Document:

exhibit101.htm

     

    Exhibit
10.1

    
       

       

    

    CHARLES
& COLVARD, LTD.

    CORPORATE
INCENTIVE PLAN

    

    

    The
purpose of the Corporate Incentive Plan (the “Plan”) is to provide
eligible employees of Charles & Colvard, Ltd. (the “Corporation”) as
selected by the Board of Directors of the Corporation (the “Board”) upon
recommendation of management to participate in the Plan with incentives for the
successful execution of both short- and long-term plans that:

    

    
      	
              1.  

            	
              Provide
      significant revenue growth,

            

    

    

    
      	
              2.  

            	
              Maintain
      and increase the profitability of the
  Corporation,

            

    

    

    
      	
              3.  

            	
              Develop
      the human, fiscal, and physical capacity to enable the Corporation to
      accelerate and maintain growth into the indefinite
  future

            

    

    

    This Plan
supersedes and replaces all prior annual bonus plans, programs or similar
incentive arrangements of the Corporation, with effect as of January 1, 2010,
and is subject to the terms and conditions of the Charles & Colvard, Ltd.
2008 Stock Incentive Plan, or any subsequent incentive stock plan approved by
the Corporation and its shareholders, as applicable (the “2008
Plan”).

    

    
      	
              I.   

            	
                Short-Term Incentive
      Opportunity

            

    

    

    The
short-term incentive portion of the Plan provides each Eligible Employee (as
defined under Section III.B. below) with the opportunity to earn a
performance-based cash award up to a certain percentage of his/her total base
salary (excluding bonuses, reimbursement for moving expenses, disability
benefits, vacation cash-outs and similar payments).  The short-term
incentive award shall be calculated as a percentage of each Eligible Employee’s
annual base salary in effect as of the last day of the fiscal year for which the
award is payable.

    

    Eligible
Employees are eligible for cash awards under the Plan based on the achievement
of different levels of EBITDA as set by the Committee (as defined in Section
III.A. below), and the actual cash award amounts, if any, will therefore
vary.  A threshold level of EBITDA as determined by the Committee must
be met before any cash awards are made under the Plan.

    

    Under the
Plan, the threshold cash award opportunity for the Corporation’s executive
officers will be based on a percentage of his/her annual base salary as defined
by the Committee annually.  As higher levels of EBITDA are achieved,
the performance-based cash award will increase because the percentage of base
salary for each Eligible Employee attributable to the award
increases.  For the Corporation’s executive officers, the maximum cash
award opportunity obtainable for achieving the maximum EBITDA performance level
shall be at the percentage of his/her annual base salary as defined by the
Committee annually.

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    Notwithstanding
the foregoing, if the Committee determines that it is in the best interests of
the Corporation for the short-term incentive awards made pursuant to this
Section I to comply with the performance-based compensation exception to Section
162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), the Committee
may, in its discretion, instead make such short-term incentive awards in the
form of Performance Awards issued under and pursuant to the appropriate
Performance Measures set forth in the 2008 Plan for purposes of complying with
Code Section 162(m).

    

    II.           Long-Term
Incentive Opportunity

    

    The
long-term incentive portion of the Plan provides each Eligible Employee with the
opportunity to earn a performance-based equity award up to a certain percentage
of his/her total base salary (excluding bonuses, reimbursement for moving
expenses, disability benefits, vacation cash-outs and similar payments) divided
by the closing price of the Corporation’s common stock on the grant
date  (as adjusted for any stock splits or dividends prior to the
issuance of the equity award), with any fractional shares included as part of
the cash award defined in the Short-Term Incentive Opportunity
above.  The long-term equity award shall be calculated as a percentage
of each Eligible Employee’s annual base salary in effect as of the last day of
the fiscal year for which the equity award is granted.

    

    Eligible
Employees shall be eligible for equity awards under the long-term incentive
portion of the Plan based on the achievement of different levels of EBITDA as
set by the Committee in accordance with the Performance Measures and other
performance conditions set forth in the 2008 Plan, and the actual equity award
amounts, if any, will therefore vary.  A threshold level of EBITDA as
determined by the Committee must be met before any equity awards are made under
the Plan.  To avoid administrative burden, any calculated equity award
amount under this Long-Term Incentive shall instead be paid as a cash bonus as
defined in the Short-Term Incentive Opportunity section above if such calculated
amount has a value less than $2,000.

    

    Under the
Plan, the threshold equity award opportunity for the Corporation’s executive
officers will be calculated based upon a percentage of his/her annual base
salary as defined by the Committee annually divided by the closing price of the
Corporation’s common stock as of the grant date (as adjusted for any stock
splits or dividends prior to the issuance of the equity award) in accordance
with Code Section 409A.  As higher levels of EBITDA are achieved, the
performance-based equity award will increase because the percentage of base
salary for each Eligible Employee attributable to the award
increases.  For the Corporation’s executive officers, the maximum
equity award opportunity obtainable for achieving the maximum EBITDA performance
level shall be calculated based upon the percentage of his/her annual base
salary as defined by the Committee annually divided by the closing price of the
Corporation’s common stock as of the grant date (as adjusted for any stock
splits or dividends prior to the issuance of the equity award) in accordance
with Code Section 409A. 

    

    The
equity award shall be made in the form of stock options.  Each award
shall be subject to a vesting schedule of 25% upon grant date and 25% over each
of the following three years.  The Eligible Employee must remain in
service to the Corporation as an employee, consultant or

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    director
on each of the vesting dates, and with such further terms and conditions as set
forth in the documents that accompany the equity awards. Unless the Committee
determines otherwise, upon termination of employment prior to the third
anniversary of the equity award (subject to any applicable change in control
provisions of such equity award), any remaining unvested portion of the equity
award will be forfeited and the Eligible Employee shall have no right to the
unvested shares subject to the equity award.

    

    
      	
              III.   

            	
              Terms
      and Conditions of the Plan

            

    

    

    
      	
              A.   

            	
              Administration
      of the Plan

            

    

    

    The Plan
shall be administered by the independent members of the Board or, upon the
Board’s delegation, by the Compensation Committee of the Board (the “Committee”).

    

    In
addition to action by meeting in accordance with applicable law, any action of
the Committee with respect to the Plan may be taken by a written instrument
signed by all of the members of the Committee and any such action so taken by
written consent shall be as fully effective as if it had been taken by a
majority of the members at a meeting duly held and called.

    

    Subject
to the provisions of the Plan, the Committee shall have full and final authority
in its discretion to take any action with respect to the Plan including, without
limitation, the authority to:

    

    (1)           determine
all matters relating to any awards under the Plan, including selection of
individuals to be granted awards, the types of awards, the number of shares of
common stock, if any, subject to an award, and all terms, conditions,
restrictions and limitations of an award;

    

    (2)           prescribe
the form or forms of any agreements, if any, evidencing any awards granted under
the Plan;

    

    (3)           establish,
amend and rescind rules and regulations for the administration of the Plan;
and

    

    (4)           construe
and interpret the Plan and any agreements evidencing awards granted under the
Plan, to establish and interpret rules and regulations for administering the
Plan and to make all other determinations deemed necessary or advisable for
administering the Plan.

    

    In
addition, except to the extent otherwise required under Code Section 409A,
related regulations or other guidance, the Committee shall have authority, in
its sole discretion, to accelerate the date that any award that was not
otherwise exercisable or vested shall become exercisable or vested in whole or
in part without any obligation to accelerate such date with respect to any other
awards granted to any recipient.  The Committee also shall have the
authority and discretion to establish terms and conditions of awards (including
but not limited to the establishment of subplans) as the Committee determines to
be necessary or appropriate to conform to the applicable requirements or
practices of jurisdictions outside of the United States.

    
      
         

      

      
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              B.   

            	
              Eligible
      Employees

            

    

    

    No later
than the first regularly scheduled meeting of the Committee in each fiscal year
(the “Effective
Date”), upon recommendation of the Chief Executive Officer of the
Corporation, the Committee shall expressly designate the employees eligible to
participate in the Plan (the “Eligible Employees”)
for such fiscal year.  Participation in the Plan in any one year does
not guarantee the right to participate in any other year.

    

    The
Committee shall have full authority and discretion to reduce or eliminate all
awards made pursuant to the Plan at any time.

    

    Eligible
Employees must be employed on the date awards are made pursuant to Section
III.D. of the Plan in order to receive a payout.  Notwithstanding the
foregoing, the Committee may, in its sole discretion, provide for awards to be
paid to Eligible Employees (or their heirs, as applicable) whose employment with
the Corporation has terminated due to death or disability or other exceptional
reasons provided that such amounts are prorated based on the period of service
rendered to the Corporation and paid at the time other awards under the Plan are
regularly paid.

    

    
      	
              C.   

            	
              Commencement
      of Employment After the Effective
Date

            

    

    

    Non-Officer
Employees

    

    Any
non-officer employee of the Corporation who commences employment with the
Corporation after the Effective Date for a fiscal year may be designated an
Eligible Employee for purposes of the Plan for such fiscal year at the
discretion of the Chief Executive Officer and upon concurrence of the
Chairperson of the Committee; provided that any non-officer employee who
commences his/her employment during the fourth fiscal quarter of a year will not
be eligible to participate in the Plan for such fiscal year unless the Committee
expressly approves such participation.

    

    Executive
Officers

    

    Any
executive officer of the Corporation who commences employment with the
Corporation after the Effective Date for a fiscal year may be designated an
Eligible Employee for purposes of the Plan for such fiscal year at the
discretion and upon approval of the Committee.

    

    Pro-Ration
of Awards

    

    Any
non-officer employee or executive officer who is designated an Eligible Employee
pursuant to this Section III.C. of the Plan after the Effective Date of a fiscal
year will have any award amounts for that fiscal year pro-rated in a manner as
determined by the Committee.

    
      
         

      

      
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              D.   

            	
              Timing
      of Awards Under the Plan

            

    

    

    As soon
as practicable upon the completion of the annual audit by the Corporation’s
independent accountant and delivery of an audit opinion to the Corporation by
such accountant for the applicable fiscal year, each of the Eligible Employees
shall be eligible to receive cash awards and equity awards as described in this
Plan.

     

    E.           Source
of Equity Awards

    

    Provided
sufficient shares remain available for issuance, any Performance Awards or
equity awards made under the Plan shall be issued under and pursuant to the 2008
Plan. With respect to any Performance Awards or equity awards made under the
Plan, all terms, conditions, and requirements of such 2008 Plan are incorporated
into the Plan by reference. For any Performance Awards or equity awards, to the
extent that there is a contradiction between the Plan and the 2008 Plan or an
ambiguity as to the provisions of the Plan, the terms of such 2008 Plan shall
control.  All shares issued under the Plan shall be drawn from the
shares reserved under such 2008 Plan for issuance of awards.

    

    F.           Compliance
with Code Section 409A

    

    Notwithstanding
any other provision in the Plan or an award to the contrary, if and to the
extent that Section 409A of the Code is deemed to apply to the Plan or any award
granted under the Plan, it is the general intention of the Corporation that the
Plan and all such awards shall comply with Code Section 409A, related
regulations or other guidance, and the Plan and any such award shall, to the
extent practicable, be construed in accordance therewith.  Deferrals
of shares or cash distributable pursuant to the Plan in a manner that would
cause Code Section 409A to apply shall not be permitted.  Without in
any way limiting the effect of the foregoing, in the event that Code Section
409A, related regulations or other guidance require that any special terms,
provisions or conditions be included in the Plan or any award, then such terms,
provisions and conditions shall, to the extent practicable, be deemed to be made
a part of the Plan or award, as applicable.  Further, in the event
that the Plan or any award shall be deemed not to comply with Code Section 409A
or any related regulations or other guidance, then neither the Corporation, the
Board nor its or their designees or agents shall be liable to any participant or
other person for actions, decisions or determinations made in good
faith.

    

    G.           Applicable
Law

    

    The Plan
shall be governed by and construed in accordance with the laws of the State of
North Carolina, without regard to the conflicts of laws provisions of any state,
and in accordance with applicable federal laws of the United
States.

    

    H.           Amendment
and Termination of the Plan

    

    The Plan
and any award may be amended or terminated at any time by the Board or the
Committee.  No action to amend or terminate the Plan or an award shall
permit the acceleration

    
      
         

      

      
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    of the
time or schedule or any payment of amounts deemed to involve the deferral of
compensation under Code Section 409A, except as may be otherwise permitted under
Section 409A, related regulations or other guidance.

    

    Without
limiting the effect of this Section III.H., the Board shall have unilateral
authority to amend the Plan and any award (without participant consent) to the
extent necessary to comply with applicable laws, rules or regulations or changes
to applicable laws, rules or regulations (including but not limited to Code
Section 409A, federal securities laws or related regulations or other
guidance).

    

    I.    No Right or
Obligation of Continued Employment

    

    Nothing
contained in the Plan shall require the Corporation or a related corporation to
continue the employment or service of an employee, nor shall any such individual
be required to remain in the employment or service of the Corporation or a
related corporation.  Except as otherwise provided in the Plan (or
2008 Plan, if applicable), all rights of a participant with respect to any award
shall terminate upon the participant’s termination of employment or service with
the Corporation.

    

    J.           Compliance
with Laws

    

    The Board
may impose such restrictions on any shares or other payments or awards hereunder
as it may deem advisable, including without limitation restrictions under the
Securities Act of 1933, as amended (the “Securities Act”),
under the requirements of any stock exchange or similar organization and under
any blue sky, state or foreign securities laws applicable to such
shares.  Notwithstanding any other Plan provision to the contrary, the
Corporation shall not be obligated to issue, deliver or transfer shares of
common stock under the Plan, make any other distribution of benefits under the
Plan or take any other action, unless such delivery, distribution or action is
in compliance with all applicable laws, rules and regulations (including but not
limited to the requirements of the Securities Act).  The Corporation
may cause a restrictive legend to be placed on any certificate issued hereunder
in such form as may be prescribed from time to time by applicable laws and
regulations or as may be advised by legal counsel.

    

    K.           Unfunded
Plan; No Effect on Other Plans

    

    The Plan
shall be unfunded, and the Corporation shall not be required to create a trust
or segregate any assets that may at any time be represented by awards under the
Plan.  The Plan shall not establish any fiduciary relationship between
the Corporation and any employee or other person.  Neither an employee
nor any other person shall, by reason of the Plan, acquire any right in or title
to any assets, funds or property of the Corporation or any related corporation,
including, without limitation, any specific funds, assets or other property that
the Corporation or any related corporation, in their discretion, may set aside
in anticipation of a liability under the Plan.  A participant shall
have only a contractual right to the common stock or other amounts, if any,
payable under the Plan, unsecured by any assets of the Corporation or any
related corporation.  Nothing contained in the Plan shall constitute a
guarantee that the assets of such entities shall be sufficient to pay any
benefits to any person.

    
      
         

      

      
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    The
amount of any compensation deemed to be received by a participant pursuant to an
award shall not constitute compensation with respect to which any other employee
benefits of such participant are determined, including, without limitation,
benefits under any bonus, pension,

    profit
sharing, life insurance or salary continuation plan, except as otherwise
specifically provided by the terms of such plan or as may be determined by the
Board or Committee.

    

    The
adoption of the Plan shall not affect any other compensation plans in effect for
the Corporation or any related corporation, nor shall the Plan preclude the
Corporation from establishing any other forms of compensation for employees or
service providers of the Corporation or any related corporation.

    

    L.           Withholding;
Tax Matters

    

    The
Corporation shall withhold, or shall require the participant to pay the
Corporation in cash, the amount of any local, state, federal, foreign or other
tax or other amount required by any governmental authority to be withheld and
paid over by the Corporation to such authority for the account of the
participant.

    

    The
Corporation makes no warranties or representations with respect to the tax
consequences (including but not limited to, income tax consequences) related to
the transactions contemplated by this Plan.  A participant should
consult with his/her own attorney, accountant, and/or tax advisor regarding the
decision to participate in the Plan and the consequences thereof. The
Corporation has no responsibility to take or refrain from taking any actions in
order to achieve a certain tax result for any participant.

    

    
      
         

      

      
        7blackwater_8k-ex1001.htm

 

    
      

    

    Exhibit 10.1

     

    

      THIS
SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO PURCHASE ANY OF THE SECURITIES REFERRED TO HEREIN.

       

      SUBSCRIPTION
AGREEMENT

       

      This
SUBSCRIPTION AGREEMENT (this “Subscription Agreement”) is entered into by and
between the party signing the Signature Page attached hereto (the “Investor”)
and Blackwater Midstream Corp., a Nevada corporation (the “Corporation” or the
“Company”). The Corporation is offering up to $1,650,000.00 of convertible debt,
which may be converted into Company common stock (‘Share” or “Shares”) at the
option of the Investor at a conversion price of $0.50 per share (the
“Convertible Debt”). The Investor subscribes for and agrees to purchase the
following:

       

      
        
          
            	
                    Name
      of Investor:

                  	
                     

                  
	
                    Convertible
      Debt Subscribed For:

                  	
                     

                  
	
                    Address
      of Investor:

                  	
                     

                  
	 
      	
                     

                  

          

        

         

      

      The
amount of cash or good funds as tender of the purchase price for the Convertible
Debt is enclosed (in the case of a check, the check should be payable to the
order of “Blackwater Midstream Corp.”) or will be sent via wire transfer to the
Corporation’s account.

       

      INVESTOR
RIGHTS

       

      Conditions
of the Convertible Debt:

       

      
        	
                Maturity
      Date

              	
                March
      31st, 2012

              
	
                Interest

              	
                10%
      per annum, to be paid quarterly

              
	
                Principal

              	
                To
      be repaid upon Maturity Date

              
	
                Conversion
      Price:

              	
                $
      0.50 per share into common stock

              
	
                Conversion
      Period

              	
                Any
      time prior to Maturity Date upon the option of the
  investor

              
	
                Transfer
      Restrictions:

              	
                Converted
      shares of common stock are “restricted securities” and may only be
      transferred pursuant to registration, qualification, or exemption under
      United States federal and applicable state securities
  laws.

              
	
                Closing
      Date

              	
                March
      31st, 2010

              

      

      

      The
Corporation will make quarterly interest payments, beginning 3 months after the
Closing Date on June 30, 2010.  The Investor has the right to convert
all or part of the remaining Convertible Debt into shares of the Corporation’s
common stock at $0.50 (fifty cents) prior to the Maturity Date. Upon the
Maturity Date, 2 years from Closing Date, the Corporation will repay the
principal to the Investor.

       

      If and
when an Investor decides to convert their Convertible Debt into Shares of the
Corporation’s common stock, the Investor shall send a written request to the
Corporation indicating the amount of Convertible Debt to be converted. The
Corporation will respond within 10 working days after having received this
request and initiate the conversion. Per request date, interest will be
recalculated per remaining principal, if any.

      

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

      COST OF
OFFERING

       

      The
Company has engaged Falcon Capital to assist with the Convertible Debt offering.
Falcon Capital will receive a cash commission of 10% on capital raised through
its own clientele, and a cash commission of 5% on capital raised through
clientele of the Company, approached by Falcon. In addition, Falcon Capital will
receive 10% in shares of the Company’s common stock, at the stock’s price on the
closing day of the capital raise, on capital raised thru its own clientele and
5% in shares of the Company’s common stock at the stock’s price on the closing
day of the capital raise, on capital raised through clientele of the Company,
approached by Falcon. Falcon Capital will also receive reimbursement of
expenses, with a maximum of 2% of capital raised by Falcon.

       

      INVESTOR
REPRESENTATIONS

       

      The
Investor hereby represents and warrants to, and covenants with, the Corporation
as follows, recognizing that the Corporation will rely to a material degree on
such representations, warranties and covenants, each of which shall survive any
acceptance of this subscription in whole or in part by the Corporation and the
issuance and sale of any Shares to the Investor:

       

      1.           Organization and Good
Standing. The Investor, if the Investor is a corporation, partnership,
trust or other entity, is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization and has full power,
authority and legal right to execute, deliver and perform its obligations under
this Subscription Agreement.

       

      2.           Agreement Duly
Authorized. The execution, delivery and performance by the Investor of
this Subscription Agreement has been duly authorized by all necessary action,
this Subscription Agreement has been duly executed and delivered, and, when
executed and delivered by the Corporation, this Subscription Agreement will
constitute the legal, valid, binding and enforceable obligation of the Investor,
subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws, regulations or procedures of general
applicability now or hereafter in effect relating to or affecting creditors’ or
other obligees’ rights generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).

       

      3.           Sophistication of
Investor. The Investor either (i) has a pre-existing personal or business
relationship with the Corporation or its controlling persons, such as would
enable a reasonably prudent purchaser to be aware of the character and general
business and financial circumstances of the Corporation or its controlling
persons, or (ii) by reason of the Investor's business or financial experience,
individually or in conjunction with the Investor's unaffiliated professional
advisors who are not compensated by the Corporation or any affiliate or selling
agent of the Corporation, directly or indirectly, is capable of evaluating the
merits and risks of an investment in the Shares, making an informed investment
decision and protecting the Investor's own interests in connection with the
transactions contemplated hereby.

       

      4.           Statements of Investor True
and Accurate. All statements and representations made in Annex I
attached hereto (“Nature of Investor; Form of Ownership”), which has been or is
being furnished concurrently herewith to the Corporation by the Investor,
continue to be and are true, accurate and complete as of the date hereof. The
Investor agrees to provide such additional information as reasonably may be
required by the Corporation for compliance with the securities laws of the state
in which the Investor is located.

       

      
        
           

        

        
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      5.           Investor Aware of
Risks. The Investor has been informed and is aware that a loan to the
Company involves a high degree of risk and speculation, and the Investor has
read carefully and considered any information provided by the Corporation and
its affiliates in their entirety.  The Investor has read and
understands the “Risk Factors” attached hereto as Exhibit A.

       

      6.           Investor
Relying Upon Own Advisors.
The Investor confirms that the Investor has been advised that the Investor
should rely on, and that the Investor has consulted and relied on, the
Investor’s own accounting, legal and financial advisors with respect to this
loan to the Company. The Investor and the Investor’s professional advisor(s), if
any, have been afforded an opportunity to meet with the officers and directors
of the Corporation and to ask and receive answers to all questions about this
offering and the proposed business and affairs of the Corporation and to obtain
any additional information that the Corporation possesses or can acquire without
unreasonable effort or expense, and the Investor and the Investor’s professional
advisor(s) therefore have obtained, in the judgment of the Investor and/or the
Investor’s professional advisor(s), sufficient information to evaluate the
merits and risks of investment in the Company.

       

      7.           Suitability. The
Investor understands and has fully considered for purposes of this investment
the risks of this investment and understands that (i) this investment is
suitable only for an investor who is able to bear the economic consequences of
losing the Investor's entire investment; (ii) the Corporation is a growing a new
business and has no significant operating history in such business; (iii) the
purchase of the Convertible Debt is a speculative investment which involves a
high degree of risk of loss by the Investor of the Investor's entire investment,
and (iv) upon optional conversion there are substantial restrictions on the
transferability of, and there will be no public market for, the Company’s
shares, and accordingly, it may not be possible for the Investor to liquidate
the Investor's investment in the Company’s shares.

       

      8.           Accredited Investor.
The Investor is an "Accredited Investor" within the meaning of Rule 501 of
Regulation D.

       

      9.           Lack of Liquidity.
The Investor is able (i) to bear the economic risk of this investment, and (ii)
to afford a complete loss of the Investor's investment; and represents that the
Investor has sufficient liquid assets so that the lack of liquidity associated
with this investment will not cause any undue financial difficulties or affect
the Investor's ability to provide for the Investor's current needs and possible
financial contingencies.

       

      10.           Investment
Information. At the request of the Investor, the Corporation may provide
to the Investor various offering documents related to the Corporation and the
terms of the offer and sale of Convertible Debt (the “Offering
Documents”).  The Investor acknowledges that such Offering Documents,
if any, contain the views of the management of the Corporation, and that the
analysis of the market and of the Corporation's strategy contained therein
represents a subjective assessment about which reasonable persons could
disagree.

       

      11.           Access to
Information. The Investor, in making the Investor's decision to purchase
the Convertible Debt, has relied solely upon independent investigations made by
the Investor and the representations and warranties of the Corporation contained
herein and the Investor has been given (i) access to all material books and
records of the Corporation; (ii) access to all material contracts and documents
relating to this offering; and (iii) an opportunity to ask questions of, and to
receive answers from, the appropriate executive officers and other persons
acting on behalf of the Corporation concerning the Corporation and the terms and
conditions of this offering, and to obtain any additional information, to the
extent such persons possess such information or can acquire it without
unreasonable effort or expense, necessary to verify the accuracy of the
information set forth in the Offering Documents. The Investor acknowledges that
no valid request to the Corporation by the Investor for information of any kind
about the Corporation has been refused or denied by the Corporation or remains
unfulfilled as of the date thereof. The Investor has carefully read the Offering
Documents, including without limitation this Subscription Agreement. In
evaluating the suitability of an investment in the Corporation, the Investor has
not relied upon any representations or other information (whether oral or
written) other than as set forth in the Offering Documents or as contained in
any documents or answers to questions furnished by the Corporation.

       

      
        
           

        

        
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      12.           No Endorsement by Federal or
State Agencies. The Investor understands and acknowledges that no federal
or state agency has made any finding or determination as to the fairness or
suitability for investment in, or any recommendation or endorsement of, the
Corporation or the Convertible Debt.

       

      13.           Investor has Evaluated
Risks. Based on the review of the materials and information described
above, and relying solely thereon and on the knowledge and experience of the
Investor and/or the Investor’s professional advisor(s), if any, in business and
financial matters, the Investor has evaluated the merits and risks of investing
in the Convertible Debt and has determined that the Investor is both willing and
able to undertake the economic risk of this investment.

       

      14.           Convertible Debt Acquired
for Personal Account, No View to Distribution. The Investor is acquiring
the Convertible Debt for the personal account of the Investor for investment and
not with a view to, or for resale in connection with, any distribution thereof
or of any interest therein, and no one else has any beneficial ownership or
interest in the Convertible Debt being acquired by the Investor, nor is any of
the Convertible Debt being acquired by the Investor to be subject to any lien or
pledge. The Investor has no present obligation, indebtedness or commitment
pending, nor is any circumstance in existence, that will compel the Investor to
secure funds by the sale, transfer or other distribution of any of the
Convertible Debt or any interest therein.

       

      15.           Restricted
Securities. The Investor understands and acknowledges that upon optional
Conversion the Company’s shares will be offered pursuant to one or more
exemptions from the registration and qualification requirements of the
Securities Act of 1933, as amended, and the securities laws of the various
states in which the Company’s shares are sold, the availability of which depend
(in part) on the truth and completeness of the information provided to the
Corporation in Annex I attached hereto and the bona fide nature of the
foregoing representations and warranties. With such realization, the Investor
hereby authorizes the Corporation to act as the Corporation may see fit in
reliance on such information, representations and warranties, including the
placement of the following or any substantially similar legend on any stock
certificate issued to the Investor in addition to any other legend that may be
imposed thereon that, in the opinion of the Corporation’s counsel, may be
required by applicable securities laws:

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      “THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
APPLICABLE STATE SECURITES LAWS, RULES AND REGULATIONS. THESE SECURITIES MAY NOT
BE PLEDGED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACTS COVERING THE SECURITIES OR AN OPINION OF QUALIFIED
COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION
IS NOT REQUIRED.”

       

      16.           Indemnification. The
Investor hereby indemnifies and holds harmless the Corporation and the
Corporation’s respective officers, directors, shareholders, employees, attorneys
and agents, as the case may be, from and against all damages suffered and
liabilities of any kind incurred by any of them (including costs of
investigation and defense and attorneys’ fees) arising out of any inaccuracy in
the agreements, representations, covenants and warranties made by the Investor
in this Subscription Agreement.

       

      17.           Fiduciary
Representations. If the Investor is purchasing the Convertible Debt
subscribed for hereby in a fiduciary capacity, then all of the foregoing
representations, warranties and covenants shall be deemed to have been made on
behalf of the person or persons for whom the Investor is so
purchasing.

       

      18.           Subscription
Irrevocable. The Investor hereby acknowledges and agrees that the
Investor is not entitled to cancel, terminate or revoke this subscription or any
agreement of the Investor hereunder and that such subscription and agreement
shall survive the death or disability of the Investor.

       

      19.           Acceptance or Rejection by
Corporation. The Investor understands and acknowledges that this
subscription may be accepted or rejected by the Corporation in its sole and
absolute discretion. If a subscription is rejected by the Corporation, written
notice will be sent to the Investor along with the Subscription Agreement and
all funds (without interest or deduction) submitted by the
Investor.

       

      NEITHER
THE CORPORATION NOR ANY OFFICER, DIRECTOR, SHAREHOLDER, EMPLOYEE, ATTORNEY OR
AGENT OF ANY OF THEM SHALL BE LIABLE TO ANY PERSON FOR THE REJECTION, IN WHOLE
OR IN PART, OF ANY OFFER TO SUBSCRIBE TO PURCHASE CONVERTIBLE DEBT,
NOTWITHSTANDING THAT THE INVESTOR MAY OTHERWISE BE QUALIFIED AS A PROSPECTIVE
INVESTOR.

       

      20.           Changes in Status.
If, before the sale of any Convertible Debt to the Investor, the Investor’s
investment intent as expressed herein materially changes, or if any change
occurs that would make either the representations or warranties made by the
Investor herein or the information provided by the Investor in any of the forms
attached hereto (including Annex I attached hereto) materially untrue or
misleading, then the Investor shall immediately so notify the Corporation, and
any prior acceptance of the subscription of the Investor shall be voidable at
the option of the Corporation in its sole and absolute discretion.

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      21.           Forward Looking
Statements. The Offering Documents to the Investor contain
forward-looking statements within the meaning of Section 27A of the Securities
Act. Such forward-looking statements are indicated by the use of such words as
“intends,” “expects,” “may,” “anticipates,” “estimates,” “desires,” “believes,”
“projections” and similar expressions. Actual results may differ from those
described by forward-looking statements as a result of many risks and
uncertainties.

       

      22.           Material Non-Public
Information; No Trading.  The Investor acknowledges and agrees
that he or she may have received material non-public information that has been
disclosed to the Investor for the purpose of evaluating the Corporation and the
Convertible Debt.  The Investor agrees that he or she shall not
purchase or sell any securities of the Corporation until such time as all
material information provided to the Investor has been made publicly
available.

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      IN WITNESS WHEREOF, the
Investor executes and agrees to be bound by this Subscription Agreement by
executing the Signature Page attached hereto to be effective as of the date
therein indicated.

       

      INDIVIDUAL
INVESTOR

       

      

      
        	
                

                  
      

                Print
      Name of Purchaser

              	
                

                  
      

                Signature
      of Purchaser

              
	 
      	 
      
	
                

                  
      

                Print
      Name of Spouse

              	
                

                  
      

                Signature
      of Spouse

              
	
                (if
      funds are to be invested in joint

              	
                (if
      funds are to be invested in joint

              
	
                name
      or are community property)

              	
                name
      or are community property)

              
	 
      	 
      
	
                $_______________________________

              	 
      
	
                Amount
      of immediately available funds transferred herewith

              	 
      
	 
      	 
      
	 
      	 
      
	
                

                  
      

                Please
      PRINT the exact name(s) (registration) investor(s) desire(s) for the Loan
      Note

              
	 
      	 
      
	
                ______________________________________

              	
                (_____)
      _______-____________

              
	
                Occupation

              	
                Tel.
      No.

              
	 
      	 
      
	
                ___________________________US
      Social Security or other Tax I.D. No.

              	 
      
	 
      	 
      
	
                

                  
      

                Street
      Address

              
	 
      	 
      
	
                
                  
      City                                                                       
          State/County                                                       
                              Zip
      Code/Postal
      Code                                   
       Country

              

      

      

      

      
        	
                SUBSCRIPTION
      ACCEPTED:

              	
                BLACKWATER
      MIDSTREAM CORP.:

              
	 
      	 
      
	 
      	 
      
	 
      	 
      
	
                Dated:
      _______________, 2010

              	
                By:
      ___________________________

              
	 
      	 
      
	 
      	
                Its:
      ___________________________

              

      

      

      

      

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      IN WITNESS WHEREOF, the
Investor executes and agrees to be bound by this Subscription Agreement by
executing the Signature Page attached hereto to be effective as of the date
therein indicated.

       

      ENTITY
INVESTOR

       

      I have
checked the appropriate boxes in Annex I (“Nature of Investor; Form of
Ownership”) as a qualifying entity and have completed the purchasing entity
representation letter.

       

      

      __________________________

      
         
Print
Name of Partnership,

      

      Corporation
or Trust

      

      
        	
                By:
      ______________________________________

              	
                ___________________________

              
	
                   Signature
      of authorized representative

              	
                Capacity
      of authorized representative

              

      

      

      $____________________

      Amount of
immediately available funds transferred herewith

      

      

      _____________________________

      Please
PRINT the exact name(s) (registration) investor(s) desire(s) for the Loan
Note

      

      (_____)
_______-______________

      Tel.
No.

      

      __________________________________

      Tax I.D.
No.

      

      
        
          

        

      

      Street
Address

      

      
        
          

        

      

      City                                                                       
    State/County                                                       
                        Zip
Code/Postal
Code                                   
 Country

      

      

      
        	
                SUBSCRIPTION
      ACCEPTED:

              	
                BLACKWATER
      MIDSTREAM CORP.:

              
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	 
      
	
                Dated:
      _______________, 2010

              	
                By:
      __________________________

              
	 
      	 
      
	 
      	
                Its:
      ______________________________

              

      

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      Annex I.
Accredited Investor Form

       

      Each prospective investor in the
Convertible Debt of Blackwater Midstream Corp. that is a US resident must meet
one or more of the standards enumerated below.  By your signature
below, you certify that you are an Accredited Investor as defined by Regulation
D of the Act:

      

      If you
are not a US resident, indicate by initialing
here:________________________________________

      

      (a)           You
are a natural person whose individual net worth or joint net worth with your
spouse at the time of your purchase of the Securities exceeds
$1,000,000.00;

      

      ____________________________

      (Signature
of Investor)

      

      (b)           You
are a natural person who had an individual income in excess of $200,000.00 in
each of the two most recent years or joint income with your spouse in excess of
$300,000.00 in each of those years and you have a reasonable expectation of
reaching the same income level in the current year;

       

      ____________________________

      (Signature
of Investor)

      

      (c)           You
are a trustee for a trust that is revocable by the grantor at any time
(including an IRA) and the grantor qualified under either (a) or (b)
above.  A copy of the declaration of trust or trust agreement and a
representation as to the net worth or income of the grantor is
enclosed;

      

      ___________________________

      (Signature
of Investor)

      

      (d)           You
are a trustee of a trust, with total assets in excess of $5,000,000.00, not
formed for the specific purpose of acquiring the debt offered whose purchase is
directed by a sophisticated person as described in Rule 506 (B)(2)(ii) of the
Act;

      

      ___________________________

      (Signature
of Investor)

      

      (e)           You
are an organization described in Section 501(c)(3) of the Internal Revenue Code,
corporation, business trust, or partnership, not formed for the specific purpose
of acquiring the debt offered, with total assets in excess of
$5,000,000.00;

       

      ___________________________

      (Signature
of Investor)

      

      (f)           You
are a director or officer of Blackwater Midstream Corp.; or

      

      ___________________________

      (Signature
of Investor)

      

      (g)           Investor
is an employee benefit plan within the meaning of ERISA having total assets in
excess of Five Million Dollars ($5,000,000.00).

      

      ___________________________

      (Signature
of Investor)

      

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      (h)           Investor
is a self-directed employee benefit plan within the meaning of ERISA with
investment decisions made solely by persons who are accredited investors as
defined in Rule 501(a) of Regulation D.

      

      __________________________

      (Signature
of Investor)

      

      (i)           Investor
is an entity all the equity owners of which are “accredited investors” within
one or more of the above categories, other than Category (e).  If relying upon this category alone,
each equity owner must complete a separate copy of this Subscription
Agreement.

      

      ___________________________

      (Signature
of Investor)

      

      

      Additionally,
you represent and warrant that (i) if you are an individual or individuals, none
of you have been convicted of a felony; or (ii) if you are a corporation,
partnership, limited liability company, trust or other entity, none of the
beneficial owners thereof have been convicted of a felony. 

      

      ___________________________

      (Signature
of Investor)

      

       

      The
Investor is/are (INITIAL AND CHECK ALL
APPLICABLE ANSWERS):

       

      
        	 
      	
                INITIAL

              	
                CHECK

              
	 
      	
                _____1.

              	
                [  ]           Individual
      (one signature required)

              
	 
      	
                _____2.

              	
                [  ]           Joint
      Tenants with right of survivorship (both parties must
  sign)

              
	 
      	
                _____3.

              	
                [  ]           Tenants
      in Common (both parties must sign)

              
	 
      	
                _____4.

              	
                [  ]           Community
      Property (one signature required if the Convertible Debt is held in one
      name, i.e.,
      managing spouse; two signatures required if the Convertible Debt is held
      in both names or if purchaser is a resident of
  California)

              
	 
      	
                _____5.

              	
                [  ]           Corporation
      (signature of authorized party or parties required)

              
	 
      	
                _____6.

              	
                [  ]           Partnership
      (signature of general partner required and all additional signatures
      required by Partnership Agreement)

              
	 
      	
                _____7.

              	
                [  ]           Trust
      (Trust must sign as follows:

                __________________
      as trustee for ___________________,

                dated
      ______________________).

              
	 
      	
                _____8.

              	
                [  ]           Other
      Entities (signatures as required by applicable organization
      documents)

              

      

      

      DATE:_______________________________________,
2010

      

      
        	 	 
	
                PRINT
      NAME

              	
                PRINT
      NAME

              
	
                 
      

                 

              	 
      
	
                SIGNATURE

              	
                SIGNATURE

              

      

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      EXHIBIT
A

       

      RISK
FACTORS

       

      You should carefully consider the
risks and uncertainties described below and the other information in the
Investment Memorandum dated January 2010 before deciding whether to invest in
the Convertible Debt of Blackwater Midstream Corp.  The occurrence of any
of the following risks could materially and adversely affect the Company’s
business, financial condition and operating results.  In any such
case, you may lose part or all of your investment.

       

       

      Risks
Inherent in the Company’s Business

       

      The
Company may not attain its projections if it is unable to obtain, on
commercially acceptable terms, additional equity capital that it may require
from time to time in the future to finance its acquisitions.

      The
proceeds of the current Convertible Debt offering are expected to be sufficient
to sustain a cash flow positive operation. However, the Company needs additional
capital to expand the business.  The Company does not currently have
sufficient cash reserves or revenue from operations to do so.  Without
additional capital the Company will not be able to acquire additional
facilities.  The Company is unable to provide any assurance or
guarantee that additional capital will be available when needed by the Company,
or that such capital will be available under terms acceptable to the Company or
on a timely basis.

       

      The
Company may be unable to compete successfully against existing and future
competitors, which could harm its margins and its business.

      The fuel
and chemical storage business is highly competitive. The Company expects the
competitive environment to continue in the future. The Company faces competition
from a number of existing storage facilities. The Company believes that with
relatively strong financial performance of fuel and related industries, this
industry will continue to attract new competitors and encourage existing
competitors to increase their involvement.

       

      The
Company can provide no assurance that it will be able to compete successfully
against current or potential competitors.  Many of its current and
potential competitors have longer operating histories, better brand recognition
and significantly greater financial, technical and marketing resources than the
Company.  Many of these competitors may have well-established
relationships with customers and other key partners and can devote substantially
more resources to marketing and sales.  As a result, they may be able
to secure customers on more favorable terms. Larger competitors may enjoy
significant competitive advantages that result from, among other things, a lower
cost of capital and enhanced operating efficiencies. In addition, the number of
entities and the amount of funds competing for customers may increase. This will
result in reduced prices and increased cost of sales. The Company’s
profitability may be reduced and you may experience a lower return on your
investment.

       

      The
Company’s inability to retain its executive officers and other key personnel may
harm its business and impede the implementation of its business
strategy.

      The
Company’s future success depends to a significant degree on the skills,
experience and efforts of its key management personnel.  The Company’s
principal managers are Michael Suder, Dale Chatagnier and Frank Marrocco. The
Company has executed five-year employment agreements with each of them and has
granted them substantial equity incentives to remain with the
Company.  However, it cannot guarantee that they will remain
employees.  The loss of their services could harm the Company’s
business and operations.  In addition, the Company has not obtained
key person life insurance on any of its key employees as of the date of this
memorandum.  If any executive officers or key employees left, died or
was seriously injured and unable to work and the Company was unable to find a
qualified replacement and/or to obtain adequate compensation for such loss, the
Company may be unable to manage its business, which could harm its operating
results and financial condition. However, the Company believes that qualified
replacement personnel could be found to continue to execute the business
plan.

       

      The
economic performance and value of the Company’s facility depend on many factors
beyond its control.

      The
economic performance and value of the Company’s facility can be affected by many
factors, including the following:

       

      
        	
                 
      

              	
                ·

              	
                economic
      downturns and recessions;

              

      

       

      
        	
                 
      

              	
                ·

              	
                declines
      in revenue due to loss of customers or reduced
  volume;

              

      

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

       

      
        	
                 
      

              	
                ·

              	
                reduced demand in the surrounding
      geographic regions due to general economic
    conditions;

              

      

       

      
        	
                 
      

              	
                ·

              	
                construction of competitive
      properties nearby and competition from other available
      facilities;

              

      

       

      
        	
                 
      

              	
                ·

              	
                increased
      operating costs and expenses; and

              

      

       

      
        	
                 
      

              	
                ·

              	
                availability of long term
      financing at reasonable
rates.

              

      

      

      The
Company’s facility is subject to environmental laws and environmental
risks.

       

      Under
various federal, state and local laws, ordinances and regulations, the Company
is considered to be an owner or operator of real property or to have arranged
for the disposal or treatment of hazardous or toxic substances. As a result, it
could become liable for the costs of removal or remediation of certain hazardous
substances released on or in its property. The Company could also be liable for
other costs that relate to hazardous or toxic substances (including governmental
fines and injuries to persons and property).  Many if not all of the
chemicals and fuels the Company intends to store are considered to be hazardous
materials.  Inadvertent releases or spills can subject the Company to
costly remediation expenses and/or fines.

      

      Risks
Relating to This Offering

      There
is no guarantee that the Company will be able to make quarterly interest
payments and/or repay the principal on the maturity date.

      The
Company will make every effort to make quarterly interest payments and to be
able to repay the principal on maturity date. However, the risk factors outlines
above are not under the control of the Company. Also, management might need to
decide to defer interest payments for some time in the interest of the cash
situation of the Company.

      

      There
is no guarantee that the assets owned by the Company are sufficient to cover the
outstanding debt of the Company.

      The
assets of the Company are pledged against other debt. These debtors will be
first in line to receive cash from a possible sale of assets in case of a
liquidation of the Company. Although the total value of the assets has been
appraised and as such is larger than the Company’s total debt position, there is
no guarantee that in the event of a forced sale, the appraised value will be met
by the market.

       

      You
may experience immediate and substantial dilution in the value of your Shares
upon Conversion of debt following this offering.

      Dependent upon the Company stock price
when the Convertible Debt is converted to Shares, an Investor may experience
immediate and substantial book value dilution, in that the price paid per Share
may be substantially greater than the Company’s net tangible book value per
share or the per share value of Company assets after subtracting
liabilities.

      

      Your
ownership percentage will be diluted by future issuances of capital
stock.

      The
Company’s business strategy requires it to raise additional equity capital
through the sale of common stock or preferred stock, or the issuance of debt,
which may be convertible into equity securities.  Your percentage of
ownership will become diluted as the Company issues new shares of stock. The
Company may issue common stock, convertible debt or common stock pursuant to a
public offering or a private placement, upon exercise of warrants or options, or
to sellers of properties it directly or indirectly acquires instead of, or in
addition to, cash consideration. Investors receiving Shares by converting the
debt in this offering and who do not participate in any future stock issues will
experience dilution in the percentage of the issued and outstanding stock they
own.

       

      The
conversion price of the Shares is arbitrary.

      The
conversion price of the Convertible Debt was arbitrarily determined by
management of the Company, and bears no relationship to earnings, asset values,
book value or any other recognized criteria of value.

       

      Converted
shares are restricted and transferability is limited.

       Upon
optional conversion, the Shares are offered and sold pursuant to one or more
exemptions from registration under the Securities Act of 1933 and without
qualification or registration under the securities laws of the various
states.  Consequently, the Shares that you would be purchasing are
restricted and may not be sold, transferred or hypothecated without registration
under the Securities Act of 1933 and applicable state laws or without an
exemption from such registration or qualification.  The Shares you
will receive will bear a legend restricting their transfer
accordingly.

       

      
        
           

        

        
          12

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