Document:

Exhibit 10.4

FAMILY DOLLAR STORES, INC.

2006 INCENTIVE PLAN

Guidelines for Long-Term Incentive
Performance Share Rights Awards

 

Document Contents:

 

	
  SECTION 1: PURPOSE

  	
   

  	
   

  
	
  SECTION 2: SCOPE

  	
   

  	
   

  
	
  SECTION 3: ELIGIBILITY FOR
  AWARDS AND PAYOUTS

  	
   

  	
   

  
	
  NEW HIRE AND
  PROMOTION AWARDS (NEW EQUITY PLAN PARTICIPANTS)

  	
   

  	
   

  
	
  PROMOTION AWARDS
  FOR ACTIVE EQUITY PLAN PARTICIPANTS (EQUITY TO EQUITY)

  	
   

  	
   

  
	
  PAYOUT
  ELIGIBILITY

  	
   

  	
   

  
	
  SECTION 4: PAYOUT CALCULATION
  OF PSR AWARDS

  	
   

  	
   

  
	
  SECTION 5: TERMINATION OF
  EMPLOYMENT OR PLAN PARTICIPATION

  	
   

  	
   

  
	
  SECTION 6: ADDITIONAL RULES

  	
   

  	
   

  
	
  SECTION 7: TRANSITION PERIOD

  	
   

  	
   

  
	
  SECTION 8: QUALIFIED
  PERFORMANCE BASED AWARDS

  	
   

  	
   

  

 

FAMILY DOLLAR STORES, INC.

2006 INCENTIVE PLAN

Guidelines for Long-Term Incentive
Performance Share Rights Awards

Section 1: Purpose

Family Dollar Stores, Inc. (the “Company”) maintains for the benefit of
eligible individuals the Family Dollar Stores, Inc. 2006 Incentive Plan  (the “Plan”),  which is
intended to provide flexibility to the Company in its ability to motivate, attract,
and retain the services of such individuals upon whose judgment, interest, and
special effort the successful conduct of the Company’s operation is largely
dependent. These Guidelines for Long-Term Incentive
Performance Share Rights Awards (the “Guidelines”) are intended to
implement the Plan by providing eligible Associates of the Company with an
opportunity to participate in the Company’s success by earning long-term
incentive compensation awards in the form of shares of Company Stock (“Common
Stock”) within the framework of the Plan (the “Performance Share Rights Awards”
or the “Awards”), and as further described in these Guidelines.

These Guidelines are adopted pursuant to relevant provisions of the
Plan and are to be interpreted and applied in accordance with the terms and
provisions thereof.  Specifically, these
Guidelines provide for the grant of Performance Share Rights Awards under
Article 9 of the Plan and, with respect to Associates in the position of Vice
President or above, the grant of Qualified Performance-Based Awards under
Article 14 of the Plan.  Unless otherwise
provided herein, capitalized terms used in these Guidelines will have the
meaning given such terms in the Plan.  If
there is any conflict between these Guidelines and the Plan, the terms and
provisions of the Plan shall control.

Section 2: Scope

The Guidelines cover Associates who are eligible for participation in
the Plan under these Guidelines and are selected by the Committee for
Performance Share Rights Awards identified in Section 1 above.  Awards under these Guidelines cover three (3)
year performance periods relating to such Awards which generally track the
Company’s fiscal (not calendar) year that is the 12-month period that generally
runs from approximately September 1st to
August 31st. (The “Performance
Period”).  The actual dates for the
fiscal year are determined and announced by the Company at the beginning of
each fiscal year.  See Section 7 below
regarding transition periods.

Section 3: Eligibility for Awards and Payouts

The Compensation Committee of the Board (the “Committee”) and/or
management of the Company will determine annually which Associates are eligible
to receive Performance Share Rights Awards under these Guidelines.  Participants are selected no later than 90
days following the beginning of each performance period or upon employment with
the Company or promotion.  Annual
Performance Share Rights Awards under these Guidelines will result in
overlapping performance periods. 
Additional eligibility requirements are as follows:

New
Hire and Promotion Awards (New Equity Plan Participants)

·                  An
Associate who becomes eligible for a Performance Share Rights Award under these
Guidelines after the beginning of a performance period, either because the
Associate is newly hired or is promoted into a position covered by these
Guidelines, will be granted an Award computed in accordance with these
Guidelines.  The dollar value of an Award
for the performance period beginning in the year in which the Associate is
hired or promoted will be established based upon the Associate’s position and
prorated for the number of months remaining (rounded up to the next full month
for any partial month of service) in the fiscal year of the Associate’s hire or
promotion (the “base line year”).  The
dollar value of the base line year Award will be prorated by a fraction, the
numerator of which is the number of calendar months remaining in the
performance period at the date of hire or promotion (rounded up to the next
full month for any partial month of service), and the denominator of which is
the total number of calendar months in the performance period for any
performance periods beginning prior to the year of hire or promotion. The
dollar amounts so awarded shall be converted into Performance Share Rights
based on the fair value of the Performance Share Rights, as established from
time to time by the Company.  Payments of
all such Awards shall be subject to Company performance as outlined in Section
4 below.

Promotion
Awards for Active Equity Plan Participants (Equity to Equity)

·                                          An Associate covered by these Guidelines who has a job change that
results in a higher Performance Share Rights Award will have their Award for
all pending performance periods as of the date of the job change adjusted
upward on a pro rata basis. The additional equity award will be calculated as
the difference between the full year Award for the new position and the actual
Award for the old position for each relevant performance period, prorated for
the time in the new position. Payments of all such Awards will be subject to
Company performance as outlined in section 4 below.

Payout
Eligibility

·                                          An
Associate must be classified as a regular full-time employee during the entire
performance period for which an Award is being made and at the time of the
actual issuance of the Common Stock pursuant to the Performance Shares Rights
Award in order to be issued Common Stock pursuant to an Award.

·                                          An
Associate on leave of absence, regardless of type, will be issued Common Stock
pursuant to a Performance Share Rights Award only upon return to regular, full
time work/active status.  An associate
who is on an approved family medical leave or approved military leave will be
issued Common Stock pursuant to such Award at the time such shares are issued
even if the associate has not returned to regular, full time work/active status
at that time.

·                                          The
Company will not
issue common stock pursuant to the Performance Share Rights Award for any
performance period if the associate’s most recent annual performance rating is
Unsatisfactory/Does Not Meet Expectations.

·                                          These
Guidelines do not in any manner restrict the right of the Company or the
Associate to terminate employment at any time, for any reason, with or without
cause.  See Section 5 below for further
information on the consequences of termination of employment during a pending
performance period.

Section 4: Payout Calculation of PSR Awards

At the time an Associate is selected for an
Award under these Guidelines for a particular performance period, the Associate
will be assigned a “target” number of shares of Common Stock to be earned if
the Company’s performance level is at the 50% level in comparison to the peer
group (as set forth below) for the performance period.  “Target” is defined as the actual number of
shares approved and awarded. Each performance period is a three (3) year
period, and any payout is based on cumulative yearly performance over the 3
years covered.  The Award will be
expressed as a number of Performance Share Rights and will be evidenced by an
Award Certificate consistent with the provisions of the Plan.  The actual payout for the
performance period, if any, will be determined as a percentage of the target
Award payout depending on Company performance.

·                                          Company
performance for each performance period will be based equally upon (i) the
Company’s average annual return on equity (“ROE”) for each fiscal year during
the performance period and (ii) the Company’s pre-tax net income growth rate
over the performance period, compounded annually.  For purposes of these Guidelines, ROE will be
calculated by dividing the Company’s pre-tax net income for the relevant fiscal
year by the total shareholders’ equity.

·                                          Actual
Company performance for each criteria above at the end of the relevant
performance period is then measured against the performance of a peer group of
companies selected prior to, or within 90 days after the beginning of, the
performance period.  The Award levels for
the relevant performance period will be adjusted at the end of the performance
period to reflect the Company’s performance relative to the peer group.  Any such adjustment will generally range from
0% (i.e., no payout for the performance period) to 200% of the target Award per
the following chart (with linear interpolation between the thresholds set forth
below):

	
  Performance

  Against

  Performance

  Peer Group

  	
   

  	
  Percent of

  Award

  Adjustment

  (to Target Award)

  
	
  90th Percentile

  	
   

  	
  200%

  
	
  75th Percentile

  	
   

  	
  150%

  
	
  50th Percentile

  	
   

  	
  100%

  
	
  40th Percentile

  	
   

  	
  75%

  
	
  30th Percentile

  	
   

  	
  25%

  
	
  <30th Percentile

  	
   

  	
  0%

  

 

·                                          In
addition, under relevant provisions of the Plan, the determination of ROE and
net-income-growth and the peer group of companies for the relevant performance
period may be further adjusted, collectively or individually, to reflect
extraordinary events or circumstances affecting the Company or its business, or
any of the companies included in the peer group, which render any such goals or
peer group selection unsuitable.

·                                          These
Guidelines do not in any manner restrict the right of the Company to modify
performance measures, targets, cycles, or any other term or condition of these
Guidelines, as the Company deems it necessary or appropriate, subject to the
terms of the Plan.

Section 5: Termination of Employment or Plan
Participation

Notwithstanding anything in these Guidelines to the contrary, the
following provisions will apply to any Associate whose employment with the
Company terminates.

·                                          In
the event of a termination of an Associate’s employment, either (i) as a result
of the Associate’s death, Disability or Retirement (as defined by Article 2,
section 3.1 (ll) of the Incentive Plan) or (ii) by the Company without Cause,
payments with respect to any outstanding Performance Share Rights Awards will
be based on actual Company performance (Percent of Award Adjustment) from the 3
year performance period immediately preceding the date of termination.  Common stock issued pursuant to the
Performance Share Rights will be paid on a pro-rata basis based on the actual
number of months worked in each relevant performance period.  The pro ration will be determined by
multiplying the number of Performance Shares Rights to which the Associate
would have been entitled based on Company performance by a fraction the
numerator of which is the number of calendar months in the performance period
of the Associate’s actual employment with the Company (including the full
calendar month in which the Associate’s employment terminated) and the
denominator of which is the total number of calendar months in the performance
period. Payments under this paragraph will be made as soon as administratively
convenient following the termination of the Associate’s employment.

·                                          In
the case of death or Disability, individual performance of the Associate will
be ignored.  In either event, payments
under this paragraph shall be made as soon as administratively convenient after
termination of employment.

·                                          In
the event of termination of an Associate’s employment with the Company before
the end of any relevant performance period or the actual issuance by the
Company of Common Stock pursuant to the Performance Share Rights Award, either
(i) by the Company for Cause, or (ii) by the Associate for any reason (other
than death, Disability or Retirement), any outstanding Awards for all relevant
performance periods will be immediately forfeited.

·                                          In
the event that an active Associate leaves the Plan for any reason but remains
employed by the company, the Associate’s Performance Share rights will be paid
on a pro-rata basis based on the actual number of months worked in each
relevant performance period, including the full calendar month in which the
Associate’s plan participation ended. Payments will be made during the same
cycle as active plan participants and will be subject to the Company
performance criteria outlined in section 4 of this document.

Section 6: Additional Rules

·                                          All
payments under these Guidelines are considered supplemental pay and will be
taxed as such.  Appropriate withholding
and deductions will be taken from such payments.  In accordance with the Plan, the Company may
require tax withholding to be satisfied through withholding of shares of Common
Stock otherwise payable under the Award.

·                                          These
Guidelines cannot be changed or modified by a verbal communication or course of
dealing but only by a written communication signed by the Chairman, Vice
Chairman, and/or the Chief Executive Officer (“CEO”) of the Company or any
officer designated by one of them.

·                                          Payouts
earned under these Guidelines are expected to be paid as soon as
administratively convenient following the end of the relevant performance
period in the form of one (1) share of the Company’s Common Stock for each
whole Performance Share Right that is payable under the Plan and these
Guidelines, rounded up to the next whole share. Notwithstanding the foregoing,
the Company may permit recipients of Awards to elect to defer receipt of
payment of such Awards under such terms and conditions as the Company may prescribe.

·                                          In
the event of major economic changes, catastrophic events, or any other
circumstances not contemplated by the Company (but subject to the Plan
provisions relating to Qualified Performance-Based Awards), the Committee, the
Chairman, Vice Chairman and/or the CEO of the Company reserves the right to
alter, amend, or terminate these Guidelines and any Awards hereunder.

·                                          The
Chairman of the Company will make all final decisions, rulings and
interpretations under these Guidelines (subject to the Plan provisions relating
to Qualified Performance-Based Awards, which may require action by the
Committee).  By participating in the Plan
under these Guidelines, each Associate agrees that such decisions, rulings and
interpretations will be final and that each Associate will be bound by
them.  Each Associate further agrees that
if and when any circumstances arise relating to these Guidelines, which are not
covered by this description of the Plan, the Associate will be bound by the
final decision, ruling or interpretation of the Chairman.

Section 7: Transition Period

·                                          In
addition to Performance Share Rights Awards made under these Guidelines for
multiple year periods, during the Company’s 2006 and 2007 fiscal years,
Performance Share Rights Awards will be made to Associates participating in the
Plan under these Guidelines for each of the 2006 and 2007 fiscal years based
upon the Company’s performance in each of such fiscal years as set forth in
Section 4 above.   An Associate who is
hired or is promoted into a position eligible to receive a Performance Share
Rights Award under the Plan during 2006 or 2007 will be eligible to receive a
prorated Performance Share Rights Award which is otherwise computed in the
manner set forth in Section 3 above.

Section 8: Qualified Performance Based Awards

Notwithstanding
anything in these Guidelines to the contrary, the following provisions will
apply to any Associate who is a vice president or above at the time the Awards
are established under these Guidelines. 
Awards under this Section 8 are intended to satisfy the Section 162(m)
Exemption applicable to Qualified Performance-Based Awards under Article 14 of
the Plan.  Please refer
to the Plan document for further information.

·                                          All
determinations under these Guidelines will be made by the Committee which,
pursuant to Section 4.1 of the Plan, will consist of all the members of the
Compensation Committee who are “outside directors” within the meaning of
Section 162(m) of the Code.

·                                          The
Committee will establish within 90 days after the beginning of each performance
period the target Award payout for each Associate covered by this Section 8,
the peer group of companies and potential payout adjustments relating thereto
for the relevant performance period.

·                                          Notwithstanding
the foregoing, the Committee will adjust ROE and net-income-growth, the peer
group of companies and potential payout adjustments relating thereto for the
relevant performance period, collectively or individually, with respect to each
Associate covered by this Section 8 to adequately reflect the occurrence,
during the performance period, of any of the events described in Sections 14.2
and 14.4 of the Plan.

·                                          Payment
of any Award under these Guidelines to any Associate covered by this Section 8
is conditioned upon the written certification of the Committee that the
performance goals and any other material conditions applicable to such Award
were satisfied.

·                                          The
Committee will retain the discretion to decrease, but not increase, the Award
otherwise payable to any Associate covered by this Section 8 in accordance with
the applicable performance formula described above.  In no event will the Award otherwise payable
to any Associate covered by this Section 8 in accordance with the applicable
performance formula described above exceed 1,000,000 shares of Company Stock.

·                                          Consistent
with Section 1 above, payment of any Award under these Guidelines to any
Associate covered by this Section 8 is conditioned upon the Plan having been
previously approved by the shareholders of the Company.

	
  Adopted:

  	
   

  	
  September 28, 2005

  
	
  Amended:

  	
   

  	
  January 19, 2006; March
  27, 2007Exhibit
10.50

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE
AGREEMENT (this “Agreement”) is made and entered into as of March   , 2007,
between  IWT Tesoro Corp. a corporation organized and existing under the
laws of Nevada, having an address of  3500 SW 42nd Avenue, Palm City, FL. 34990  (the “Company”), and Mercatus & Partners,
Limited (the “Purchaser”).

WHEREAS,
PURCHASER desires to purchase Shares of the Company; and

WHEREAS,
Company desires for Purchaser to purchase Shares of the Company.

NOW,
THEREFORE, subject to the terms and conditions set forth in this Agreement, for
good, valuable and binding consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound
hereby, now agree as follows:

ARTICLE
I 

INTRODUCTION
AND DEFINITIONS

This Agreement is entered into by the parties for purchase of equity
shares of the Company by the Purchaser for placement into a European bank SICAV
fund. This is a delayed purchase transaction not an immediate funding.  The Company recognizes and agrees that the
Purchaser shall have up to forty-five 
(45) days, as set forth in this Agreement to tender the Purchase Price
to the company through the intermediary Custodial Bank and Purchaser’s
authorized agent, once the valuation and purchase of the shares is made in
accordance with the terms of this Agreement. 
The Company shall have the right to contact the Custodial Bank
administrator for Purchaser account verification and for confirmation of the
share status, location and control at each step of the process. Purchaser shall
have up to forty-five (45) days from the date of delivery of the Shares to the
Custodial Bank to pay the Purchase Price. The particular expected time line and
transaction sequence is set forth in Schedule 1 to the Agreement

Certain
Definitions.  As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:

“Affiliate”
means, with respect to any Person, any Person that, directly or indirectly,
controls, is controlled by or is under common control with such Person.  For the purposes of this definition, “control”
(including, with correlative meanings, the terms “controlled by” and “under
common control with”) shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities or by contract
or otherwise.

“Agreement”
shall have the meaning set forth in the introductory paragraph of this
Agreement.

“Attorney-in-fact”
means the agent of the account holder or Designee, Dwight Parscale, Esquire.
The attorney-in-fact, Dwight Parscale, has full oversight authority of the
Purchaser and the receiving bank to verify share deposit, valuation process and
share transaction status.

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

“Change
of Control” means the acquisition, directly or indirectly, by any Person of
ownership of, or the power to direct the exercise of voting power with respect
to, a majority of the issued and outstanding voting shares of the Company.

“Closing”
or “Closing Date” shall be the date this Agreement is executed by both
parties and the shares have been deposited into the account at Maximum
Financial Investment Group.

“Company”
shall mean (Company) as set forth in the introductory paragraph.

“Control
Person” shall have the meaning set forth in Section 4.8(a)(i).

“Custodial
Bank” means the institution that will receive and retain the Shares of the
Company on behalf of the parties, until payment is received and the purchase is
complete in accordance with Schedule 1.  In this case, the Custodial Bank is Maximum
Financial Investment Group, New York City, New York. The account holder is
Mercatus or its Designee, the intermediary fund receiving bank.

“Default”
means any event or condition which constitutes an Event of Default or which
with the giving of notice or lapse of time or both would, unless cured or
waived, become an Event of Default.

“Disclosure
Documents” means the Company’s reports filed under the Exchange Act with
the SEC.

“Downside Protection Warrant” shall have the
meaning set forth in Section 3.1 (e).

“Downside Protection Warrant Term shall have
the meaning set forth in Section 3.1 (e).

“Event
of Default” shall have the meaning set forth in Section 3.1(o).

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

“Execution
Date” means the date of this Agreement first written above.

“Indemnified
Party” shall have the meaning set forth in Section 4.8(b).

“Indemnifying
Party” shall have the meaning set forth in Section 4.8(b).

“Losses”
shall have the meaning set forth in Section 4.8(a)(i). 

“Material
Adverse Effect” shall have the meaning set forth in Section 3.1(a).

“NASD”
means the National Association of Securities Dealers, Inc.

“NASDAQ”
shall mean the Nasdaq Stock Market, Inc. ®

“OTCBB”
shall mean the NASD over-the counter Bulletin Board®.

“Per
Share Market Value” of the Common Stock means on any particular date the
last sale price of shares of Common Stock on such date or, if no such sale
takes place on such date, the last sale price on the most recent prior date, in
each case as officially reported on the principal national securities exchange
on which the Common Stock is then listed or admitted to trading.

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

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

“Placement
Agent” shall have the meaning set forth in Section 3.1(p).

“Purchase
Price” shall have the meaning set forth in Article II.

“Purchaser”
shall have the meaning set forth in the introductory paragraph.

“Reporting
Issuer” means a company that is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act.

“Required
Approvals” shall have the meaning set forth in Section 3.1(g).

“Securities”
means the Common Stock and stock of any other class into which such shares may
hereafter have been reclassified or changed.

 2
 

“SEC”
means the Securities and Exchange Commission.

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

“Shares”
shall have the meaning set forth in Article II..

“Subsidiaries”
shall have the meaning set forth in Section 3.1(a).

“Trading
Day” means (a) a day on which the Common Stock is quoted on NASDAQ, the OTCBB
or the principal stock exchange on which the Common Stock has been listed, or
(b) if the Common Stock is not quoted on NASDAQ, the OTCBB or any stock
exchange.

“Transaction
Documents” means this Agreement and all exhibits and schedules hereto, the
Registration Rights Agreement and all other documents, instruments and writings
required pursuant to this Agreement.

“U.S.”
means the United States of America.

“Warrant”
means the warrant to purchase the common stock of the Company, or a certain
percentage of common stock of the Company being issued to the Purchaser, and
all extensions and renewals thereof and replacements therefor, as set forth in
further detail in the Warrant Agreement attached hereto as Exhibit A.

ARTICLE
II

The Purchaser
hereby agrees to purchase the shares of the Common Stock of the Company (the “Shares”).  The Purchase Price to be paid by the
Purchaser shall be fifty-five cents ($0.55)
per share or as adjusted for any splits or changes, which represents a discount
of 60% of the average market price on closing. 
Subject to such adjustments, the total Purchase Price for One Million
Eight Hundred Eighteen Thousand One Hundred Eighty-Two (1,818,182) Shares for
an aggregate of Two Million Dollars ($2,000,000).  The Purchase Price shall be subject to
adjustment as provided hereinafter in Section 3.1 (e) 5.14.  In addition, the Purchaser shall have the
right to purchase Warrants pursuant to the terms of the Warrant Agreement
attached hereto as Exhibit A.

This
Agreement is subject to the conditions and timing set forth herein.

ARTICLE
III

REPRESENTATIONS
AND WARRANTIES

3.1           Representations, Warranties and
Agreements of the Company.  The
Company hereby makes the following representations and warranties to the
Purchaser, all of which shall survive the Closing.

(a)               Organization and Qualification.  The Company
is a publicly traded corporation, duly incorporated, validly existing and in
good standing under the laws of the State of Nevada, with the requisite corporate power and authority to
own and use its properties and assets and to carry on its business as currently
conducted.  The Company has no
subsidiaries other than as set forth on Schedule
3.1(a) attached
hereto (collectively, the “Subsidiaries”).  Each of the
Subsidiaries is a corporation, duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with the full
corporate power and authority to own and use its properties and assets and to
carry on its business as currently conducted. 
Each of the Company and the Subsidiaries is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the nature of the business conducted or property owned by it makes
such qualification necessary, except where the failure to be so qualified or in
good standing, as the case may be, would not, individually or in the aggregate,
have a material adverse effect on the results of operations, assets, prospects,
or financial condition of the Company and the Subsidiaries, taken as a whole (a
“Material Adverse Effect”).

 3
 

(b)               Authorization,
Enforcement.  The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated hereby and by each other Transaction Document and
otherwise to carry out its obligations hereunder and thereunder.  The execution and delivery of this Agreement
and each of the other Transaction Documents by the Company and the consummation
by it of the transactions contemplated hereby and thereby has been duly authorized
by all necessary action on the part of the Company. This Agreement and each of
the other Transaction Documents has been or will be duly executed by the
Company and when delivered in accordance with the terms hereof or thereafter
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally the
enforcement of, creditors’ rights and remedies or by other equitable principles
of general application.

(c)               Capitalization.  The authorized, issued and outstanding
capital stock of the Company is set forth on Schedule 3.1(d).  No shares of Common Stock are entitled to
preemptive or similar rights, nor is any holder of the Common Stock entitled to
preemptive or similar rights arising out of any agreement or understanding with
the Company by virtue of this Agreement. 
Except as disclosed in Schedule 3.1(d), there
are no outstanding options, warrants, scripts, rights to subscribe to,
registration rights, calls or commitments of any character whatsoever relating
to securities, rights or obligations convertible into or exchangeable for, or
giving any person any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings, or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares of
Common Stock, or securities or rights convertible or exchangeable into shares
of Common Stock.  Neither the Company nor
any Subsidiary is in violation of any of the provisions of its Certificate of
Incorporation, bylaws or other charter documents.

(d)               Issuance
of Securities.  The Shares have been
duly and validly authorized for issuance, offer and sale pursuant to this
Agreement and, when issued and delivered as provided hereunder against payment
in accordance with the terms hereof, shall be valid and binding obligations of
the Company enforceable in accordance with their respective terms.

(e)               Downside
Protection Warrant. Commencing upon the first anniversary of the tender of this
Agreement and terminating at 5:00 PM on the thirtieth (30th) day thereafter
(the “Downside Protection Warrant Term”), in the event that the market price,
after 60% discount adjustment, of the free trading securities of the Company
falls below the Purchase Price of fifty-five cents ($0.55) per share (as
adjusted for splits, reverse splits or recapitalizations, if needed) Purchaser
shall have the right to exercise this Downside Protection Warrant. This
Downside Protection Provision may be exercised by the Purchaser at Purchaser’s
sole discretion during the thirty (30) days immediately following the first
anniversary of the execution of this Agreement. The reduced market price for
the shares shall be deemed the “Adjusted Purchase Price”.  The Downside Protection Warrant shall be
available to Purchaser as a cashless warrant and is deemed part of this
Agreement and entered into upon execution of this Agreement (the “Downside
Protection Warrant”).  The Downside
Protection Warrant provides that the Purchaser shall be issued during the
Downside Protection Warrant Term, additional shares in the Company in an amount
that equals up to fifty (50%) percent of the number of shares issued (the
maximum number of Shares being up to 909,091) to Purchaser pursuant to this
Agreement. The actual number of additional shares to be issued to the Purchaser
shall be determined by calculating the number of shares that would be issued to
the Purchaser for the Purchase Price if the Purchaser were paying the Adjusted
Price per share in lieu of fifty-five cents ($0.55) per share, i.e. Stock is
Adjusted Price to $0.45 per share at time of exercise of the Downside
Protection Warrant right, then Purchase 
has right to demand an additional four hundred and four thousand
forty  (404,040) shares.

(f)                No Conflicts.  The
execution, delivery and performance of this Agreement and the other Transaction
Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) conflict
with or violate any provision of its Certificate of Incorporation or bylaws
(each as amended through the date hereof) or (ii) be subject to obtaining any
consents except those referred to in Section 3.1(f),
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument 

 4
 

to which
the Company is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company or its Subsidiaries is
subject (including, but not limited to, those of other countries and the
federal and state securities laws and regulations), or by which any property or
asset of the Company or its Subsidiaries is bound or affected, except in the
case of clause (ii), such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in
the aggregate, have a Material Adverse Effect. 
The business of the Company and its Subsidiaries is not being conducted
in violation of any law, ordinance or regulation of any governmental authority.

(g)               Consents
and Approvals.  Except as
specifically set forth in Schedule 3.1(g), neither
the Company nor any Subsidiary is required to obtain any consent, waiver,
authorization or order of, or make any filing or registration with, any court
or other federal, state, local or other governmental authority or other Person
in connection with the execution, delivery and performance by the Company of
this Agreement and each of the other Transaction Documents (together with the
consents, waivers, authorizations, orders, notices and filings referred to
herein or in Schedule 3.1(g), the “Required
Approvals”).

(h)               Litigation;
Proceedings.  Except as specifically
disclosed in Schedule 3.1(h), there is
no action, suit, notice of violation, proceeding or investigation pending or,
to the best knowledge of the Company, threatened against or affecting the
Company or any of its Subsidiaries or any of their respective properties before
or by any court, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) which (i) relates to or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Shares, (ii) could, individually or in the aggregate, have a Material
Adverse Effect or (iii) could, individually or in the aggregate, materially
impair the ability of the Company to perform fully on a timely basis its
obligations under the Transaction Documents.

(i)                No
Default or Violation.  Except as set
forth in Schedule 3.1(i) hereto,
neither the Company nor any Subsidiary (i) is in default under or in violation
of any indenture, loan or credit agreement or any other agreement or instrument
to which it is a party or by which it or any of its properties is bound, except
such conflicts or defaults as do not have a Material Adverse Effect, (ii) is in
violation of any order of any court, arbitrator or governmental body, except
for such violations as do not have a Material Adverse Effect, or (iii) is in
violation of any statute, rule or regulation of any governmental authority
which could (individually or in the aggregate) adversely affect the legality,
validity or enforceability of this Agreement, have a Material Adverse Effect or
adversely impair the Company’s ability or obligation to perform fully on a
timely basis its obligations under this Agreement.

(j)                Disclosure
Documents.  The Disclosure Documents
are accurate in all material respects and do not contain any untrue statement
of material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they
were made, not misleading. Violation of this clause is and will be considered
grounds for default and could result in the termination of this Agreement. The Company is not relying on this funding to continue
its operations or business and Purchaser will not be held responsible for any
loss of opportunity or profits of the Company if the funding does not occur for
any reason.

(k)               Non-Registered
Offering.  Neither the Company nor
any Person acting on its behalf has taken or will take any action (including,
without limitation, any offering of any securities of the Company under
circumstances which would require the integration of such offering with the
offering of the Securities under the Securities Act) which might subject the
offering, issuance or sale of the Securities to the registration requirements
of Section 5 of the Securities Act.

(l)                Registration
Rights.  The Company agrees: (1) to
instruct and require its transfer agent to remove the restrictive legend upon
the request of Purchaser following the expiration of the applicable holding
period or registration; and (2)there will be no trading by the Company or
insiders or restricted persons within thirty (30) days of the purchase of the
Shares or ten (10) days before the expiration of the holding period ; and (3)
Company agrees to provide the Opinion of Counsel letter for the removal of the
legend upon demand of Purchaser therefore.

 5
 

(m)              Regulation
S.  Neither the Company nor any
affiliate or any person acting on the Company’s behalf, has made or is aware of
any “directed selling efforts” in the United States, which is defined in
Regulation S to be any activity undertaken for the purpose of, or that could
reasonably be expected to have the effect of, conditioning the market in the
United States for any of the Shares being purchased hereby.

(n)     Due
Diligence.   The Company agrees to
cooperate with the Purchaser and provide access to the Company’s books and
records so that the Purchase is able to conduct a due diligence review of the
Company and its business.  The Purchaser
shall have up to thirty (30) days following execution of this Agreement to
conduct such due diligence review.

(o)               Material
Misrepresentations.  The Company
agrees that all materials and information it discloses or otherwise provides to
the Purchaser relating to this Agreement and the transactions contemplated
pursuant to this Agreement are accurate in all material respects and do not
contain any untrue statement of material fact or omit to state any material
face necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.  Violation of this clause is and will be
considered an event of default permitting the Purchaser to terminate the
Agreement immediately.

(p)               Placement
Agent.  The Company accepts and
agrees that  the   placement agent Mercari Capital is not
acting on behalf of the Company and Purchaser does not regard any person other
than the Company as its customer in relation to this Agreement, and that it has
not made any recommendation to the Company, in relation to this Agreement and
is not advising the Company with regard to the suitability or merits of the
transaction.  In the event the Company
has any agreement for compensation with any party to raise the funds on behalf
of the Company (“Company Funding Agent Agreement”), the Company will disclose
the terms of that Company Funding Agent Agreement to Purchaser prior to the
execution of this Agreement.  Following
the execution of this Agreement, the Attorney-in-Fact shall be the Company
contact for all information relating to the status of funding, location of
Shares, settlement of the payment of the Purchase Price and any other
information requests of the Company. 
Notwithstanding the above, in the event the Purchase Price is not paid
as required herein, the Company may directly contact the Attorney-in-Fact to
provide the Company notice of demand for the return of the Shares.

(q)                               Piggy-back Registration.  From and after the date that is ninety (90)
days after the date of this Agreement and until the third anniversary of the
Closing Date, for so long as any of the Registrable Securities are outstanding
and are not the subject of an effective registration statement, if the Company
contemplates making an offering of Common Stock (or other equity securities
convertible into or exchangeable for Common Stock) registered for sale under
the Securities Act or proposes to file a Registration Statement covering any of
its securities other than (i) a registration on Form S-8 or S-4, or any
successor or similar forms; and (ii) a shelf registration under Rule 415 for
the sole purpose of registering shares to be issued in connection with the
acquisition of assets, the Company will to the extent permissible by law at
each such time give prompt written notice to the Holders’ Representative and
the Purchasers of its intention to do so and of the Purchaser’s rights under
this Section 6.  Upon the written request
of the Purchaser made within thirty (30) days after the receipt of any such
notice, the Company will use its best efforts to effect the registration of all
Registrable Securities which the Company has been so requested to register by
the Purchaser, to the extent requisite to permit the disposition (in accordance
with the intended methods of disposition) of the Registrable Securities by the
Purchasers requesting registration, by inclusion of such Registrable Securities
in the Registration Statement which covers the securities which the Company
proposes to register; provided, that if, at any time after giving written
notice of its intention to register any Registrable Securities and prior to the
effective date of the Registration Statement filed in connection with such
registration, the Company shall determine for any reason either not to register
or to delay registration of such Registrable Securities, the Company may, at
its election, give written notice of such determination to the Holders’
Representative and the Purchasers requesting registration and, thereupon, (i)
in the case of a determination not to register, the Company shall be relieved
of its obligation to register any Registrable Securities in connection with
such registration (but not from its obligation to pay the expenses of
registration in connection therewith), and (ii) in the case of a determination to
delay registering such Registrable Securities, shall be permitted to delay
registering any Registrable Securities, for the same period as the delay in
registering such other securities

 6

The Purchaser acknowledges and agrees that the Company makes no representation or warranty with respect to
the transactions contemplated hereby other than those specifically set forth in
this Section 3.1.

3.2           Representations and Warranties of the Purchaser.  The Purchaser hereby represents and warrants
to the Company as follows:

(a)               Organization;
Authority.  The Purchaser is a
corporation, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its formation with the requisite power and
authority to enter into and to consummate the transactions contemplated hereby
and by the other Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. 
The acquisition of the Shares to be purchased by the Purchaser hereunder
has been duly authorized by all necessary action on the part of the
Purchaser.  This Agreement has been duly
executed and delivered by the Purchaser and constitutes the valid and legally
binding obligation of the Purchaser, enforceable against it in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to,
or affecting generally the enforcement of, creditors rights and remedies or by
other general principles of equity.

(b)               Investment
Intent.  The Purchaser is acquiring
the Shares to be purchased by it hereunder, for its own account for investment
purposes only and not with a view to or for distributing or reselling such
Shares, or any part thereof or interest therein, without prejudice, however, to
such Purchaser’s right, subject to the provisions of this Agreement, at all
times to sell or otherwise dispose of all or any part of such Shares in
compliance with applicable federal and state securities laws.

(c)               Experience
of Purchaser.  The Purchaser, either
alone or together with its representatives, has such knowledge, sophistication
and experience in business and financial matters so as to be capable of
evaluating the merits and risks of an investment in the Shares to be acquired
by it hereunder, and has so evaluated the merits and risks of such investment.

(d)               Ability
of Purchaser to Bear Risk of Investment. 
The Purchaser is able to bear the economic risk of an investment in the
Securities to be acquired by it hereunder and, at the present time, is able to
afford a complete loss of such investment.

(e)               Reliance.  The Purchaser understands and acknowledges
that (i) the Shares being offered and sold to it hereunder are being offered and
sold without registration under the Securities Act in a private placement that
is exempt from the registration provisions of the Securities Act under Section
4(2) of the Securities Act and (ii) the availability of such exemption depends
in part on, and that the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents to such
reliance.

(f)                Regulation S and/or
Regulation D.  Purchaser understands
and acknowledges that (A) the Shares 
have not been registered under the Securities Act, are being sold in
reliance upon an exemption from registration afforded by Regulation S or
Regulation D, whichever may be applicable; and that such Shares have not been
registered with any state securities commission or authority; (B) pursuant to
the requirements of Regulation S or Regulation D, as the case may be,  the Shares may not be transferred, sold or
otherwise exchanged unless in compliance with the provisions of Regulation S
and/or pursuant to registration under the Securities Act, or pursuant to an
available exemption hereunder; and (C) Purchaser is under no obligation to
register the Shares under the Securities Act or any state securities law, or to
take any action to make any exemption from any such registration provisions
available except as agreed in Section 3.1 (d) above.

(g)               Purchaser is not a U.S. person
and is not acquiring the Shares for the account of any U.S. person; (B) no
director or executive officer of Purchaser is a national or citizen of the
United States; and (C) it is not otherwise deemed to be a “U.S. Person” within
the meaning of Regulation S.

Purchaser was not formed specifically for the purpose of
acquiring the Shares purchased pursuant to this Agreement.

 7
 

Purchaser is purchasing the Shares for its own account and
risk and not for the account or benefit of a U.S. Person as defined in
Regulation S and no other person has any interest in or participation in the
Shares or any right, option, security interest, pledge or other interest in or to
the Shares.  Purchaser understands,
acknowledges and agrees that it must bear the economic risk of its investment
in the Shares for an indefinite period of time and that prior to any such offer
or sale, the Company may require, as a condition to effecting a transfer of the
Shares, an opinion of counsel, acceptable to the Company, as to the
registration or exemption therefrom under the Securities Act and any state
securities acts, if applicable.

Purchaser will, after the expiration of the Restricted Period,
as set forth under Regulation S Rule 903(b)(3)(iii)(A), offer, sell, pledge or
otherwise transfer the Shares only in accordance with Regulation S, or pursuant
to an available exemption under the Securities Act and, in any case, in
accordance with applicable state securities laws or following the effective
date of a Registration of the Shares by the Company.  The transactions contemplated by this
Agreement have neither been pre-arranged with a purchaser who is in the U.S. or
who is a U.S. Person, nor are they part of a plan or scheme to evade the
registration provisions of the United States federal securities laws.

The offer leading to the sale evidenced hereby was made in
an “offshore transaction.”  For purposes
of Regulation S, Purchaser understands that an “offshore transaction” as
defined under Regulation S is any offer or sale not made to a person in the
United States and either (A) at the time the buy order is originated, the
purchaser is outside the United States, or the seller or any person acting on
his behalf reasonably believes that the purchaser is outside the United States;
or (B) for purposes of (1) Rule 903 of Regulation S, the transaction is
executed in, or on or through a physical trading floor of an established
foreign exchange that is located outside the United States or (2) Rule 904 of
Regulation S, the transaction is executed in, on or through the facilities of a
designated offshore securities market, and neither the seller nor any person
acting on its behalf knows that the transaction has been prearranged with a
buyer in the U.S.

Neither the Purchaser nor any affiliate or any person acting
on the Purchaser’s behalf, has made or is aware of any “directed selling
efforts” in the United States, which is defined in Regulation S to be any activity
undertaken for the purpose of, or that could reasonably be expected to have the
effect of, conditioning the market in the United States for any of the Shares
being purchased hereby.

Purchaser understands that the Company is the seller of the
Shares which are the subject of this Agreement, and that, for purpose of
Regulation S, a “distributor” is any underwriter, dealer or other person who
participates, pursuant to a contractual arrangement, in the distribution of
securities offered or sold in reliance on Regulation S and that an “affiliate”
is any partner, officer, director or any person directly or indirectly
controlling, controlled by or under common control with any person in
question.  Purchaser agrees that
Purchaser will not, during the Restricted Period set forth under Rule
903(b)(iii)(A), act as a distributor, either directly or through any affiliate,
nor shall it sell, transfer, hypothecate, participate in any short selling as
defined by the SEC or otherwise convey the Shares other than to a non-U.S.
Person.

Purchaser acknowledges that the Shares will bear a legend in
the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN OFFERED AND SOLD
IN AN “OFFSHORE TRANSACTION” IN RELIANCE UPON REGULATION S AS PROMULGATED BY
THE SECURITIES AND EXCHANGE COMMISSION. ACCORDINGLY, THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AS AMENDED FROM TIME TO TIME (THE “SECURITIES ACT”) AND MAY NOT BE TRANSFERRED
OTHER THAN IN ACCORDANCE WITH REGULATION S, PURSUANT TO REGISTRATION UNDER THE
SECURITIES ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE
SATISFACTION OF THE COMPANY.

The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.

 8
 

ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES

4.1           Manner
of Sale.  The Securities are being
issued pursuant to Section 4(2) of the Securities Act, and Rule 506 of
Regulation D and Regulation S thereunder. 
The Shares are being issued pursuant to Section 4(2) of the Securities
Act and Rule 506 of Regulation D thereunder.

4.2           Non-Shorting  The Purchaser shall not engage in short sales
of the Company’s Common Stock.

4.3           Notice
of Certain Events.  The Company
shall, on a continuing basis, (i) advise the Purchaser promptly after obtaining
knowledge of, and, if requested by the Purchaser, confirm such advice in
writing, of (A) the issuance by any state securities commission of any stop
order suspending the qualification or exemption from qualification of the
Shares, for offering or sale in any jurisdiction, or the initiation of any proceeding
for such purpose by any state securities commission or other regulatory
authority, or (B) any event that makes any statement of a material fact made by
the Company in Section 3.1 or in the Disclosure Documents untrue or that
requires the making of any additions to or changes in Section 3.1  or in the Disclosure Documents in order to
make the statements therein, in the light of the circumstances under which they
are made, not misleading, (ii) use its best efforts to prevent the issuance of
any stop order or order suspending the qualification or exemption from
qualification of the Securities under any state securities or Blue Sky laws,
and (iii) if at any time any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption from
qualification of the Securities under any such laws, use its best efforts to
obtain the withdrawal or lifting of such order at the earliest possible time.

4.4           Blue
Sky Laws.  The Company
shall cooperate with the Purchaser in connection with the exemption from
registration of the Securities under the securities or Blue Sky laws of such
jurisdictions as the Purchaser may request; provided, however,
that neither the Company nor its Subsidiaries shall be required in connection therewith
to qualify as a foreign corporation where they are not now so qualified.  The Company agrees that it will execute all
necessary documents and pay all necessary state filing or notice fees to enable
the Company to sell the Securities to the Purchaser.

4.5           Integration.  The Company shall ensure that no Affiliate
shall sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in Section 2 of the Securities Act) that
would be integrated with the offer or sale of the Securities in a manner that
would require the registration under the Securities Act of the sale of the
Securities to the Purchaser.

4.6           Furnishing
of Rule 144 Materials.  The Company
shall, for so long as any of the Securities remain outstanding and during any
period in which the Company is not subject to Section 13 or 15(d) of the
Exchange Act, make available to any registered holder of the Securities (“Holder”
or “Holders”) in connection with any sale thereof and any prospective purchaser
of such Securities from such Person, such information in accordance with Rule
144 or Regulation S as promulgated under the Securities Act as is required to
sell the Securities under Rule 144 promulgated under the Securities Act.

4.7           Solicitation
Materials.  The Company shall not (i)
distribute any offering materials in connection with the offering and sale of
the Shares other than the Disclosure Documents and any amendments and
supplements thereto prepared in compliance herewith or (ii) solicit any offer
to buy or sell the Shares or, if applicable, by means of any form of general
solicitation or advertising.

4.8           Listing
of Common Stock.  If the Common Stock
is or shall become listed on the OTCBB or on another exchange, the Company
shall (a) use its best efforts to maintain the listing of its Common Stock on
the OTCBB or such other exchange on which the Common Stock is then listed until
two (2) years from the date hereof, and (b) shall provide to the Purchaser
evidence of such listing.

4.9           Indemnification.

(a)               Indemnification

(i)            The
Company shall, notwithstanding termination of this Agreement and without
limitation as to time, indemnify and hold harmless the Purchaser and its
officers, directors, 

 9
 

agents,
employees and affiliates, each Person who controls or the Purchaser (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
(each such Person, a “Control Person”) and the officers, directors,
agents,  employees and affiliates of each
such Control Person, to the fullest extent permitted by applicable law, from
and against any and all losses, claims, damages, liabilities, costs (including,
without limitation, costs of preparation and attorneys’ fees) and expenses
(collectively, “Losses”), as incurred, arising out of, or relating to, a
breach or breaches of any representation, warranty, covenant or agreement by
the Company under this Agreement or any other Transaction Document.

(ii)           The
Purchaser shall, notwithstanding termination of this Agreement and without
limitation as to time, indemnify and hold harmless the Company, its officers,
directors, agents employees and affiliates, each Control Person and the
officers, directors, agents and employees and affiliates of each Control
Person, to the fullest extent permitted by application law, from and against
any and all Losses, as incurred, arising out of, or relating to, a breach or
breaches of any representation, warranty, covenant or agreement by the
Purchaser under this Agreement or any other Transaction Document.

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

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

All
fees and expenses of the Indemnified Party to which the Indemnified Party is
entitled hereunder (including reasonable fees and expenses to the extent
incurred in connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section) shall be paid to the
Indemnified Party, as incurred, within ten (10) Business Days of written notice
thereof to the Indemnifying Party.

No
right of indemnification under this Section shall be available as to a
particular Indemnified Party if there is a non-appealable final judicial
determination that such Losses arise solely out of the negligence 

 10
 

or bad
faith of such Indemnified Party in performing the obligations of such
Indemnified Party under this Agreement or a breach by such Indemnified Party of
its obligations under this Agreement.

(c)               Contribution.  If a claim for indemnification under this
Section is unavailable to an Indemnified Party or is insufficient to hold such
Indemnified Party harmless for any Losses in respect of which this Section
would apply by its terms (other than by reason of exceptions provided in this
Section), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses in such proportion as is
appropriate to reflect the relative benefits received by the Indemnifying Party
on the one hand and the Indemnified Party on the other and the relative fault
of the Indemnifying Party and Indemnified Party in connection with the actions
or omissions that resulted in such Losses as well as any other relevant
equitable considerations.   The relative
fault of such Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether there was a judicial determination
that such Losses arise in part out of the negligence or bad faith of the
Indemnified Party in performing the obligations of such Indemnified Party under
this Agreement or the Indemnified Party’s breach of its obligations under this
Agreement.  The amount paid or payable by
a party as a result of any Losses shall be deemed to include any attorneys’ or
other fees or expenses incurred by such party in connection with any Proceeding
to the extent such party would have been indemnified for such fees or expenses
if the indemnification provided for in this Section was available to such
party.

(d)               Non-Exclusivity.  The indemnity and contribution agreements
contained in this Section are in addition to any obligation or liability that
the Indemnifying Parties may have to the Indemnified Parties.

ARTICLE V

MISCELLANEOUS

5.1           Fees
and Expenses.  Except as set forth in
this Agreement, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement.  The
Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Shares (and, upon conversion or exercise thereof, the
Shares) pursuant hereto.  Placement Agent
shall be paid out of the gross proceeds due to the Company. The Company shall
provide the Purchaser with a copy of any agreement with its Placement Agent
prior to the execution of this Agreement. 
The Purchaser shall be responsible for any taxes payable by the
Purchaser that may arise as a result of the investment hereunder or the
transactions contemplated by this Agreement or any other Transaction
Document.  The Company shall pay all
costs, expenses, fees and all taxes incident to and in connection with:  (A) the issuance and delivery of the
Securities, (B) the exemption from registration of the Securities for offer and
sale to the Purchaser under the securities or Blue Sky laws of the applicable
jurisdictions, (C) the preparation of certificates for the Securities
(including, without limitation, printing and engraving thereof), and (D) all
fees and expenses of counsel and accountants of the Company. The Company shall
pay a one time per contract fee of twenty-five
thousand dollars ($25,000) to Parscale, Wynn, & Templar, LLC, as
contracting and due diligence costs for said contracts said payment to be paid
from the gross proceeds due the Company at time of payment to the Company.

5.2           Entire
Agreement.  This Agreement, together
with all of the Exhibits and Schedules annexed hereto, and any other
Transaction Document contains the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters.  This Agreement shall be deemed to have been
drafted and negotiated by both parties hereto and no presumptions as to
interpretation, construction or enforceability shall be made by or against
either party in such regard.

5.3           Notices.  Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given upon facsimile transmission (with

 11
 

written transmission confirmation report) at the number
designated below (if delivered on a Business Day during normal business hours
where such notice is to be received), or the first Business Day following such
delivery (if delivered other than on a Business Day during normal business
hours where such notice is to be received) whichever shall first occur.  The addresses for such communications shall
be:

	
   

  	
  If to the Company:

  	
  Henry J. Boucher, CEO

  
	
   

  	
   

  	
  3500 SW 42nd Ave.

  
	
   

  	
   

  	
   

  	
  Palm City, Florida 34990

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  With copies to:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  If to the Purchaser:

  	
  Mercatus & Partners, Limited

  
	
   

  	
   

  	
  c/o Cary Masi

  
	
   

  	
   

  	
  115 Mauldin Dr.

  
	
   

  	
   

  	
  Alpharetta, GA 30004

  
	
   

  	
   

  	
   

  
	
   

  	
  With copies to:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

5.4           Amendments; Waivers.  No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by both the Company and the Purchaser, or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought.  No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of either party to
exercise any right hereunder in any manner impair the exercise of any such
right accruing to it thereafter.

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

5.6           Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns.  The
assignment by a party of this Agreement or any rights hereunder shall not
affect the obligations of such party under this Agreement.

5.7           No Third Party Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
person.

5.8           Governing Law; Venue; Service of Process.  The parties hereto acknowledge that the
transactions contemplated by this Agreement and the exhibits hereto bear a
reasonable relation to the State of New York. 
The parties hereto agree that the internal laws of the State of New York
shall govern this Agreement and the exhibits hereto, including, but not limited
to, all issues related to usury.  Any
action to enforce the terms of this Agreement or any of its exhibits, or any
other Transaction Document shall be brought exclusively in the state and/or
federal courts situate in the County and State of New York.  Service of process in any action by the
Purchaser to enforce the terms of this Agreement may be made by serving a copy
of the summons and complaint, in addition to any other relevant documents, by
commercial overnight courier to the Company at its principal address set forth
in this Agreement.

 12
 

5.9           Survival. 
The representations and warranties of the Company and the Purchaser
contained in this agreement shall survive the Closing.

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

5.11         Publicity.  The
Company and the Purchaser shall consult with each other in issuing any press
releases or otherwise making public statements with respect to the transactions
contemplated hereby and neither party shall issue any such press release or
otherwise make any such public statement without the prior written consent of
the other, which consent shall not be unreasonably withheld or delayed, unless
counsel for the disclosing party deems such public statement to be required by
applicable federal and/or state securities laws, in which event the Company
shall provide the Purchaser with a copy of it’s intended communication or
filing prior to making it public and giving Purchaser sufficient time to
discuss it with the Company.  Except as
otherwise required by applicable law or regulation, the Company will not
disclose to any third party (excluding its legal counsel, accountants and
representatives) the names of the Purchaser.

5.12         Severability. 
In case any one or more of the provisions of this Agreement shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision which shall be a reasonable substitute therefore, and
upon so agreeing, shall incorporate such substitute provision in this
Agreement.

5.13         Limitation of Remedies.  With respect to claims by the Company or any
person acting by or through the Company, or by the Purchaser or any person
acting through the Purchaser, for remedies at law or at equity relating to or
arising out of a breach of this Agreement, liability, if any, shall, in no
event, include loss of profits or incidental, indirect, exemplary, punitive,
special or consequential damages of any kind. The Companies sole remedy under
this agreement will be the return of its shares in the event they are not
funded. In the event that the Company should choose to seek the return of its
shares after the forty-five (45) day time has run, and it has not received the
funding contemplated herein, it must make such request in writing with a
notarized signature of an authorized individual representing the Company. The
Purchaser will within 20 working days following the receipt of such request
secure the return of said shares to the Company.

5.14         Pricing,
Value, and Material Information Readjustment.               In the event that the Shares being acquired shall
decline in value by five percent (5%) of market value before the payment of the
Purchase Price or the Company or the Due Diligence process has provided
material mis-information regarding the listing or potential standing of the
security upon the exchange upon which it is listed, than the Purchaser shall
retain the right, at Purchaser’s sole discretion, to either: 1) reject the
Shares and return them to the Company; or, 2) 
suspend the transaction until such time as the parties may mutually
agree to a revised Purchase Price.

5.15         Delivery of Securities. The Company shall deliver the
Shares directly to the Custodial Bank within five days of the execution of this
Agreement in accordance with the directions provided in Schedule 1, to Maximum
Financial Investments Group for deposit into the custodial account.

5.16         Delivery of Payment. 
The Purchaser shall, within forty-five (45) days following the delivery
of the Shares to the Custodial Bank issue the Payment to the Company via wire
transfer to the directed wire transfer bank and account as specified below:

Beneficiary Account Name:

Beneficiary Account No.:

ABA/Transit No.:

Beneficiary Bank:

 13
 

If the Purchase Price is not paid within
forty-five (45) days of the delivery of the Shares to the Custodial Bank, the
Company has the right to demand recall of the shares after that time, and such
Shares will be transmitted back to the Company within twenty (20) business days
from the date of the demand. See Appendix A for details of timeline from
deposit to payment.

5.17.        Delivery of Opinion of Counsel.        The Company hereby agrees that it hereby binds itself, if
requested in writing to the aforementioned address of the Company, by the
Purchaser or their designate or assignee, that it shall deliver, within five
(5) days of such demand, an opinion of counsel of the transferability or status
of such Shares for the registration or conversion of such Shares as purchased
under this Agreement to be in a free tradable format as common shares to the
Purchaser. In no case shall such opinion state, and the Company hereby binds
itself to this obligation, that Purchaser or its designate or sub-purchaser
shall have the same such enforceability rights.

5.18.        Duty for Due Diligence.      The
Company hereby agrees that it, and on behalf, its transfer agent, and any
accessed management of the Company by the Purchaser or designee banks or
purchasers shall cooperate in the verification of the originating nature of the
Shares, the restriction period of the Shares, and the transferability of   the Shares during the due diligence period
of the Shares involved in this transaction. 
Such failure of information to said parties is acknowledged as grounds
for rejections by the Purchaser or their designees or assignees as described
above

IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first indicated above.

	
   

  	
  Company:

  
	
   

  	
  IWT Tesoro Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name: Henry J. Boucher

  
	
   

  	
  Title: CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Purchaser:

  
	
   

  	
  Mercatus & Partners, Limited

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: Cary Masi POA on behalf of

  
	
   

  	
  Mercatus & Partners, Limited

  
					

 

 14

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