SECURITIES PURCHASE AGREEMENT

 

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TABLE OF CONTENTS

Page

 

 

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ARTICLE 1 DEFINITIONS

1

 

1.1

Definitions.

1

ARTICLE 2 PURCHASE AND SALE

3

 

2.1

Purchase and Sale of the Shares.

3

 

2.2

Settlement.

3

 

2.3

Conditions to Closing.

3

ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY

4

 

3.1

Organization, Good Standing and Qualification.

4

 

3.2

Authorization.

4

 

3.3

Capitalization.

5

 

3.4

No Conflicts.

5

 

3.5

Issuance of the Securities.

5

 

3.6

Use of Proceeds.

5

 

3.7

SEC Reports; Financial Statements.

6

 

3.8

Material Changes.

6

 

3.9

Litigation.

7

 

3.10

Regulatory Permits.

7

 

3.11

Title to Assets.

7

 

3.12

Transactions with Affiliates and Employees.

7

 

3.13

Private Placement.

8

 

3.14

Listing Requirements.

8

 

3.15

Disclosure.

8

 

3.16

No General Solicitation.

8

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS

8

 

4.1

Organization; Authority.

8

 

4.2

Investment Intent.

9

 

4.3

Investor Status.

9

 

4.4

Investment Experience.

9

 

4.5

General Solicitation.

9

 

4.6

Short Sales.

10

 

4.7

Disclosure of Information.

10

 

4.8

Irrevocability of Subscription.

10

 

4.9

Brokers and Finders.

10

 

4.10

Restricted Securities.

10

 

4.11

British Columbia Resale Restrictions.

11

ARTICLE 5 COVENANTS AND AGREEMENTS

11

 

5.1

Transfer Restrictions.

11

 

5.2

Integration.

12

 

5.3

Listing of Shares.

12

ARTICLE 6 INDEMNIFICATION

13

 

6.1

Indemnification.

13

 

6.2

Conduct of Indemnification Proceedings.

13

 

 

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ARTICLE 7 REGISTRATION RIGHTS

14

 

7.1

Registration Statement.

14

 

7.2

Failure of Registration Process.

14

 

7.3

Participation by Investors.

15

 

7.4

Amendments and Supplements.

15

 

7.5

Documents to Holders.

16

 

7.6

Registration Expenses.

16

 

7.7

Indemnification.

16

 

7.8

Indemnification Procedures.

16

ARTICLE 8 MISCELLANEOUS

17

 

8.1

Fees And Expenses.

17

 

8.2

Entire Agreement.

17

 

8.3

Notices.

17

 

8.4

Amendments; Waivers.

17

 

8.5

Construction.

17

 

8.6

Successors and Assigns.

18

 

8.7

No Third-Party Beneficiaries.

18

 

8.8

Governing Law; Attorneys’ Fees.

18

 

8.9

Execution.

18

 

8.10

Severability.

18

 

8.11

Replacement of Securities.

19

 

8.12

Independent Nature of Investors’ Obligations.

19

 

 

 

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SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of July 11,
2005, by and between TORRENT ENERGY CORPORATION, a Colorado corporation (the
“Company”), and the Investors identified on the signature pages attached hereto
(each an “Investor” and collectively the “Investors”).

WHEREAS, the Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Rule 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”), subject to the terms and
conditions set forth in this Agreement; and

WHEREAS, the Investors wish to purchase from the Company, and the Company wishes
to sell and issue to the Investors, upon the terms and conditions stated in this
Agreement, in the amounts set forth beneath such Investor’s name on the
Investor’s signature page, an aggregate of up to 5,000,000 shares (the
“Offering”) of the Company’s Common Stock, par value $0.001 per share (the
“Common Stock”).

NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Investor hereby
agrees as follows:

ARTICLE 1

DEFINITIONS

1.1

Definitions.

In addition to the terms defined elsewhere in this Agreement, the following
terms have the meanings indicated in this Section 1.1:

(a)

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144 under the
Securities Act.

(b)

“B.C. Act” means the Securities Act (British Columbia).

 

(c)

“BCSC” means the British Columbia Securities Commission.

 

(d)

“Closing” means the closing of the purchase and sale of the Securities pursuant
to Section 2.2 hereof.

(e)

“Closing Date” shall have the meaning ascribed to such term in Section 2.3
hereof.

 

 

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(f)

“Control” means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.

 

(g)

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

 

(h)

“GAAP” shall have the meaning ascribed to such term in Section 3.8 hereof.

 

(i)

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

 

(j)

“Material Adverse Effect” means a material adverse effect on:

 

 

(i)

the assets, liabilities, results of operations, condition (financial or
otherwise), business or prospects of the Company and its Subsidiaries taken as a
whole; or

 

 

(ii)

or the ability of the Company to issue and sell the Securities contemplated
hereby and to perform its obligations under this Agreement.

 

(k)

“OTCBB” means The National Association of Securities Dealers Inc.’s
over-the-counter bulletin board.

 

(l)

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

 

(m)

“Registrable Securities” means all of the Shares and any securities issued or
issuable upon any stock split, dividend or other distribution recapitalization
or similar event with respect to the foregoing.

 

(n)

“Registration Statement” means the registration statement to be filed by the
Company pursuant to Section 7.1 hereof.

 

(o)

“SEC Reports” shall have the meaning ascribed to such term in Section 3.7
hereof.

 

(p)

“Securities” means the Shares.

 

(q)

“Shares” shall mean shares of Common Stock of the Company sold hereunder.

(r)

“Subscription Amount” means, as to each Investor, the amount to be paid for the
Shares hereunder, as set forth beneath such Investor’s name on the Investor’s
signature page, in United States Dollars and in immediately available funds.

 

(s)

“Subsequent Lower Financing” has the meaning set out in clause 2.4.

 

 

 

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(t)

“Subsidiary” means any subsidiary of the Company as set forth in the Company’s
SEC Reports.

ARTICLE 2

PURCHASE AND SALE

2.1

Purchase and Sale of the Shares.

Subject to the terms and conditions of this Agreement, on the Closing Date, each
of the Investors shall severally, and not jointly, purchase, and the Company
shall sell and issue to the Investors, the Shares in the amount set forth
beneath such Investor’s name on the Investor’s signature page in exchange for
the Subscription Amount (reflecting a per Share purchase price of $2.00) as
specified in Section 2.2 below.

2.2

Settlement.

 

 

(a)

The completion of the sale and purchase of Shares hereunder shall occur on July
12, 2005 (the “Settlement Date”). On the Settlement Date, the Company shall
deliver to each Investor, or designated custodian, one or more stock
certificates representing the number of Shares being purchased by such Investor
registered in the name of the Investor or its nominee. Immediately upon receipt
of the stock certificate, the Investor or designated custodian must delivery to
the Company by wire transfer of immediately available funds an amount equal to
the Purchase Price of such Shares. The following are the wiring instructions for
the Company:

 

Account No

690614- 070 (USD account)

Branch Transit No.

10020

 

Institution No.

016

 

Short Account No.

020-690614-070

 

ABA Number

021-001-088

 

 

Name as it appears on the account: Torrent Energy Corporation

 

Name of Financial Institution:

HSBC Bank Canada

 

Address of the Branch

885 West Georgia Street

 

 

Vancouver, British Columbia, Canada

 

2.3

Conditions to Closing.

Upon satisfaction or waiver by the party sought to be benefited thereby of the
conditions set forth in this Section 2.3, the Closing shall occur on or before
July 13, 2005, at the offices of the Company. The conditions to Closing are as
follows:

(a)

All representations and warranties of the other party contained herein shall
remain true and correct as of the Closing Date and all covenants of the other
party shall have been performed if due prior to such date.

 

 

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(b)

There shall have been no Material Adverse Effect with respect to the Company
since the date hereof.

 

(c)

No stop order or suspension of trading shall have been imposed by the OTCBB, the
SEC or any other governmental regulatory body with respect to the public trading
in the Common Stock.

2.4

In the event the Company offers common shares or other securities convertible
into common shares for a period of 12 months after Closing at a price which is
less than $2.00 per common share (the “Subsequent Lower Financing”), the Company
will offer the Investor a pro-rata share of the Subsequent Lower Financing based
on the percentage of this Offering acquired by the Investor. If the Investor
does not accept the offer within 3 business days of delivery by the Company of a
written offer, the Company may offer the Subsequent Lower Financing to third
parties.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby makes the representations and warranties set forth below to
each Investor.

3.1

Organization, Good Standing and Qualification.

Each of the Company and its Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as now conducted and to own its properties. Each of the Company and
its Subsidiaries is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property makes such qualification or leasing
necessary unless the failure to so qualify has not and could not reasonably be
expected to have a Material Adverse Effect.

3.2

Authorization.

The Company has the requisite power and authority and has taken all requisite
action on the part of the Company, its officers, directors and stockholders
necessary for:

(a)

the authorization, execution and delivery of this Agreement;

 

(b)

authorization of the performance of all obligations of the Company hereunder or
thereunder; and

(c)

the authorization, issuance (or reservation for issuance) and delivery of the
Securities. This Agreement constitutes legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and

 

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similar laws of general applicability, relating to or affecting creditors’
rights generally.

3.3

Capitalization.

Schedule 3.3 sets forth:

(a)

the authorized capital stock of the Company on the date hereof;

 

(b)

the number of shares of capital stock issued and outstanding;

 

(c)

the number of shares of capital stock issuable pursuant to the Company’s stock
option plans; and

(d)

the number of shares of capital stock issuable and reserved for issuance
pursuant to securities (other than the Shares) exercisable for, or convertible
into or exchangeable for any shares of capital stock of the Company.

All of the issued and outstanding shares of the Company’s capital stock have
been duly authorized and validly issued and are fully paid and nonassessable.

3.4

No Conflicts.

The execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby do not and
will not:

 

(a)

conflict with or violate any provision of the Company’s certificate or articles
of incorporation, bylaws or other organizational or charter documents; or

 

(b)

result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the
Company is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company is bound or
affected; except in the case of each of the foregoing clauses, such as could
not, individually or in the aggregate, have or result in a Material Adverse
Effect.

3.5

Issuance of the Securities.

 

The Securities are duly authorized and, when issued and paid for in accordance
with this Agreement will be duly and validly issued, fully paid and
non-assessable, free and clear of all liens. The Company has not, and to the
knowledge of the Company, no Affiliate of the Company has sold, offered for sale
or solicited offers to buy or otherwise negotiated in respect of any security
(as defined in Section 2 of the Securities Act) that would be integrated with
the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the
Investors.

3.6

Use of Proceeds.

 

 

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The proceeds of the sale of the Securities hereunder shall be used by the
Company for exploration and development of the Company’s Oregon coalbed methane
project and for general corporate purposes.

3.7

SEC Reports; Financial Statements.

The Company has filed all reports required to be filed by it under the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (the foregoing materials being collectively referred
to herein as the “SEC Reports”) on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. The Company has identified and made available
to the Investors a copy of all SEC Reports filed within the 10 days preceding
the date hereof. As of their respective dates, to the knowledge of the Company,
the SEC Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the SEC
promulgated thereunder, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. To the
Company’s knowledge, the financial statements of the Company included in the SEC
Reports comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as in
effect at the time of filing. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may be otherwise specified
in such financial statements or the notes thereto, and fairly present in all
material respects the consolidated financial position of the Company and its
Subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.

3.8

Material Changes.

Since the date of the latest audited financial statements included within the
SEC Reports, except as specifically disclosed in the SEC Reports:

(a)

there has been no event, occurrence or development that has had or that could
result in a Material Adverse Effect;

(b)

the Company has not altered its method of accounting or the identity of its
auditors;

(c)

the Company has not declared or made any dividend or distribution of cash or
other property to its common stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock; and

 

 

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(d)

the Company has not issued any equity securities to any officer, director or
Affiliate, except pursuant to the Company’s existing stock option or similar
plans or as otherwise disclosed in the Company’s SEC Reports.

3.9

Litigation.

 

Except as may be disclosed in the Company’s SEC Reports, there is no action,
suit, inquiry, notice of violation, proceeding or investigation pending or, to
the actual knowledge of the Company, threatened against or affecting the
Company, any Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which:

(a)

adversely affects or challenges the legality, validity or enforceability of this
Agreement or the Securities; or

(b)

could, if there were an unfavorable decision, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect.

There has not been, and to the actual knowledge of the Company, there is not
pending or contemplated, any investigation by the Commission involving the
Company or any current or former director or officer of the Company. The SEC has
not issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company under the Exchange Act or the
Securities Act.

3.10

Regulatory Permits.

The Company possesses all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities necessary to
conduct its businesses as described in the SEC Reports, except where the failure
to possess such permits could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and the Company has not received any notice of proceedings relating
to the revocation or modification of any Material Permit.

3.11

Title to Assets.

The Company has good and marketable title in and to all property owned by the
Company and that is material to its business, free and clear of all liens,
except for liens as do not materially affect the value of such property and do
not materially interfere with the use made and proposed to be made of such
property by the Company. Any property and facilities held under lease by the
Company and the Subsidiaries are held under valid, subsisting and enforceable
leases concerning which the Company is in compliance.

3.12

Transactions with Affiliates and Employees.

Except as disclosed in the SEC Reports, none of the officers or directors of the
Company and, to the actual knowledge of the Company, none of the employees of
the Company is

 

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presently a party to any transaction with the Company or any Subsidiary (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
actual knowledge of the Company, any entity in which any officer, director, or
any such employee has a substantial interest or is an officer, director, trustee
or partner.

3.13

Private Placement.

Assuming the accuracy of the representations and warranties of the Investors set
forth in Article 4 hereof, the offer, issuance and sale of the Securities to the
Investors as contemplated hereby are exempt from the registration requirements
of the Securities Act.

3.14

Listing Requirements.

Certain market makers make a market in the Company’s Common Stock for quotation
on the OTCBB. There are no proceedings pending or, to the Company’s actual
knowledge, threatened against the Company relating to the continued quotation of
the Company’s Common Stock on the OTCBB, and the Company has not received any
notice of, nor to the Company’s actual knowledge is there any basis for, the
Common Stock to cease to be quoted on the OTCBB.

3.15

Disclosure.

The written information relating to the Company, its business, the Subsidiaries
and the transactions contemplated hereby delivered to the Investors in
connection with the transactions contemplated by this Agreement does not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.

3.16

No General Solicitation.

The Company has not conducted any general solicitation or general advertising
(as those terms are used in Regulation D) in connection with the offer or sale
of any of the Securities.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE INVESTORS

Each Investor hereby, for itself and for no other Investor, represents and
warrants to the Company as follows:

4.1

Organization; Authority.

Investor, if not an individual, is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization with
the requisite power and

 

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authority to enter into and to consummate the transactions contemplated by this
Agreement and otherwise to carry out its obligations hereunder. The purchase by
Investor of the Securities hereunder has been duly authorized by all necessary
action on the part of Investor. This Agreement has been duly executed by
Investor, and when delivered by Investor in accordance with the terms hereof,
will constitute the valid and legally binding obligation of Investor,
enforceable against it in accordance with its terms.

4.2

Investment Intent.

Investor is acquiring the Securities as principal for its own account for
investment purposes only and not with a view to or for distributing or reselling
such Securities or any part thereof, without prejudice, however, to Investor’s
right, subject to the provisions of this Agreement, at all times to sell or
otherwise dispose of all or any part of such Securities pursuant to an effective
registration statement under the Securities Act or under an exemption from such
registration and in compliance with applicable federal and state securities
laws. Nothing contained herein shall be deemed a representation or warranty by
Investor to hold Securities for any period of time. Investor is acquiring the
Securities hereunder in the ordinary course of its business. Investor does not
have any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.

4.3

Investor Status.

At the time Investor was offered the Securities it was, and at the date hereof
it is, an “accredited investor” as defined in Rule 501(a) of Regulation D, and
has completed an Accredited Investor Questionnaire in the form attached hereto
immediately after the Investor’s signature page. Investor has not been formed
solely for the purpose of acquiring the Securities. Investor is not a registered
broker-dealer under Section 15 of the Exchange Act.

4.4

Investment Experience.

Investor, either alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Investor recognizes that investment in the Securities involves substantial
risks, including loss of the entire amount of such investment, and Investor is
able to bear the economic risk of investment in the Securities and to afford a
complete loss of such investment.

4.5

General Solicitation.

Investor is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published in any
newspaper, magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.

 

 

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4.6

Short Sales.

Investor represents and warrants to the Company, and covenants with the Company,
that it shall not engage in short sales of the Company’s Common Stock, as that
term is defined in applicable SEC rules.

4.7

Disclosure of Information.

Investor has received, read, carefully considered, and fully understands this
Agreement, the SEC Reports and all documents related to the Company and its
operations required by and furnished to such Investor. In making its decision to
invest in the Securities, Investor has relied upon the independent
investigations made by Investor and by Investor’s own professional advisors.
Investor and its advisors, if any, have been given the opportunity to obtain
information and to examine this Agreement and certain other information
regarding the Company and to ask questions of, and to receive answers from the
Company or any Person acting on the Company’s behalf concerning the Securities,
the Company, and terms and conditions of this investment, and to obtain any
additional information to verify the accuracy of any information previously
furnished. All such questions have been answered to Investor’s full
satisfaction.

4.8

Irrevocability of Subscription.

Investor agrees that the Investor’s subscription shall be irrevocable by
Investor, except as required by applicable law, and that Investor shall not be
entitled to cancel, terminate or revoke this Agreement or any of Investor’s
obligations hereunder.

4.9

Brokers and Finders.

No Person will have, as a result of the transactions contemplated by this
Agreement, any valid right, interest or claim against or upon the Company or an
Investor for any commission, fee or other compensation pursuant to any
agreement, arrangement or understanding entered into by or on behalf of an
Investor, except as disclosed in writing to the Company together with delivery
of this Securities Purchase Agreement.

4.10

Restricted Securities.

Investor understands that:

(a)

the Securities have not been registered under the Securities Act because of
their issuance in a transaction exempt from the registration requirements of the
Securities Act;

(b)

the Securities must be held by Investor indefinitely (without limiting the
Company’s obligation hereunder to file the Registration Statement) unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration; and

 

 

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(c)

the Securities will bear the legends to such effect set forth in Section 5.1(b)
hereof.

4.11

British Columbia Resale Restrictions.

 

 

(a)

The Investor acknowledges that the Shares are subject to resale restrictions in
British Columbia and may not be traded in British Columbia except as permitted
by the B.C. Act and the rules made thereunder.

 

(b)

Pursuant to Multilateral Instrument 45-102, as adopted by the BCSC, a subsequent
trade in the Shares will be a distribution subject to the prospectus and
registration requirements of applicable Canadian securities legislation
(including the B.C. Act) unless certain conditions are met, which conditions
include a hold period (the “Canadian Hold Period”) that shall have elapsed from
the date on which the Securities were issued to the Subscriber and, during the
currency of the Canadian Hold Period, any certificate representing the Shares is
to be imprinted with a restrictive legend (the “Canadian Legend”).

 

(c)

By executing and delivering this Agreement, the Investor will have directed the
Company not to include the Canadian Legend on any certificates representing the
Shares to be issued to the Investor.

 

(d)

As a consequence, the Investor will not be able to rely on the resale provisions
of Multilateral Instrument 45-102, and any subsequent trade in the Shares during
or after the Canadian Hold Period will be a distribution subject to the
prospectus and registration requirements of Canadian securities legislation, to
the extent that the trade is at that time subject to any such Canadian
securities legislation.

ARTICLE 5

COVENANTS AND AGREEMENTS

5.1

Transfer Restrictions.

 

 

(a)

The Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities, other than
pursuant to an effective registration statement or a transfer to the Company or
to an Affiliate of an Investor, the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Company, the form and substance of which opinion to
be reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of any transfer, Investor shall have notified the Company of
concerning the proposed disposition, and any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the rights of
an Investor under this Agreement.

 

(b)

Investor agrees to the imprinting of the following legend on any certificate
evidencing the Securities:

 

 

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“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES
MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THE SECURITIES TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS
IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.”

 

(c)

An Investor may from time to time pledge pursuant to a bona fide margin account
or grant a security interest in some or all of the Securities, provided the
pledge or secured party is an accredited investor and, if required under the
terms of such transaction, such Investor may transfer possession of the pledged
or secured Securities to the pledgees or secured parties. Notice of such pledge
or transfer shall be given to the Company, but such pledge or transfer will not
be subject to approval or consent of the Company and no legal opinion of legal
counsel to the pledgee, secured party or pledgor shall be required in connection
with the pledge, but the legend set forth in Section 5.1(b) hereof shall remain
on the pledged Securities, and such legal opinion may be required in connection
with a foreclosure by the pledgee or secured party or a subsequent transfer
following default by the Investor.

5.2

Integration.

 

For so long as the Shares are not the subject of a registration statement that
has been declared effective by the SEC, the Company shall not, and shall use
commercially reasonable efforts to ensure that any Affiliate of the Company
shall not, sell, offer for sale or solicit offers to buy or otherwise negotiate
in respect of any security (as defined in Section 2 of the Securities Act) that
will be integrated with the offer or sale of the Securities in a manner that
would require the registration under the Securities Act of the sale of the
Securities to the Investors.

5.3

Listing of Shares.

If the Company applies to have its Common Stock or other securities traded on
any other principal stock exchange or market, it shall include in such
application the Shares and will take such other action as is necessary to cause
such Common Stock to be so listed. The Company will use commercially reasonable
efforts to comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of such market or exchange, as applicable.

 

 

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ARTICLE 6

INDEMNIFICATION

6.1

Indemnification.

Each party (the “Indemnifying Party”) will indemnify, defend and hold the other
parties and their directors, officers, shareholders, partners, employees and
agents (each, an “Indemnified Party”) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys’ fees and costs of investigation that any such Indemnified Party may
suffer or incur as a result of or relating to any breach of any of the
representations, warranties, covenants or agreements made by the Indemnifying
Party in this Agreement.

6.2

Conduct of Indemnification Proceedings.

If any action shall be brought against any Indemnified Party in respect of which
indemnity may be sought pursuant to this Agreement, such Indemnified Party shall
promptly notify the Indemnifying Party in writing, and the Indemnifying Party
shall have the right to assume the defense thereof with counsel of its own
choosing. Any Indemnified Party shall have the right to employ separate counsel
in any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party
except to the extent that:

(a)

the employment thereof has been specifically authorized by the Indemnifying
Party in writing;

(b)

the Indemnifying Party has failed after a reasonable period of time to assume
such defense and to employ counsel; or

(c)

in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Indemnifying
Party and the position of such Indemnified Party.

The Indemnifying Party will not be liable to any Indemnified Party under this
Agreement:

(d)

for any settlement by an Indemnified Party effected without the Indemnifying
Party’s prior written consent, which shall not be unreasonably withheld or
delayed; or

(e)

to the extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Indemnified Party’s breach of any of its representations,
warranties, covenants or agreements in this Agreement.

 

 

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ARTICLE 7

REGISTRATION RIGHTS

7.1

Registration Statement.

The Company shall use its best efforts to prepare and file with the SEC a
Registration Statement on Form SB-2 (the “Registration Statement”) on or before
the day that is 60 days after the Closing Date (the “Filing Date”), covering the
resale of the Registrable Securities for an offering to be made on a continuous
basis pursuant to Rule 415 under the Securities Act. Subject to the terms of
this Agreement, the Company shall use its best efforts to cause the Registration
Statement to be declared effective under the Securities Act within 140 days
after the Filing Date (the “Effectiveness Date”), and to keep the Registration
Statement continuously effective until the earliest of:

(a)

the date all Registrable Securities covered by such Registration Statement have
been sold;

(b)

the date the Registrable Securities are eligible for resale under Rule 144(k)
under the Securities Act (as reasonably determined by the Company); or

(c)

two years following the Closing Date;

 

provided, however, that the Company may voluntarily suspend the effectiveness of
the Registration Statement for a limited time, which in no event shall be longer
than 90 days, if the Company has been advised by counsel or underwriters to the
Company that the offering of the Registrable Securities pursuant to the
Registration Statement would have a Material Adverse Effect, or would be
improper in view of (or improper without disclosure in a prospectus) a proposed
financing, reorganization, recapitalization, merger, consolidation, or similar
transaction involving the Company, in which case the two year period referred to
in Section7.1(c), above, shall be extended for a period of time equal to the
number of days the effectiveness of the Registration Statement is suspended
pursuant to this provision.

7.2

Failure of Registration Process.

If (i) the Company does not file the Registration Statement on or before the
Filing Date of have the Registration Statement declared effective by the
Effectiveness Date; or (ii) the Company fails to file with the SEC a request for
acceleration in accordance with Rule 461 promulgated under the Securities Act
within ten trading days after the date that the Company is notified in writing
by the SEC that the Registration Statement will not be “reviewed,” or will not
be subject to further review, or (iii) prior to its Effectiveness Date, the
Company fails to use its best efforts to file a pre-effective amendment and
otherwise respond in writing to comments made by the SEC in respect of the
Registration Statement within 30 calendar days after the receipt of comments by
or notice from the SEC that such amendment is required in order for a
Registration Statement to be declared effective for any reason other than the
failure of an Investor or Holder to provide the Company with information
requested pursuant to Section 7.3 below, or (iv) after the Effectiveness Date, a
Registration Statement ceases for any reason to remain continuously effective as

 

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to all Registrable Securities for which it is required to be effective, or the
Holders are not permitted to utilize the prospectus therein to resell such
Registrable Securities for more than 30 consecutive trading days but no more
than an aggregate of 60 trading days during any 12-month period (which need not
be consecutive trading days; provided that such number of days shall not include
a reasonable period of time following the filing of any Form 8-K, Form 10-QSB or
Form 10-KSB, or other comparable form, or following the date upon which any
information in the Registration Statement otherwise becomes “stale dated” under
the rules and regulations promulgated by the SEC under the Act or the Exchange
Act, for purposes of filing a post-effective amendment to the Registration
Statement) (any such failure or breach being referred to as an “Event,” and for
purposes of clause (i) the date on which such Event occurs, or for purposes of
clause (ii) the date on which such ten trading day period is exceeded, or for
purposes of clause (iii) the Company fails or ceases to use its best efforts to
file a pre-effective amendment, or for purposes of clause (iv) the date on which
such 30 or 60 trading day period, as applicable, is exceeded being referred to
as an “Event Date”), then in addition to any other rights the Holders may have
hereunder or under applicable law, on each such Event Date and on each monthly
anniversary of each such Event Date (if the applicable Event shall not have been
cured by such date) until the applicable Event is cured, the Company shall pay
to each Holder an amount in cash, as full liquidated damages and not as a
penalty, equal to two percent (but not to exceed six percent, in the aggregate
hereunder) of the aggregate purchase price paid by such Holder pursuant to this
Agreement for any Registrable Securities then held by such Holder. If the
Company fails to pay any liquidated damages pursuant to this Section in full
within seven days after the date payable, the Company will pay interest thereon
at a rate of 12% per annum (or such lesser maximum amount that is permitted to
be paid by applicable law) to the Holder, accruing daily from the date such
partial liquidated damages are due until such amounts, plus all such interest
thereon, are paid in full. The liquidated damages pursuant to the terms hereof
shall apply on a daily pro rata basis for any portion of a month prior to the
cure of an Event.

7.3

Participation by Investors.

The Investors or Holders shall furnish to the Company such information regarding
the Investors’ offerings of Registrable Securities and the proposed manner of
distribution thereof as the Company may reasonably request and as shall be
required in connection with the Registration Statement and any related
prospectus, or any amendment thereof or supplement thereto.

7.4

Amendments and Supplements.

The Company shall prepare and file with the SEC such amendments and supplements,
including post-effective amendments, to the Registration Statement and the
prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the period of time set forth in Section 7.1 hereof. The Company
shall respond as promptly as reasonably practicable to any comments received
from the SEC with respect to the Registration Statement, the prospectus or any
amendment thereof or supplement thereto. To the extent within the control of the
Company, the Company shall comply in all material

 

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respects with the provisions of the Securities Act and the Exchange Act with
respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance (subject to
the terms of this Agreement) with the intended methods of disposition by the
Holders set forth in the Registration Statement or the prospectus, as amended or
supplemented.

7.5

Documents to Holders.

The Company will, at the expense of the Company, furnish to each Investor such
number of copies of the Registration Statement, prospectuses, amendments,
supplements and other documents incident to any registration or qualification of
the Registrable Securities as each Investor may from time to time reasonably
request.

7.6

Registration Expenses.

The Company will bear all costs and expenses related to the filing and periodic
updating of the Registration Statement. The Investors or Holders shall pay all
other costs and expenses related to the sale of the Securities, including
expenses incurred by the Holders for brokers’ or underwriters’ commissions and
discounts or legal fees incurred by the Holders.

7.7

Indemnification.

If any Investor is participating in the Registration Statement, such Investor
will furnish to the Company in writing such information as the Company
reasonably requests for use in connection with the Registration Statement,
prospectus or any amendments or supplements thereto, and such Investor will
indemnify, defend and hold harmless the Company, its directors, officers,
stockholders, employees, agents and representatives, and any other person deemed
to control the Company or who has assisted the Company in filing the
Registration Statement, against any losses, claims, damages, liabilities and
expenses resulting from any untrue statement or material fact contained in the
Registration Statement, prospectus or any amendment thereof or supplement
thereto or any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
the same are caused by or contained in any information furnished to the Company
by such Investor expressly for use therein or by such Investor’s failure to
deliver information reasonably requested by the Company for preparation of the
Registration Statement, the prospectus or any amendments or supplements thereto.

7.8

Indemnification Procedures.

The application of the indemnities set forth in Section 7.7 hereof shall be in
accordance with the procedures set forth in Section 6.2 hereof.

 

 

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ARTICLE 8

MISCELLANEOUS

8.1

Fees And Expenses.

Except as expressly set forth in this Agreement to the contrary, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all transfer agent fees, stamp taxes and other taxes and
duties levied in connection with the issuance of any Securities.

8.2

Entire Agreement.

This Agreement and the exhibits and schedules thereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents.

8.3

Notices.

Any and all notices or other communications or deliveries required or permitted
to be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of:

(a)

the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified herein;

(b)

upon actual receipt by the party to whom such notice is required to be given.

 

The addresses for such notices and communications are those set forth on the
signature pages hereof, or such other address as may be designated in writing
hereafter.

8.4

Amendments; Waivers.

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

8.5

Construction.

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

 

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in this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be applied
against any party.

8.6

Successors and Assigns.

This Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Investors. Any Investor may assign its rights under this
Agreement to any Person to whom such Investor assigns or transfers any
Securities in accordance with the provisions of this Agreement.

8.7

No Third-Party Beneficiaries.

This Agreement is intended for the benefit of the parties hereto and their
respective successors and permitted assigns and is not for the benefit of, nor
may any provision hereof be enforced by, any other Person, except as otherwise
set forth in the indemnities under Sections 6.1 and 7.7 hereof.

8.8

Governing Law; Attorneys’ Fees.

All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and construed and enforced
in accordance with the internal laws of the State of Colorado, without regard to
the principles of conflicts of law thereof. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. If either party shall commence
an action or proceeding to enforce any provisions of this Agreement, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its court costs and reasonable attorneys’ fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.

8.9

Execution.

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

8.10

Severability.

 

 

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If any provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.

8.11

Replacement of Securities.

If any certificate or instrument evidencing any Securities is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation thereof, or in lieu of and
substitution therefor, a new certificate or instrument, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or
destruction and customary and reasonable indemnity, if requested. The applicants
for any new certificate or instrument under such circumstances shall also pay
any reasonable third-party costs associated with the issuance of such
replacement Securities.

8.12

Independent Nature of Investors’ Obligations.

The obligations of each Investor under this Agreement are several and not joint
with the obligations of any other Investor, and no Investor shall be responsible
in any way for the performance of the obligations of any other Investor under
any transaction document. Nothing contained herein, and no action taken by any
Investor pursuant thereto, shall be deemed to constitute the Investors as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Investors are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated herein.

 

 

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to duly executed by their respective authorized signatories as of the
date first indicated above.

TORRENT ENERGY CORPORATION

By

 

 

Name: Mark Gustafson

 

Title: President

 

ADDRESS FOR NOTICE:

Suite 600 - 666 Burrard Street

Vancouver, British Columbia V6C 2X8

Attention:

Mark Gustafson, President

Tel:

(604) 693-3188

 

Fax:

(604) 688-1320

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR INVESTOR FOLLOWS]

 

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INVESTOR’S SIGNATURE PAGE

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

Investor Name:

 

Signature:

 

Name of Signatory:

 

Title of Signatory:

 

Subscription Amount:

$_______________ for _______________ Shares

Address for Notice:

 

                            

Fax Number:

 

Telephone Number:

 

E-Mail Address:

 

Tax Identification Number:

 

With a copy to:

(which shall not constitute notice)

 

                            

 

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ACCREDITED INVESTOR QUESTIONNAIRE

The undersigned Investor, in connection with the acquisition of securities of
TORRENT ENERGY CORPORATION (the “Company”), hereby makes the following
representations and warranties:

The Investor understands that the offer and sale of the Company’s are not being
registered under the Securities Act of 1933, as amended (the “Act”) or qualified
under state securities laws, in reliance upon exemptions from such registration
and qualification requirements for transactions not involving any public
offering. Information supplied through this Questionnaire will be used to ensure
compliance with the requirements of such exemptions.

The undersigned Investor represents and warrants to the Company that:

(a)        The information contained herein is complete and accurate and may be
relied upon by the Company; and

(b)        Investor will notify the Company immediately of any material change
in any of such information occurring prior to the acceptance or rejection of the
Investor’s subscription for securities of the Company.

ALL INFORMATION WILL BE TREATED CONFIDENTIALLY

The Investor represents and warrants that the Investor falls within the category
(or categories) marked. PLEASE INDICATE EACH CATEGORY OF ACCREDITED INVESTOR
THAT YOU SATISFY, BY PLACING AN “X” ON THE APPROPRIATE LINE BELOW.

___

Category 1.        A bank, as defined in Section 3(a)(2) of the Act, whether
acting in its individual or fiduciary capacity; or

___

Category 2.        A savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Act, whether acting in its individual or
fiduciary capacity; or

___

Category 3.          A broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934; or

___

Category 4.         An insurance company as defined in Section 2(13) of the Act;
or

___

Category 5.        An investment company registered under the Investment Company
Act of 1940; or

___

Category 6.        A business development company as defined in Section 2(a)
(48) of the Investment Company Act of 1940; or

 

 

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___

Category 7.        A small business investment company licensed by the U.S.
Small Business Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958; or

___

Category 8.        A plan established and maintained by a state, its political
subdivision or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, with assets in excess of
US$5,000,000; or

___

Category 9.        An employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974 in which the investment decision is made
by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a
bank, savings and loan association, insurance company or registered investment
advisor, or an employee benefit plan with total assets in excess of US$5,000,000
or, if a self-directed plan, the investment decisions are made solely by persons
who are accredited investors; or

___

Category 10.      A private business development company as defined in Section
202(a)(22) or the Investment Advisors Act of 1940; or

___

Category 11.       An organization described in Section 501(c)(3) of the
Internal Revenue Code, a corporation, a Massachusetts or similar business trust,
or a partnership, not formed for the specific purpose of acquiring the Shares,
with total assets in excess of US$5,000,000; or

___

Category 12.      A director, executive officer or general partner of the
Company; or

___

Category 13.      A natural person whose individual net worth, or joint net
worth with that person’s spouse, at the time of this purchase exceeds
US$1,000,000; or

___

Category 14.      A natural person who had an individual income in excess of
US$200,000 in each of the two most recent years or joint income with that
person’s spouse in excess of US$300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current year; or

___

Category 15.       A trust, with total assets in excess of US$5,000,000, not
formed for the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person as described in SEC Rule 506(b)
(2)(ii); or

___

Category 16.      An entity in which all of the equity owners are accredited
investors.

Date: _______________             

(Signature)

 

(Print Name)

SCHEDULE 3.3

The following is Schedule 3.3 to the Securities Purchase Agreement (the
“Agreement”) dated as of July 11, 2005 between Torrent Energy Corporation
(“Torrent”) and certain Investors. The disclosures set out in this Schedule
shall qualify sections of the Agreement where it is reasonably apparent that
such information qualifies the representations and warranties of Torrent under
the Agreement

1.

Authorized Capital Stock

Torrent’s Certificate of Incorporation authorizes the issuance of 125,000,000
shares consisting of 100,000,000 shares of common stock and 25,000,000 shares of
preferred stock. Of the preferred stock, 1,000,000 shares have been designated
as Series “A” Convertible Preferred Stock and 5,000 shares have been designated
as Series B Preferred Stock.

2.

Capital Stock Issued and Outstanding

As of July 11, 2005 the issued and outstanding is:

23,098,293 million shares of common stock and No Preferred Stock

3.

Convertible Securities and Shares Reserved for Issuance

 

(a)

Stock Options

 

The following shares of common stock of Torrent are issuable upon the exercise
of outstanding stock options:

2,100,000 of which 200,000 were issued and registered pursuant to a 2004 stock
option plan and 1,900,000 which are being registered under the Company’s stock
option plan which is registering a maximum of 2,000,000 shares.

(b)

Share Purchase Warrants

The following shares of common stock of Torrent are reserved for issuance and
issuable upon the exercise of outstanding share purchase warrants:

 

100,000 warrants outstanding and exercisable at $.55.