THIS INVESTMENT AGREEMENT (the Agreement) is dated as of June 28, 2006, by and betweenCORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the Buyer) and TORRENTENERGY CORPORATION, a corporation organized and existing under the laws of the state of Colorado (the Company).
WHEREAS, the Company and the Buyer are executing and delivering this Agreement in reliance upon an exemption from securities registration pursuant to Section 4(2) orRule 506 of Regulation D (Regulation D) as promulgated by the U.S. Securities and Exchange Commission (the SEC) under the Securities Act of 1933, as amended (the Securities Act);
WHEREAS, the Company has authorized the designation of that certain Series E Convertible Preferred Stock, par value $.01 per share (the “Series E Preferred Shares“), which are be convertible into shares of the Companys Common Stock, par value $.001 per share (the “Common Stock“), in accordance with the terms of the Certificate of Designations of the Series E Convertible Preferred Stock of Torrent Energy Corporation attached hereto as Exhibit A (the”Certificate of Designations“);
WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Buyer, as provided herein, andthe Buyer shall purchase up to Twenty Five Thousand (25,000) shares of Series E Preferred Shares which shall be convertible into shares of Common Stock (as converted, the Conversion Shares) for a purchase price of One Thousand Dollars ($1000) per share, of which the purchase and sale of Nine Thousand (9,000) shares of Series E Preferred Shares for a purchase price of Nine Million Dollars ($9,000,000) shallclose within three (3) business days following the date hereof (the First Closing), the purchase and sale of Eight Thousand Five Hundred (8,500) shares of Series E PreferredShares for a purchase price of Eight Million Five Hundred Thousand Dollars ($8,500,000) shall close on the date the registration statement (the Registration Statement) isfiled, pursuant to the Investor Registration Rights Agreement (as defined below), with the United States Securities and Exchange Commission (the SEC) (the Second Closing), and the purchase and sale of Seven Thousand Five Hundred (7,500) shares of Series E Preferred Shares for a purchase price of Seven Million Five Hundred Thousand Dollars($7,500,000) shall close within three (3) business days following the date the Registration Statement is declared effective by the SEC (the Third Closing) (individuallyreferred to as a Closing collectively referred to as the Closings) for a total of Twenty Five Thousand(25,000) shares of Series E Preferred Shares for an aggregate purchase price of Twenty Five Million Dollars ($25,000,000), (the Purchase Price);
WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering an Investor Registration Rights Agreement(the Investor Registration Rights Agreement) pursuant to which the Company has agreed to provide certain registration rights under the Securities Act and the rules andregulations promulgated there under, and applicable state securities laws;
WHEREAS, contemporaneously with theexecution and delivery of this Agreement, the parties hereto are executing anddelivering Irrevocable Transfer Agent Instructions (the Irrevocable Transfer Agent Instructions).
NOW,THEREFORE, in consideration of the mutual premisesherein set forth and certain other good and valuable consideration, the receiptand sufficiency of which is hereby acknowledged, the parties hereto agree asfollows:
Article I. ISSUANCE OF SHARES AND RELATED TRANSACTIONS.
Section 1.01.Purchase Price. ThePurchase Price for the Series E Preferred Shares shall be paid to the Company inimmediately available funds on each Closing Date (as set forth in Section 1.02hereof).
Section 1.02.Closing. The parties tothis Agreement shall consummate the transactions contemplated by this Agreementand the Company shall issue and sell to the Buyer, as provided herein, and theBuyer shall purchase up to Twenty Five Thousand (25,000) shares of Series EPreferred Shares, which shall have the right and designations set forth on theCertificate of Designations. The First Closing of the purchase and sale of NineThousand (9,000) shares of the Series E Preferred Shares shall take place withinthree (3) business days following the date hereof, (or such other date as ismutually agreed to by the Company and the Buyer) (the First Closing Date), theSecond Closing of the purchase and sale of Eight Thousand Five Hundred (8,500)shares of the Series E Preferred Shares shall take place on the date theRegistration Statement is filed with the SEC, (or such other date as is mutuallyagreed to by the Company and the Buyer) (the Second Closing Date), and theThird Closing of the purchase and sale of Seven Thousand Five Hundred (7,500)shares the Series E Preferred Shares shall take place on the third (3rd)business day following the date the Registration Statement is declared effectiveby the SEC, (or such other date as is mutually agreed to by the Company and theBuyer) (the Third Closing Date) (collectively referred to as the ClosingDates); provided, in no event shall a Closing occur prior to the satisfactionof the conditions precedent set forth in Sections 8, 9 and 10 hereof. TheClosings shall take place at the offices of The Buyer or at such other place asmay be mutually agreed upon by the Buyer and the Company.
Section 1.03.Issuance of Shares. Ateach Closing, subject to the terms, restrictions and conditions of thisAgreement, the Buyer shall acquire, and the Company shall sell, issue anddeliver to the Buyer shares of Series E Preferred Shares, which shall have theright and designations set forth on the Certificate of Designations. All of theSeries E Preferred Shares and the Conversion Shares into which such the Series EPreferred Shares are convertible shall be free and clear of all liens, claims,pledges, mortgages, restrictions, obligations, security interests andencumbrances of any kind, nature and description (collectively,Encumbrances).
Section 1.04.Closing Procedures.Subject to the satisfaction of the terms and conditions of this Agreement, oneach Closing Date, (i) the Buyer shall deliver to the Company in accordance withthe terms of this Agreement such aggregate proceeds for the Series E PreferredShares to be issued and sold to the Buyer at such Closing, minus any unpaid feesdescribed in Section 14.09 hereof which may be paid directly from the grossproceeds of each Closing and (ii) the Company shall deliver to the Buyer theshares of Series E Preferred Shares which the Buyer is purchasing.
Article II. ADDITIONAL AGREEMENTS.
Section 2.01.Transaction Documents.Collectively this Agreement, the Certificate of Designations, the InvestorRegistration Rights Agreement, the Irrevocable Transfer Agent Instructions datedthe date hereof among the Company, the Buyer, and ComputerShare Trust Company(the Transfer Agent Instructions) shall be referred to as the Transaction Documents.
Section 3.01.Access and Inspection, Etc. The Company shall allow the Buyer and its authorizedrepresentatives full access during normal business hours from and after the datehereof and prior to the Closing Date to all of the properties, books, contracts,commitments and records of the Company (collectively, the Records) for the purpose of making suchinvestigations as the Buyer may reasonably request in connection with thetransactions contemplated hereby, and shall cause the Company to furnish theBuyer such information concerning its affairs as the Buyer may reasonablyrequest provided, however, that the Buyer and its authorized representativeshall agree to hold in strict confidence and shall not make any disclosure oruse any Record or other information which the Company determines in good faithto be confidential, and of which determination the Buyer or its authorizedrepresentatives are so notified, unless (i) the release of such Records isordered pursuant to a final, non-appealable subpoena or order from a court orgovernment body of competent jurisdiction, or (ii) the information in suchRecords has been made generally available to the public other than by disclosurein violation of this or any other agreement of which the Buyer has knowledge.The Company has caused and shall cause its personnel to assist the Buyer inmaking such investigation and shall use their best efforts to cause the counsel,accountants, engineers and other non-employee representatives of the Company tobe reasonably available to Buyer for such purposes.
Section 3.02.Public Announcements. Theparties will consult with each other before issuing any press releases orotherwise making any public statement with respect to this Agreement or any ofthe transactions contemplated hereby and no party will issue any such pressrelease or make any such public statement without the prior written consent ofthe other parties, except as may be required by law or by the rules andregulations of any governmental authority or securities exchange.
Section 3.03.Best Efforts. Subject tothe terms and conditions provided in this Agreement, each of the parties shalluse its best efforts in good faith to take or cause to be taken as promptly aspracticable all reasonable actions that are within its power to cause to befulfilled those conditions precedent to its obligations or the obligations ofthe other parties to consummate the transactions contemplated by this Agreementand the Transaction Documents that are dependent upon its actions.
Section 3.04.Use of Proceeds. TheCompany covenants to the Buyer that the net proceeds to be received by theCompany in this transaction shall be used for general corporate and workingcapital purposes.
Section 3.05.Listings or Quotation.The Companys Common Stock shall be listed or quoted for trading on any of (a)the American Stock Exchange, (b) New York Stock
Exchange, (c) the Nasdaq National Market, (d) theNasdaq Capital Market, or (e) the Nasdaq OTC Bulletin Board (OTC) (each, a Primary Market) and the Company shallpromptly secure the listing or quotation of the Conversion Shares and WarrantShares for trading on the same Primary Market upon which the shares of CommonStock are then listed or quoted.
Section 3.06.Reservation of Shares. Onthe date hereof, the Company shall reserve for issuance to the Buyer 15,000,000shares for issuance upon conversions of the Series E Preferred Shares (theShare Reserve). TheCompany represents that it has sufficient authorized and unissued shares ofCommon Stock available to create the Share Reserve after considering all othercommitments that may require the issuance of Common Stock. The Company shalltake all action reasonably necessary to at all times have authorized, andreserved for the purpose of issuance, such number of shares of Common Stock asshall be necessary to effect the full conversion of the Series E PreferredShares. If at any time the Share Reserve is insufficient to effect the fullconversion of the Series E Preferred Shares, the Company shall increase theShare Reserve accordingly. If the Company does not have sufficient authorizedand unissued shares of Common Stock available to increase the Share Reserve, theCompany shall call and hold a special meeting of the shareholders within thirty(30) days of such occurrence, for the sole purpose of increasing the number ofshares authorized. The Companys management shall recommend to the shareholdersto vote in favor of increasing the number of shares of Common Stock authorized.Management shall also vote all of its shares in favor of increasing the numberof authorized shares of Common Stock.
Section 3.07.Further Assurances. Theparties shall deliver any and all other instruments or documents required to bedelivered pursuant to, or necessary or proper in order to give effect to, theprovisions of this Agreement, including, without limitation, to issue the SeriesE Preferred Shares and to consummate the transactions contemplated by thisAgreement and the Transaction Documents.
The following covenants shall remain in effectfor so long as any Series E Preferred Shares are outstanding: Section 4.01.Lock-up Agreement. On thedate hereof, the Company shall obtain from each officer and director of theCompany a lock-up agreement in the form attached hereto as Exhibit 4.1. Suchlock-up agreement shall limit sales of the Companys Common Stock for so long asthe Series E Preferred Shares are outstanding.
Section 4.02.Corporate Existence. Solong as any Series E Preferred Shares are outstanding, the Company shall notdirectly or indirectly consummate any merger, reorganization, restructuring,reverse stock split consolidation, sale of all or substantially all of theCompanys assets or any similar transaction or related transactions (each suchtransaction, an OrganizationalChange) unless, prior to the consummation anOrganizational Change, the Company obtains the written consent of the Buyer. Inany such case, the Company will make appropriate provision with respect to suchholders rights and interests to insure that the provisions of this Section 4.02will thereafter be applicable to the Series E Preferred Shares.
Section 4.03.No Indebtedness. TheCompany shall not incur any indebtedness for borrowed money or become aguarantor or otherwise contingently liable for any
such indebtedness except for trade payables orpurchase money obligations incurred in the ordinary course ofbusiness.
Section 4.04.No Other Registration Statements. Except with regard to the registration statement to be filedpursuant to the Investor Registration Rights Agreement (the PermittedRegistration Statements), the Company shall not file any other registrationstatements on any form (including but not limited to forms S-1, SB-2, S-3 andS-8) without the prior written consent of the Buyer. Notwithstanding theforgoing, the Company (1) shall include the 228,714 shares of Common Stock heldby the Buyer on the Permitted Registration Statements, (2) may include up to1,200,000 shares on behalf of Placer Creek on the Permitted RegistrationStatements, and (3) the Company may register up to 1,000,000 shares on a formS-8 registration statement in connection with shares of Common Stock to beissued under the Companys 2006 Equity Incentive Plan.
Section 4.05. TheCompany shall not directly or indirectly make, create, incur, assume or permitto exist any assignment, transfer, pledge, mortgage, security interest or otherlien or encumbrance of any nature in, to or against any part of the assets ofthe Company or of the Companys capital stock.
Section 4.06.Restriction on Issuance of the CapitalStock. So long as any Series E Preferred Shares areoutstanding, the Company shall not, except for the issuance of up to 1,000,000shares under the Companys 2006 Equity Incentive Plan, and except for exercisesor conversions of currently outstanding options and warrants disclosed in theSEC Documents or in the Disclosure Schedule attached hereto, without the priorwritten consent of the Buyer, (i) issue or sell shares of Common Stock withoutconsideration or for a consideration per share less than the bid price of theCommon Stock determined immediately prior to its issuance, (ii) issue anypreferred stock, warrant, option, right, contract, call, or other security orinstrument
(ConvertibleSecurity) granting the holder thereof the right toacquire Common Stock without consideration or for a consideration per share lessthan the bid price of the Common Stock determined immediately prior to theissuance of such Convertible Security, (iii) enter into any security instrumentgranting the holder a security interest in any and all assets of the Company orany subsidiary now existing or later created or acquired, or (iv) file anyregistration statement on Form S-8
Article V. REPRESENTATIONS, COVENANTS AND WARRANTIES OF THECOMPANY.
To induce the Buyerto enter into this Agreement and to consummate the transactions contemplatedhereby, the Company represents and warrants to and covenants with the Buyer asfollows:
Section 5.01.Organization; Compliance.The Company is a corporation duly organized, validly existing and in goodstanding under the laws of the state of Colorado. The Company is: (a) entitledto own or lease its properties and to carry on its business as and in the placeswhere such business is now conducted, and (b) duly licensed and qualified in alljurisdictions where the character of the property owned by it or the nature ofthe business transacted by it makes such license or qualification necessary,except where the failure to do so would not result in a material adverse effecton the Company.
Section 5.02. Capitalization and Related Matters.
(a) As of the datehereof, the authorized capital stock of the Company consists of 100,000,000shares of Common Stock and 25,000,000 shares of Preferred Shares, par value $.01(Preferred Stock), ofwhich 33,099,941 shares of Common Stock and zero shares of Preferred Stock areissued and outstanding. No Common Stock (i) was issued in violation of thepreemptive rights of any shareholder, or (ii) is held as treasury stock.
(b) Except as setforth in the Companys the Companys Form 10-KSB for the fiscal year ended March31, 2005 and Form 10-QSB for the fiscal quarter ended December 31, 2006 (theSEC Documents) thereare no outstanding securities convertible into Common Stock or any other capitalstock of the Company nor any rights to subscribe for or to purchase, or anyoptions for the purchase of, or any agreements providing for the issuance(contingent or otherwise) of, or any calls, commitments or claims of anycharacter relating to, such capital stock or securities convertible into suchcapital stock (collectively, SecuritiesRights). The Company (i) is not subject to anyobligation (contingent or otherwise) to repurchase or otherwise acquire orretire any of its capital stock; or (ii) has no liability for dividends or otherdistributions declared or accrued, but unpaid, with respect to any capitalstock.
(c) The Company isnot a party to any agreement, understanding or arrangement, direct or indirect,relating to any class or series of the Companys capital stock, including,without limitation, any voting agreement, restriction on resale, shareholderagreement or registration rights agreement, other than the PermittedRegistration Rights Agreements.
(d) The SECDocuments do not include any untrue statements of material fact, nor do theyomit to state any material fact required to be stated therein necessary to makethe statements made, in light of the circumstances under which they were made,not misleading.
Section 5.03. Subsidiaries and Investments.
(a) The SECDocuments disclose with respect to each Subsidiary (as defined below) (i) itsname, (ii) the jurisdiction of its organization, (iii) the number of itsauthorized shares or other equity interests, (iv) the number of its outstandingshares or other equity interests of each class or series, and (v) the name ofthe owner and the number and percentage of outstanding shares or other equityinterests of each class or series of such Subsidiary owned of record and, ifdifferent, owned beneficially by the Company and any other person. All of theoutstanding capital stock and other equity interests of each of the Subsidiariesis validly issued, fully paid and nonassessable and was issued in compliancewith all applicable federal and state securities or blue sky laws andregulations. There are no securities rights relating to any shares of capitalstock, other equity interests or other securities of any of the Subsidiaries.The Company and the Subsidiaries have good, marketable and exclusive title tothe shares or other equity interests disclosed in the SEC Documents as beingowned by each of them, free and clear of all Encumbrances. All rights and powersto vote such shares or other equity interests are held exclusively by theCompany, directly or indirectly through one or more of the Subsidiaries, as thecase may be. Each Subsidiary is a corporation duly organized, validly existingand in good standing under the laws of its jurisdiction of organization, and hasthe corporate power and authority to own or lease its properties and to carry onits business as now conducted. For the purposes hereof, a Subsidiary means any corporation,limited liability
company, partnership, joint venture or otherentity in which the Company owns, directly or indirectly, more than 20% of theoutstanding voting securities or equity interests.
(b) Except asdisclosed in SEC Documents, the Company does not own, nor has it ever owned, anyequity interest in any corporation, limited liability company, partnership,joint venture or other entity.
Section 5.04. Execution; No Inconsistent Agreements; Etc.
(a) This Agreementis a valid and binding agreement of the Company, enforceable in accordance withits terms, except as such enforcement may be limited by bankruptcy or similarlaws affecting the enforcement of creditors’ rights generally, and theavailability of equitable remedies.
(b) The executionand delivery of this Agreement by the Company does not, and the consummation ofthe transactions contemplated hereby will not, constitute a breach or violationof the charter or bylaws of the Company, or a default under any of the terms,conditions or provisions of (or an act or omission that would give rise to anyright of termination, cancellation or acceleration under) any note, bond,mortgage, lease, indenture, agreement or obligation to which the Company is aparty, pursuant to which the Company otherwise receives benefits, or to whichany of the properties of the Company is subject.
Section 5.05.Corporate Records. Thestatutory records, including the stock register and minute books of the Company,fully reflect all issuances, transfers and redemptions of its capital stock,correctly show and will correctly show the total number of shares of its capitalstock issued and outstanding on the date hereof and on the Closing Date, thecharter or other organizational documents and all amendments thereto, and bylawsas amended and currently in force.
Section 5.06. Financial Statements.
(a) The SECDocuments contain (i) the consolidated audited balance sheet of the Company asof March 31, 2005 (the Company BalanceSheet), and the consolidated audited consolidatedprofit and loss statement of the Company for the fiscal year ended March 31,2005. All the foregoing financial statements are referred to herein collectivelyas the Company Financial Statements. (b) The Company Financial Statements have been and will beprepared in accordance with U.S. GAAP, applied on a consistent basis (exceptthat the unaudited statements do not contain all the disclosures required byGAAP), and fairly reflect and will reflect in all material respects thefinancial condition of the Company as at the dates thereof and the results ofthe operations of the Company for the periods then ended.
Section 5.07.Liabilities. The Companyhas no material debt, liability or obligation of any kind, whether accrued,absolute, contingent or otherwise, except: (a) those reflected on the CompanyBalance Sheet, including the notes thereto, and (b) liabilities incurred in theordinary course of business since April 1, 2005, none of which have had or willhave a material adverse effect on the financial condition of theCompany.
Section 5.08.Absence of Changes.Except as described in the SEC Documents and in the other Schedules to thisAgreement, there has not been any adverse change in the business, assets,liabilities, results of operations or financial condition of the Company or inits
relationships with suppliers, customers,employees, lessors or others other than changes in the ordinary course ofbusiness, none of which, singularly or in the aggregate, have had or will have amaterial adverse effect on the business, properties or financial condition ofthe Company.
Section 5.09.Title to Properties. TheCompany has good and marketable title to all of its properties and assets, realand personal, including, but not limited to, those reflected in the CompanyBalance Sheet (except as since sold or otherwise disposed of in the ordinarycourse of business, or as expressly provided for in this Agreement), free andclear of all Encumbrances of any kind or character except: (a) those securingliabilities of the Company incurred in the ordinary course (with respect towhich no material default exists); (b) liens of real estate and personalproperty taxes; and (c) imperfections of title and Encumbrances, if any, which,in the aggregate (i) are not substantial in amount; (ii) do not detract from thevalue of the property subject thereto or impair the operations of the Companyor; and (iii) do not have a material adverse effect on the business, propertiesor assets of the Company.
Section 5.10.Compliance With Law. Thebusiness and activities of the Company has at all times been conducted inaccordance with its articles of incorporation and bylaws and any applicable law,regulation, ordinance, order, License (defined below), permit, rule, injunctionor other restriction or ruling of any court or administrative or governmentalagency, ministry, or body, except where the failure to do so would not result ina material adverse effect on the Company.
Section 5.11.Taxes. The Company hasduly filed all material federal, state, local and foreign tax returns andreports, and all returns and reports of all other governmental units havingjurisdiction with respect to taxes imposed on it or on its income, properties,sales, franchises, operations or employee benefit plans or trusts, all suchreturns were complete and accurate when filed, and all taxes and assessmentspayable by the Company have been paid to the extent that such taxes have becomedue. All taxes accrued or payable by the Company for all periods throughDecember 1, 2004 have been accrued or paid in full, whether or not due andpayable and whether or not disputed. The Company has withheld proper andaccurate amounts from its employees for all periods in full compliance with thetax withholding provisions of applicable foreign, federal, state and local taxlaws. There are no waivers or agreements by the Company for the extension oftime for the assessment of any taxes. The tax returns of the Company have neverbeen examined by any authority or other administrative body or court of anystate or country. There are not now any examinations of the income tax returnsof the Company pending, or any proposed deficiencies or assessments against theCompany of additional taxes of any kind. The Company shall duly and timelyprepare and file all material federal, state, local and foreign tax returns andreports for 2004, and all returns and reports of all other governmental unitshaving jurisdiction with respect to taxes imposed on the Company or on itsincome, properties, sales, franchises, operations or employee benefit plans ortrusts, and all such returns will be complete and accurate when filed.
Section 5.12.Real Properties. TheCompany does not have an interest in any real property, except for the Leases(as defined below).
Section 5.13.Leases of Real Property.All leases pursuant to which the Company is lessee or lessor of any realproperty (the Leases) are listed in the SEC Documents and are valid andenforceable in accordance with their terms. There is not under any of suchleases (a) any material default or any claimed material default by the Companyor any event of
default or event which with notice or lapse oftime, or both, would constitute a material default by the Company and in respectto which the Company has not taken adequate steps to prevent a default on itspart from occurring, or (b) to the knowledge of the Company, any materialdefault by any lessee of the Company or any event of default or event which withnotice or lapse of time, or both, would constitute a material default by anylessee. The copies of the Leases heretofore furnished to Buyer are true, correctand complete, and such Leases have not been modified in any respect since thedate they were so furnished, and are in full force and effect in accordance withtheir terms. The Company is lawfully in possession of all real properties ofwhich they are a lessee (the Leased Properties).
Section 5.14.Contingencies. Except asdisclosed in the SEC Documents, there are no actions, suits, claims orproceedings pending, or to the knowledge of the Company threatened against, byor affecting, the Company in any court or before any arbitrator or governmentalagency that may have a material adverse effect on the Company or which couldmaterially and adversely affect the right or ability of the Company toconsummate the transactions contemplated hereby. To the knowledge of theCompany, there is no valid basis upon which any such action, suit, claim, orproceeding may be commenced or asserted against it. There are no unsatisfiedjudgments against the Company and no consent decrees or similar agreements towhich the Company is subject and which could have a material adverse effect onthe Company.
Section 5.15.Products Liability; Warranties;Insurance. The Company will have not loss, damage,liability, fine, penalty, cost and expense (each, a Liability) that is notfully covered by insurance relating to any product manufactured, distributed orsold by the Company prior to the Closing, whether or not such Liability isrelated to products that are defective or improperly designed or manufactured orare in breach of any express or implied product warranty.
Section 5.16. Intellectual Property Rights.
(a) The Companyowns and possesses all right, title and interest in and to, or has a validlicense to use, all of the Proprietary Rights (as defined below) necessary forthe operation of its business as presently conducted and none of suchProprietary Rights have been abandoned; (b) no claim by any third partycontesting the validity, enforceability, use or ownership of any suchProprietary Rights has been made, is currently outstanding or, to the knowledgeof the Company, is threatened, and to the knowledge of the Company there is noreasonable basis for any such claim; (c) neither the Company nor any registeredagent of any of the foregoing has received any notice of, nor is the Companyaware of any reasonable basis for an allegation of, any infringement ormisappropriation by, or conflict with, any third party with respect to suchProprietary Rights, nor has the Company, or any registered agent of any of themreceived any claim of infringement or misappropriation of or other conflict withany Proprietary Rights of any third party; (d) the Company has not infringed,misappropriated or otherwise violated any Proprietary Rights of any thirdparties, and the Company is not aware of any infringement, misappropriation orconflict which will occur as a result of the continued operation
of the Company as presently operated and ascontemplated to be operated or as a result of the consummation of thetransactions contemplated hereby; and (e) all employees who have contributed toor participated in the conception and/or development of all or any part of theProprietary Rights which are not licensed to the Company from a third partyeither (i) have been party to a “work-for-hire” arrangement or agreement withthe Company, in accordance with applicable federal and state law, that hasaccorded the Company full, effective, exclusive, and original ownership of alltangible and intangible property thereby arising, or (ii) have executedappropriate instruments of assignment in favor of the Company as assignee thathave conveyed to the Company full, effective and exclusive ownership of alltangible and intangible property thereby arising.
(f) As used herein,the term Proprietary Rights means all proprietary information of the Company, as the case maybe, including all patents, patent applications, patent disclosures andinventions (whether or not patentable and whether or not reduced to practice),all trademarks, service marks, trade dress, trade names, corporate names, domainnames, copyrights, all trade secrets, confidential information, ideas, formulae,compositions, know-how, processes and techniques, drawings, specifications,designs, logos, plans, improvements, proposals, technical and computer data,documentation and software, financial, business and marketing plans, and relatedinformation and all other proprietary, industrial or intellectual propertyrights relating to the business of the Company, including those proprietary,industrial or intellectual property rights found at the Companys websiteslisted in the SEC Documents.
(g) Theconsummation of the transactions contemplated by this Agreement will notadversely affect the right of the Company to continue to use the ProprietaryRights. To the extent that the registration of any Proprietary Right is requiredby law, such Proprietary Right has been duly and validly registered or filed,and any fees that are necessary to maintain in force any Proprietary Rights orregistrations thereof have been paid. The SEC Documents sets forth a list anddescription of the copyrights, trademarks, service marks, trade dress, tradenames and domain names used or held by the Company and, where appropriate, thedate, serial or registration number, and place of any registrationthereof.
Section 5.17.Material Contracts. TheSEC Documents contain a complete list of all contracts of the Company thatinvolve consideration in excess of the equivalent of One Hundred ThousandDollars ($100,000) or have a term of one year or more (the MaterialContracts). Except as disclosed in the SEC Documents: (a) the Company hasperformed all material obligations to be performed by them under all suchcontracts, and is not in material default thereof, and (b) no condition existsor has occurred which with the giving of notice or the lapse of time, or both,would constitute a material default by the Company or accelerate the maturityof, or otherwise modify, any such contract, and (c) all such contracts are infull force and effect. No material default by any other party to any of suchcontracts is known or claimed by the Company to exist.
Section 5.18. EmployeeBenefit Matters.
(a) Except asdisclosed in the SEC Documents, the Company does not provide, nor is itobligated to provide, directly or indirectly, any benefits for employees otherthan salaries, sales commissions and bonuses, including, but not limited to, anypension, profit sharing, stock option, retirement, bonus, hospitalization,insurance, severance, vacation or other
employee benefits (including any housing or social fund contributions) under any practice, agreement or understanding.
(b) Each employee benefit plan maintained by or on behalf of the Company or any other party (including any terminated pension plans) which covers or covered any employees or former employees of theCompany (collectively, the Employee Benefit Plan) is listed in the SEC Documents. The Company has delivered to the Buyer true and complete copies of all such plans and anyrelated documents. With respect to each such plan: (a) no litigation, administrative or other proceeding or claim is pending, or to the knowledge of the Company, threatened or anticipated involving such plan; (b) there are no outstanding requestsfor information by participants or beneficiaries of such plan; and (c) such plan has been administered in compliance in all material respects with all applicable laws and regulations.
(c) The Company has timely made payment in full of all contributions to all of the Employee Benefit Plans which the Company was obligated to make prior to the date hereof; and there are nocontributions declared or payable by the Company to any Employee Benefit Plan which, as of the date hereof, has not been paid in full.
Section 5.19. Possession of Franchises, Licences, Etc. The Company: (a) possesses all material franchises, certificates, licenses, permitsand other authorizations (collectively, the Licences) from governmental authorities, political subdivisions or regulatory authorities that are necessary for the ownership, maintenance and operation of its business in the manner presentlyconducted; (b) are not in violation of any provisions thereof; and (c) have maintained and amended, as necessary, all Licenses and duly completed all filings and notifications in connection therewith.
Section 5.20. Environmental Matters. Except as disclosed in the SEC Documents: (i) the Company is not in violation, in any material respect,of any Environmental Law (as defined below); (ii) the Company has received all permits and approvals with respect to emissions into the environment and the proper collection, storage, transport, distribution or disposal of Wastes (as defined below)and other materials required for the operation of its business at present operating levels; and (iii) the Company is not currently liable or responsible for any material clean up, fines, liability or expense arising under any Environmental Law, as aresult of the disposal of Wastes or other materials in or on the property of the Company (whether owned or leased), or in or on any other property, including property no longer owned, leased or used by the Company. As used herein, (a)Environmental Laws means, collectively, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act,the Toxic Substances Control Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended, any other Superfund or Superlien law or any other federal, or applicable state or local statute, law, ordinance,code, rule, regulation, order or decree (foreign or domestic) regulating, relating to, or imposing liability or standards of conduct concerning, Wastes, or the environment; and (b) Wastes means and includes any hazardous, toxic ordangerous waste, liquid, substance or material (including petroleum products and derivatives), the generation, handling, storage, disposal, treatment or emission of which is subject to any Environmental Law.
Section 5.21. Agreements and Transactions with Related Parties. Except as disclosed on the SEC Documents the Company is not, a party to anycontract, agreement, lease
or transaction with, or any other commitment to,(a) a shareholder, (b) any person related by blood, adoption or marriage toshareholder, (c) any director or officer of the Company, (d) any corporation orother entity in which any of the foregoing parties has, directly or indirectly,at least five percent (5.0%) beneficial interest in the capital stock or othertype of equity interest in such corporation or other entity, or (e) anypartnership in which any such party is a general partner or a limited partnerhaving a five percent (5%) or more interest therein (any or all of the foregoingbeing herein referred to as a Related Party and collectively as the RelatedParties). Without limiting the generality of the foregoing, except as set forthin the SEC Documents, (a) no Related Party, directly or indirectly, owns orcontrols any assets or properties which are or have been used in the business ofthe Company, and (b) no Related Party, directly or indirectly, engages in or hasany significant interest in or connection with any business: (i) which is orwhich within the last two (2) years has been a competitor, customer or supplierof, or has done business with, the Company, or (ii) which as of the date hereofsells or distributes products or provides services which are similar or relatedto the products or services of the Company.
Section 5.22.Business Practices.Except as disclosed in the SEC Documents, the Company has not, at any time,directly or indirectly, made any contributions or payment, or provided anycompensation or benefit of any kind, to any municipal, county, state, federal orforeign governmental officer or official, or any other person charged withsimilar public or quasi-public duties, or any candidate for political office.The Companys books, accounts and records (including, without limitation,customer files, product packaging and invoices) accurately describe and reflect,in all material respects, the nature and amount of the Companys products,purchases, sales and other transactions. Without limiting the generality of theforegoing, the Company has not engaged, directly or indirectly, in: (a) thepractice known as double-invoicing or the use or issuance of pro-forma ordummy invoices; or (b) the incorrect or misleading labeling, marketing or saleof refurbished goods as new goods.
Section 5.23.Shareholder Matters. Noneof the matters set forth in this Agreement require the approval of the Companysshareholders.
Section 5.24.Full Disclosure. Norepresentation or warranty of the Company contained in this Agreement, and noneof the statements or information concerning the Company contained in thisAgreement and the Schedules, contains or will contain any untrue statement of amaterial fact nor will such representations, warranties, covenants or statementstaken as a whole omit a material fact required to be stated therein or necessaryin order to make the statements therein, in light of the circumstances underwhich they were made, not misleading.
Article VI. REPRESENTATIONS AND WARRANTIES OF BUYER.
To induce theCompany to enter into this Agreement and to consummate the transactionscontemplated hereby, the Buyer represent and warrant to and covenant with theCompany as follows:
Section 6.01.Organization. The Buyeris a limited partnership duly organized, validly existing and in good standingunder the laws of the state of Delaware. The Buyer has all requisite power andauthority to execute, deliver and carry out the terms of this Agreement and theconsummation of the transactions contemplated herein.
Section 6.02. Execution; No Inconsistent Agreements; Etc.
(a) The executionand delivery of this Agreement and the performance of the transactionscontemplated hereby have been duly and validly authorized and approved by theBuyer and this Agreement is a valid and binding agreement of the Buyer,enforceable against the Buyer in accordance with its terms, except as suchenforcement may be limited by bankruptcy or similar laws affecting theenforcement of creditors’ rights generally, and the availability of equitableremedies.
(b) The executionand delivery of this Agreement by the Buyer does not, and the consummation ofthe transactions contemplated hereby will not, constitute a breach or violationof the charter or bylaws of the Buyer, or a default under any of the terms,conditions or provisions of (or an act or omission that would give rise to anyright of termination, cancellation or acceleration under) any material note,bond, mortgage, lease, indenture, agreement or obligation to which the Buyer isa party, pursuant to which any of them otherwise receive benefits, or by whichany of their properties may be bound.
| Section 6.03. Securities Laws.
(a) The Buyer is purchasing the Series E Preferred Shares for investment purposes.
(b) InvestmentRepresentations. TheBuyer has been offered theopportunity to ask questions of, and receive answersfrom the Companys management, and the Buyer has been given full and completeaccess to all available information and data relating to the business and assetsof the Company and has obtained such additional information about the Company asthe Buyer has deemed necessary in order to evaluate the opportunities, bothfinancial and otherwise, with respect to the Company and, except as set forthherein, has not relied on any representation, warranty or other statementconcerning the Company and its evaluation of the decision to consummate thetransactions contemplated herein. In its judgment, the Buyer is sufficientlyfamiliar with the Company to enable the Buyer to proceed with the transactionscontemplated hereby.
(c) The Buyer is anaccredited investor as such term is defined in Rule 501 of Regulation Dpromulgated under the Securities Act of 1933, as amended (the Securities Act).
(d) The Buyer is asophisticated investor familiar with the type of risks inherent in theacquisition of securities such as the Series E Preferred Shares.
Article VII. CONDUCT OF BUSINESS OF THE COMPANY PENDINGCLOSING.
The Company covenants and agrees that between thedate hereof and the Closing Date:
Section 7.01.Business in the Ordinary Course. Except as set forth in the SEC Documents, the business of theCompany shall be conducted only in the ordinary course, and consistent with pastpractice. Without limiting the generality of the foregoing, and except as setforth in the SEC Documents or as otherwise approved by the Buyer: (a) Except forthe transaction contemplated hereby, the Company shall not enter into anycontract, agreement or other arrangement which would constitute a MaterialContract, except for contracts to sell or supply goods or services to customersin the ordinary
course of business at prices and on termssubstantially consistent with the prior operating practices of the Company; (b)except for sales of personal property in the ordinary course of its business,the Company shall not sell, assign, transfer, mortgage, convey, encumber orotherwise dispose of, or cause the sale, assignment, transfer, mortgage,conveyance, encumbrance or other disposition of any of the assets or propertiesof the Company or any interest therein; (c) the Company shall not acquire anymaterial assets, except expenditures made in the ordinary course of business asreasonably necessary to enable the Company to conduct its normal businessoperations and to maintain its normal inventory of goods and materials, atprices and on terms substantially consistent with current market conditions andprior operating practices; (d) the books, records and accounts of the Companyshall be maintained in the usual, regular and ordinary course of business on abasis consistent with prior practices and in accordance with GAAP; (e) theCompany shall use its best efforts to preserve its business organization, topreserve the good will of its suppliers, customers and others having businessrelations with the Company, and to retain the services of key employees andagents of the Company; (f) except as it may terminate in accordance with theterms of this Agreement, the Company shall keep in full force and effect, andnot cause a default of any of its obligations under, each of their contracts andcommitments; (g) the Company shall duly comply in all material respects with alllaws applicable to it and to the conduct of its business; (h) the Company shallnot create, incur or assume any liability or indebtedness, except in theordinary course of business consistent with past practices; (i) other than ascontemplated in this Agreement, the Company shall not apply any of its assets tothe direct or indirect payment, discharge, satisfaction or reduction of anyamount payable directly or indirectly to or for the benefit of any shareholderor any Related Party; and (j) the Company shall not take or omit to take anyaction which would render any of the representations or warranties untrue ormisleading, or which would be a breach of any of the covenants.
Section 7.02.No Material Changes.Except as contemplated in this Agreement, the Company shall not materially alterits organization, capitalization, or financial structure, practices oroperations. Without limiting the generality of the foregoing:
| (a) no change shall be made in the articles of incorporation and bylaws
of the Company;
(b) no change shall be made in the authorized or issued capital stock of
(c) the Company shall not issue or grant any right or option to purchase or otherwise acquire any of its capital stock or other securities;
(d) no dividend orother distribution or payment shall be declared or made with respect to any ofthe capital stock of the Company; and (e) no change shall be made affecting thebanking arrangements of the Company.
Section 7.03.Notification. Each partyto this Agreement shall promptly notify the other parties in writing of theoccurrence, or threatened occurrence, of any event that would constitute abreach or violation of this Agreement by any party or that would cause anyrepresentation or warranty made by the notifying party in this Agreement to befalse or misleading in any respect. The Company will promptly notify the Buyerof any event that could have a material adverse effect on the business, assets,financial condition or prospects of the Company. The Company shall have theright to update the Schedules to this Agreement immediately prior to Closing;provided, if such update discloses any breach of a representation, warranty,covenant or obligation of the Company, the Buyer shall have the rights to thenexercise its available rights and remedies hereunder.
Article VIII. CONDITIONS TO OBLIGATIONS OF ALL PARTIES.
The obligation ofthe Buyer and the Company to consummate the transactions contemplated by thisAgreement are subject to the satisfaction, on or before each Closing, of each ofthe following conditions; any or all of which may be waived in whole or in partby the joint agreement of the Buyer and the Company:
Section 8.01.Absence of Actions. Noaction or proceeding shall have been brought or threatened before any court oradministrative agency to prevent the consummation or to seek damages in amaterial amount by reason of the transactions contemplated hereby, and nogovernmental authority shall have asserted that the within transactions (or anyother pending transaction involving the Buyer or the Company when considered inlight of the effect of the within transactions) shall constitute a violation oflaw or give rise to material liability on the part of the Company or theBuyer.
Section 8.02.Consents. The partiesshall have received from any suppliers, lessors, lenders, lien holders orgovernmental authorities, bodies or agencies having jurisdiction over thetransactions contemplated by this Agreement, or any part hereof, such consents,authorizations and approvals as are necessary for the consummationhereof.
Article IX. CONDITIONS TO OBLIGATIONS OF THE BUYER.
All obligations ofthe Buyer to consummate the transactions contemplated by this Agreement aresubject to the fulfillment and satisfaction of each and every of the followingconditions on or prior to the Closing, any or all of which may be waived inwhole or in part by the Buyer:
Section 9.01.Representations and Warranties. The representations and warranties contained in Section 5 of thisAgreement and in any certificate, instrument, schedule, agreement or otherwriting delivered by or on behalf of the Company in connection with thetransactions contemplated by this Agreement shall be true, correct and completein all material respects (except for representations and warranties which are bytheir terms qualified by
materiality, which shall be true, correct andcomplete in all respects) as of the date when made and shall be deemed to bemade again at and as of the Closing Dates and shall be true, correct andcomplete at and as of such time in all material respects (except forrepresentations and warranties which are by their terms qualified bymateriality, which shall be true, correct and complete in all respects).
Section 9.02.Certificate of Designations. The Company shall have filed the Certificate of Designations forthe Series E Preferred Shares with the Secretary of State of the Companys stateof incorporation and provided the Buyer a stamped filed copy.
Section 9.03.Compliance with Agreements andConditions. The Company shall have performed andcomplied with all material agreements and conditions required by this Agreementto be performed or complied with by it prior to or on the ClosingDates.
Section 9.04.Absence of Material Adverse Changes. No material adverse change in the business, assets, financialcondition, or prospects of the Company shall have occurred, no substantial partof the assets of the Company not substantially covered by insurance shall havebeen destroyed due to fire or other casualty, and no event shall have occurredwhich has had or will have a material adverse effect on the business, assets,financial condition or prospects of the Company.
Section 9.05.Board Approval. TheCompanys Board of Directors shall have taken the action required by thempursuant to this Agreement, including an amendment to the Companys articles ofincorporation to adopt the rights and preferences of the Series E PreferredShares, authorize issuance of the Series E Preferred Shares and the ConversionShares to be issued upon conversion of the Series E Preferred Shares and thereservation of the Conversion Shares to be issued upon conversion of the SeriesE Preferred Shares.
Section 9.06.Other Agreements. TheCompany shall have executed and delivered to the Buyer the Transaction Documentsall in a form acceptable to the Buyer.
Section 9.07.Additional Conditions to the FirstClosing. Prior to the First Closing, (a) the Companyshall have delivered to the Buyer such other documents and instruments as theBuyer deems reasonably necessary or desirable to consummate the transactionscontemplated hereby, (b) the Buyer shall have received an opinion of counselfrom counsel to the Company in a form satisfactory to the Buyer, (c) the Companyshall have provided to the Buyer a certificate of good standing from thesecretary of state from the state in which the company is incorporated, (d) theCompany shall have provided to the Buyer an acknowledgement, to the satisfactionof the Buyer, from the Companys certified public accountants as to its abilityto provide all consents required in order to file a registration statement inconnection with this transaction.
Section 9.08.Additional Condition to the SecondClosing. The Company shall have filed theRegistration Statement with the SEC in compliance with the rules and regulationspromulgated by the SEC for filing thereof, and the Company shall have filed it10-KSB for the year ended March 31, 2005 in compliance with the rules andregulations promulgated by the SEC for filing thereof.
Section 9.09.Additional Condition to the ThirdClosing. The Registration Statement shall have beendeclared effective by the SEC.
Article X. CONDITIONS TO OBLIGATIONS OF THE COMPANY.
All of theobligations of the Company to consummate the transactions contemplated by thisAgreement are subject to the fulfillment and satisfaction of each and every ofthe following conditions on or prior to the Closing, any or all of which may bewaived in whole or in part by the Company:
Section 10.01.Representations and Warranties. The representations and warranties contained in Section 7 of thisAgreement and in any certificate, instrument, schedule, agreement or otherwriting delivered by or on behalf of the Buyer in connection with thetransactions contemplated by this Agreement shall be true and correct in allmaterial respects (except for representations and warranties which are by theirterms qualified by materiality, which shall be true, correct and complete in allrespects) when made and shall be deemed to be made again at and as of theClosing Date and shall be true at and as of such time in all material respects(except for representations and warranties which are by their terms qualified bymateriality, which shall be true, correct and complete in allrespects).
Section 10.02.Compliance with Agreements andConditions. The Buyer shall have performed andcomplied with all material agreements and conditions required by this Agreementto be performed or complied with by the Buyer prior to or on the ClosingDate.
Article XI. EVENTS OF DEAULT.
Section 11.01. AnEvent of Default,wherever used herein, shall have the mean ascribed to it in the Certificate ofDesignations.
Section 11.02.During the time that any Series E Preferred Shares are outstanding, if any Eventof Default has occurred, all of the outstanding principal and dividends underthe Series E Preferred Shares shall be immediately due and payablenotwithstanding any limitations contained in the Certificate of Designations orthe Transaction Documents. Upon an event of default the Holders shall have theright (but not the obligation) to convert the entire amount of the Series EPreferred Shares outstanding as provided for in the Certificate of Designations.Upon an Event of Default, notwithstanding any other provision contained herein,in the Certificate of Designations or any Transaction Document, the Holder shallhave no obligation to comply with or adhere to any limitations, if any, on theconversion or sale of the Series E Preferred Stock.
Article XII. INDEMNITY.
Section 12.01.Indemnification by the Company. The Company (hereinafter collectively called the CompanyIndemnitor) shall defend, indemnify and hold harmless the Buyer, theirrespective general partners, direct and indirect parent corporations,subsidiaries and affiliates, their officers, members, directors, employees,attorneys and agents (hereinafter collectively called the Buyer Indemnitees)against and in respect of any and all loss, damage, liability, fine, penalty,cost and expense, including reasonable attorneys’ fees and amounts paid insettlement (collectively, the Buyer Losses), suffered or incurred by any BuyerIndemnitee by reason of, or arising out of:
(a) anymisrepresentation, breach of warranty or breach or nonfulfillment of anycovenant, obligation or agreement of the Company contained in this Agreement orin any certificate, schedule, instrument or document delivered to the Buyer byor on behalf of the Company pursuant to the provisions of this Agreement(without regard to materiality thresholds contained therein); and (b) anyliabilities of the Company of any nature whatsoever (including tax liability,penalties and interest), whether accrued, absolute, contingent or otherwise, (i)existing as of the date of the Company Balance Sheet, and required to be showntherein in accordance with GAAP, to the extent not reflected or reserved againstin full in the Company Balance Sheet; or (ii) arising or occurring between April1, 2005 and the date of this Agreement, except for liabilities arising in theordinary course of business, none of which shall have a material adverse effecton the Company.
Section 12.02.Indemnification by the Buyer. The Buyer (hereinafter called the BuyerIndemnitors) shall defend, indemnify and holdharmless the Company, its direct and indirect parent corporations, subsidiariesand affiliates, their officers, members, directors, employees, attorneys andagents (hereinafter called CompanyIndemnitee) against and in respect of any and allloss, damage, liability, cost and expense, including reasonable attorneys’ feesand amounts paid in settlement (collectively, Company Losses), suffered or incurred byCompany Indemnitee by reason of or arising out of any misrepresentation, breachof warranty or breach or non-fulfillment of any material covenant, obligation oragreement of the Buyer contained in this Agreement or in any other certificate,schedule, instrument or document delivered to the Company by or on behalf of theBuyer pursuant to the provisions of this Agreement (without regard tomateriality thresholds contained therein).
Defense of Claims.
(a) Each partyseeking indemnification hereunder (an Indemnitee): (i) shall provide the otherparty or parties (the Indemnitor) written notice of any claim or action by a third party for whichan Indemnitor may be liable under the terms of this Agreement, within ten (10)days after such claim or action arises and is known to Indemnitee, and (ii)shall give the Indemnitor a reasonable opportunity to participate in anyproceedings and to settle or defend any such claim or action. The expenses ofall proceedings, contests or lawsuits with respect to such claims or actionsshall be borne by the Indemnitor. If the Indemnitor wishes to assume the defenseof such claim or action, the Indemnitor shall give written notice to theIndemnitee within ten (10) days after notice from the Indemnitee of such claimor action, and the Indemnitor shall thereafter assume the defense of any suchclaim or liability, through counsel reasonably satisfactory to the Indemnitee,provided that Indemnitee may participate in such defense at their own expense,and the Indemnitor shall, in any event, have the right to control the defense ofthe claim or action. The failure of an Indemnitee to give any notice required bythis Section shall not affect any of such partys rights under this Section orotherwise, except and to the extent that such failure is actually prejudicial tothe rights or obligations of the Indemnitor.
(b) If theIndemnitor shall not assume the defense of, or if after so assuming it shallfail to defend, any such claim or action, the Indemnitee may defend against anysuch claim or action in such manner as they may deem appropriate and theIndemnitees may settle such claim or litigation on such terms as they may deemappropriate but subject to the Indemnitor’s approval, such approval not to beunreasonably withheld; provided, however, that
any such settlement shall be deemed approved bythe Indemnitor if the Indemnitor fails to object thereto, by written notice tothe Indemnitee, within fifteen (15) days after the Indemnitor’s receipt of awritten summary of such settlement. The Indemnitor shall promptly reimburse theIndemnitee for the amount of all expenses, legal and otherwise, incurred by theIndemnitee in connection with the defense and settlement of such claim oraction.
(c) If anon-appealable judgment is rendered against any Indemnitee in any action coveredby the indemnification hereunder, or any lien attaches to any of the assets ofany of the Indemnitee, the Indemnitor shall immediately upon such entry orattachment pay such judgment in full or discharge such lien unless, at theexpense and direction of the Indemnitor, an appeal is taken under which theexecution of the judgment or satisfaction of the lien is stayed. If and when afinal judgment is rendered in any such action, the Indemnitor shall forthwithpay such judgment or discharge such lien before any Indemnitee is compelled todo so.
Section 12.04.Waiver. The failure ofany Indemnitee to give any notice or to take any action hereunder shall not bedeemed a waiver of any of the rights of such Indemnitee hereunder, except to theextent that Indemnitor is actually prejudiced by such failure.
Article XIII. TERMINATION.
Section 13.01.Termination. ThisAgreement may be terminated at any time on or prior to the Closing: (a) Bymutual consent of the Buyer and the Company; or
(b) At the electionof the Buyer if: (i) a Company has breached or failed to perform or comply withany of its representations, warranties, covenants or obligations under thisAgreement; or (ii) any of the conditions precedent set forth in Section 3, 4, 6, 9 or 10 are notsatisfied as and when required by this Agreement; or (iii) the First Closing hasnot been consummated by within five (5) business days from the date hereof; or(c) At the election of the Company if: (i) the Buyer has breached or failed toperform or comply with any of its representations, warranties, covenants orobligations under this Agreement; or (ii) any of the conditions precedent setforth in Section 7, 9, or 11 are not satisfied as and when required by this Agreement; or (iii)the First Closing has not been consummated by within five (5) business days fromthe date hereof.
Section 13.02.Manner and Effect of Termination. Written notice of any termination (Termination Notice) pursuantto this Section 13 shall be given by the party electing termination of thisAgreement (Terminating Party) to the other party or parties (collectively, theTerminated Party), and such notice shall state the reason for termination. Theparty or parties receiving Termination Notice shall have a period of ten (10)days after receipt of Termination Notice to cure the matters giving rise to suchtermination to the reasonable satisfaction of the Terminating Party. If thematters giving rise to termination are not cured as required hereby, thisAgreement shall be terminated effective as of the close of business on the tenth(10th) day following the Terminated Party’s receipt of Termination Notice. Upontermination of this Agreement prior to the consummation of the Closing and inaccordance with the terms hereof, this Agreement shall become void and of noeffect, and none of the parties shall have any liability to the others, exceptthat nothing contained herein shall relieve any party from: (a) its obligationsunder Sections 3.2 and 3.3; or (b) liability for its intentional breach ofany
representation, warranty or covenant containedherein, or its intentional failure to comply with the terms and conditions ofthis Agreement or to perform its obligations hereunder.
Article XIV. MISCELLANEOUS.
Section 14.01. Notices.
(a) All notices,requests, demands, or other communications required or permitted hereunder shallbe in writing and shall be deemed to have been duly given upon receipt ifdelivered in person, or upon the expiration of two (2) days after the date sent,if sent by federal express (or similar overnight courier service) to the partiesat the following addresses:
|If to the Company, to:||Torrent Energy Corp.|
|#600, 666 Burrard Street|
|Vancouver, British Columbia|
|Canada V6C 2X8|
|With a copy to:||Clark Wilson LLP|
|#800, 885 W. Georgia Street|
|Vancouver, British Columbia|
|Canada V6C 3H1|
|If to the Buyer, to:||Cornell Capital Partners, LP|
|101 Hudson Street, Suite 3700|
|Jersey City, NJ 07302|
||Mark A. Angelo
|With copy to:||David Gonzalez, Esq.|
|101 Hudson Street, Suite 3700|
|Jersey City, NJ 07302|
Each party shall provide five (5) days priorwritten notice to the other party of any change in address or facsimilenumber.
(b) Notices mayalso be given in any other manner permitted by law, effective upon actualreceipt. Any party may change the address to which notices, requests,
demands or other communications to such party shall be delivered or mailed by giving notice thereof to the other parties hereto in the manner provided herein.
Section 14.02. Survival. The representations, warranties, agreements and indemnifications of the parties contained in this Agreement or inany writing delivered pursuant to the provisions of this Agreement shall survive any investigation heretofore or hereafter made by the parties and the consummation of the transactions contemplated herein and shall continue in full force and effectafter the Closing.
Section 14.03. Counterparts; Interpretation. This Agreement may be executed in any number of counterparts, each of which shall be deemed anoriginal, and all of which shall constitute one and the same instrument. This Agreement supersedes all prior discussions and agreements between the parties with respect to the subject matter hereof, and this Agreement contains the sole and entireagreement among the parties with respect to the matters covered hereby. All Schedules hereto shall be deemed a part of this Agreement. This Agreement shall not be altered or amended except by an instrument in writing signed by or on behalf of allof the parties hereto. No ambiguity in any provision hereof shall be construed against a party by reason of the fact it was drafted by such party or its counsel. For purposes of this Agreement: herein, hereby,hereunder, herewith, hereafter and hereinafter refer to this Agreement in its entirety, and not to any particular subsection or paragraph. References to including means including withoutlimiting the generality of any description preceding such term. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the parties hereto any rights or remedies under or byreason of this Agreement.
Section 14.04. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New Jerseywithout regard to the principles of conflict of laws. The parties further agree that any action between them shall be heard exclusively in Hudson County, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of NewJersey, sitting in Hudson County, New Jersey and the United States District Court of New Jersey, sitting in Newark, New Jersey, for the adjudication of any civil action asserted pursuant to this paragraph. Each party hereby irrevocably waives, tothe fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of any such action in the forum selected hereby.
Section 14.05. Successors and Assigns; Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties heretoand their respective heirs, executors, legal representatives, and successors; provided, however, that the Company may not assign this Agreement or any rights hereunder, in whole or in part.
Section 14.06. Partial Invalidity and Severability. All rights and restrictions contained herein may be exercised and shall be applicableand binding only to the extent that they do not violate any applicable laws and are intended to be limited to the extent necessary to render this Agreement legal, valid and enforceable. If any terms of this Agreement not essential to the commercialpurpose of this Agreement shall be held to be illegal, invalid or unenforceable by a court of competent jurisdiction, it is the intention of the parties that the remaining terms hereof shall constitute their agreement with respect to the subjectmatter hereof and all such remaining terms shall remain in full force and effect. To the extent legally permissible, any illegal, invalid or unenforceable provision of this Agreement shall be replaced
by a valid provision which will implement thecommercial purpose of the illegal, invalid or unenforceableprovision.
Section 14.07.Waiver. Any term orcondition of this Agreement may be waived at any time by the party which isentitled to the benefit thereof, but only if such waiver is evidenced by awriting signed by such party. No failure on the part of a party hereto toexercise, and no delay in exercising, any right, power or remedy createdhereunder, shall operate as a waiver thereof, nor shall any single or partialexercise of any right, power or remedy by any such party preclude any otherfuture exercise thereof or the exercise of any other right, power or remedy. Nowaiver by any party hereto to any breach of or default in any term or conditionof this Agreement shall constitute a waiver of or assent to any succeedingbreach of or default in the same or any other term or conditionhereof.
Section 14.08. Headings. The headings as to contents ofparticular paragraphs of this Agreement are inserted forconvenience only and shall not be construed as a part of this Agreement or as alimitation on the scope of any terms or provisions of this Agreement.
Section 14.09. Expenses.
(a) Structuring Fees. The Company shall pay a structuring feeto Yorkville Advisors, LLC of Ten Thousand Dollars ($10,000), which shallbe paid directly from the gross proceeds of the First Closing.
(b) Fees and Expenses. Each of the Companyand the Buyer shall pay all costs and expenses incurred by such party inconnection with the negotiation, investigation, preparation, execution anddelivery of this Agreement and all related documents to this transaction. TheCompany shall pay the Buyer a fee equal to seven and one half percent (7.5%) ofthe Purchase Price, which shall be paid pro rata directly from the grossproceeds of each Closing.
Section 14.10.Finders Fees. The Buyerrepresent to the Company that no broker, agent, finder or other party has beenretained by it in connection with the transactions contemplated hereby and thatno other fee or commission have been agreed to by the Buyer to be paid for or onaccount of the transactions contemplated hereby. The Company represents to theBuyer that no broker, agent, finder or other party has been retained by theCompany in connection with the transactions contemplated hereby and that noother fee or commission has been agreed by the Company to be paid for or onaccount of the transactions contemplated hereby.
Section 14.11.Acceptance by Fax. ThisAgreement shall be accepted, effective and binding, for all purposes, when theparties shall have signed and transmitted to each other, by telecopier orotherwise, copies of the signature pages hereto.
Section 14.12.Attorneys Fees. If anylegal action or other proceeding is brought for the enforcement of thisAgreement, or because of an alleged dispute, breach, default ormisrepresentation in connection with any provision of this Agreement, theprevailing party shall be entitled to recover reasonable attorneys’ fees, courtcosts and all expenses (including, without limitation, all such fees, costs andexpenses incident to appellate, bankruptcy, post-judgment and alternativedispute resolution proceedings), incurred in that action or proceeding, inaddition to any other relief to which such party may be entitled.
Section 14.13. NO JURY TRIAL. THE PARTIES HEREBYKNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHTANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASEDHEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANYDOCUMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OFCONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OFANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES’ ACCEPTANCEOF THIS AGREEMENT.
[REMAINDER OF PAGE INTENTIONALLY LEFTBLANK]
IN WITNESSWHEREOF, the parties have executed this InvestmentAgreement as of the date first above written.
TORRENT ENERGY CORPORATION
|Name: Mark Gustafson|
CORNELL CAPITAL PARTNERS, LP
|By:||Yorkville Advisors, LLC|
Name: Mark A.Angelo
Its: President and PortfolioManager
The undersignedhereby agrees that for so long as the Series E Preferred Shares are outstanding(the Lock-up Period),he, she or it will not, directly or indirectly, without the prior writtenconsent of the Buyer, issue, offer, agree or offer to sell, sell, grant anoption for the purchase or sale of, transfer, pledge, assign, hypothecate,distribute or otherwise encumber or dispose of any securities of the Company,including common stock or options, rights, warrants or other securitiesunderlying, convertible into, exchangeable or exercisable for or evidencing anyright to purchase or subscribe for any common stock (whether or not beneficiallyowned by the undersigned), or any beneficial interest therein (collectively, theSecurities) except inaccordance with the volume limitations set forth in Rule 144(e) of the GeneralRules and Regulations under the Securities Act of 1933, as amended.
In order to enablethe aforesaid covenants to be enforced, the undersigned hereby consents to theplacing of legends and/or stop-transfer orders with the transfer agent of theCompanys securities with respect to any of the Securities registered in thename of the undersigned or beneficially owned by the undersigned, and theundersigned hereby confirms the undersigneds investment in theCompany.
Dated: _______________, 2006
Address: City, State, ZipCode:
Print Social Security Number
or Taxpayer I.D. Number