2.

 

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4.3                                 CAPITALIZATION; VOTING RIGHTS.

 

(A)                                  THE AUTHORIZED CAPITAL STOCK OF THE
COMPANY, AS OF THE DATE HEREOF CONSISTS OF 100,000,000 SHARES, PAR VALUE $0.001
PER SHARE, THE NUMBER OF SHARES ISSUED AND OUTSTANDING ARE AS SET FORTH ON
SCHEDULE 4.3, AND 25,000,000 ARE SHARES OF PREFERRED STOCK, PAR VALUE $0.001 PER
SHARE OF WHICH NO SHARES OF PREFERRED STOCK ARE ISSUED AND OUTSTANDING.  THE
AUTHORIZED, ISSUED AND OUTSTANDING CAPITAL STOCK OF EACH SUBSIDIARY OF THE
COMPANY IS SET FORTH ON SCHEDULE 4.3.

 

(B)                                 EXCEPT AS DISCLOSED ON SCHEDULE 4.3, OTHER
THAN:  (I) THE SHARES RESERVED FOR ISSUANCE UNDER THE COMPANY’S STOCK OPTION
PLANS; AND (II) SHARES WHICH MAY BE GRANTED PURSUANT TO THIS AGREEMENT AND THE
RELATED AGREEMENTS, THERE ARE NO OUTSTANDING OPTIONS, WARRANTS, RIGHTS
(INCLUDING CONVERSION OR PREEMPTIVE RIGHTS AND RIGHTS OF FIRST REFUSAL), PROXY
OR STOCKHOLDER AGREEMENTS, OR ARRANGEMENTS OR AGREEMENTS OF ANY KIND FOR THE
PURCHASE OR ACQUISITION FROM THE COMPANY OF ANY OF ITS SECURITIES.  EXCEPT AS
DISCLOSED ON SCHEDULE 4.3, NEITHER THE OFFER, ISSUANCE OR SALE OF ANY OF THE
NOTE, THE WARRANT OR THE INTEREST SHARES, OR THE ISSUANCE OF ANY OF THE NOTE
SHARES OR WARRANT SHARES, NOR THE CONSUMMATION OF ANY TRANSACTION CONTEMPLATED
HEREBY WILL RESULT IN A CHANGE IN THE PRICE OR NUMBER OF ANY SECURITIES OF THE
COMPANY OUTSTANDING, UNDER ANTI-DILUTION OR OTHER SIMILAR PROVISIONS CONTAINED
IN OR AFFECTING ANY SUCH SECURITIES.

 

(C)                                  ALL ISSUED AND OUTSTANDING SHARES OF THE
COMPANY’S COMMON STOCK:  (I) HAVE BEEN DULY AUTHORIZED AND VALIDLY ISSUED AND
ARE FULLY PAID AND NONASSESSABLE; AND (II) WERE ISSUED IN COMPLIANCE WITH ALL
APPLICABLE STATE AND FEDERAL LAWS CONCERNING THE ISSUANCE OF SECURITIES.

 

(D)                                 THE RIGHTS, PREFERENCES, PRIVILEGES AND
RESTRICTIONS OF THE SHARES OF THE COMMON STOCK ARE AS STATED IN THE COMPANY’S
CERTIFICATE OF INCORPORATION (THE “CHARTER”).  THE NOTE SHARES, WARRANT SHARES
AND INTEREST SHARES HAVE BEEN DULY AND VALIDLY RESERVED FOR ISSUANCE.  WHEN
ISSUED IN COMPLIANCE WITH THE PROVISIONS OF THIS AGREEMENT AND THE COMPANY’S
CHARTER, THE SECURITIES WILL BE VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE,
AND WILL BE FREE OF ANY LIENS OR ENCUMBRANCES; PROVIDED, HOWEVER, THAT THE
SECURITIES MAY BE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER STATE AND/OR FEDERAL
SECURITIES LAWS AS SET FORTH HEREIN OR AS OTHERWISE REQUIRED BY SUCH LAWS AT THE
TIME A TRANSFER IS PROPOSED.

 

4.4                                 AUTHORIZATION; BINDING OBLIGATIONS.  ALL
CORPORATE, PARTNERSHIP OR LIMITED LIABILITY COMPANY, AS THE CASE MAY BE, ACTION
ON THE PART OF THE COMPANY AND EACH OF ITS SUBSIDIARIES (INCLUDING THEIR
RESPECTIVE OFFICERS AND DIRECTORS) NECESSARY FOR THE AUTHORIZATION OF THIS
AGREEMENT AND THE RELATED AGREEMENTS, THE PERFORMANCE OF ALL OBLIGATIONS OF THE
COMPANY AND ITS SUBSIDIARIES HEREUNDER AND UNDER THE OTHER RELATED AGREEMENTS AT
THE CLOSING AND, THE AUTHORIZATION, SALE, ISSUANCE AND DELIVERY OF THE NOTE, 
WARRANT AND INTEREST SHARES HAS BEEN TAKEN OR WILL BE TAKEN PRIOR TO THE
CLOSING.  THIS AGREEMENT AND THE RELATED AGREEMENTS, WHEN EXECUTED AND DELIVERED
AND TO THE EXTENT IT IS A PARTY THERETO, WILL BE VALID AND BINDING OBLIGATIONS
OF EACH OF THE COMPANY AND EACH OF ITS SUBSIDIARIES, ENFORCEABLE AGAINST EACH
SUCH PERSON OR ENTITY IN ACCORDANCE WITH THEIR TERMS, EXCEPT:

 

4

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(A)                                  AS LIMITED BY APPLICABLE BANKRUPTCY,
INSOLVENCY, REORGANIZATION, MORATORIUM OR OTHER LAWS OF GENERAL APPLICATION
AFFECTING ENFORCEMENT OF CREDITORS’ RIGHTS; AND

 

(B)                                 GENERAL PRINCIPLES OF EQUITY THAT RESTRICT
THE AVAILABILITY OF EQUITABLE OR LEGAL REMEDIES.

 

The sale of the Note and the subsequent conversion of the Note into Note Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with.  The issuance of
the Warrant and the subsequent exercise of the Warrant for Warrant Shares are
not and will not be subject to any preemptive rights or rights of first refusal
that have not been properly waived or complied with.  The issuance of the
Interest Shares is not and will not be subject to any preemptive rights or
rights of first refusal that have not been properly waived or complied with.

 

4.5                                 LIABILITIES.  EXCEPT AS SET FORTH ON
SCHEDULE 4.5, NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES HAS ANY
LIABILITIES, EXCEPT CURRENT LIABILITIES INCURRED IN THE ORDINARY COURSE OF
BUSINESS AND LIABILITIES DISCLOSED IN ANY OF THE COMPANY’S FILINGS UNDER THE
SECURITIES EXCHANGE ACT OF 1934 (“EXCHANGE ACT”) MADE PRIOR TO THE DATE OF THIS
AGREEMENT (COLLECTIVELY, THE “EXCHANGE ACT FILINGS”), COPIES OF WHICH HAVE BEEN
PROVIDED TO THE PURCHASER.

 

4.6                                 AGREEMENTS; ACTION.  EXCEPT AS SET FORTH ON
SCHEDULE 4.6 OR AS DISCLOSED IN ANY EXCHANGE ACT FILINGS:

 

(A)                                  THERE ARE NO AGREEMENTS, UNDERSTANDINGS,
INSTRUMENTS, CONTRACTS, PROPOSED TRANSACTIONS, JUDGMENTS, ORDERS, WRITS OR
DECREES TO WHICH THE COMPANY OR ANY OF ITS SUBSIDIARIES IS A PARTY OR TO ITS
KNOWLEDGE BY WHICH IT IS BOUND WHICH INVOLVES: (I) OBLIGATIONS (CONTINGENT OR
OTHERWISE) OF, OR PAYMENTS TO, THE COMPANY OR ANY OF ITS SUBSIDIARIES IN EXCESS
OF $100,000 (OTHER THAN OBLIGATIONS OF, OR PAYMENTS TO, THE COMPANY OR ANY OF
ITS SUBSIDIARIES ARISING FROM PURCHASE OR SALE AGREEMENTS ENTERED INTO IN THE
ORDINARY COURSE OF BUSINESS); OR (II) THE TRANSFER OR LICENSE OF ANY PATENT,
COPYRIGHT, TRADE SECRET OR OTHER PROPRIETARY RIGHT TO OR FROM THE COMPANY OR ANY
OF ITS SUBSIDIARIES (OTHER THAN LICENSES ARISING FROM THE PURCHASE OF “OFF THE
SHELF” OR OTHER STANDARD PRODUCTS); OR (III) PROVISIONS RESTRICTING THE
DEVELOPMENT, MANUFACTURE OR DISTRIBUTION OF THE COMPANY’S OR ANY OF ITS
SUBSIDIARIES PRODUCTS OR SERVICES; OR (IV) INDEMNIFICATION BY THE COMPANY OR ANY
OF ITS SUBSIDIARIES WITH RESPECT TO INFRINGEMENTS OF PROPRIETARY RIGHTS.

 

(B)                                 SINCE SEPTEMBER 30, 2005, (THE “BALANCE
SHEET DATE”), NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES HAS:  (I) DECLARED
OR PAID ANY DIVIDENDS, OR AUTHORIZED OR MADE ANY DISTRIBUTION UPON OR WITH
RESPECT TO ANY CLASS OR SERIES OF ITS CAPITAL STOCK; (II) INCURRED ANY
INDEBTEDNESS FOR MONEY BORROWED OR ANY OTHER LIABILITIES (OTHER THAN ORDINARY
COURSE OBLIGATIONS) INDIVIDUALLY IN EXCESS OF $100,000 OR, IN THE CASE OF
INDEBTEDNESS AND/OR LIABILITIES INDIVIDUALLY LESS THAN $100,000, IN EXCESS OF
$100,000 IN THE AGGREGATE; (III) MADE ANY LOANS OR ADVANCES TO ANY PERSON OR
ENTITY NOT IN EXCESS, INDIVIDUALLY OR IN THE AGGREGATE, OF $100,000, OTHER THAN
ORDINARY COURSE ADVANCES FOR

 

5

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TRAVEL EXPENSES; OR (IV) SOLD, EXCHANGED OR OTHERWISE DISPOSED OF ANY OF ITS
ASSETS OR RIGHTS, OTHER THAN THE SALE OF ITS INVENTORY IN THE ORDINARY COURSE OF
BUSINESS.

 

(C)                                  FOR THE PURPOSES OF SUBSECTIONS (A) AND
(B) ABOVE, ALL INDEBTEDNESS, LIABILITIES, AGREEMENTS, UNDERSTANDINGS,
INSTRUMENTS, CONTRACTS AND PROPOSED TRANSACTIONS INVOLVING THE SAME PERSON OR
ENTITY (INCLUDING PERSONS OR ENTITIES THE COMPANY OR ANY SUBSIDIARY OF THE
COMPANY HAS REASON TO BELIEVE ARE AFFILIATED THEREWITH) SHALL BE AGGREGATED FOR
THE PURPOSE OF MEETING THE INDIVIDUAL MINIMUM DOLLAR AMOUNTS OF SUCH
SUBSECTIONS.

 

(D)                                 THE COMPANY MAINTAINS DISCLOSURE CONTROLS
AND PROCEDURES (“DISCLOSURE CONTROLS”) AS REQUIRED BY THE SECURITIES AND
EXCHANGE COMMISSION (“SEC”) FOR COMPANIES THE SIZE OF THE COMPANY DESIGNED TO
ENSURE THAT INFORMATION REQUIRED TO BE DISCLOSED BY THE COMPANY IN THE REPORTS
THAT IT FILES OR SUBMITS UNDER THE EXCHANGE ACT IS RECORDED, PROCESSED,
SUMMARIZED, AND REPORTED, WITHIN THE TIME PERIODS SPECIFIED IN THE RULES AND
FORMS OF THE SEC.

 

(I)                                     THE COMPANY MAKES AND KEEP BOOKS,
RECORDS, AND ACCOUNTS, THAT, IN REASONABLE DETAIL, ACCURATELY AND FAIRLY REFLECT
THE TRANSACTIONS AND DISPOSITIONS OF THE COMPANY’S ASSETS.  THE COMPANY
MAINTAINS INTERNAL CONTROL OVER FINANCIAL REPORTING (“FINANCIAL REPORTING
CONTROLS”) AS REQUIRED BY THE SEC FOR ENTITIES OF ITS SIZE.

 

4.7                                 OBLIGATIONS TO RELATED PARTIES.  EXCEPT AS
SET FORTH ON SCHEDULE 4.7, THERE ARE NO OBLIGATIONS OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES TO OFFICERS, DIRECTORS, STOCKHOLDERS OR EMPLOYEES OF THE COMPANY OR
ANY OF ITS SUBSIDIARIES OTHER THAN:

 

(A)                                  FOR PAYMENT OF SALARY FOR SERVICES RENDERED
AND FOR BONUS PAYMENTS;

 

(B)                                 REIMBURSEMENT FOR REASONABLE EXPENSES
INCURRED ON BEHALF OF THE COMPANY AND ITS SUBSIDIARIES;

 

(C)                                  FOR OTHER STANDARD EMPLOYEE BENEFITS MADE
GENERALLY AVAILABLE TO ALL EMPLOYEES (INCLUDING STOCK OPTION AGREEMENTS
OUTSTANDING UNDER ANY STOCK OPTION PLAN APPROVED BY THE BOARD OF DIRECTORS OF
THE COMPANY AND EACH SUBSIDIARY OF THE COMPANY, AS APPLICABLE); AND

 

(D)                                 OBLIGATIONS LISTED IN THE COMPANY’S AND EACH
OF ITS SUBSIDIARY’S FINANCIAL STATEMENTS OR DISCLOSED IN ANY OF THE COMPANY’S
EXCHANGE ACT FILINGS.

 

Except as described above or set forth on Schedule 4.7, none of its officers,
directors or, to the best of the Company’s knowledge, key employees or
stockholders of the Company or any of its Subsidiaries or any members of their
immediate families, are indebted to the Company or any of its Subsidiaries,
individually or in the aggregate, in excess of $100,000 or have any direct or
indirect ownership interest in any firm or corporation with which the Company or
any of its Subsidiaries is affiliated or with which the Company or any of its
Subsidiaries has a business relationship, or any firm or corporation which
competes with the Company or any of its Subsidiaries, other than passive
investments in publicly traded companies (representing less than

 

6

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one percent (1%) of such company) which may compete with the Company or any of
its Subsidiaries.  Except as described above, no officer, director or
stockholder of the Company or any of its Subsidiaries, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company or any of its Subsidiaries and no agreements,
understandings or proposed transactions are contemplated between the Company or
any of its Subsidiaries and any such person.  Except as set forth on
Schedule 4.7, neither the Company nor any of its Subsidiaries is a guarantor or
indemnitor of any indebtedness of any other person or entity.

 

4.8                                 CHANGES.  SINCE THE BALANCE SHEET DATE,
EXCEPT AS DISCLOSED IN ANY EXCHANGE ACT FILING OR IN ANY SCHEDULE TO THIS
AGREEMENT OR TO ANY OF THE RELATED AGREEMENTS, THERE HAS NOT BEEN:

 

(A)                                  ANY CHANGE IN THE BUSINESS, ASSETS,
LIABILITIES, CONDITION (FINANCIAL OR OTHERWISE), PROPERTIES, OPERATIONS OR
PROSPECTS OF THE COMPANY OR ANY OF ITS SUBSIDIARIES, WHICH INDIVIDUALLY OR IN
THE AGGREGATE HAS HAD, OR COULD REASONABLY BE EXPECTED TO HAVE, INDIVIDUALLY OR
IN THE AGGREGATE, A MATERIAL ADVERSE EFFECT;

 

(B)                                 ANY RESIGNATION OR TERMINATION OF ANY
OFFICER, KEY EMPLOYEE OR GROUP OF EMPLOYEES OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES;

 

(C)                                  ANY MATERIAL CHANGE, EXCEPT IN THE ORDINARY
COURSE OF BUSINESS, IN THE CONTINGENT OBLIGATIONS OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES BY WAY OF GUARANTY, ENDORSEMENT, INDEMNITY, WARRANTY OR OTHERWISE;

 

(D)                                 ANY DAMAGE, DESTRUCTION OR LOSS, WHETHER OR
NOT COVERED BY INSURANCE, WHICH HAS HAD, OR COULD REASONABLY BE EXPECTED TO
HAVE, INDIVIDUALLY OR IN THE AGGREGATE, A MATERIAL ADVERSE EFFECT;

 

(E)                                  ANY WAIVER BY THE COMPANY OR ANY OF ITS
SUBSIDIARIES OF A VALUABLE RIGHT OR OF A MATERIAL DEBT OWED TO IT;

 

(F)                                    ANY DIRECT OR INDIRECT LOANS MADE BY THE
COMPANY OR ANY OF ITS SUBSIDIARIES TO ANY STOCKHOLDER, EMPLOYEE, OFFICER OR
DIRECTOR OF THE COMPANY OR ANY OF ITS SUBSIDIARIES, OTHER THAN ADVANCES MADE IN
THE ORDINARY COURSE OF BUSINESS;

 

(G)                                 ANY MATERIAL CHANGE IN ANY COMPENSATION
ARRANGEMENT OR AGREEMENT WITH ANY EMPLOYEE, OFFICER, DIRECTOR OR STOCKHOLDER OF
THE COMPANY OR ANY OF ITS SUBSIDIARIES;

 

(H)                                 ANY DECLARATION OR PAYMENT OF ANY DIVIDEND
OR OTHER DISTRIBUTION OF THE ASSETS OF THE COMPANY OR ANY OF ITS SUBSIDIARIES;

 

(I)                                     ANY LABOR ORGANIZATION ACTIVITY RELATED
TO THE COMPANY OR ANY OF ITS SUBSIDIARIES;

 

(J)                                     ANY DEBT, OBLIGATION OR LIABILITY
INCURRED, ASSUMED OR GUARANTEED BY THE COMPANY OR ANY OF ITS SUBSIDIARIES,
EXCEPT THOSE FOR IMMATERIAL AMOUNTS AND FOR CURRENT LIABILITIES INCURRED IN THE
ORDINARY COURSE OF BUSINESS;

 

7

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(K)                                  ANY SALE, ASSIGNMENT OR TRANSFER OF ANY
PATENTS, TRADEMARKS, COPYRIGHTS, TRADE SECRETS OR OTHER INTANGIBLE ASSETS OWNED
BY THE COMPANY OR ANY OF ITS SUBSIDIARIES;

 

(L)                                     ANY CHANGE IN ANY MATERIAL AGREEMENT TO
WHICH THE COMPANY OR ANY OF ITS SUBSIDIARIES IS A PARTY OR BY WHICH EITHER THE
COMPANY OR ANY OF ITS SUBSIDIARIES IS BOUND WHICH EITHER INDIVIDUALLY OR IN THE
AGGREGATE HAS HAD, OR COULD REASONABLY BE EXPECTED TO HAVE, INDIVIDUALLY OR IN
THE AGGREGATE, A MATERIAL ADVERSE EFFECT;

 

(M)                               ANY OTHER EVENT OR CONDITION OF ANY CHARACTER
THAT, EITHER INDIVIDUALLY OR IN THE AGGREGATE, HAS HAD, OR COULD REASONABLY BE
EXPECTED TO HAVE, INDIVIDUALLY OR IN THE AGGREGATE, A MATERIAL ADVERSE EFFECT;
OR

 

(N)                                 ANY ARRANGEMENT OR COMMITMENT BY THE COMPANY
OR ANY OF ITS SUBSIDIARIES TO DO ANY OF THE ACTS DESCRIBED IN
SUBSECTION (A) THROUGH (M) ABOVE.

 

4.9                                 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. 
EXCEPT AS SET FORTH ON SCHEDULE 4.9, EACH OF THE COMPANY AND EACH OF ITS
SUBSIDIARIES HAS GOOD AND MARKETABLE TITLE TO ITS PROPERTIES AND ASSETS, AND
GOOD TITLE TO ITS LEASEHOLD INTERESTS, IN EACH CASE SUBJECT TO NO MORTGAGE,
PLEDGE, LIEN, LEASE, ENCUMBRANCE OR CHARGE, OTHER THAN:

 

(A)                                  MINOR LIENS AND ENCUMBRANCES WHICH DO NOT
MATERIALLY DETRACT FROM THE VALUE OF THE PROPERTY SUBJECT THERETO OR MATERIALLY
IMPAIR THE OPERATIONS OF THE COMPANY OR ANY OF ITS SUBSIDIARIES, SO LONG AS IN
EACH SUCH CASE, SUCH LIENS AND ENCUMBRANCES HAVE NO EFFECT ON THE LIEN PRIORITY
OF THE PURCHASER IN SUCH PROPERTY; AND

 

(B)                                 THOSE THAT HAVE OTHERWISE ARISEN IN THE
ORDINARY COURSE OF BUSINESS, SO LONG AS THEY HAVE NO EFFECT ON THE LIEN PRIORITY
OF THE PURCHASER THEREIN.

 

All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used.  Except as set forth on Schedule 4.9, the Company and
its Subsidiaries are in compliance with all material terms of each lease to
which it is a party or is otherwise bound.

 

4.10                           INTELLECTUAL PROPERTY.

 

(A)                                  EACH OF THE COMPANY AND EACH OF ITS
SUBSIDIARIES OWNS OR POSSESSES SUFFICIENT LEGAL RIGHTS TO ALL PATENTS,
TRADEMARKS, SERVICE MARKS, TRADE NAMES, COPYRIGHTS, TRADE SECRETS, LICENSES,
INFORMATION AND OTHER PROPRIETARY RIGHTS AND PROCESSES NECESSARY FOR ITS
BUSINESS AS NOW CONDUCTED AND, TO THE COMPANY’S KNOWLEDGE, AS PRESENTLY PROPOSED
TO BE CONDUCTED (THE “INTELLECTUAL PROPERTY”), WITHOUT ANY KNOWN INFRINGEMENT OF
THE RIGHTS OF OTHERS.  THERE ARE NO OUTSTANDING OPTIONS, LICENSES OR AGREEMENTS
OF ANY KIND RELATING TO THE FOREGOING PROPRIETARY RIGHTS, NOR IS THE COMPANY OR
ANY OF ITS SUBSIDIARIES BOUND BY OR A PARTY TO ANY OPTIONS, LICENSES OR
AGREEMENTS OF ANY KIND WITH RESPECT TO THE PATENTS, TRADEMARKS, SERVICE MARKS,
TRADE NAMES, COPYRIGHTS, TRADE SECRETS, LICENSES, INFORMATION AND OTHER
PROPRIETARY RIGHTS AND PROCESSES OF ANY OTHER PERSON OR ENTITY OTHER THAN SUCH
LICENSES OR AGREEMENTS ARISING FROM THE PURCHASE OF “OFF THE SHELF” OR STANDARD
PRODUCTS.

 

8

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(B)                                 NEITHER THE COMPANY NOR ANY OF ITS
SUBSIDIARIES HAS RECEIVED ANY COMMUNICATIONS ALLEGING THAT THE COMPANY OR ANY OF
ITS SUBSIDIARIES HAS VIOLATED ANY OF THE PATENTS, TRADEMARKS, SERVICE MARKS,
TRADE NAMES, COPYRIGHTS OR TRADE SECRETS OR OTHER PROPRIETARY RIGHTS OF ANY
OTHER PERSON OR ENTITY, NOR IS THE COMPANY OR ANY OF ITS SUBSIDIARIES AWARE OF
ANY BASIS THEREFOR.

 

(C)                                  THE COMPANY DOES NOT BELIEVE IT IS OR WILL
BE NECESSARY TO UTILIZE ANY INVENTIONS, TRADE SECRETS OR PROPRIETARY INFORMATION
OF ANY OF ITS EMPLOYEES MADE PRIOR TO THEIR EMPLOYMENT BY THE COMPANY OR ANY OF
ITS SUBSIDIARIES, EXCEPT FOR INVENTIONS, TRADE SECRETS OR PROPRIETARY
INFORMATION THAT HAVE BEEN RIGHTFULLY ASSIGNED TO THE COMPANY OR ANY OF ITS
SUBSIDIARIES.

 

4.11                           COMPLIANCE WITH OTHER INSTRUMENTS.  NEITHER THE
COMPANY NOR ANY OF ITS SUBSIDIARIES IS IN VIOLATION OR DEFAULT OF (X) ANY TERM
OF ITS CHARTER OR BYLAWS, OR (Y) ANY PROVISION OF ANY INDEBTEDNESS, MORTGAGE,
INDENTURE, CONTRACT, AGREEMENT OR INSTRUMENT TO WHICH IT IS PARTY OR BY WHICH IT
IS BOUND OR OF ANY JUDGMENT, DECREE, ORDER OR WRIT, WHICH VIOLATION OR DEFAULT,
IN THE CASE OF THIS CLAUSE (Y), HAS HAD, OR COULD REASONABLY BE EXPECTED TO
HAVE, EITHER INDIVIDUALLY OR IN THE AGGREGATE, A MATERIAL ADVERSE EFFECT.  THE
EXECUTION, DELIVERY AND PERFORMANCE OF AND COMPLIANCE WITH THIS AGREEMENT AND
THE RELATED AGREEMENTS TO WHICH IT IS A PARTY, AND THE ISSUANCE AND SALE OF THE
NOTE BY THE COMPANY AND THE OTHER SECURITIES BY THE COMPANY EACH PURSUANT HERETO
AND THERETO, WILL NOT, WITH OR WITHOUT THE PASSAGE OF TIME OR GIVING OF NOTICE,
RESULT IN ANY SUCH MATERIAL VIOLATION, OR BE IN CONFLICT WITH OR CONSTITUTE A
DEFAULT UNDER ANY SUCH TERM OR PROVISION, OR RESULT IN THE CREATION OF ANY
MORTGAGE, PLEDGE, LIEN, ENCUMBRANCE OR CHARGE UPON ANY OF THE PROPERTIES OR
ASSETS OF THE COMPANY OR ANY OF ITS SUBSIDIARIES OR THE SUSPENSION, REVOCATION,
IMPAIRMENT, FORFEITURE OR NONRENEWAL OF ANY PERMIT, LICENSE, AUTHORIZATION OR
APPROVAL APPLICABLE TO THE COMPANY, ITS BUSINESS OR OPERATIONS OR ANY OF ITS
ASSETS OR PROPERTIES.

 

4.12                           LITIGATION.  EXCEPT AS SET FORTH ON SCHEDULE 4.12
HERETO, THERE IS NO ACTION, SUIT, PROCEEDING OR INVESTIGATION PENDING OR, TO THE
COMPANY’S KNOWLEDGE, CURRENTLY THREATENED AGAINST THE COMPANY OR ANY OF ITS
SUBSIDIARIES THAT PREVENTS THE COMPANY OR ANY OF ITS SUBSIDIARIES FROM ENTERING
INTO THIS AGREEMENT OR THE OTHER RELATED AGREEMENTS, OR FROM CONSUMMATING THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, OR WHICH HAS HAD, OR COULD
REASONABLY BE EXPECTED TO HAVE, EITHER INDIVIDUALLY OR IN THE AGGREGATE, A
MATERIAL ADVERSE EFFECT OR ANY CHANGE IN THE CURRENT EQUITY OWNERSHIP OF THE
COMPANY OR ANY OF ITS SUBSIDIARIES, NOR IS THE COMPANY AWARE THAT THERE IS ANY
BASIS TO ASSERT ANY OF THE FOREGOING.  NEITHER THE COMPANY NOR ANY OF ITS
SUBSIDIARIES IS A PARTY TO OR SUBJECT TO THE PROVISIONS OF ANY ORDER, WRIT,
INJUNCTION, JUDGMENT OR DECREE OF ANY COURT OR GOVERNMENT AGENCY OR
INSTRUMENTALITY.  THERE IS NO ACTION, SUIT, PROCEEDING OR INVESTIGATION BY THE
COMPANY OR ANY OF ITS SUBSIDIARIES CURRENTLY PENDING OR WHICH THE COMPANY OR ANY
OF ITS SUBSIDIARIES INTENDS TO INITIATE.

 

4.13                           TAX RETURNS AND PAYMENTS.  EACH OF THE COMPANY
AND EACH OF ITS SUBSIDIARIES HAS TIMELY FILED ALL TAX RETURNS (FEDERAL, STATE
AND LOCAL) REQUIRED TO BE FILED BY IT.  ALL TAXES SHOWN TO BE DUE AND PAYABLE ON
SUCH RETURNS, ANY ASSESSMENTS IMPOSED, AND ALL OTHER TAXES DUE AND PAYABLE BY
THE COMPANY OR ANY OF ITS SUBSIDIARIES ON OR BEFORE THE CLOSING, HAVE BEEN PAID
OR WILL BE PAID PRIOR TO THE TIME THEY BECOME DELINQUENT.  EXCEPT AS SET FORTH
ON SCHEDULE 4.13, NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES HAS BEEN
ADVISED:

 

9

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(A)                                  THAT ANY OF ITS RETURNS, FEDERAL, STATE OR
OTHER, HAVE BEEN OR ARE BEING AUDITED AS OF THE DATE HEREOF; OR

 

(B)                                 OF ANY ADJUSTMENT, DEFICIENCY, ASSESSMENT OR
COURT DECISION IN RESPECT OF ITS FEDERAL, STATE OR OTHER TAXES.

 

The Company has no knowledge of any liability for any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.

 

4.14                           EMPLOYEES.  EXCEPT AS SET FORTH ON SCHEDULE 4.14,
NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES HAS ANY COLLECTIVE BARGAINING
AGREEMENTS WITH ANY OF ITS EMPLOYEES.  THERE IS NO LABOR UNION ORGANIZING
ACTIVITY PENDING OR, TO THE COMPANY’S KNOWLEDGE, THREATENED WITH RESPECT TO THE
COMPANY OR ANY OF ITS SUBSIDIARIES.  EXCEPT AS DISCLOSED IN THE EXCHANGE ACT
FILINGS OR ON SCHEDULE 4.14, NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES IS
A PARTY TO OR BOUND BY ANY CURRENTLY EFFECTIVE EMPLOYMENT CONTRACT, DEFERRED
COMPENSATION ARRANGEMENT, BONUS PLAN, INCENTIVE PLAN, PROFIT SHARING PLAN,
RETIREMENT AGREEMENT OR OTHER EMPLOYEE COMPENSATION PLAN OR AGREEMENT.  TO THE
COMPANY’S KNOWLEDGE, NO EMPLOYEE OF THE COMPANY OR ANY OF ITS SUBSIDIARIES, NOR
ANY CONSULTANT WITH WHOM THE COMPANY OR ANY OF ITS SUBSIDIARIES HAS CONTRACTED,
IS IN VIOLATION OF ANY TERM OF ANY EMPLOYMENT CONTRACT, PROPRIETARY INFORMATION
AGREEMENT OR ANY OTHER AGREEMENT RELATING TO THE RIGHT OF ANY SUCH INDIVIDUAL TO
BE EMPLOYED BY, OR TO CONTRACT WITH, THE COMPANY OR ANY OF ITS SUBSIDIARIES
BECAUSE OF THE NATURE OF THE BUSINESS TO BE CONDUCTED BY THE COMPANY OR ANY OF
ITS SUBSIDIARIES; AND TO THE COMPANY’S KNOWLEDGE THE CONTINUED EMPLOYMENT BY THE
COMPANY AND ITS SUBSIDIARIES OF THEIR PRESENT EMPLOYEES, AND THE PERFORMANCE OF
THE COMPANY’S AND ITS SUBSIDIARIES’ CONTRACTS WITH ITS INDEPENDENT CONTRACTORS,
WILL NOT RESULT IN ANY SUCH VIOLATION.  NEITHER THE COMPANY NOR ANY OF ITS
SUBSIDIARIES IS AWARE THAT ANY OF ITS EMPLOYEES IS OBLIGATED UNDER ANY CONTRACT
(INCLUDING LICENSES, COVENANTS OR COMMITMENTS OF ANY NATURE) OR OTHER AGREEMENT,
OR SUBJECT TO ANY JUDGMENT, DECREE OR ORDER OF ANY COURT OR ADMINISTRATIVE
AGENCY THAT WOULD INTERFERE WITH THEIR DUTIES TO THE COMPANY OR ANY OF ITS
SUBSIDIARIES.  NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES HAS RECEIVED ANY
NOTICE ALLEGING THAT ANY SUCH VIOLATION HAS OCCURRED.  EXCEPT FOR EMPLOYEES WHO
HAVE A CURRENT EFFECTIVE EMPLOYMENT AGREEMENT WITH THE COMPANY OR ANY OF ITS
SUBSIDIARIES, NO EMPLOYEE OF THE COMPANY OR ANY OF ITS SUBSIDIARIES HAS BEEN
GRANTED THE RIGHT TO CONTINUED EMPLOYMENT BY THE COMPANY OR ANY OF ITS
SUBSIDIARIES OR TO ANY MATERIAL COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT
WITH THE COMPANY OR ANY OF ITS SUBSIDIARIES.  EXCEPT AS SET FORTH ON
SCHEDULE 4.14, THE COMPANY IS NOT AWARE THAT ANY OFFICER, KEY EMPLOYEE OR GROUP
OF EMPLOYEES INTENDS TO TERMINATE HIS, HER OR THEIR EMPLOYMENT WITH THE COMPANY
OR ANY OF ITS SUBSIDIARIES, NOR DOES THE COMPANY OR ANY OF ITS SUBSIDIARIES HAVE
A PRESENT INTENTION TO TERMINATE THE EMPLOYMENT OF ANY OFFICER, KEY EMPLOYEE OR
GROUP OF EMPLOYEES.

 

4.15                           REGISTRATION RIGHTS AND VOTING RIGHTS.  EXCEPT
FOR REGISTRATION RIGHTS PREVIOUSLY GRANTED TO PURCHASER AND EXCEPT AS DISCLOSED
IN EXCHANGE ACT FILINGS, NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES IS
PRESENTLY UNDER ANY OBLIGATION, AND NEITHER THE COMPANY NOR ANY OF ITS
SUBSIDIARIES HAS GRANTED ANY RIGHTS, TO REGISTER ANY OF THE COMPANY’S OR ITS
SUBSIDIARIES’ PRESENTLY OUTSTANDING SECURITIES OR ANY OF ITS SECURITIES THAT MAY
HEREAFTER BE ISSUED.  EXCEPT AS SET FORTH ON SCHEDULE 4.15 AND EXCEPT AS
DISCLOSED IN EXCHANGE ACT FILINGS, TO THE COMPANY’S KNOWLEDGE, NO STOCKHOLDER OF
THE COMPANY OR ANY OF ITS SUBSIDIARIES HAS ENTERED

 

10

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INTO ANY AGREEMENT WITH RESPECT TO THE VOTING OF EQUITY SECURITIES OF THE
COMPANY OR ANY OF ITS SUBSIDIARIES.

 

4.16                           COMPLIANCE WITH LAWS; PERMITS.  NEITHER THE
COMPANY NOR ANY OF ITS SUBSIDIARIES IS IN VIOLATION OF ANY PROVISION OF THE
SARBANES-OXLEY ACT OF 2002 OR ANY SEC RELATED REGULATION OR RULE OR ANY RULE OF
THE PRINCIPAL MARKET (AS HEREAFTER DEFINED) PROMULGATED THEREUNDER OR ANY OTHER
APPLICABLE STATUTE, RULE, REGULATION, ORDER OR RESTRICTION OF ANY DOMESTIC OR
FOREIGN GOVERNMENT OR ANY INSTRUMENTALITY OR AGENCY THEREOF IN RESPECT OF THE
CONDUCT OF ITS BUSINESS OR THE OWNERSHIP OF ITS PROPERTIES WHICH HAS HAD, OR
COULD REASONABLY BE EXPECTED TO HAVE, EITHER INDIVIDUALLY OR IN THE AGGREGATE, A
MATERIAL ADVERSE EFFECT.  NO GOVERNMENTAL ORDERS, PERMISSIONS, CONSENTS,
APPROVALS OR AUTHORIZATIONS ARE REQUIRED TO BE OBTAINED AND NO REGISTRATIONS OR
DECLARATIONS ARE REQUIRED TO BE FILED IN CONNECTION WITH THE EXECUTION AND
DELIVERY OF THIS AGREEMENT OR ANY OTHER RELATED AGREEMENT AND THE ISSUANCE OF
ANY OF THE SECURITIES, EXCEPT SUCH AS HAVE BEEN DULY AND VALIDLY OBTAINED OR
FILED, OR WITH RESPECT TO ANY FILINGS THAT MUST BE MADE AFTER THE CLOSING, AS
WILL BE FILED IN A TIMELY MANNER.  EACH OF THE COMPANY AND ITS SUBSIDIARIES HAS
ALL MATERIAL FRANCHISES, PERMITS, LICENSES AND ANY SIMILAR AUTHORITY NECESSARY
FOR THE CONDUCT OF ITS BUSINESS AS NOW BEING CONDUCTED BY IT, THE LACK OF WHICH
COULD, EITHER INDIVIDUALLY OR IN THE AGGREGATE, REASONABLY BE EXPECTED TO HAVE A
MATERIAL ADVERSE EFFECT.

 

4.17                           ENVIRONMENTAL AND SAFETY LAWS.  NEITHER THE
COMPANY NOR ANY OF ITS SUBSIDIARIES IS IN VIOLATION OF ANY APPLICABLE STATUTE,
LAW OR REGULATION RELATING TO THE ENVIRONMENT OR OCCUPATIONAL HEALTH AND SAFETY,
AND TO ITS KNOWLEDGE, NO MATERIAL EXPENDITURES ARE OR WILL BE REQUIRED IN ORDER
TO COMPLY WITH ANY SUCH EXISTING STATUTE, LAW OR REGULATION.  EXCEPT AS SET
FORTH ON SCHEDULE 4.17, NO HAZARDOUS MATERIALS (AS DEFINED BELOW) ARE USED OR
HAVE BEEN USED, STORED, OR DISPOSED OF BY THE COMPANY OR ANY OF ITS SUBSIDIARIES
OR, TO THE COMPANY’S KNOWLEDGE, BY ANY OTHER PERSON OR ENTITY ON ANY PROPERTY
OWNED, LEASED OR USED BY THE COMPANY OR ANY OF ITS SUBSIDIARIES.  FOR THE
PURPOSES OF THE PRECEDING SENTENCE, “HAZARDOUS MATERIALS” SHALL MEAN:

 

(A)                                  MATERIALS WHICH ARE LISTED OR OTHERWISE
DEFINED AS “HAZARDOUS” OR “TOXIC” UNDER ANY APPLICABLE LOCAL, STATE, FEDERAL
AND/OR FOREIGN LAWS AND REGULATIONS THAT GOVERN THE EXISTENCE AND/OR REMEDY OF
CONTAMINATION ON PROPERTY, THE PROTECTION OF THE ENVIRONMENT FROM CONTAMINATION,
THE CONTROL OF HAZARDOUS WASTES, OR OTHER ACTIVITIES INVOLVING HAZARDOUS
SUBSTANCES, INCLUDING BUILDING MATERIALS; OR

 

(B)                                 ANY PETROLEUM PRODUCTS OR NUCLEAR MATERIALS.

 

4.18                           VALID OFFERING.  ASSUMING THE ACCURACY OF THE
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER CONTAINED IN THIS AGREEMENT, THE
OFFER, SALE AND ISSUANCE OF THE SECURITIES WILL BE EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
AND WILL HAVE BEEN REGISTERED OR QUALIFIED (OR ARE EXEMPT FROM REGISTRATION AND
QUALIFICATION) UNDER THE REGISTRATION, PERMIT OR QUALIFICATION REQUIREMENTS OF
ALL APPLICABLE STATE SECURITIES LAWS.

 

4.19                           FULL DISCLOSURE.  EACH OF THE COMPANY AND EACH OF
ITS SUBSIDIARIES HAS PROVIDED THE PURCHASER WITH ALL INFORMATION REQUESTED BY
THE PURCHASER IN CONNECTION WITH ITS DECISION TO PURCHASE THE NOTE AND WARRANT,
INCLUDING ALL INFORMATION THE COMPANY AND ITS

 

11

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SUBSIDIARIES BELIEVE IS REASONABLY NECESSARY TO MAKE SUCH INVESTMENT DECISION.
 NEITHER THIS AGREEMENT, THE RELATED AGREEMENTS, THE EXHIBITS AND SCHEDULES
HERETO AND THERETO NOR ANY OTHER DOCUMENT DELIVERED BY THE COMPANY OR ANY OF ITS
SUBSIDIARIES TO PURCHASER OR ITS ATTORNEYS OR AGENTS IN CONNECTION HEREWITH OR
THEREWITH OR WITH THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, CONTAIN ANY
UNTRUE STATEMENT OF A MATERIAL FACT NOR OMIT TO STATE A MATERIAL FACT NECESSARY
IN ORDER TO MAKE THE STATEMENTS CONTAINED HEREIN OR THEREIN, IN LIGHT OF THE
CIRCUMSTANCES IN WHICH THEY ARE MADE, NOT MISLEADING.  ANY FINANCIAL PROJECTIONS
AND OTHER ESTIMATES PROVIDED TO THE PURCHASER BY THE COMPANY OR ANY OF ITS
SUBSIDIARIES WERE BASED ON THE COMPANY’S AND ITS SUBSIDIARIES’ EXPERIENCE IN THE
INDUSTRY AND ON ASSUMPTIONS OF FACT AND OPINION AS TO FUTURE EVENTS WHICH THE
COMPANY OR ANY OF ITS SUBSIDIARIES, AT THE DATE OF THE ISSUANCE OF SUCH
PROJECTIONS OR ESTIMATES, BELIEVED TO BE REASONABLE.

 

4.20                           INSURANCE.  EACH OF THE COMPANY AND EACH OF ITS
SUBSIDIARIES HAS GENERAL COMMERCIAL, PRODUCT LIABILITY, FIRE AND CASUALTY
INSURANCE POLICIES WITH COVERAGES WHICH THE COMPANY BELIEVES ARE CUSTOMARY FOR
COMPANIES SIMILARLY SITUATED TO THE COMPANY AND ITS SUBSIDIARIES IN THE SAME OR
SIMILAR BUSINESS.

 

4.21                           SEC REPORTS.  EXCEPT AS SET FORTH ON
SCHEDULE 4.21, THE COMPANY HAS FILED ALL PROXY STATEMENTS, REPORTS AND OTHER
DOCUMENTS REQUIRED TO BE FILED BY IT UNDER THE SECURITIES EXCHANGE ACT 1934, AS
AMENDED (THE “EXCHANGE ACT”).  THE COMPANY HAS FURNISHED THE PURCHASER COPIES
OF:  (I) ITS ANNUAL REPORTS ON FORM 10-KSB FOR ITS FISCAL YEARS ENDED [INSERT
DATE]; AND (II) ITS QUARTERLY REPORTS ON FORM 10-QSB FOR ITS FISCAL QUARTER
ENDED [INSERT DATE], AND THE FORM 8-K FILINGS WHICH IT HAS MADE DURING THE
FISCAL YEAR [INSERT DATE] TO DATE (COLLECTIVELY, THE “SEC REPORTS”).  EXCEPT AS
SET FORTH ON SCHEDULE 4.21, EACH SEC REPORT WAS, AT THE TIME OF ITS FILING, IN
SUBSTANTIAL COMPLIANCE WITH THE REQUIREMENTS OF ITS RESPECTIVE FORM AND NONE OF
THE SEC REPORTS, NOR THE FINANCIAL STATEMENTS (AND THE NOTES THERETO) INCLUDED
IN THE SEC REPORTS, AS OF THEIR RESPECTIVE FILING DATES, CONTAINED ANY UNTRUE
STATEMENT OF A MATERIAL FACT OR OMITTED TO STATE A MATERIAL FACT REQUIRED TO BE
STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN, IN LIGHT OF THE
CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING.

 

4.22                           LISTING.  THE COMPANY’S COMMON STOCK IS LISTED OR
QUOTED, AS APPLICABLE, ON A PRINCIPAL MARKET (AS HEREAFTER DEFINED) AND
SATISFIES AND AT ALL TIMES HEREAFTER WILL SATISFY, ALL REQUIREMENTS FOR THE
CONTINUATION OF SUCH LISTING OR QUOTATION, AS APPLICABLE.  THE COMPANY HAS NOT
RECEIVED ANY NOTICE THAT ITS COMMON STOCK WILL BE DELISTED FROM, OR NO LONGER
QUOTED ON, AS APPLICABLE, THE PRINCIPAL MARKET OR THAT ITS COMMON STOCK DOES NOT
MEET ALL REQUIREMENTS FOR SUCH LISTING OR QUOTATION, AS APPLICABLE.  FOR
PURPOSES HEREOF, THE TERM “PRINCIPAL MARKET” MEANS THE NASD OVER THE COUNTER
BULLETIN BOARD, NASDAQ CAPITAL MARKET, NASDAQ NATIONAL MARKETS SYSTEM, AMERICAN
STOCK EXCHANGE OR NEW YORK STOCK EXCHANGE (WHICHEVER OF THE FOREGOING IS AT THE
TIME THE PRINCIPAL TRADING EXCHANGE OR MARKET FOR THE COMMON STOCK).

 

4.23                           NO INTEGRATED OFFERING.  NEITHER THE COMPANY, NOR
ANY OF ITS SUBSIDIARIES OR AFFILIATES, NOR ANY PERSON ACTING ON ITS OR THEIR
BEHALF, HAS DIRECTLY OR INDIRECTLY MADE ANY OFFERS OR SALES OF ANY SECURITY OR
SOLICITED ANY OFFERS TO BUY ANY SECURITY (OTHER THAN SECURITIES ISSUED TO
PURCHASER ON AUGUST 25, 2005) UNDER CIRCUMSTANCES THAT WOULD CAUSE THE OFFERING
OF THE SECURITIES PURSUANT TO THIS AGREEMENT OR ANY OF THE RELATED AGREEMENTS TO
BE INTEGRATED WITH PRIOR OFFERINGS BY THE COMPANY FOR PURPOSES OF THE SECURITIES
ACT WHICH WOULD PREVENT THE COMPANY FROM SELLING THE SECURITIES PURSUANT TO
RULE 506 UNDER THE SECURITIES ACT, OR ANY

 

12

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APPLICABLE EXCHANGE-RELATED STOCKHOLDER APPROVAL PROVISIONS, NOR WILL THE
COMPANY OR ANY OF ITS AFFILIATES OR SUBSIDIARIES TAKE ANY ACTION OR STEPS THAT
WOULD CAUSE THE OFFERING OF THE SECURITIES TO BE INTEGRATED WITH OTHER
OFFERINGS.

 

4.24                           STOP TRANSFER.  THE SECURITIES ARE RESTRICTED
SECURITIES AS OF THE DATE OF THIS AGREEMENT.  NEITHER THE COMPANY NOR ANY OF ITS
SUBSIDIARIES WILL ISSUE ANY STOP TRANSFER ORDER OR OTHER ORDER IMPEDING THE SALE
AND DELIVERY OF ANY OF THE SECURITIES AT SUCH TIME AS THE SECURITIES ARE
REGISTERED FOR PUBLIC SALE OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE,
EXCEPT AS REQUIRED BY STATE AND FEDERAL SECURITIES LAWS.

 

4.25                           DILUTION.  THE COMPANY SPECIFICALLY ACKNOWLEDGES
THAT ITS OBLIGATION TO ISSUE THE INTEREST SHARES, THE SHARES OF COMMON STOCK
UPON CONVERSION OF THE NOTE AND EXERCISE OF THE WARRANT IS BINDING UPON THE
COMPANY AND ENFORCEABLE REGARDLESS OF THE DILUTION SUCH ISSUANCE MAY HAVE ON THE
OWNERSHIP INTERESTS OF OTHER SHAREHOLDERS OF THE COMPANY.

 

4.26                           PATRIOT ACT.   THE COMPANY CERTIFIES THAT, TO THE
BEST OF COMPANY’S KNOWLEDGE, NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES HAS
BEEN DESIGNATED, NOR IS OR SHALL BE OWNED OR CONTROLLED, BY A “SUSPECTED
TERRORIST” AS DEFINED IN EXECUTIVE ORDER 13224.  THE COMPANY HEREBY ACKNOWLEDGES
THAT THE PURCHASER SEEKS TO COMPLY WITH ALL APPLICABLE LAWS CONCERNING MONEY
LAUNDERING AND RELATED ACTIVITIES.  IN FURTHERANCE OF THOSE EFFORTS, THE COMPANY
HEREBY REPRESENTS, WARRANTS AND COVENANTS THAT:  (I) NONE OF THE CASH OR
PROPERTY THAT THE COMPANY OR ANY OF ITS SUBSIDIARIES WILL PAY OR WILL CONTRIBUTE
TO THE PURCHASER HAS BEEN OR SHALL BE DERIVED FROM, OR RELATED TO, ANY ACTIVITY
THAT IS DEEMED CRIMINAL UNDER UNITED STATES LAW; AND (II) NO CONTRIBUTION OR
PAYMENT BY THE COMPANY OR ANY OF ITS SUBSIDIARIES TO THE PURCHASER, TO THE
EXTENT THAT THEY ARE WITHIN THE COMPANY’S AND/OR ITS SUBSIDIARIES’ CONTROL SHALL
CAUSE THE PURCHASER TO BE IN VIOLATION OF THE UNITED STATES BANK SECRECY ACT,
THE UNITED STATES INTERNATIONAL MONEY LAUNDERING CONTROL ACT OF 1986 OR THE
UNITED STATES INTERNATIONAL MONEY LAUNDERING ABATEMENT AND ANTI-TERRORIST
FINANCING ACT OF 2001.  THE COMPANY SHALL PROMPTLY NOTIFY THE PURCHASER IF ANY
OF THESE REPRESENTATIONS, WARRANTIES OR COVENANTS CEASES TO BE TRUE AND ACCURATE
REGARDING THE COMPANY OR ANY OF ITS SUBSIDIARIES.  THE COMPANY SHALL PROVIDE THE
PURCHASER ALL ADDITIONAL INFORMATION REGARDING THE COMPANY OR ANY OF ITS
SUBSIDIARIES THAT THE PURCHASER DEEMS NECESSARY OR CONVENIENT TO ENSURE
COMPLIANCE WITH ALL APPLICABLE LAWS CONCERNING MONEY LAUNDERING AND SIMILAR
ACTIVITIES.  THE COMPANY UNDERSTANDS AND AGREES THAT IF AT ANY TIME IT IS
DISCOVERED THAT ANY OF THE FOREGOING REPRESENTATIONS, WARRANTIES OR COVENANTS
ARE INCORRECT, OR IF OTHERWISE REQUIRED BY APPLICABLE LAW OR REGULATION RELATED
TO MONEY LAUNDERING OR SIMILAR ACTIVITIES, THE PURCHASER MAY UNDERTAKE
APPROPRIATE ACTIONS TO ENSURE COMPLIANCE WITH APPLICABLE LAW OR REGULATION,
INCLUDING BUT NOT LIMITED TO SEGREGATION AND/OR REDEMPTION OF THE PURCHASER’S
INVESTMENT IN THE COMPANY.  THE COMPANY FURTHER UNDERSTANDS THAT THE PURCHASER
MAY RELEASE CONFIDENTIAL INFORMATION ABOUT THE COMPANY AND ITS SUBSIDIARIES AND,
IF APPLICABLE, ANY UNDERLYING BENEFICIAL OWNERS, TO PROPER AUTHORITIES IF THE
PURCHASER, IN ITS SOLE DISCRETION, DETERMINES THAT IT IS IN THE BEST INTERESTS
OF THE PURCHASER IN LIGHT OF RELEVANT RULES AND REGULATIONS UNDER THE LAWS SET
FORTH IN SUBSECTION (II) ABOVE.

 

4.27                           ERISA.  BASED UPON THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974 (“ERISA”), AND THE REGULATIONS AND PUBLISHED
INTERPRETATIONS THEREUNDER:  (I) NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES
HAS ENGAGED IN ANY PROHIBITED TRANSACTIONS (AS DEFINED IN SECTION 406 OF ERISA
AND SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE

 

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“CODE”)); (II) EACH OF THE COMPANY AND EACH OF ITS SUBSIDIARIES HAS MET ALL
APPLICABLE MINIMUM FUNDING REQUIREMENTS UNDER SECTION 302 OF ERISA IN RESPECT OF
ITS PLANS; (III) NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES HAS ANY
KNOWLEDGE OF ANY EVENT OR OCCURRENCE WHICH WOULD CAUSE THE PENSION BENEFIT
GUARANTY CORPORATION TO INSTITUTE PROCEEDINGS UNDER TITLE IV OF ERISA TO
TERMINATE ANY EMPLOYEE BENEFIT PLAN(S); (IV) NEITHER THE COMPANY NOR ANY OF ITS
SUBSIDIARIES HAS ANY FIDUCIARY RESPONSIBILITY FOR INVESTMENTS WITH RESPECT TO
ANY PLAN EXISTING FOR THE BENEFIT OF PERSONS OTHER THAN THE COMPANY’S OR SUCH
SUBSIDIARY’S EMPLOYEES; AND (V) NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES
HAS WITHDRAWN, COMPLETELY OR PARTIALLY, FROM ANY MULTI-EMPLOYER PENSION PLAN SO
AS TO INCUR LIABILITY UNDER THE MULTIEMPLOYER PENSION PLAN AMENDMENTS ACT OF
1980.

 

5.                                       REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER.  THE PURCHASER HEREBY REPRESENTS AND WARRANTS TO THE COMPANY AS
FOLLOWS (SUCH REPRESENTATIONS AND WARRANTIES DO NOT LESSEN OR OBVIATE THE
REPRESENTATIONS AND WARRANTIES OF THE COMPANY SET FORTH IN THIS AGREEMENT):

 

5.1                                 NO SHORTING.  THE PURCHASER OR ANY OF ITS
AFFILIATES AND INVESTMENT PARTNERS HAS NOT, WILL NOT AND WILL NOT CAUSE ANY
PERSON OR ENTITY, TO DIRECTLY ENGAGE IN “SHORT SALES” OF THE COMPANY’S COMMON
STOCK AS LONG AS THE NOTE SHALL BE OUTSTANDING.

 

5.2                                 REQUISITE POWER AND AUTHORITY.  THE
PURCHASER HAS ALL NECESSARY POWER AND AUTHORITY UNDER ALL APPLICABLE PROVISIONS
OF LAW TO EXECUTE AND DELIVER THIS AGREEMENT AND THE RELATED AGREEMENTS AND TO
CARRY OUT THEIR PROVISIONS.  ALL CORPORATE ACTION ON THE PURCHASER’S PART
REQUIRED FOR THE LAWFUL EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE RELATED
AGREEMENTS HAVE BEEN OR WILL BE EFFECTIVELY TAKEN PRIOR TO THE CLOSING.  UPON
THEIR EXECUTION AND DELIVERY, THIS AGREEMENT AND THE RELATED AGREEMENTS WILL BE
VALID AND BINDING OBLIGATIONS OF THE PURCHASER, ENFORCEABLE IN ACCORDANCE WITH
THEIR TERMS, EXCEPT:

 

(A)                                  AS LIMITED BY APPLICABLE BANKRUPTCY,
INSOLVENCY, REORGANIZATION, MORATORIUM OR OTHER LAWS OF GENERAL APPLICATION
AFFECTING ENFORCEMENT OF CREDITORS’ RIGHTS; AND

 

(B)                                 AS LIMITED BY GENERAL PRINCIPLES OF EQUITY
THAT RESTRICT THE AVAILABILITY OF EQUITABLE AND LEGAL REMEDIES.

 

5.3                                 INVESTMENT REPRESENTATIONS.  THE PURCHASER
UNDERSTANDS THAT THE SECURITIES ARE BEING OFFERED AND SOLD PURSUANT TO AN
EXEMPTION FROM REGISTRATION CONTAINED IN THE SECURITIES ACT BASED IN PART UPON
THE PURCHASER’S REPRESENTATIONS CONTAINED IN THIS AGREEMENT, INCLUDING, WITHOUT
LIMITATION, THAT THE PURCHASER IS AN “ACCREDITED INVESTOR” WITHIN THE MEANING OF
REGULATION D UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”).  THE PURCHASER CONFIRMS THAT IT HAS RECEIVED OR HAS HAD FULL ACCESS TO
ALL THE INFORMATION IT CONSIDERS NECESSARY OR APPROPRIATE TO MAKE AN INFORMED
INVESTMENT DECISION WITH RESPECT TO THE INTEREST SHARES TO BE ISSUED TO IT UNDER
THIS AGREEMENT, THE NOTE AND THE WARRANT TO BE PURCHASED BY IT UNDER THIS
AGREEMENT AND THE NOTE SHARES AND THE WARRANT SHARES ACQUIRED BY IT UPON THE
CONVERSION OF THE NOTE AND THE EXERCISE OF THE WARRANT, RESPECTIVELY.  THE
PURCHASER FURTHER CONFIRMS THAT IT HAS HAD AN OPPORTUNITY TO ASK QUESTIONS AND
RECEIVE ANSWERS FROM THE COMPANY REGARDING THE COMPANY’S AND ITS SUBSIDIARIES’
BUSINESS, MANAGEMENT AND FINANCIAL AFFAIRS AND THE TERMS AND CONDITIONS OF THE
OFFERING, THE NOTE, THE WARRANT AND THE SECURITIES AND TO OBTAIN

 

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ADDITIONAL INFORMATION (TO THE EXTENT THE COMPANY POSSESSED SUCH INFORMATION OR
COULD ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE) NECESSARY TO VERIFY ANY
INFORMATION FURNISHED TO THE PURCHASER OR TO WHICH THE PURCHASER HAD ACCESS.

 

5.4                                 THE PURCHASER BEARS ECONOMIC RISK.  THE
PURCHASER HAS SUBSTANTIAL EXPERIENCE IN EVALUATING AND INVESTING IN PRIVATE
PLACEMENT TRANSACTIONS OF SECURITIES IN COMPANIES SIMILAR TO THE COMPANY SO THAT
IT IS CAPABLE OF EVALUATING THE MERITS AND RISKS OF ITS INVESTMENT IN THE
COMPANY AND HAS THE CAPACITY TO PROTECT ITS OWN INTERESTS.  THE PURCHASER MUST
BEAR THE ECONOMIC RISK OF THIS INVESTMENT UNTIL THE SECURITIES ARE SOLD PURSUANT
TO: (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT; OR (II) AN
EXEMPTION FROM REGISTRATION IS AVAILABLE WITH RESPECT TO SUCH SALE.

 

5.5                                 ACQUISITION FOR OWN ACCOUNT.  THE PURCHASER
IS ACQUIRING THE INTEREST SHARES, THE NOTE AND WARRANT AND THE NOTE SHARES AND
THE WARRANT SHARES FOR THE PURCHASER’S OWN ACCOUNT FOR INVESTMENT ONLY, AND NOT
AS A NOMINEE OR AGENT AND NOT WITH A VIEW TOWARDS OR FOR RESALE IN CONNECTION
WITH THEIR DISTRIBUTION.

 

5.6                                 THE PURCHASER CAN PROTECT ITS INTEREST.  THE
PURCHASER REPRESENTS THAT BY REASON OF ITS, OR OF ITS MANAGEMENT’S, BUSINESS AND
FINANCIAL EXPERIENCE, THE PURCHASER HAS THE CAPACITY TO EVALUATE THE MERITS AND
RISKS OF ITS INVESTMENT IN THE NOTE, THE WARRANT AND THE SECURITIES AND TO
PROTECT ITS OWN INTERESTS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED IN
THIS AGREEMENT AND THE RELATED AGREEMENTS.  FURTHER, THE PURCHASER IS AWARE OF
NO PUBLICATION OF ANY ADVERTISEMENT IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED IN THE AGREEMENT OR THE RELATED AGREEMENTS.

 

5.7                                 ACCREDITED INVESTOR.  THE PURCHASER
REPRESENTS THAT IT IS AN ACCREDITED INVESTOR WITHIN THE MEANING OF REGULATION D
UNDER THE SECURITIES ACT.

 

5.8                                 PATRIOT ACT.  THE PURCHASER CERTIFIES THAT,
TO THE BEST OF ITS KNOWLEDGE, THE PURCHASER HAS NOT BEEN DESIGNATED, AND IS NOT
OWNED OR CONTROLLED, BY A “SUSPECTED TERRORIST” AS DEFINED IN EXECUTIVE ORDER
13224.  THE PURCHASER SEEKS TO COMPLY WITH ALL APPLICABLE LAWS CONCERNING MONEY
LAUNDERING AND RELATED ACTIVITIES.  IN FURTHERANCE OF THOSE EFFORTS, THE
PURCHASER HEREBY REPRESENTS, WARRANTS AND COVENANTS THAT:  (I) NONE OF THE CASH
OR PROPERTY THAT THE PURCHASER WILL USE TO MAKE THE LOANS HAS BEEN OR SHALL BE
DERIVED FROM, OR RELATED TO, ANY ACTIVITY THAT IS DEEMED CRIMINAL UNDER UNITED
STATES LAW; AND (II) NO DISBURSEMENT BY THE PURCHASER TO ANY COMPANY TO THE
EXTENT WITHIN THE PURCHASER’S CONTROL, SHALL CAUSE THE PURCHASER TO BE IN
VIOLATION OF THE UNITED STATES BANK SECRECY ACT, THE UNITED STATES INTERNATIONAL
MONEY LAUNDERING CONTROL ACT OF 1986 OR THE UNITED STATES INTERNATIONAL MONEY
LAUNDERING ABATEMENT AND ANTI-TERRORIST FINANCING ACT OF 2001.  THE PURCHASER
SHALL PROMPTLY NOTIFY THE COMPANY AGENT IF ANY OF THESE REPRESENTATIONS CEASES
TO BE TRUE AND ACCURATE REGARDING THE PURCHASER.  THE PURCHASER AGREES TO
PROVIDE THE COMPANY ANY ADDITIONAL INFORMATION REGARDING THE PURCHASER THAT THE
COMPANY DEEMS NECESSARY OR CONVENIENT TO ENSURE COMPLIANCE WITH ALL APPLICABLE
LAWS CONCERNING MONEY LAUNDERING AND SIMILAR ACTIVITIES.  THE PURCHASER
UNDERSTANDS AND AGREES THAT IF AT ANY TIME IT IS DISCOVERED THAT ANY OF THE
FOREGOING REPRESENTATIONS ARE INCORRECT, OR IF OTHERWISE REQUIRED BY APPLICABLE
LAW OR REGULATION RELATED TO MONEY LAUNDERING SIMILAR ACTIVITIES, THE PURCHASER
MAY UNDERTAKE APPROPRIATE ACTIONS TO ENSURE COMPLIANCE WITH APPLICABLE LAW OR
REGULATION, INCLUDING BUT NOT LIMITED TO SEGREGATION AND/OR REDEMPTION OF THE

 

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PURCHASER’S INVESTMENT IN THE COMPANY.  THE PURCHASER FURTHER UNDERSTANDS THAT
THE COMPANY  MAY RELEASE INFORMATION ABOUT THE PURCHASER AND, IF APPLICABLE, ANY
UNDERLYING BENEFICIAL OWNERS, TO PROPER AUTHORITIES IF THE COMPANY, IN ITS SOLE
DISCRETION, DETERMINES THAT IT IS IN THE BEST INTERESTS OF THE COMPANY IN LIGHT
OF RELEVANT RULES AND REGULATIONS UNDER THE LAWS SET FORTH IN
SUBSECTION (II) ABOVE

 

5.9                                 LEGENDS.

 

(A)                                  THE NOTE SHALL BEAR SUBSTANTIALLY THE
FOLLOWING LEGEND:

 

“THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS.  THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO IWT TESORO CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.”

 

(B)                                 THE INTEREST SHARES, THE NOTE SHARES AND THE
WARRANT SHARES, IF NOT ISSUED BY DWAC SYSTEM (AS HEREINAFTER DEFINED), SHALL
BEAR A LEGEND WHICH SHALL BE IN SUBSTANTIALLY THE FOLLOWING FORM UNTIL SUCH
SHARES ARE COVERED BY AN EFFECTIVE REGISTRATION STATEMENT FILED WITH THE SEC:

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. 
THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IWT
TESORO CORPORATION  THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

(C)                                  THE WARRANT SHALL BEAR SUBSTANTIALLY THE
FOLLOWING LEGEND:

 

“THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS.  THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK

 

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UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO IWT TESORO CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.”

 

6.                                       COVENANTS OF THE COMPANY.  THE COMPANY
COVENANTS AND AGREES WITH THE PURCHASER AS FOLLOWS:

 

6.1                                 STOP-ORDERS.  THE COMPANY WILL ADVISE THE
PURCHASER, PROMPTLY AFTER IT RECEIVES NOTICE OF ISSUANCE BY THE SEC, ANY STATE
SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY OF ANY STOP ORDER OR OF
ANY ORDER PREVENTING OR SUSPENDING ANY OFFERING OF ANY SECURITIES OF THE
COMPANY, OR OF THE SUSPENSION OF THE QUALIFICATION OF THE COMMON STOCK OF THE
COMPANY FOR OFFERING OR SALE IN ANY JURISDICTION, OR THE INITIATION OF ANY
PROCEEDING FOR ANY SUCH PURPOSE.

 

6.2                                 LISTING.  THE COMPANY SHALL PROMPTLY SECURE
THE LISTING OR QUOTATION, AS APPLICABLE, OF THE INTEREST SHARES, THE SHARES OF
COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTE AND UPON THE EXERCISE OF THE
WARRANT ON THE PRINCIPAL MARKET UPON WHICH SHARES OF COMMON STOCK ARE LISTED OR
QUOTED FOR TRADING, AS APPLICABLE (SUBJECT TO OFFICIAL NOTICE OF ISSUANCE) AND
SHALL MAINTAIN SUCH LISTING OR QUOTATION, AS APPLICABLE, SO LONG AS ANY OTHER
SHARES OF COMMON STOCK SHALL BE SO LISTED OR QUOTED, AS APPLICABLE.  THE COMPANY
WILL MAINTAIN THE LISTING OR QUOTATION, AS APPLICABLE, OF ITS COMMON STOCK ON
THE PRINCIPAL MARKET, AND WILL COMPLY IN ALL MATERIAL RESPECTS WITH THE
COMPANY’S REPORTING, FILING AND OTHER OBLIGATIONS UNDER THE BYLAWS OR RULES OF
THE NATIONAL ASSOCIATION OF SECURITIES DEALERS (“NASD”) AND SUCH EXCHANGES, AS
APPLICABLE.

 

6.3                                 MARKET REGULATIONS.  THE COMPANY SHALL
NOTIFY THE SEC, NASD AND APPLICABLE STATE AUTHORITIES, IN ACCORDANCE WITH THEIR
REQUIREMENTS, OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AND SHALL TAKE
ALL OTHER NECESSARY ACTION AND PROCEEDINGS AS MAY BE REQUIRED AND PERMITTED BY
APPLICABLE LAW, RULE AND REGULATION, FOR THE LEGAL AND VALID ISSUANCE OF THE
SECURITIES TO THE PURCHASER AND PROMPTLY PROVIDE COPIES THEREOF TO THE
PURCHASER.

 

6.4                                 REPORTING REQUIREMENTS.  THE COMPANY SHALL
TIMELY FILE WITH THE SEC ALL REPORTS REQUIRED TO BE FILED PURSUANT TO THE
EXCHANGE ACT AND REFRAIN FROM TERMINATING ITS STATUS AS AN ISSUER REQUIRED BY
THE EXCHANGE ACT TO FILE REPORTS THEREUNDER EVEN IF THE EXCHANGE ACT OR THE
RULES OR REGULATIONS THEREUNDER WOULD PERMIT SUCH TERMINATION.

 

6.5                                 USE OF FUNDS.  THE COMPANY SHALL USE THE
PROCEEDS OF THE SALE OF THE NOTE AND THE WARRANT FOR GENERAL WORKING CAPITAL
PURPOSES ONLY.

 

6.6                                 ACCESS TO FACILITIES.  INTENTIONALLY
OMITTED.

 

6.7                                 TAXES.  EACH OF THE COMPANY AND EACH OF ITS
SUBSIDIARIES WILL PROMPTLY PAY AND DISCHARGE, OR CAUSE TO BE PAID AND
DISCHARGED, WHEN DUE AND PAYABLE, ALL TAXES, ASSESSMENTS AND GOVERNMENTAL
CHARGES OR LEVIES IMPOSED UPON THE INCOME, PROFITS, PROPERTY OR BUSINESS OF THE
COMPANY AND ITS SUBSIDIARIES; PROVIDED, HOWEVER, THAT ANY SUCH TAX, ASSESSMENT,

 

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CHARGE OR LEVY NEED NOT BE PAID CURRENTLY IF (I) THE VALIDITY THEREOF SHALL
CURRENTLY AND DILIGENTLY BE CONTESTED IN GOOD FAITH BY APPROPRIATE PROCEEDINGS,
(II) SUCH TAX, ASSESSMENT, CHARGE OR LEVY SHALL HAVE NO EFFECT ON THE LIEN
PRIORITY OF THE PURCHASER IN ANY PROPERTY OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES AND (III) IF THE COMPANY AND/OR SUCH SUBSIDIARY SHALL HAVE SET
ASIDE ON ITS BOOKS ADEQUATE RESERVES WITH RESPECT THERETO IN ACCORDANCE WITH
GAAP; AND PROVIDED, FURTHER, THAT THE COMPANY AND ITS SUBSIDIARIES WILL PAY ALL
SUCH TAXES, ASSESSMENTS, CHARGES OR LEVIES FORTHWITH UPON THE COMMENCEMENT OF
PROCEEDINGS TO FORECLOSE ANY LIEN WHICH MAY HAVE ATTACHED AS SECURITY THEREFOR.

 

6.8                                 INSURANCE.  EACH OF THE COMPANY AND ITS
SUBSIDIARIES WILL KEEP ITS ASSETS WHICH ARE OF AN INSURABLE CHARACTER INSURED BY
FINANCIALLY SOUND AND REPUTABLE INSURERS AGAINST LOSS OR DAMAGE BY FIRE,
EXPLOSION AND OTHER RISKS CUSTOMARILY INSURED AGAINST BY COMPANIES IN SIMILAR
BUSINESS SIMILARLY SITUATED AS THE COMPANY AND ITS SUBSIDIARIES; AND THE COMPANY
AND ITS SUBSIDIARIES WILL MAINTAIN, WITH FINANCIALLY SOUND AND REPUTABLE
INSURERS, INSURANCE AGAINST OTHER HAZARDS AND RISKS AND LIABILITY TO PERSONS AND
PROPERTY TO THE EXTENT AND IN THE MANNER WHICH THE COMPANY REASONABLY BELIEVES
IS CUSTOMARY FOR COMPANIES IN SIMILAR BUSINESS SIMILARLY SITUATED AS THE COMPANY
AND ITS SUBSIDIARIES AND TO THE EXTENT AVAILABLE ON COMMERCIALLY REASONABLE
TERMS.  THE COMPANY, AND EACH OF ITS SUBSIDIARIES, WILL JOINTLY AND SEVERALLY
BEAR THE FULL RISK OF LOSS FROM ANY LOSS OF ANY NATURE WHATSOEVER WITH RESPECT
TO THE ASSETS PLEDGED TO THE PURCHASER AS SECURITY FOR THEIR RESPECTIVE
OBLIGATIONS HEREUNDER AND UNDER THE RELATED AGREEMENTS.  AT THE COMPANY’S AND
EACH OF ITS SUBSIDIARIES’ JOINT AND SEVERAL COST AND EXPENSE IN AMOUNTS AND WITH
CARRIERS REASONABLY ACCEPTABLE TO THE PURCHASER, EACH OF THE COMPANY AND EACH OF
ITS SUBSIDIARIES SHALL (I) KEEP ALL ITS INSURABLE PROPERTIES AND PROPERTIES IN
WHICH IT HAS AN INTEREST INSURED AGAINST THE HAZARDS OF FIRE, FLOOD, SPRINKLER
LEAKAGE, THOSE HAZARDS COVERED BY EXTENDED COVERAGE INSURANCE AND SUCH OTHER
HAZARDS, AND FOR SUCH AMOUNTS, AS IS CUSTOMARY IN THE CASE OF COMPANIES ENGAGED
IN BUSINESSES SIMILAR TO THE COMPANY’S OR THE RESPECTIVE SUBSIDIARY’S INCLUDING
BUSINESS INTERRUPTION INSURANCE; (II) MAINTAIN A BOND IN SUCH AMOUNTS AS IS
CUSTOMARY IN THE CASE OF COMPANIES ENGAGED IN BUSINESSES SIMILAR TO THE
COMPANY’S OR THE RESPECTIVE SUBSIDIARY’S INSURING AGAINST LARCENY, EMBEZZLEMENT
OR OTHER CRIMINAL MISAPPROPRIATION OF INSURED’S OFFICERS AND EMPLOYEES WHO MAY
EITHER SINGLY OR JOINTLY WITH OTHERS AT ANY TIME HAVE ACCESS TO THE ASSETS OR
FUNDS OF THE COMPANY OR ANY OF ITS SUBSIDIARIES EITHER DIRECTLY OR THROUGH
GOVERNMENTAL AUTHORITY TO DRAW UPON SUCH FUNDS OR TO DIRECT GENERALLY THE
DISPOSITION OF SUCH ASSETS; (III) MAINTAIN PUBLIC AND PRODUCT LIABILITY
INSURANCE AGAINST CLAIMS FOR PERSONAL INJURY, DEATH OR PROPERTY DAMAGE SUFFERED
BY OTHERS; (IV) MAINTAIN ALL SUCH WORKER’S COMPENSATION OR SIMILAR INSURANCE AS
MAY BE REQUIRED UNDER THE LAWS OF ANY STATE OR JURISDICTION IN WHICH THE COMPANY
OR THE RESPECTIVE SUBSIDIARY IS ENGAGED IN BUSINESS; AND (V) FURNISH THE
PURCHASER WITH (X) COPIES OF ALL POLICIES AND EVIDENCE OF THE MAINTENANCE OF
SUCH POLICIES AT LEAST THIRTY (30) DAYS BEFORE ANY EXPIRATION DATE, (Y)
EXCEPTING THE COMPANY’S WORKERS’ COMPENSATION POLICY, ENDORSEMENTS TO SUCH
POLICIES NAMING THE PURCHASER AS “CO-INSURED” OR “ADDITIONAL INSURED” AND
APPROPRIATE LOSS PAYABLE ENDORSEMENTS IN FORM AND SUBSTANCE SATISFACTORY TO THE
PURCHASER, NAMING THE PURCHASER AS LOSS PAYEE, AND (Z) EVIDENCE THAT AS TO THE
PURCHASER THE INSURANCE COVERAGE SHALL NOT BE IMPAIRED OR INVALIDATED BY ANY ACT
OR NEGLECT OF THE COMPANY OR ANY SUBSIDIARY AND THE INSURER WILL PROVIDE THE
PURCHASER WITH AT LEAST THIRTY (30) DAYS NOTICE PRIOR TO CANCELLATION.  THE
COMPANY AND EACH SUBSIDIARY SHALL INSTRUCT THE INSURANCE CARRIERS THAT IN THE
EVENT OF ANY LOSS THEREUNDER, THE CARRIERS SHALL MAKE PAYMENT FOR SUCH LOSS TO
THE COMPANY AND/OR THE SUBSIDIARY AND THE PURCHASER JOINTLY.  IN THE EVENT THAT
AS OF THE DATE OF RECEIPT OF EACH LOSS RECOVERY UPON ANY SUCH INSURANCE, THE
PURCHASER HAS NOT DECLARED AN EVENT OF DEFAULT WITH

 

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RESPECT TO THIS AGREEMENT OR ANY OF THE RELATED AGREEMENTS, THEN THE COMPANY
AND/OR SUCH SUBSIDIARY SHALL BE PERMITTED TO DIRECT THE APPLICATION OF SUCH LOSS
RECOVERY PROCEEDS TOWARD INVESTMENT IN PROPERTY, PLANT AND EQUIPMENT THAT WOULD
COMPRISE “COLLATERAL” SECURED BY THE PURCHASER’S SECURITY INTEREST PURSUANT TO
THE MASTER SECURITY AGREEMENT OR SUCH OTHER SECURITY AGREEMENT AS SHALL BE
REQUIRED BY THE PURCHASER, WITH ANY SURPLUS FUNDS TO BE APPLIED TOWARD PAYMENT
OF THE OBLIGATIONS OF THE COMPANY TO THE PURCHASER.  IN THE EVENT THAT THE
PURCHASER HAS PROPERLY DECLARED AN EVENT OF DEFAULT WITH RESPECT TO THIS
AGREEMENT OR ANY OF THE RELATED AGREEMENTS, THEN ALL LOSS RECOVERIES RECEIVED BY
THE PURCHASER UPON ANY SUCH INSURANCE THEREAFTER MAY BE APPLIED TO THE
OBLIGATIONS OF THE COMPANY HEREUNDER AND UNDER THE RELATED AGREEMENTS, IN SUCH
ORDER AS THE PURCHASER MAY DETERMINE.  ANY SURPLUS (FOLLOWING SATISFACTION OF
ALL COMPANY OBLIGATIONS TO THE PURCHASER) SHALL BE PAID BY THE PURCHASER TO THE
COMPANY OR APPLIED AS MAY BE OTHERWISE REQUIRED BY LAW.  ANY DEFICIENCY THEREON
SHALL BE PAID BY THE COMPANY OR THE SUBSIDIARY, AS APPLICABLE, TO THE PURCHASER,
ON DEMAND.

 

6.9                                 INTELLECTUAL PROPERTY.  EACH OF THE COMPANY
AND EACH OF ITS SUBSIDIARIES SHALL MAINTAIN IN FULL FORCE AND EFFECT ITS
EXISTENCE, RIGHTS AND FRANCHISES AND ALL LICENSES AND OTHER RIGHTS TO USE
INTELLECTUAL PROPERTY OWNED OR POSSESSED BY IT AND REASONABLY DEEMED TO BE
NECESSARY TO THE CONDUCT OF ITS BUSINESS.

 

6.10                           PROPERTIES.  EACH OF THE COMPANY AND EACH OF ITS
SUBSIDIARIES WILL KEEP ITS PROPERTIES IN GOOD REPAIR, WORKING ORDER AND
CONDITION, REASONABLE WEAR AND TEAR EXCEPTED, AND FROM TIME TO TIME MAKE ALL
NEEDFUL AND PROPER REPAIRS, RENEWALS, REPLACEMENTS, ADDITIONS AND IMPROVEMENTS
THERETO; AND EACH OF THE COMPANY AND EACH OF ITS SUBSIDIARIES WILL AT ALL TIMES
COMPLY WITH EACH PROVISION OF ALL LEASES TO WHICH IT IS A PARTY OR UNDER WHICH
IT OCCUPIES PROPERTY IF THE BREACH OF SUCH PROVISION COULD, EITHER INDIVIDUALLY
OR IN THE AGGREGATE, REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT.

 

6.11                           CONFIDENTIALITY.  THE COMPANY WILL NOT, AND WILL
NOT PERMIT ANY OF ITS SUBSIDIARIES TO, DISCLOSE, AND WILL NOT INCLUDE IN ANY
PUBLIC ANNOUNCEMENT, THE NAME OF THE PURCHASER, UNLESS EXPRESSLY AGREED TO BY
THE PURCHASER OR UNLESS AND UNTIL SUCH DISCLOSURE IS REQUIRED BY LAW OR
APPLICABLE REGULATION, AND THEN ONLY TO THE EXTENT OF SUCH REQUIREMENT. 
NOTWITHSTANDING THE FOREGOING, THE COMPANY MAY DISCLOSE THE PURCHASER’S IDENTITY
AND THE TERMS OF THIS AGREEMENT TO ITS CURRENT AND PROSPECTIVE DEBT AND EQUITY
FINANCING SOURCES.

 

Required Approvals.  Subject to the provisions of that certain Amended and
Restated Loan and Security Agreement dated as of December 31, 2004 among Fleet
Capital Corporation, the Company, International Wholesale Tile, Inc. (“IWT”),
The Tile Club, Inc. (“Tile Club”) and Import Flooring Group, Inc. (“Import”) (as
amended, modified or supplemented from time to time, the “Working Capital Lender
Loan Agreement”) and all agreements, instruments, documents,  mortgages,
pledges, powers of attorney, consents, assignments, contracts, notice, security
agreements, trust agreements and guarantees executed in connection with the
Working Capital Lender Loan Agreement (all such documents, as each may be
amended, supplemented or modified, the “Working Capital Lender Loan Documents”).

 

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6.12                           (I)  FOR SO LONG AS TWENTY-FIVE PERCENT (25%) OF
THE PRINCIPAL AMOUNT OF THE NOTE IS OUTSTANDING, THE COMPANY, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE PURCHASER, SHALL NOT, AND SHALL NOT PERMIT ANY OF ITS
SUBSIDIARIES TO:

 

(A)                                  (I) DIRECTLY OR INDIRECTLY DECLARE OR PAY
ANY DIVIDENDS, OTHER THAN DIVIDENDS PAID TO THE COMPANY OR ANY OF ITS
WHOLLY-OWNED SUBSIDIARIES, (II) ISSUE ANY PREFERRED STOCK THAT IS MANDITORILY
REDEEMABLE PRIOR TO THE ONE YEAR ANNIVERSARY OF THE MATURITY DATE (AS DEFINED IN
THE NOTE) OR (III) REDEEM ANY OF ITS PREFERRED STOCK OR OTHER EQUITY INTERESTS;

 

(B)                                 LIQUIDATE, DISSOLVE OR EFFECT A MATERIAL
REORGANIZATION (IT BEING UNDERSTOOD THAT IN NO EVENT SHALL THE COMPANY OR ANY OF
ITS SUBSIDIARIES DISSOLVE, LIQUIDATE OR MERGE WITH ANY OTHER PERSON OR ENTITY
(UNLESS, IN THE CASE OF SUCH A MERGER, THE COMPANY OR, IN THE CASE OF MERGER NOT
INVOLVING THE COMPANY, SUCH SUBSIDIARY, AS APPLICABLE, IS THE SURVIVING ENTITY);

 

(C)                                  BECOME SUBJECT TO (INCLUDING, WITHOUT
LIMITATION, BY WAY OF AMENDMENT TO OR MODIFICATION OF) ANY AGREEMENT OR
INSTRUMENT WHICH BY ITS TERMS WOULD (UNDER ANY CIRCUMSTANCES) RESTRICT THE
COMPANY’S OR ANY OF ITS SUBSIDIARIES, RIGHT TO PERFORM THE PROVISIONS OF THIS
AGREEMENT, ANY RELATED AGREEMENT OR ANY OF THE AGREEMENTS CONTEMPLATED HEREBY OR
THEREBY;

 

(D)                                 MATERIALLY ALTER OR CHANGE THE SCOPE OF THE
BUSINESS OF THE COMPANY AND ITS SUBSIDIARIES TAKEN AS A WHOLE; OR

 

(E)                                  (I) CREATE, INCUR, ASSUME OR SUFFER TO
EXIST ANY INDEBTEDNESS (EXCLUSIVE OF TRADE DEBT AND DEBT INCURRED TO FINANCE THE
PURCHASE OF EQUIPMENT (NOT IN EXCESS OF FIVE PERCENT (5%) OF THE FAIR MARKET
VALUE OF THE COMPANY’S AND ITS SUBSIDIARIES’ ASSETS)) WHETHER SECURED OR
UNSECURED OTHER THAN (X) THE COMPANY’S OBLIGATIONS OWED TO THE PURCHASER, (Y)
INDEBTEDNESS SET FORTH ON SCHEDULE 6.12(E) ATTACHED HERETO AND MADE A PART
HEREOF AND ANY REFINANCINGS OR REPLACEMENTS THEREOF ON TERMS NO LESS FAVORABLE
TO THE PURCHASER THAN THE INDEBTEDNESS BEING REFINANCED OR REPLACED, AND (Z) ANY
INDEBTEDNESS INCURRED IN CONNECTION WITH THE PURCHASE OF ASSETS (OTHER THAN
EQUIPMENT) IN THE ORDINARY COURSE OF BUSINESS, OR ANY REFINANCINGS OR
REPLACEMENTS THEREOF ON TERMS NO LESS FAVORABLE TO THE PURCHASER THAN THE
INDEBTEDNESS BEING REFINANCED OR REPLACED, SO LONG AS ANY LIEN RELATING THERETO
SHALL ONLY ENCUMBER THE FIXED ASSETS SO PURCHASED AND NO OTHER ASSETS OF THE
COMPANY OR ANY OF ITS SUBSIDIARIES; (II) CANCEL ANY INDEBTEDNESS OWING TO IT IN
EXCESS OF $100,000 IN THE AGGREGATE DURING ANY 12 MONTH PERIOD; (III) ASSUME,
GUARANTEE, ENDORSE OR OTHERWISE BECOME DIRECTLY OR CONTINGENTLY LIABLE IN
CONNECTION WITH ANY OBLIGATIONS OF ANY OTHER PERSON OR ENTITY, EXCEPT THE
ENDORSEMENT OF NEGOTIABLE INSTRUMENTS BY THE COMPANY OR ANY SUBSIDIARY THEREOF
FOR DEPOSIT OR COLLECTION OR SIMILAR TRANSACTIONS IN THE ORDINARY COURSE OF
BUSINESS OR GUARANTEES OF INDEBTEDNESS OTHERWISE PERMITTED TO BE OUTSTANDING
PURSUANT TO THIS CLAUSE (E); AND

 

(II) THE COMPANY, WITHOUT THE PRIOR WRITTEN CONSENT OF THE PURCHASER, SHALL NOT,
AND SHALL NOT PERMIT ANY OF ITS SUBSIDIARIES TO, CREATE OR ACQUIRE ANY
SUBSIDIARY AFTER THE DATE HEREOF UNLESS (I) SUCH SUBSIDIARY IS A WHOLLY-OWNED
SUBSIDIARY OF THE COMPANY AND (II) SUCH SUBSIDIARY

 

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BECOMES A PARTY TO THE SECURITY AGREEMENT, THE SUBSIDIARY SECURITY AGREEMENT AND
THE CONTINUING GUARANTY (EITHER BY EXECUTING A COUNTERPART THEREOF OR AN
ASSUMPTION OR JOINDER AGREEMENT IN RESPECT THEREOF) AND, TO THE EXTENT REQUIRED
BY THE PURCHASER, SATISFIES EACH CONDITION OF THIS AGREEMENT AND THE RELATED
AGREEMENTS AS IF SUCH SUBSIDIARY WERE A SUBSIDIARY ON THE CLOSING DATE.

 

(III)                            Required Approvals.  Subject to the provisions
of that certain Amended and Restated Loan and Security Agreement dated as of
December 31, 2004 among Fleet Capital Corporation, the Company, International
Wholesale Tile, Inc. (“IWT”), The Tile Club, Inc. (“Tile Club”) and Import
Flooring Group, Inc. (“Import”) (as amended, modified or supplemented from time
to time, the “Working Capital Lender Loan Agreement”) and all agreements,
instruments, documents,  mortgages, pledges, powers of attorney, consents,
assignments, contracts, notice, security agreements, trust agreements and
guarantees executed in connection with the Working Capital Lender Loan Agreement
(all such documents, as each may be amended, supplemented or modified, the
“Working Capital Lender Loan Documents”).

 

6.13                           REISSUANCE OF SECURITIES.  THE COMPANY AGREES TO
UNDERTAKE TO HAVE CERTIFICATES REISSUED REPRESENTING THE SECURITIES WITHOUT THE
LEGENDS SET FORTH IN SECTION 5.8 ABOVE AT SUCH TIME AS:

 

(A)                                  THE HOLDER THEREOF IS PERMITTED TO DISPOSE
OF SUCH SECURITIES PURSUANT TO RULE 144(K) UNDER THE SECURITIES ACT; OR

 

(B)                                 UPON RESALE SUBJECT TO AN EFFECTIVE
REGISTRATION STATEMENT AFTER SUCH SECURITIES ARE REGISTERED UNDER THE SECURITIES
ACT.

 

The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the Purchaser and broker, if any.

 

6.14                           OPINION.  ON THE CLOSING DATE, THE COMPANY WILL
DELIVER TO THE PURCHASER AN OPINION ACCEPTABLE TO THE PURCHASER FROM THE
COMPANY’S EXTERNAL LEGAL COUNSEL.  THE COMPANY WILL PROVIDE, AT THE COMPANY’S
EXPENSE, SUCH OTHER LEGAL OPINIONS IN THE FUTURE AS ARE DEEMED REASONABLY
NECESSARY BY THE PURCHASER (AND ACCEPTABLE TO THE PURCHASER) IN CONNECTION WITH
THE CONVERSION OF THE NOTE AND EXERCISE OF THE WARRANT.

 

6.15                           MARGIN STOCK.                     THE COMPANY
WILL NOT PERMIT ANY OF THE PROCEEDS OF THE NOTE OR THE WARRANT TO BE USED
DIRECTLY OR INDIRECTLY TO “PURCHASE” OR “CARRY” “MARGIN STOCK” OR TO REPAY
INDEBTEDNESS INCURRED TO “PURCHASE” OR “CARRY” “MARGIN STOCK” WITHIN THE
RESPECTIVE MEANINGS OF EACH OF THE QUOTED TERMS UNDER REGULATION U OF THE BOARD
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM AS NOW AND FROM TIME TO TIME
HEREAFTER IN EFFECT.

 

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6.16                           FINANCING RIGHT OF FIRST REFUSAL.

 

(A)                                  THE COMPANY HEREBY GRANTS TO THE PURCHASER
A RIGHT OF FIRST REFUSAL TO PROVIDE ANY ADDITIONAL FINANCING (AS DEFINED BELOW)
TO BE ISSUED BY THE COMPANY AND/OR ANY OF ITS SUBSIDIARIES, SUBJECT TO THE
FOLLOWING TERMS AND CONDITIONS.  FROM AND AFTER THE DATE HEREOF,  PRIOR TO THE
INCURRENCE OF ANY ADDITIONAL INDEBTEDNESS AND/OR THE SALE OR ISSUANCE OF ANY
EQUITY INTERESTS OF THE COMPANY OR ANY OF ITS SUBSIDIARIES (AN “ADDITIONAL
FINANCING”), THE COMPANY AND/OR ANY SUBSIDIARY OF THE COMPANY, AS THE CASE MAY
BE, SHALL NOTIFY THE PURCHASER OF ITS INTENTION TO ENTER INTO SUCH ADDITIONAL
FINANCING.  IN CONNECTION THEREWITH, THE COMPANY AND/OR THE APPLICABLE
SUBSIDIARY THEREOF SHALL SUBMIT A FULLY EXECUTED TERM SHEET (A “PROPOSED TERM
SHEET”) TO THE PURCHASER SETTING FORTH THE TERMS, CONDITIONS AND PRICING OF ANY
SUCH ADDITIONAL FINANCING (SUCH FINANCING TO BE NEGOTIATED ON “ARM’S LENGTH”
TERMS AND THE TERMS THEREOF TO BE NEGOTIATED IN GOOD FAITH) PROPOSED TO BE
ENTERED INTO BY THE COMPANY AND/OR SUCH SUBSIDIARY.  THE PURCHASER SHALL HAVE
THE RIGHT, BUT NOT THE OBLIGATION, TO DELIVER ITS OWN PROPOSED TERM SHEET (THE
“PURCHASER TERM SHEET”) SETTING FORTH THE TERMS AND CONDITIONS UPON WHICH THE
PURCHASER WOULD BE WILLING TO PROVIDE SUCH ADDITIONAL FINANCING TO THE COMPANY
AND/OR SUCH SUBSIDIARY.  THE PURCHASER TERM SHEET SHALL CONTAIN TERMS NO LESS
FAVORABLE TO THE COMPANY AND/OR SUCH SUBSIDIARY THAN THOSE OUTLINED IN PROPOSED
TERM SHEET.  THE PURCHASER SHALL DELIVER SUCH PURCHASER TERM SHEET  WITHIN TEN
BUSINESS DAYS OF RECEIPT OF EACH SUCH PROPOSED TERM SHEET.  IF THE PROVISIONS OF
THE PURCHASER TERM SHEET ARE AT LEAST AS FAVORABLE TO THE COMPANY AND/OR SUCH
SUBSIDIARY, AS THE CASE MAY BE, AS THE PROVISIONS OF THE PROPOSED TERM SHEET,
THE COMPANY AND/OR SUCH SUBSIDIARY SHALL ENTER INTO AND CONSUMMATE THE
ADDITIONAL FINANCING TRANSACTION OUTLINED IN THE PURCHASER TERM SHEET.

 

(B)                                 THE COMPANY WILL NOT, AND WILL NOT PERMIT
ITS SUBSIDIARIES TO, AGREE, DIRECTLY OR INDIRECTLY, TO ANY RESTRICTION WITH ANY
PERSON OR ENTITY WHICH LIMITS THE ABILITY OF THE PURCHASER TO CONSUMMATE AN
ADDITIONAL FINANCING WITH THE COMPANY OR ANY OF ITS SUBSIDIARIES.

 

6.17                           AUTHORIZATION AND RESERVATION OF SHARES.  THE
COMPANY SHALL AT ALL TIMES HAVE AUTHORIZED AND RESERVED A SUFFICIENT NUMBER OF
SHARES OF COMMON STOCK TO PROVIDE FOR THE CONVERSION OF THE NOTE AND EXERCISE OF
THE WARRANTS.

 

7.                                       COVENANTS OF THE PURCHASER.  THE
PURCHASER COVENANTS AND AGREES WITH THE COMPANY AS FOLLOWS:

 

7.1                                 CONFIDENTIALITY.  THE PURCHASER WILL NOT AND
WILL NOT PERMIT ANY OF ITS AFFILIATES TO, DISCLOSE, AND WILL NOT INCLUDE IN ANY
PUBLIC ANNOUNCEMENT, THE NAME OF THE COMPANY, UNLESS EXPRESSLY AGREED TO BY THE
COMPANY OR UNLESS AND UNTIL SUCH DISCLOSURE IS REQUIRED BY LAW OR APPLICABLE
REGULATION, AND THEN ONLY TO THE EXTENT OF SUCH REQUIREMENT.

 

7.2                                 PUBLIC INFORMATION.  THE PURCHASER WILL NOT
EFFECT ANY SALES IN THE SHARES OF THE COMPANY’S COMMON STOCK WHILE IN POSSESSION
OF MATERIAL, NON-PUBLIC INFORMATION REGARDING THE COMPANY IF SUCH SALES WOULD
VIOLATE APPLICABLE SECURITIES LAW.

 

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7.3                                 LIMITATION ON ACQUISITION OF COMMON STOCK OF
THE COMPANY.  NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS
AGREEMENT, ANY RELATED AGREEMENT OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT
ENTERED INTO IN CONNECTION WITH ANY OTHER TRANSACTIONS BETWEEN THE PURCHASER AND
THE COMPANY, THE PURCHASER MAY NOT ACQUIRE STOCK IN THE COMPANY (INCLUDING,
WITHOUT LIMITATION, PURSUANT TO A CONTRACT TO PURCHASE, BY EXERCISING AN OPTION
OR WARRANT, BY CONVERTING ANY OTHER SECURITY OR INSTRUMENT, BY ACQUIRING OR
EXERCISING ANY OTHER RIGHT TO ACQUIRE, SHARES OF STOCK OR OTHER SECURITY
CONVERTIBLE INTO SHARES OF STOCK IN THE COMPANY, OR OTHERWISE, AND SUCH
CONTRACTS, OPTIONS, WARRANTS, CONVERSION OR OTHER RIGHTS SHALL NOT BE
ENFORCEABLE OR EXERCISABLE) TO THE EXTENT SUCH STOCK ACQUISITION WOULD CAUSE ANY
INTEREST (INCLUDING ANY ORIGINAL ISSUE DISCOUNT) PAYABLE BY THE COMPANY TO THE
PURCHASER NOT TO QUALIFY AS “PORTFOLIO INTEREST” WITHIN THE MEANING OF
SECTION 881(C)(2) OF THE CODE, BY REASON OF SECTION 881(C)(3) OF THE CODE,
TAKING INTO ACCOUNT THE CONSTRUCTIVE OWNERSHIP RULES UNDER
SECTION 871(H)(3)(C) OF THE CODE (THE “STOCK ACQUISITION LIMITATION”).  THE
STOCK ACQUISITION LIMITATION SHALL AUTOMATICALLY BECOME NULL AND VOID WITHOUT
ANY NOTICE TO THE COMPANY UPON THE EARLIER TO OCCUR OF EITHER (A) THE COMPANY’S
DELIVERY TO THE PURCHASER OF A NOTICE OF REDEMPTION (AS DEFINED IN THE NOTE) OR
(B) THE EXISTENCE OF AN EVENT OF DEFAULT (AS DEFINED IN THE NOTE) AT A TIME WHEN
THE AVERAGE CLOSING PRICE OF THE COMPANY’S COMMON STOCK AS REPORTED BY
BLOOMBERG, L.P. ON THE PRINCIPAL MARKET FOR THE IMMEDIATELY PRECEDING FIVE
TRADING DAYS IS GREATER THAN OR EQUAL TO [150%] OF THE FIXED CONVERSION PRICE
(AS DEFINED IN THE NOTE).

 

8.                                       COVENANTS OF THE COMPANY AND THE
PURCHASER REGARDING INDEMNIFICATION.

 

8.1                                 COMPANY INDEMNIFICATION.  THE COMPANY AGREES
TO INDEMNIFY, HOLD HARMLESS, REIMBURSE AND DEFEND THE PURCHASER, EACH OF THE
PURCHASER’S OFFICERS, DIRECTORS, AGENTS, AFFILIATES, CONTROL PERSONS, AND
PRINCIPAL SHAREHOLDERS, AGAINST ALL CLAIMS, COSTS, EXPENSES, LIABILITIES,
OBLIGATIONS, LOSSES OR DAMAGES (INCLUDING REASONABLE LEGAL FEES) OF ANY NATURE,
INCURRED BY OR IMPOSED UPON THE PURCHASER WHICH RESULT, ARISE OUT OF OR ARE
BASED UPON: (I) ANY MISREPRESENTATION BY THE COMPANY OR ANY OF ITS SUBSIDIARIES
OR BREACH OF ANY WARRANTY BY THE COMPANY OR ANY OF ITS SUBSIDIARIES IN THIS
AGREEMENT, ANY OTHER RELATED AGREEMENT OR IN ANY EXHIBITS OR SCHEDULES ATTACHED
HERETO OR THERETO; OR (II) ANY BREACH OR DEFAULT IN PERFORMANCE BY COMPANY OR
ANY OF ITS SUBSIDIARIES OF ANY COVENANT OR UNDERTAKING TO BE PERFORMED BY
COMPANY OR ANY OF ITS SUBSIDIARIES HEREUNDER, UNDER ANY OTHER RELATED AGREEMENT
OR ANY OTHER AGREEMENT ENTERED INTO BY THE COMPANY AND/OR ANY OF ITS
SUBSIDIARIES AND THE PURCHASER RELATING HERETO OR THERETO.

 

8.2                                 PURCHASER’S INDEMNIFICATION.  THE PURCHASER
AGREES TO INDEMNIFY, HOLD HARMLESS, REIMBURSE AND DEFEND THE COMPANY AND EACH OF
THE COMPANY’S OFFICERS, DIRECTORS, AGENTS, AFFILIATES, CONTROL PERSONS AND
PRINCIPAL SHAREHOLDERS, AT ALL TIMES AGAINST ANY CLAIMS, COSTS, EXPENSES,
LIABILITIES, OBLIGATIONS, LOSSES OR DAMAGES (INCLUDING REASONABLE LEGAL FEES) OF
ANY NATURE, INCURRED BY OR IMPOSED UPON THE COMPANY WHICH RESULT, ARISE OUT OF
OR ARE BASED UPON:  (I) ANY MISREPRESENTATION BY THE PURCHASER OR BREACH OF ANY
WARRANTY BY THE PURCHASER IN THIS AGREEMENT OR IN ANY EXHIBITS OR SCHEDULES
ATTACHED HERETO OR ANY RELATED AGREEMENT; OR (II) ANY BREACH OR DEFAULT IN
PERFORMANCE BY THE PURCHASER OF ANY COVENANT OR UNDERTAKING TO BE PERFORMED BY
THE PURCHASER HEREUNDER, OR ANY OTHER AGREEMENT ENTERED INTO BY THE COMPANY AND
THE PURCHASER RELATING HERETO.

 

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9.                                       THIS SECTION INTENTIALLY OMITTED. 

 

10.                                 REGISTRATION RIGHTS.

 

10.1                           REGISTRATION RIGHTS GRANTED.  THE COMPANY HEREBY
GRANTS REGISTRATION RIGHTS TO THE PURCHASER PURSUANT TO THE REGISTRATION RIGHTS
AGREEMENT.

 

10.2                           OFFERING RESTRICTIONS.  EXCEPT AS PREVIOUSLY
DISCLOSED IN THE SEC REPORTS OR IN THE EXCHANGE ACT FILINGS, OR STOCK OR STOCK
OPTIONS GRANTED TO EMPLOYEES OR DIRECTORS OF THE COMPANY (THESE EXCEPTIONS
HEREINAFTER REFERRED TO AS THE “EXCEPTED ISSUANCES”), NEITHER THE COMPANY NOR
ANY OF ITS SUBSIDIARIES WILL, PRIOR TO THE FULL EXERCISE BY PURCHASER OF THE
WARRANTS, (X) ENTER INTO ANY EQUITY LINE OF CREDIT AGREEMENT OR SIMILAR
AGREEMENT OR (Y) ISSUE, OR ENTER INTO ANY AGREEMENT TO ISSUE, ANY SECURITIES
WITH A VARIABLE/FLOATING CONVERSION AND/OR PRICING FEATURE WHICH ARE OR COULD BE
(BY CONVERSION OR REGISTRATION) FREE-TRADING SECURITIES (I.E.  COMMON STOCK
SUBJECT TO A REGISTRATION STATEMENT).

 

11.                                 MISCELLANEOUS.

 

11.1                           GOVERNING LAW, JURISDICTION AND WAIVER OF JURY
TRIAL.

 

(A)                                  THIS AGREEMENT AND THE OTHER RELATED
AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.

 

(B)                                 THE COMPANY HEREBY CONSENTS AND AGREES THAT
THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK
SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN THE COMPANY, ON THE ONE HAND, AND THE PURCHASER, ON THE OTHER HAND,
PERTAINING TO THIS AGREEMENT OR ANY OF THE RELATED AGREEMENTS OR TO ANY MATTER
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER RELATED
AGREEMENTS; PROVIDED, THAT THE PURCHASER AND THE COMPANY ACKNOWLEDGE THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE
COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT, NOTHING IN
THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE PURCHASER FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT
THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL (AS DEFINED IN THE MASTER SECURITY
AGREEMENT) OR ANY OTHER SECURITY FOR THE OBLIGATIONS (AS DEFINED IN THE MASTER
SECURITY AGREEMENT), OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
THE PURCHASER.  THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED

 

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IN ANY SUCH COURT, AND THE COMPANY HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS.  THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED
OR CERTIFIED MAIL ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN
SECTION 11.9 AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER
OF THE COMPANY’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE
U.S. MAILS, PROPER POSTAGE PREPAID.

 

(C)                                  THE PARTIES DESIRE THAT THEIR DISPUTES BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.  THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE
PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR
OTHERWISE BETWEEN THE PURCHASER AND/OR THE COMPANY ARISING OUT OF, CONNECTED
WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH THIS AGREEMENT, ANY OTHER RELATED AGREEMENT OR THE TRANSACTIONS
RELATED HERETO OR THERETO.

 

11.2                           SEVERABILITY.  WHEREVER POSSIBLE EACH PROVISION
OF THIS AGREEMENT AND THE RELATED AGREEMENTS SHALL BE INTERPRETED IN SUCH MANNER
AS TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION OF THIS
AGREEMENT OR ANY RELATED AGREEMENT SHALL BE PROHIBITED BY OR INVALID OR ILLEGAL
UNDER APPLICABLE LAW SUCH PROVISION SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH
PROHIBITION OR INVALIDITY OR ILLEGALITY, WITHOUT INVALIDATING THE REMAINDER OF
SUCH PROVISION OR THE REMAINING PROVISIONS THEREOF WHICH SHALL NOT IN ANY WAY BE
AFFECTED OR IMPAIRED THEREBY.

 

11.3                           SURVIVAL.  THE REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS MADE HEREIN SHALL SURVIVE ANY INVESTIGATION MADE BY THE
PURCHASER AND THE CLOSING OF THE TRANSACTIONS CONTEMPLATED HEREBY TO THE EXTENT
PROVIDED THEREIN.  ALL STATEMENTS AS TO FACTUAL MATTERS CONTAINED IN ANY
CERTIFICATE OR OTHER INSTRUMENT DELIVERED BY OR ON BEHALF OF THE COMPANY
PURSUANT HERETO IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE
DEEMED TO BE REPRESENTATIONS AND WARRANTIES BY THE COMPANY HEREUNDER SOLELY AS
OF THE DATE OF SUCH CERTIFICATE OR INSTRUMENT.  ALL INDEMNITIES SET FORTH HEREIN
SHALL SURVIVE THE EXECUTION, DELIVERY AND TERMINATION OF THIS AGREEMENT AND THE
NOTE AND THE MAKING AND REPAYMENT OF THE OBLIGATIONS ARISING HEREUNDER, UNDER
THE NOTE AND UNDER THE OTHER RELATED AGREEMENTS.

 

11.4                           SUCCESSORS.  EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED HEREIN, THE PROVISIONS HEREOF SHALL INURE TO THE BENEFIT OF, AND BE
BINDING UPON, THE SUCCESSORS, HEIRS, EXECUTORS AND ADMINISTRATORS OF THE PARTIES
HERETO AND SHALL INURE TO THE BENEFIT OF AND BE ENFORCEABLE BY EACH PERSON OR
ENTITY WHICH SHALL BE A HOLDER OF THE SECURITIES FROM TIME TO TIME, OTHER THAN
THE HOLDERS OF COMMON STOCK WHICH HAS BEEN SOLD BY THE PURCHASER PURSUANT TO
RULE 144 OR AN

 

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EFFECTIVE REGISTRATION STATEMENT.  THE PURCHASER SHALL NOT BE PERMITTED TO
ASSIGN ITS RIGHTS HEREUNDER OR UNDER ANY RELATED AGREEMENT TO A COMPETITOR OF
THE COMPANY UNLESS AN EVENT OF DEFAULT (AS DEFINED IN THE NOTE) HAS OCCURRED AND
IS CONTINUING.

 

11.5                           ENTIRE AGREEMENT; MAXIMUM INTEREST.  THIS
AGREEMENT, THE RELATED AGREEMENTS, THE EXHIBITS AND SCHEDULES HERETO AND THERETO
AND THE OTHER DOCUMENTS DELIVERED PURSUANT HERETO CONSTITUTE THE FULL AND ENTIRE
UNDERSTANDING AND AGREEMENT BETWEEN THE PARTIES WITH REGARD TO THE SUBJECTS
HEREOF AND NO PARTY SHALL BE LIABLE OR BOUND TO ANY OTHER IN ANY MANNER BY ANY
REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS EXCEPT AS SPECIFICALLY SET
FORTH HEREIN AND THEREIN.  NOTHING CONTAINED IN THIS AGREEMENT, ANY RELATED
AGREEMENT OR IN ANY DOCUMENT REFERRED TO HEREIN OR DELIVERED IN CONNECTION
HEREWITH SHALL BE DEEMED TO ESTABLISH OR REQUIRE THE PAYMENT OF A RATE OF
INTEREST OR OTHER CHARGES IN EXCESS OF THE MAXIMUM RATE PERMITTED BY APPLICABLE
LAW.  IN THE EVENT THAT THE RATE OF INTEREST OR DIVIDENDS REQUIRED TO BE PAID OR
OTHER CHARGES HEREUNDER EXCEED THE MAXIMUM RATE PERMITTED BY SUCH LAW, ANY
PAYMENTS IN EXCESS OF SUCH MAXIMUM SHALL BE CREDITED AGAINST AMOUNTS OWED BY THE
COMPANY TO THE PURCHASER AND THUS REFUNDED TO THE COMPANY.

 

11.6                           AMENDMENT AND WAIVER.

 

(A)                                  THIS AGREEMENT MAY BE AMENDED OR MODIFIED
ONLY UPON THE WRITTEN CONSENT OF THE COMPANY AND THE PURCHASER.

 

(B)                                 THE OBLIGATIONS OF THE COMPANY AND THE
RIGHTS OF THE PURCHASER UNDER THIS AGREEMENT MAY BE WAIVED ONLY WITH THE WRITTEN
CONSENT OF THE PURCHASER.

 

(C)                                  THE OBLIGATIONS OF THE PURCHASER AND THE
RIGHTS OF THE COMPANY UNDER THIS AGREEMENT MAY BE WAIVED ONLY WITH THE WRITTEN
CONSENT OF THE COMPANY.

 

11.7                           DELAYS OR OMISSIONS.  IT IS AGREED THAT NO DELAY
OR OMISSION TO EXERCISE ANY RIGHT, POWER OR REMEDY ACCRUING TO ANY PARTY, UPON
ANY BREACH, DEFAULT OR NONCOMPLIANCE BY ANOTHER PARTY UNDER THIS AGREEMENT OR
THE RELATED AGREEMENTS, SHALL IMPAIR ANY SUCH RIGHT, POWER OR REMEDY, NOR SHALL
IT BE CONSTRUED TO BE A WAIVER OF ANY SUCH BREACH, DEFAULT OR NONCOMPLIANCE, OR
ANY ACQUIESCENCE THEREIN, OR OF OR IN ANY SIMILAR BREACH, DEFAULT OR
NONCOMPLIANCE THEREAFTER OCCURRING.  ALL REMEDIES, EITHER UNDER THIS AGREEMENT
OR THE RELATED AGREEMENTS, BY LAW OR OTHERWISE AFFORDED TO ANY PARTY, SHALL BE
CUMULATIVE AND NOT ALTERNATIVE.

 

11.8                           NOTICES.  ALL NOTICES REQUIRED OR PERMITTED
HEREUNDER SHALL BE IN WRITING AND SHALL BE DEEMED EFFECTIVELY GIVEN:

 

(A)                                  UPON PERSONAL DELIVERY TO THE PARTY TO BE
NOTIFIED;

 

(B)                                 WHEN SENT BY CONFIRMED FACSIMILE IF SENT
DURING NORMAL BUSINESS HOURS OF THE RECIPIENT, IF NOT, THEN ON THE NEXT BUSINESS
DAY;

 

(C)                                  THREE (3) BUSINESS DAYS AFTER HAVING BEEN
SENT BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID;
OR

 

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(D)                                 ONE (1) DAY AFTER DEPOSIT WITH A NATIONALLY
RECOGNIZED OVERNIGHT COURIER, SPECIFYING NEXT DAY DELIVERY, WITH WRITTEN
VERIFICATION OF RECEIPT.

 

All communications shall be sent as follows:

 

If to the Company, to:

 

IWT Tesoro Corporation
191 Post Road West
Westport, Connecticut 06880

Attention:                                         Henry J. Boucher, Jr., CEO

Facsimile:                                            (203) 221-2797

 

 

 

 

 

with a copy to:

 

 

 

 

 

Rader and Coleman, P.L.
2101 N.W. Boca Raton Blvd., Suite 1
Boca Raton, Florida 33431

Attention:                                         Gayle Coleman, Esq.

Facsimile:                                            (561) 367-1725

 

 

 

If to the Purchaser, to:

 

Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
P.O.  Box 309 GT
Ugland House
George Town
South Church Street
Grand Cayman, Cayman Islands
Facsimile:                                            345-949-8080

 

 

 

 

 

with a copy to:

 

 

 

 

 

John E. Tucker, Esq.
825 Third Avenue 14th Floor
New York, NY 10022
Facsimile:                                            212-541-4434

 

or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.

 

11.9                           ATTORNEYS’ FEES.  IN THE EVENT THAT ANY SUIT OR
ACTION IS INSTITUTED TO ENFORCE ANY PROVISION IN THIS AGREEMENT OR ANY RELATED
AGREEMENT, THE PREVAILING PARTY IN SUCH DISPUTE SHALL BE ENTITLED TO RECOVER
FROM THE LOSING PARTY ALL FEES, COSTS AND EXPENSES OF ENFORCING ANY RIGHT OF
SUCH PREVAILING PARTY UNDER OR WITH RESPECT TO THIS AGREEMENT AND/OR SUCH
RELATED

 

27

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AGREEMENT, INCLUDING, WITHOUT LIMITATION, SUCH REASONABLE FEES AND EXPENSES OF
ATTORNEYS AND ACCOUNTANTS, WHICH SHALL INCLUDE, WITHOUT LIMITATION, ALL FEES,
COSTS AND EXPENSES OF APPEALS.

 

11.10                     TITLES AND SUBTITLES.  THE TITLES OF THE SECTIONS AND
SUBSECTIONS OF THIS AGREEMENT ARE FOR CONVENIENCE OF REFERENCE ONLY AND ARE NOT
TO BE CONSIDERED IN CONSTRUING THIS AGREEMENT.

 

11.11                     FACSIMILE SIGNATURES; COUNTERPARTS.  THIS AGREEMENT
MAY BE EXECUTED BY FACSIMILE SIGNATURES AND IN ANY NUMBER OF COUNTERPARTS, EACH
OF WHICH SHALL BE AN ORIGINAL, BUT ALL OF WHICH TOGETHER SHALL CONSTITUTE ONE
AGREEMENT.

 

11.12                     BROKER’S FEES.  EXCEPT AS SET FORTH ON SCHEDULE 11.12
HEREOF, EACH PARTY HERETO REPRESENTS AND WARRANTS THAT NO AGENT, BROKER,
INVESTMENT BANKER, PERSON OR FIRM ACTING ON BEHALF OF OR UNDER THE AUTHORITY OF
SUCH PARTY HERETO IS OR WILL BE ENTITLED TO ANY BROKER’S OR FINDER’S FEE OR ANY
OTHER COMMISSION DIRECTLY OR INDIRECTLY IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED HEREIN.  EACH PARTY HERETO FURTHER AGREES TO INDEMNIFY EACH OTHER
PARTY FOR ANY CLAIMS, LOSSES OR EXPENSES INCURRED BY SUCH OTHER PARTY AS A
RESULT OF THE REPRESENTATION IN THIS SECTION 11.13 BEING UNTRUE.

 

11.13                     CONSTRUCTION.  EACH PARTY ACKNOWLEDGES THAT ITS LEGAL
COUNSEL PARTICIPATED IN THE PREPARATION OF THIS AGREEMENT AND THE RELATED
AGREEMENTS AND, THEREFORE, STIPULATES THAT THE RULE OF CONSTRUCTION THAT
AMBIGUITIES ARE TO BE RESOLVED AGAINST THE DRAFTING PARTY SHALL NOT BE APPLIED
IN THE INTERPRETATION OF THIS AGREEMENT OR ANY RELATED AGREEMENT TO FAVOR ANY
PARTY AGAINST THE OTHER.

 

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

 

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IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.

 

COMPANY:

 

PURCHASER:

 

 

 

IWT TESORO CORPORATION

 

LAURUS MASTER FUND, LTD.

 

 

 

 

 

 

By:

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

Title:

 

 

 

29

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EXHIBIT A

 

FORM OF CONVERTIBLE NOTE

 

A-1

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

 

EXHIBIT B

 

FORM OF WARRANT

 

B-1

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EXHIBIT C

 

FORM OF OPINION

 

The form of opinion will be in substantially the same form as the Borrower’s
Counsel opinion provided by Rader and Coleman P.L. on August 25, 2005, as
follows:

 

Based upon the foregoing and and subject to other qualifications, limitations
and assumptions set forth herein, we are of the opinion that:

 

1.               TESORO HAS BEEN FORMED AS A CORPORATION UNDER THE LAWS OF
NEVADA AND ITS STATUS IS ACTIVE.

 

2.               IWT HAS BEEN FORMED AS A CORPORATION UNDER THE LAWS OF FLORIDA
AND ITS STATUS IS ACTIVE.

 

3.               TRANSPORT HAS BEEN FORMED AS A CORPORATION UNDER THE LAWS OF
FLORIDA AND ITS STATUS IS ACTIVE.

 

4.               INTERNATIONAL HAS BEEN FORMED AS A BERMUDA EXEMPT COMPANY UNDER
THE LAWS OF BERMUDA AND ITS STATUS IS ACTIVE.

 

5.               IFG HAS BEEN FORMED AS A CORPORATION UNDER THE LAWS OF DELAWARE
AND ITS STATUS IS ACTIVE.

 

6.               TTC HAS BEEN FORMED AS A CORPORATION UNDER THE LAWS OF DELAWARE
AND ITS STATUS IS ACTIVE.

 

7.               THE COMPANY AND ITS SUBSIDIARIES EACH HAS THE CORPORATE POWER
AND AUTHORITY TO OWN AND LEASE ITS PROPERTIES AND TO CARRY ON ITS RESPECTIVE
BUSINESS AS PRESENTLY CONDUCTED.

 

8.               THE EXECUTION AND DELIVERY OF THE AGREEMENT AND THE RELATED
AGREEMENTS BY THE COMPANY AND ITS SUBSIDIARIES  TO WHICH EACH IS A PARTY AND THE
OBSERVANCE AND PERFORMANCE BY THE COMPANY AND ITS SUBSIDIARIES OF ITS RESPECTIVE
OBLIGATIONS THEREUNDER, HAVE BEEN DULY AUTHORIZED BY REQUISITE ACTIONS BY THE
COMPANY AND ITS SUBSIDIARIES.  EACH OF THE AGREEMENT AND THE RELATED AGREEMENTS
DELIVERED BY THE COMPANY AND ITS SUBSIDIARIES TO PURCHASER ON THE CLOSING DATE
IS BASED UPON ADEQUATE CONSIDERATION AND CONSTITUTES, AND EACH OF THE OTHER
AGREEMENT AND THE RELATED AGREEMENTS TO WHICH THE COMPANY AND ITS SUBSIDIARIES
IS A PARTY, WHEN DULY EXECUTED AND DELIVERED WILL CONSTITUTE, LEGAL, VALID AND
BINDING OBLIGATIONS OF THE COMPANY AND ITS SUBSIDIARIES AND IS ENFORCEABLE IN
ACCORDANCE WITH THEIR RESPECTIVE TERMS.  OUR OPINION CONCERNING THE VALIDITY,
BINDING EFFECT AND ENFORCEABILITY OF THE AGREEMENT AND THE RELATED AGREEMENTS TO
WHICH THE COMPANY AND ITS SUBSIDIARIES IS A PARTY MEANS THAT (A) THE AGREEMENT
AND THE RELATED AGREEMENTS CONSTITUTE EFFECTIVE CONTRACTS UNDER FLORIDA LAW,
(B) THE AGREEMENT AND THE RELATED AGREEMENTS ARE NOT INVALID BECAUSE OF A
SPECIFIC STATUTORY PROHIBITION OR PUBLIC POLICY AND ARE NOT SUBJECT IN THEIR
ENTIRETY TO A CONTRACTUAL DEFENSE, AND (C) SUBJECT TO THE LAST SENTENCE OF THIS
PARAGRAPH, SOME REMEDY IS AVAILABLE IF A COMPANY OR A SUBSIDIARY IS IN MATERIAL
DEFAULT UNDER THE AGREEMENT AND THE RELATED AGREEMENTS TO WHICH IT IS A PARTY. 
THIS OPINION DOES NOT MEAN THAT (A) ANY PARTICULAR REMEDY IS AVAILABLE UPON A
MATERIAL DEFAULT OR (B) EVERY PROVISION OF THE AGREEMENT AND THE RELATED
AGREEMENTS TO WHICH THE COMPANY OR A SUBSIDIARY IS A PARTY WILL BE UPHELD

 

D-1

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OR ENFORCED IN ANY OR EACH CIRCUMSTANCE BY A COURT.  FURTHERMORE, THE VALIDITY,
BINDING EFFECT AND ENFORCEABILITY OF THE AGREEMENT AND THE RELATED AGREEMENTS TO
WHICH THE COMPANY OR A  SUBSIDIARY IS A PARTY MAY BE LIMITED OR OTHERWISE
AFFECTED BY:  (A) BANKRUPTCY, INSOLVENCY, REORGANIZATION, MORATORIUM, FRAUDULENT
CONVEYANCE OR OTHER SIMILAR STATUTES, RULES, REGULATIONS OR OTHER LAWS AFFECTING
THE ENFORCEMENT OF CREDITORS’ RIGHTS AND REMEDIES GENERALLY; AND (B) THE
UNAVAILABILITY OF, OR LIMITATION ON THE AVAILABILITY OF, A PARTICULAR RIGHT OR
REMEDY (WHETHER IN A PROCEEDING IN EQUITY OR AT LAW) BECAUSE OF AN EQUITABLE
PRINCIPLE OR A REQUIREMENT AS TO COMMERCIAL REASONABLENESS, CONSCIONABILITY OR
GOOD FAITH.

 

9.     THE EXECUTION AND DELIVERY BY THE COMPANY AND ITS SUBSIDIARIES OF THE
AGREEMENT AND THE RELATED AGREEMENTS DELIVERED OR TO BE DELIVERED BY EACH PARTY
AND OBSERVANCE AND PERFORMANCE BY THE COMPANY AND ITS SUBSIDIARIES OF EACH OF
THEIR RESPECTIVE OBLIGATIONS THEREUNDER, DO NOT:

 

A.               VIOLATE THE PROVISIONS OF THEIR RESPECTIVE CHARTER OR BYLAWS;
OR

 

B.              VIOLATE ANY JUDGMENT, DECREE, ORDER OR AWARD OF ANY COURT
BINDING UPON THE COMPANY OR ANY OF ITS SUBSIDIARIES; OR

 

C.               VIOLATE ANY FLORIDA OR FEDERAL LAW.

 

10.   There is no action, suit, proceeding or investigation pending or, to such
counsel’s knowledge, currently threatened against the Company or any of its
Subsidiaries that prevents the right of the Company or any of its Subsidiaries
to enter into this Agreement or any Related Agreement, or to consummate the
transactions contemplated thereby.  To such counsel’s knowledge, the Company is
not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality; nor is
there any action, suit, proceeding or investigation by the Company currently
pending or which the Company intends to initiate.

 

11.   THE SHARES OF COMMON STOCK OF TESORO ISSUABLE UPON CONVERSION OF THE NOTES
(THE “NOTE SHARES”) AND THE WARRANTS (THE “WARRANT SHARES”), WHEN ISSUED
PURSUANT TO AND IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT AND THE RELATED
AGREEMENTS AND UPON DELIVERY SHALL, IN EACH CASE, BE VALIDLY ISSUED AND
OUTSTANDING, FULLY PAID AND NON ASSESSABLE.

 

12.   TO OUR KNOWLEDGE, THE ISSUANCE OF THE NOTES AND THE SUBSEQUENT CONVERSION
OF THE NOTES INTO NOTE SHARES ARE NOT SUBJECT TO ANY PREEMPTIVE RIGHTS OR RIGHTS
OF FIRST REFUSAL THAT HAVE NOT BEEN PROPERLY WAIVED OR COMPLIED WITH.  TO OUR
KNOWLEDGE, THE ISSUANCE OF THE WARRANT AND THE SUBSEQUENT EXERCISE OF THE
WARRANT FOR WARRANT SHARES ARE NOT SUBJECT TO ANY PREEMPTIVE RIGHTS OR, TO OUR
KNOWLEDGE, RIGHTS OF FIRST REFUSAL THAT HAVE NOT BEEN PROPERLY WAIVED OR
COMPLIED WITH.  TO OUR KNOWLEDGE, THE ISSUANCE OF THE OPTION AND THE SUBSEQUENT
EXERCISE OF THE OPTION FOR OPTION SHARES ARE NOT SUBJECT TO ANY PREEMPTIVE
RIGHTS OR, TO OUR KNOWLEDGE, RIGHTS OF FIRST REFUSAL THAT HAVE NOT BEEN PROPERLY
WAIVED OR COMPLIED WITH

 

2

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13.   ASSUMING THE ACCURACY OF THE REPRESENTATIONS AND WARRANTIES OF PURCHASER
CONTAINED IN THE AGREEMENT, THE OFFER, SALE AND ISSUANCE OF THE NOTE, THE
WARRANT AND THE OPTION (THE “SECURITIES”) WILL BE EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.  TO THE BEST OF SUCH COUNSEL’S KNOWLEDGE,
NEITHER TESORO, NOR ANY OF ITS AFFILIATES, NOR ANY PERSON ACTING ON ITS OR THEIR
BEHALF, HAS DIRECTLY OR INDIRECTLY MADE ANY OFFERS OR SALES OF ANY SECURITY OR
SOLICITED ANY OFFERS TO BUY AND SECURITY UNDER CIRCUMSTANCES THAT WOULD CAUSE
THE ISSUANCE OF THE SECURITIES PURSUANT TO THE AGREEMENT AND THE RELATED
AGREEMENTS TO BE INTEGRATED WITH PRIOR OFFERINGS BY TESORO FOR PURPOSES OF THE
SECURITIES ACT WHICH WOULD PREVENT TESORO FROM SELLING THE SECURITIES PURSUANT
TO RULE 506 UNDER THE SECURITIES ACT, OR ANY APPLICABLE EXCHANGE-RELATED
STOCKHOLDER APPROVAL PROVISIONS.

 

3

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EXHIBIT D

 

FORM OF ESCROW AGREEMENT

 

4

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